**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

----

**FORM 10-K**

**FOR ANNUAL AND TRANSITION REPORTSPURSUANT TO SECTIONS 13 OR 15(D) OF THESECURITIES EXCHANGE ACT OF 1934**

**(MarkOne)**

**x****        ****ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thefiscal year ended December 31, 2006**

**o****           ****TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEEREQUIRED)**

**For the transition period from                             to                         **

**Commission file number:****333-115490**

----

**WIICOMPONENTS, INC.**

(Exact name of registrant as specified in its charter)

| **Delaware**              |   | **No.  73-1662631**                   |
|---------------------------|--------|---------------------------------------|
| (State of  Incorporation) |   | (I.R.S. Employer  Identification No.) |

 

**525Lincoln Avenue, SE, St. Cloud, Minnesota 56304**

(Address ofprincipal executive offices) (Zip Code)

**(320) 252-1503**

(Registrant’stelephone number, Including area code)

Securities registered pursuant to Section 12(b) of the Act: **None**

Securities registered pursuant to Section 12(g) of the Act: **None**

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.    Yes x  No o

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act

Yes o  No x

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Act.

Yes x  No o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer:
| Large Accelerated  Filer o | Accelerated Filer o | Non-Accelerated Filer x |
|---------------------------------|---------------------|-------------------------|

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act)  Yes o  No x

The aggregate market value of the voting stock held by nonaffiliates ofthe registrant as of June 30, 2006: not applicable.

As ofMarch 15, 2007, 100 shares of common stock of the registrant, $.01 par valueper share, were issued and outstanding (all of which are owned by WII Holding,Inc.).

**DOCUMENTS INCORPORATED BY REFERENCE:   None.**

 

----

**WII COMPONENTS, INC.**

**FORM10-K**

**YearEnded December 31, 2006**

 

**INDEX**
| **PART I**                                                                                                                 | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|------------|
|                                                                                                                       |       |       |
| Item 1.  Business                                                                                                          |       | 1          |
| Item  1A. Risk Factors                                                                                                     |       | 3          |
| Item 1B. Unresolved Staff Comments                                                                                         |       | 6          |
| Item  2. Properties                                                                                                        |       | 6          |
| Item  3. Legal Proceedings                                                                                                 |       | 7          |
| Item 4. Submission of Matters to Vote of Security  Holders                                                                 |       | 7          |
|                                                                                                                       |       |       |
| **PART II**                                                                                                                | ** ** | ** ** |
|                                                                                                                       |       |       |
| Item 5. Market For Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities |       | 7          |
| Item 6. Selected Financial Data                                                                                            |       | 8          |
| Item 7. Management’s  Discussion and Analysis of Financial Condition and Results of Operations                        |       | 10         |
| Item 7A. Quantitative and Qualitative Disclosures  about Market Risk                                                       |       | 18         |
| Item 8. Financial Statements and Supplementary Data                                                                        |       | 19         |
| Item 9. Changes in and Disagreements With Accountants  on Accounting Financial Disclosure                                  |       | 35         |
| Item 9A. Controls and Procedures                                                                                           |       | 35         |
| Item  9B. Other Information                                                                                                |       | 35         |
| ** **                                                                                                                 | ** ** | ** ** |
| **PART III**                                                                                                               | ** ** | ** ** |
|                                                                                                                       |       |       |
| Item 10. Directors, Executive Officers and Corporate  Governance                                                           |       | 35         |
| Item 11 Executive Compensation                                                                                             |       | 37         |
| Item 12. Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters                   |       | 43         |
| Item 13. Certain Relationships and Related Party Transactions,  and Director Independence                                  |       | 44         |
| Item 14. Principal Accountant Fees and Services                                                                            |       | 46         |
|                                                                                                                       |       |       |
| **PART IV**                                                                                                                | ** ** | ** ** |
|                                                                                                                       |       |       |
| Item 15. Exhibits, Financial Statement Schedules                                                                           |       | 46         |
| Item  16. Signatures                                                                                                       |       | 52         |

 

ACCESS TO REPORTS

Investors mayobtain access free of charge to the WII Components, Inc. annual report on From10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and otherreports by visiting the WII Components web site at www.wiicomponents.com.  These reports will be available as soon asreasonably practicable following electronic filing with, or furnishing to, theSecurities and Exchange Commission.

----

*In this report,the terms “WII Components,” “we,” “our” or “us” refer to WIIComponents, Inc. and its subsidiaries on a consolidated basis and theirrespective predecessors, unless otherwise indicated or the context otherwiserequires. In April 2003, WII Components, Inc. was formed by a groupof investors to acquire Woodcraft Industries, Inc., or Woodcraft, and itssubsidiaries, PrimeWood, Inc., or PrimeWood, and Brentwood AcquisitionCorp., or Brentwood. On January 9, 2007, WII Components, Inc. became a whollyowned subsidiary of WII Holding, Inc., a newly formed investment entitycontrolled by Olympus Partners.  WIIComponents conducts all of its operations through its direct subsidiary,Woodcraft, and its indirect subsidiaries, PrimeWood, Brentwood, and GrandValley Acquisition, Inc., or Grand Valley. Grand Valley was merged with andinto Woodcraft Industries, Inc on December 31, 2006.*

**PART I**

# **Item 1. Business**

**Our Company**

We believe we are one of theleading manufacturers of hardwood cabinet doors, hardwood components andengineered wood products in the United States. We generate approximately 94% ofour sales from the kitchen and bath cabinet manufacturing industry. We believeour reputation for high quality and reliable performance has enabled us to establishstrong, long-standing relationships with our customers, which include most ofthe top cabinet manufacturers in the United States. Our customers, in turn,distribute their products through various sales channels, including specialtykitchen and bath cabinet dealers, home center retailers and homebuilders. Wegenerated net sales of approximately $63.7 million for the three months endedDecember 31, 2006 and approximately $285.6 million for the year endedDecember 31, 2006.

We believe that we have one of thebroadest product offerings of doors and related components for the kitchen andbath cabinet manufacturing industry. Our products include: (1) hardwoodcabinet door components, face frames and drawer fronts, (2) fullyassembled hardwood cabinet doors, (3) rigid thermofoil, or RTF, cabinetdoors and components, (4) veneer raised panels, or VRPs, and (5) avariety of laminated and profile-wrapped components. We produce over100,000 SKUs for our customers, representing a wide array of styles, sizes,designs and wood species. In addition, we offer a variety of value-addedservices for our customers, such as new product design and development andkitchen-at-a-time, or KAT, manufacturing a small batch production process thatenables us to deliver semi-custom doors and components on a quick-turnaroundbasis.

We operate eleven manufacturingfacilities located in Minnesota, North Dakota, Ohio, Oregon, Pennsylvania,Kansas, Utah and Kentucky that allow us to distribute our products nationwide.In 2005, we acquired substantially all of the assets of Dimension Moldings,Inc., and as a result of the acquisition we commenced operations at a secondOhio facility located in Middlefield, Ohio. In 2005, we also acquired a rough mill facility in Greenville,Pennsylvania and commenced operations at a manufacturing facility in Lansing,Kansas.  In the first quarter 2007, wecommenced operations at a manufacturing facility in West Jordan, Utah.  We have made substantial capital investmentsto broaden the scope of our manufacturing operations from rough milling throughfinal production, which maximizes our yield from raw materials and allows us tomeet the short lead time requirements of our customers. Our technical knowledgeand expertise with respect to the entire production process enable us to meetthe specifications and delivery time demands of our customers for almost anystyle of cabinet doors or components with high quality standards at acompetitive cost. We believe we offer customers among the shortest lead timesin the industry, an important criterion in our customers’ procurementdecisions.

Our senior management team has anaverage of 13 years of industry experience and 12 years with ourCompany. Our President and Chief Executive Officer, John Fitzpatrick, has over25 years of experience in managing manufacturing-based companies andhas led our senior management team since July 2000.

**Our History**

Our subsidiary, WoodcraftIndustries, Inc., was founded in 1945 in St. Cloud, Minnesota, andbegan as a manufacturer of millwork products, including store fixtures andshipping pallets. In 1968, through an acquisition and by utilizing our millworkexpertise, we began manufacturing kitchen cabinet components. In 1989, weentered the door assembly business. Over the past 35 years, throughstrategic acquisitions and expansion of our manufacturing capabilities, we havebecome a leading U.S. hardwood cabinet door and hardwood component manufacturerfocused primarily on the kitchen and bath cabinet industry. We acquired ourPrimeWood subsidiary in 1998, our Brentwood subsidiary in 2002, our GrandValley subsidiary in 2004, and substantially all of the assets of DimensionMoldings, Inc. in 2005.  On December 31,2006, Grand Valley was merged with and into Woodcraft.  WII Components, Inc. was incorporated inDelaware in April 2003, in connection with the acquisition of Woodcraft and itssubsidiaries.

1

----

On January 9, 2007, WII Holding,Inc. (“Parent”), acquired all of the outstanding capital stock of WIIComponents, Inc. through the merger of a newly formed wholly owned subsidiaryof Parent with and into WII Components, Inc. (the “2007 Acquisition”).  Parent is a newly formed investment entitycontrolled by Olympus Partners, a private equity firm headquartered inStamford, Connecticut.

**Customers**

We have been servicing our topten customers for an average of approximately 17 years, with a minimum offive years. In 2006, sales to Masco Corporation and Elkay accounted for 37% and17%, respectively, of our net sales. We have experienced significant volumegrowth in the past five years with most of our top ten customers due to bothmarket share gains and growth experienced by our customers.

**Sales and Marketing**

Substantially all of our salesare made directly to cabinet manufacturers without the use of third party salesrepresentatives or distributors. Our sales and marketing group is organizedprimarily by product and geography.  Thegroup includes a sales director for all product lines, a marketing director forhardwood products, a marketing director for engineered woods, a marketingdirector for industrial markets, and four account managers.  Over the past few years, our sales andmarketing efforts have been focused on strengthening relationships with ourmost important customers and introducing new products to targeted markets. Dueto our long-standing relationships with our key customers, sales and marketinginvolves relationships at multiple levels with our customers. Accordingly, ourinternal sales force works closely with our manufacturing and marketingpersonnel to develop new opportunities in our core kitchen and bath market,which accounted for approximately 94% of our sales in 2006, as well as ourother markets, including store fixtures. In 2006, approximately 98.9% of our net revenues resulted from sales inthe United States, while the balance of approximately 1.1% resulted from salesin Canada & Mexico.

We do not rely on importedproduct components for any significant portion of our business.  However, we do purchase imported componentsfor use in our domestic manufacturing process and for direct sale to ourcustomers.  In 2006, our sales ofimported products accounted for less than 1% of our total sales.

**Supply of Raw Materials**

The primary raw materials wepurchase are green, kiln-dried, and semi-processed hardwood lumber, MDF,hardwood veneer and PVC foil. Hardwood lumber accounts for the largest portionof our material costs. We purchase our lumber directly from hardwood mills,which allows us to both leverage our scale and avoid the costs associated withintermediaries. We purchase from a network of over 50 regional mills throughoutthe Northern and Appalachian hardwood forest areas in close proximity to ourmanufacturing facilities. No single supplier accounted for more than 7% of ourmaterial purchases in 2006, and we are not dependent on any single supplier forany raw material product. Our top ten suppliers accounted for approximately 35%of the key raw materials we purchased in 2006.

We purchase a variety of speciesof hardwood lumber, with hard maple, red oak and cherry accounting for ourlargest volumes. The prices of the various species have fluctuated historicallyon independent supply and demand curves and are not highly correlated to oneanother. Generally, with a lag time, we have passed lumber price changesthrough to our customers by working in a partnership with them.

**Competition**

We operate in the highlycompetitive kitchen and bath cabinet door and component industry. Ourcompetitors include other independent kitchen and bath cabinet door andcomponent manufacturers and vertically integrated cabinet manufacturers whoproduce their own doors and components. We estimate that the cabinet door andcomponent market segment in which we compete represented approximately$2.4 billion of the overall U.S. cabinet market in 2006. We believe thatindependent cabinet door and component manufacturers, like us, accounted forapproximately $1.2 billion of this segment in 2006, while verticallyintegrated cabinet manufacturers accounted for the remainder.

We are one of the three largestmanufacturers in the independent cabinet component industry. We believe that in2006 we accounted for approximately 24% of total outsourced cabinet door andcomponent market sales, and, based on publicly 

2

----

available information, together with Conestoga WoodProducts and Appalachian Wood Products, our principal competitors, we accountedfor approximately 49% of this market in 2006.

**Environmental Matters**

Our operations and properties aresubject to extensive federal, state, local and foreign environmental lawsrelating to protection of the environment and human health and safety.Environmental laws and regulations are subject to frequent amendment and havebecome more stringent over time. We could incur in the future significant costsassociated with compliance with, or liabilities under, environmental laws andregulations, including equipment costs, disposal costs, cleanup costs, civiland criminal penalties, injunctive relief and denial or loss of, or impositionof significant restrictions on, environmental permits. In addition, we could inthe future be subject to suit by private parties in connection with allegedviolations of or liabilities under environmental laws and regulations.

**Employees**

As of December 31, 2006, wehad approximately 1,636 full-time employees, 44 part-time employees, and 81independent contractors.  Currently, noneof our employees are covered by a collective bargaining agreement.

**Item 1A. Risk Factors**

Our ability topredict results or the effect of certain events on our operating results isinherently uncertain. Therefore, we wish to caution each reader of this annualreport to carefully consider the following factors and certain other factorsdiscussed herein and in other past filings with the Securities and ExchangeCommission.

***Downturns inthe new home construction industry, repair and remodeling activity or theeconomy could negatively affect our business.***

Sales to the kitchen and bathcabinet market accounted for approximately 94% of our total sales for the yearended December 31, 2006. Sales in this market are driven by new homeconstruction and home repair and remodeling activity. New home construction andrepair and remodeling activity may be significantly affected by changes ineconomic and other conditions, such as gross domestic product levels,employment levels, demographic trends, availability of financing, interestrates and consumer confidence. These factors can negatively affect the demandfor our products. Any deterioration in these factors could have a materialadverse effect on our business, financial condition and results of operations.

The Company derives asignificant portion of its revenue as a result of the demand for its productscreated by the building of new homes, and repair and remodeling of existinghomes.  During the second half of 2006,the home building, repair and remodeling industry experienced a slowdown as aresult of general economic conditions. If this slowdown were to continue or worsen over an extended period of time,it could have a material adverse effect on the Company’s business, financialcondition or results of operations.

***We aredependent on major customers for a significant portion of our net sales.***

For the year endedDecember 31, 2006, our top ten customers accounted for approximately 85%of our net sales. During this period, our two largest customers accounted forapproximately 54% of our net sales. The permanent loss of, or a significantdecrease in the level of purchases by, one or more of our major customers couldhave a material adverse effect on our results of operations. The ongoing trendtoward consolidation in the cabinet manufacturing market in which our customersoperate could increase the concentration of our sales and therefore increasethese risks.

In addition, some of our keycabinet manufacturer customers have the resources to manufacture internally thecabinet doors and components that we sell to them. Despite these manufacturingcapabilities, these customers have chosen to outsource door and componentproduction to us in part due to the quality of our products and in order toreduce costs, eliminate production risks and maintain company focus. However,these customers may not continue to outsource door and component production inthe future. Increased levels of production insourcing could result from anumber of factors, such as shifts in our customers’ business strategies, whichcould result from the acquisition of another door and component manufacturer,the inability of third party suppliers to meet product specifications and theemergence of low-cost production opportunities in foreign countries. Anysignificant reduction in the level of cabinet door and component productionoutsourcing from our cabinet manufacturing 

3

----

customers could significantly impact our sales and,accordingly, have a material adverse effect on our business, results ofoperations and financial condition.

***Increased prices forraw materials used in our products could adversely affect our business.***

Our profitability is affected bythe prices of our raw materials, which may fluctuate based on a number offactors beyond our control, including, among others, changes in supply anddemand, general economic conditions, labor costs, competition and, in somecases, government regulation. The prices for the hardwood species we use inproduction of our hardwood doors and components are subject to some volatility.In the past calendar year the price of hard maple, the primary hardwood speciewe use, (accounting for approximately 45% of our lumber purchases) decreased byapproximately 4%, and the price of cherry, (accounting for approximately 24% ofour lumber purchases) decreased by 3%. We have no long-term supply contractsfor the raw materials used in the manufacture of our products. This means thatwe are subject to changes in the prices charged by our suppliers. Significantincreases in the prices of raw materials could materially adversely affect ourbusiness, financial condition and results of operations, especially if we arenot able to recover these costs by increasing the prices we charge ourcustomers for our products.  In 2006, theU.S. kitchen and bath cabinet industry relied heavily on domestic maple, whichis of a higher quality than imported maple. A shortage in the supply ofdomestic maple or certain other species of lumber would restrict our ability tomake sales to our customers, which could also have a material adverse effect onour business, financial condition and results of operations.  We have attempted to pass through costincreases to our customers, but the price increases may not fully offset theeffects of increasing raw material costs.

***Interruptionsin deliveries of raw materials could adversely affect our business.***

Our dependency upon regulardeliveries from suppliers means that interruptions or stoppages in suchdeliveries could adversely affect our operations until arrangements withalternate suppliers could be made. If a substantial number of our supplierswere unable to deliver materials to us for an extended period of time, as theresult of financial difficulties, catastrophic events affecting theirfacilities or other factors beyond our control, or if we were unable tonegotiate acceptable terms for the supply of materials with these oralternative suppliers, our business, financial condition and results ofoperations could suffer. We may not be able to find acceptable alternatives,and any such alternatives could result in increased costs to us. Even ifacceptable alternatives are found, the process of locating and securing suchalternatives might be disruptive to our business. Extended unavailability of anecessary raw material could cause us to cease manufacturing of one or moreproducts for a period of time, which could have a material adverse effect on ourbusiness, financial condition and results of operations.

***Environmentalrequirements may impose significant compliance costs and liabilities on us.***

Our facilities are subject tonumerous federal, state and local laws relating to the protection of the environment.We believe we are in substantial compliance with all applicable requirements.Our efforts to comply with environmental requirements do not remove the riskthat we may be held liable, or incur fines or penalties, and that the amount ofliability, fines or penalties may be material, for, among other things,releases of hazardous substances from current properties or any associatedoffsite disposal location, or for contamination at our properties fromactivities conducted by previous occupants. Changes in environmental laws andregulations or the discovery of previously unknown contamination or otherliabilities relating to our properties and operations could result insignificant environmental liabilities. In addition, we might incur significantcapital and other costs to comply with increasingly stringent environmentallaws and enforcement policies, which would decrease our cash flow available toservice our indebtedness.

***We face intensecompetition in our markets.***

We operate in the highlyfragmented and very competitive cabinet door and component industry. Ourcompetitors include international, national and local cabinet and cabinetcomponent manufacturers. These can be large consolidated operations withmanufacturing facilities in large and efficient plants, as well as relativelysmall, local cabinetmakers. Some of our competitors may achieve greater marketpenetration in certain of the markets in which we operate, have greaterfinancial and other resources available and be less leveraged, which may providethem with greater financial flexibility. Moreover, companies in other buildingproducts industries may choose to compete with us. To remain competitive, wewill need to invest continuously in manufacturing, customer service and productdevelopment. We may have to adjust the prices of some of our products to staycompetitive. We may not have sufficient resources to continue to make suchinvestments or that we will maintain our competitive position within each ofthe markets we serve.

4

----

***Cabinet manufacturersmay increasingly rely on imported components, which could negatively affect ourbusiness.***

The number of foreign-madekitchen cabinets sold in the United States has increased slightly in the lastten years. We believe that the number of foreign-made cabinet components soldin the United States has also increased, though we do not believe any detailedstudy of such a trend is currently available. This increase in sales ofimported components is the result of foreign wood component manufacturers improvingthe quality of their products and services and, in some cases, offering lowerprices. While we currently believe that the impact of imported products in ourtarget markets is limited by, among other factors, the need for greater varietyin terms of profiles, sizes and finishes, demand for higher quality productsand short lead times, there is no assurance that demand for foreign-madeproducts will not increase in such markets. If domestic cabinet manufacturerscontinue to increasingly rely on foreign imports for their components, ourbusiness, financial condition and results of operations could be materially andnegatively affected.

***If we areunable to meet future capital requirements, our business may be adverselyaffected.***

We periodically make capital investmentsto, among other things, maintain and upgrade our facilities and enhance ourproduction processes. As we grow our businesses, we may have to incursignificant capital expenditures. We may not have, or be able to obtain,adequate funds to make all necessary capital expenditures when required, orthat the amount of future capital expenditures will not be materially in excessof our anticipated or current expenditures. If we are unable to make necessarycapital expenditures, our product offering may become dated, our productivitymay be decreased and the quality of our products may be adversely affected,which, in turn, could negatively impact our business, financial condition andresults of operations.

***Increases inthe cost of labor, union organizing activity and work stoppages at ourfacilities could materially affect our business.***

Our business is labor intensive.As a result, our financial performance is affected by the availability ofqualified personnel and the cost of labor. Currently, none of our employees arerepresented by labor unions. However, there could be strikes or other types ofconflicts with personnel that may arise or that we could become a target forunion organizing activity. Strikes, work stoppages or slowdowns could result inslowdowns or closures of our or our suppliers’ facilities. In addition,organizations responsible for shipping our products may be impacted by strikes.Any interruption in the production or delivery of our products could reducesales of our products and increase our costs. 

***We aredependent on certain key personnel, the loss of whom could materially affectour financial performance and prospects.***

Our continued success depends toa large extent upon the continued services of our senior management and certainkey employees. The loss of the services of any of these individuals could havea material adverse effect on our business, financial condition and results ofoperations. We have no keyman life insurance on any of our employees.

***We may not beable to successfully integrate, and may inherit significant liabilities inconnection with, future acquisitions.***

We explore opportunities toacquire related businesses from time to time, some of which could be materialto us. If we make acquisitions, our ability to continue to grow will dependupon effectively integrating these acquired companies, achieving costefficiencies and managing these businesses as part of our company.

We may not be able to effectivelyintegrate the acquired companies or successfully implement appropriateoperational, financial and management systems and controls to achieve thebenefits expected to result from these acquisitions. Our efforts to integratethese businesses could be affected by a number of factors beyond our control,including general economic conditions and increased competition. In addition,the process of integrating these businesses could cause the interruption of, orloss of momentum in, the activities of our existing business. The diversion ofmanagement’s attention and any delays or difficulties encountered in connectionwith the integration of these businesses could negatively impact our businessand results of operations. Further, the benefits that we anticipate from theseacquisitions may not materialize.

Additionally, we may be subjectto unexpected claims and liabilities arising from these acquisitions. Suchclaims and liabilities could be costly to defend, could be material in amountand may exceed either the limitations of any applicable indemnificationprovisions or the financial resources of the indemnifying parties, in whichevent such unexpected claims and liabilities could materially and negativelyaffect our business and financial performance.

5

----

***Our principalstockholder is in a position to affect our ongoing operations, corporatetransactions and other matters.***

As of March 15, 2007, Parentowned 100% of our outstanding voting capital stock and Olympus Growth Fund IV,L.P. and Olympus Executive Fund, L.P. (each of which is an investment fundcontrolled by Olympus Partners) collectively owned 93.02% of the outstandingvoting capital stock of Parent.  As aresult, Olympus Partners has the ability to control the election of our Board ofDirectors and the election of the board of directors of Parent and, by virtueof its ownership in Parent and certain contractual voting rights set forth inthe Parent Stockholders Agreement among the current stockholders of Parent, theoutcome of other issues submitted to the stockholders for approval. See “SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters.” We cannot assure you that the interests of the Olympus funds will notconflict with the interests of the holders of our senior notes. In particular,the Olympus funds may cause a change of control at a time when we do not havesufficient funds to repurchase the notes, or to repay our New Senior CreditFacility.  For ease of reference, wesometimes refer to Olympus Growth Fund IV, L.P. and Olympus Executive Fund,L.P. herein as the “Olympus funds.”

**Item 1B. Unresolved StaffComments**

None.

**Item 2.Properties**

Our headquarters are located inSt. Cloud, Minnesota. We own eight and lease three manufacturingfacilities. We believe that our facilities are currently operating atapproximately 75-80% of overall plant capacity. We intend to maintain currentlevels of capacity utilization while handling an increased volume of salesthrough increases in operating efficiencies and growth investments at our hardwoodcomponent, door and engineered woods facilities. We expanded our Molalla,Oregon plant in 2004 to create additional capacity for customers located on theWest Coast.  In 2006, we completed theexpansions of our i) Cabinet Door plant in St. Cloud, Minnesota to createadditional door building capacity, and ii) Greenville, Pennsylvania facility toadd incremental capacity for lumber drying and roughmilling.  In the first quarter 2007, we completed theexpansion of a leased facility in West Jordan, Utah to add incremental doorcapacity.

Our Woodcraft subsidiary operatesthree facilities in Minnesota, two of which are located in St. Cloud andone of which is located in Foreston. Our Minnesota facilities manufacturehardwood components, and one of our St. Cloud facilities also producesapproximately 62% of our hardwood doors. The hardwood door plant inSt. Cloud includes high-volume hardwood door production together withflexible production cells required to respond to customer KAT orders. OurWoodcraft division also has a fourth facility located in Bowling Green,Kentucky where we manufacture hardwood components for shipment to our Minnesotafacilities and to selected customers in the eastern United States.  Our Woodcraft subsidiary in 2005 acquired afacility located in Middlefield, Ohio, which manufactures hardwood componentmoldings, and also purchased a facility located in Greenville, Pennsylvania,which manufactures hardwood components for shipment to our Minnesota, BowlingGreen, and Middlefield facilities.  In2007, our Woodcraft subsidiary completed an expansion in West Jordan, Utah toproduce hardwood doors

In Wahpeton, North Dakota, ourPrimeWood subsidiary manufactures RTF doors and components, VRPs and wrappedprofiles. We believe our Wahpeton facility, which supplies cabinetmanufacturers throughout North America, is one of the largest independentproducers of engineered woods in North America. We acquired this facility in1998 in connection with our acquisition of PrimeWood, Inc.  The PrimeWood subsidiary in 2005 also beganoperations at a manufacturing facility in Lansing, Kansas that manufactures RTFdoors and components.  The Lansingfacility is located in the Lansing Correctional Institute and employs inmatesin the production of RTF components.

Our Brentwood subsidiary operatesa manufacturing facility in Molalla, Oregon where we produce hardwood and RTFdoors, primarily for distribution to our customers located on the West Coast.Our Molalla facility focuses primarily on KAT production of custom andsemi-custom products. We acquired this facility in 2002 in connection with ouracquisition of Brentwood, Inc.

Our former Grand Valleysubsidiary (which is now part of Woodcraft) operates a manufacturing facilityin Orwell, Ohio where we produce hardwood doors through KAT production,primarily for semi-custom products. We acquired this facility in 2004 inconnection with our acquisition of the former Grand Valley subsidiary.

The following chart sets forthinformation regarding our headquarters and our eleven manufacturing facilities:

6

----

 
| **Location**               | ** ** | **Primary Product Line** | ** ** | **Square Footage** | ** ** | **Description of  Property Interest** | ** ** |
|----------------------------|------------|------------------------------------|------------|-------------------------|------------|-------------------------------------------------|------------|
| St. Cloud,  Minnesota |       | Headquarters                       |       | 10,000                  |       | Owned                                           |       |
| St. Cloud,  Minnesota |       | Hardwood  Doors                    |       | 153,000                 |       | Owned                                           |       |
| St. Cloud,  Minnesota |       | Hardwood  Components               |       | 157,450                 |       | Owned                                           |       |
| Foreston,  Minnesota       |       | Hardwood  Components               |       | 137,770                 |       | Owned                                           |       |
| Bowling Green,  Kentucky   |       | Hardwood  Components               |       | 116,880                 |       | Owned                                           |       |
| Middlefield,  Ohio         |       | Hardwood  Components               |       | 40,000                  |       | Leased                                          |       |
| Greenville,  Pennsylvania  |       | Hardwood  Components               |       | 80,000                  |       | Owned                                           |       |
| Wahpeton, North  Dakota    |       | RTF  Doors and Components, VRP     |       | 200,000                 |       | Owned                                           |       |
| Lansing, Kansas            |       | RTF  Doors and Components          |       | 19,000                  |       | Leased                                          |       |
| Molalla, Oregon            |       | Hardwood  and RTF Doors            |       | 100,000                 |       | Owned                                           |       |
| Orwell, Ohio               |       | Hardwood  Doors                    |       | 40,000                  |       | Owned                                           |       |
| West Jordan, Utah          |       | Hardwood Doors                     |       | 40,000                  |       | Leased                                          |       |

 

**Item 3. LegalProceedings**

We are involved in variousproceedings incidental to the ordinary conduct of our business. We do notpresently believe that any of the proceedings currently pending will have amaterial adverse effect on our business, financial condition, cash flows orresults of operations.

**Item 4. Submission of Matters to Vote of SecurityHolders**

OnDecember 12, 2006, stockholders of the Company representing a majority of theCompany’s then outstanding voting capital stock voted upon and approved theMerger Agreement, dated as of December 11, 2006 (as amended, modified and/orsupplemented from time to time), by and among the Company, Parent and the otherparties thereto, and the 2007 Acquisition contemplated by the MergerAgreement.  The results of the vote were:20,920,129 shares for, 0 shares against and 841,952 withheld.

**PART II**

**Item 5.Market For Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities**

There is no established public trading market for the common stock ofWII Components, Inc.  As a result of the2007 Acquisition, WII Components, Inc. is a wholly owned subsidiary of Parent.

On February 24, 2004, we used $39.0 million of the net proceeds from theoffering of the senior notes to make payments to our former stockholdersthrough a combination of dividends and redemptions of common stock.  Any payment of future dividends and theamounts thereof will be dependent upon the Company’s earnings, fiscal requirementsand other factors deemed relevant by the Company’s Board of Directors. Certainrestrictive covenants contained in the Company’s New Senior Credit Facility andthe indenture governing the senior notes currently limit its ability to makedividend or other payments.

In April 2004, we issued 2,142,857 shares of common stock at $3.85 pershare in connection with our acquisition of Grand Valley.  On April 22, 2004 we granted 489,000 optionsto certain of our employees to purchase our common stock at an exercise priceof $3.85 per share.  On December 31, 2004we granted 50,000 options to certain of our employees to purchase our commonstock at an exercise price of $3.85 per share.

On July 28, 2005, we issued 1,016,488 shares of common stock at $4.67 pershare to our former stockholders in connection with our acquisition ofsubstantially all of the assets of Dimension Moldings, Inc.  On August 15, 2005 we granted 255,000 optionsto certain of our employees to purchase our common stock at an exercise priceof $4.67 per share.  On October 26, 2005we granted 40,000 options to certain of our employees to purchase our commonstock at an exercise price of $4.67 per share.

OnMarch 9, 2006, we issued 10,000 stock options under the 2003 Plan to anemployee.  The options vested over a fouryear period, and have an exercise price per share of $4.74 at the date ofissuance.  On May 31, 2006 the Companyissued 

7

----

80,000 stock options under the 2003 Plan to anemployee.  The options vest over a fouryear period, and had an exercise price per share of $5.54 at the date ofissuance.  Also, on May 31, 2006, we issued 160,000incentive stock options under the 2003 Plan to an employee.  The options would fully vest at the earlierof a sale event or June 30, 2009, and had an exercise price per share of $5.54at the date of issuance.  The 160,000options’ exercise price would have increased by $0.83 on July 1, 2007, and eachanniversary date thereafter until termination of the options.

During2006, 71,750 options were cancelled, and 10,750 options were exercised.  As a result of the 2007 Acquisition, alloutstanding stock options were terminated and canceled on January 9, 2007, andthere are currently no stock options of the Company issued and outstanding.

###### **Item6. Selected Financial Data**

The following table sets forthcertain of our historical consolidated financial data. We refer to the Companyprior to its acquisition by its former owners on April 9, 2003 as the “Predecessor.”For accounting purposes, this acquisition was recorded with an effective dateof April 1, 2003 and accounted for using the purchase method ofaccounting. Therefore, the financial information for periods afterApril 1, 2003 may not be comparable to financial information for periodsprior to April 1, 2003. We refer to the Company after its acquisition byits former owners on April 9, 2003 as the “Successor”.  The selected historical consolidatedfinancial data as of and for the years ended December 31, 2006, 2005,2004, and 2002; as of and for the three months ended March 31, 2003; andas of and for the nine months ended December 31, 2003 have been derivedfrom our audited consolidated financial statements. Historical results are notnecessarily indicative of the results to be expected in the future. You shouldread the following data in conjunction with “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and our historicalconsolidated financial statements and accompanying notes included elsewhere inthis annual report.
| ** **                                 | ** ** | **Successor**                              | ** ** | **Predecessor**                                | ** ** |
|--------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                 | ** ** | **Year Ended December 31,** | ** ** | **Nine Months  Ended  December 31,** | ** ** | **Three Months  Ended  March 31,** | ** ** | **Year Ended  December 31,** | ** ** |
| ** **                                 | ** ** | **2006**                                   | ** ** | **2005 (1)**                              | ** ** | **2004 (2)** | ** ** | **2003** | ** ** | **2003** | ** ** | **2002 (3)** | ** ** |
| ** **                                 | ** ** | **(Dollars in thousands)**       | ** ** |
| **Statement  of Operations Data:**         |       |                                       |       |                                           |       |   |   |   |   |   |   |   |   |
| Net sales                                  |       | $                                          | 285,633    |                                           | $          | 259,603 |   | $ | 203,066 |   | $ | 132,647 |   | $ | 40,980 |   | $ | 143,832 |   |
| Cost of sales                              |       | 237,289                                    |       | 217,625                                        |       | 167,279 |   | 107,478 |   | 32,071 |   | 115,827 |   |
| Gross profit                               |       | 48,344                                     |       | 41,978                                         |       | 35,787 |   | 25,169 |   | 8,909 |   | 28,005 |   |
| Total operating expenses (4)               |       | 18,024                                     |       | 14,805                                         |       | 12,643 |   | 8,490 |   | 4,188 |   | 11,298 |   |
| Operating income                           |       | 30,320                                     |       | 27,173                                         |       | 23,144 |   | 16,679 |   | 4,721 |   | 16,707 |   |
| Interest expense                           |       | 14,038                                     |       | 13,561                                         |       | 12,767 |   | 6,343 |   | 835 |   | 3,358 |   |
| Other loss (income), net (5)               |       | (88                                        | )          | (50                                            | )          | 3,414 |   | (68 | ) | (28 | ) | 748 |   |
| Income tax expense                         |       | 6,627                                      |       | 5,487                                          |       | 2,684 |   | 3,852 |   | 1,404 |   | 4,983 |   |
| Net income                                 |       | $                                          | 9,743      |                                           | $          | 8,175 |   | $ | 4,279 |   | $ | 6,552 |   | $ | 2,510 |   | $ | 7,618 |   |
| **Other  Financial Data:**                 |       |                                       |       |                                           |       |   |   |   |   |   |   |   |   |
| EBITDA (6)                                 |       | $                                          | 38,334     |                                           | $          | 33,983 |   | $ | 25,801 |   | $ | 20,799 |   | $ | 6,032 |   | $ | 20,724 |   |
| EBITDA margin (7)                          |       | 13.4                                       | %          | 13.1                                           | %          | 12.7 | % | 15.7 | % | 14.7 | % | 14.4 | % |
| Depreciation and  amortization (8)         |       | $                                          | 7,926      |                                           | $          | 6,760 |   | $ | 6,071 |   | $ | 4,052 |   | $ | 1,283 |   | $ | 4,765 |   |
| Capital  expenditures (9)                  |       | 15,999                                     |       | 11,787                                         |       | 5,733 |   | 5,005 |   | 533 |   | 2,270 |   |
| Net cash  provided by operating activities |       | 23,426                                     |       | 12,990                                         |       | 15,969 |   | 17,203 |   | 989 |   | 11,308 |   |
| **Balance  Sheet (at end of period):**     |       |                                       |       |                                           |       |   |   |   |   |   |   |   |   |
| Total assets                               |       | $                                          | 230,314    |                                           | $          | 221,594 |   | $ | 194,987 |   | $ | 173,925 |   | $ | 81,091 |   | $ | 76,879 |   |
| Long-term  debt, plus current maturities   |       | 127,500                                    |       | 127,500                                        |       | 120,000 |   | 94,948 |   | 32,273 |   | 32,634 |   |
| Capital lease  obligations                 |       | 1,111                                      |       | 2,466                                          |       | 3,122 |   | 4,488 |   | 4,166 |   | 4,342 |   |
| Accumulated preferred  stock               |       | $                                          | —     |                                           | $          | — |   | $ | — |   | $ | — |   | $ | 28,245 |   | $ | 27,062 |   |

 

8

----

----

(1) In July 2005, the Company acquired substantiallyall of the assets of a moldings manufacturing company operating under the nameDimension Moldings, Inc. through an assetpurchase. The results of operations for this acquired business have beenincluded in our financial statements since the date of acquisition. Our resultsof operations for periods since the acquisition may not be comparable to ourresults of operations for the periods prior to the acquisition.

(2)  In April 2004,the Company acquired Grand Valley, Inc. through an asset purchase. The resultsof operations for this acquired business have been included in our financialstatements since the date of acquisition. Our results of operations for periodssince the acquisition may not be comparable to our results of operations forthe periods prior to the acquisition.

(3) In July 2002, the Predecessor acquiredBrentwood, Inc. through an asset purchase. The results of operations forthis acquired business have been included in our financial statements since thedate of acquisition. Our results of operations for periods since theacquisition may not be comparable to our results of operations for the periodsprior to the acquisition.

(4) Total operating expenses include $1.0 million ofstock compensation expense in 2002 related to stock option variable accountingand the issuance of common stock, $1.8 million of payments to formerholders of our capital stock in the three months ended March 31, 2003 forcertain tax liabilities incurred upon the sale of our predecessor’s capitalstock in connection with our acquisition by its former owners, $0.6 million ofstock compensation expense in 2004 related to stock option variable accounting,$1.3 million of stock compensation expense in 2005 related to stock optionvariable accounting, and $3.1 million of stock compensation expense in 2006related to stock option variable accounting.

 (5) The Company incurreda $0.8 million expense in 2002 related to the modification of creditfacility debt in connection with the acquisition of our Brentwood subsidiary.For the fiscal year ended December 31 2004, the Company wrote off$3.5 million of financing fees related to the old credit facility.

(6) EBITDA as set forth in the table below represents netincome before interest, taxes, depreciation and amortization. We have presentedEBITDA because we believe it is useful in evaluating our operating performancecompared to that of other companies in our industry, as the calculationeliminates the effects of long-term financing, income taxes and the accountingeffects of capital expenditures, which items may vary for companies for reasonsunrelated to overall operating performance. EBITDA is not a measurement offinancial performance or liquidity under GAAP and should not be considered asan alternative to net income or net cash flows provided by operating activitiesas determined in accordance with GAAP. Our calculation of EBITDA may not becomparable to the calculation of similarly titled measures reported by othercompanies.
| ** **                    | ** ** | **Successor**                              | ** ** | **Predecessor**             | ** ** |
|-------------------------------|------------|--------------------------------------------|------------|-----------------------------|------------|
| ** **                    | ** ** | ** **                                 | ** ** | **Nine Months  Ended** | ** ** | **Three Months  Ended** | ** ** | **Years Ended** | ** ** |
| ** **                    | ** ** | **Year Ended December 31,** | ** ** | **December 31,  2003** | ** ** | **March 31,  2003** | ** ** | **December 31,  2002** | ** ** |
| **2006**                      | ** ** | **2005**                                   | ** ** | **2004**                    |
|                          |       |                                       |       |                        |       |   |   |   |   |   |   |   |   |
| Net income                    |       | $                                          | 9,743      |                        | $          | 8,175 |   | $ | 4,279 |   | $ | 6,552 |   | $ | 2,510 |   | $ | 7,618 |   |
| Interest expense              |       | 14,038                                     |       | 13,561                      |       | 12,767 |   | 6,343 |   | 835 |   | 3,358 |   |
| Income tax expense            |       | 6,627                                      |       | 5,487                       |       | 2,684 |   | 3,852 |   | 1,404 |   | 4,983 |   |
| Depreciation and amortization |       | 7,926                                      |       | 6,760                       |       | 6,071 |   | 4,052 |   | 1,283 |   | 4,765 |   |
| EBITDA                        |       | $                                          | 38,334     |                        | $          | 33,983 |   | $ | 25,801 |   | $ | 20,799 |   | $ | 6,032 |   | $ | 20,724 |   |

 

----

(7) Represents EBITDA divided by net sales.

(8) Depreciation and amortization does not includeamortization of deferred financing fees (which are included in interestexpense) for the fiscal years ended December 31, 2002, 2004, 2005 and 2006of $0.4 million, $1.0 million, $1.0 million and $1.1 million,respectively; for the three months ended March 31, 2003 of $0.1 million;and for the nine months ended December 31, 2003 of $0.7 million.

(9) Includes capital expenditures in Accounts Payable atthe end of the period, which have not been paid in cash.  See “Consolidated Statements of Cash Flows”included in the consolidated financial statements elsewhere in this report formore information.

9

----

# **Item 7. Management’s Discussionand Analysis of Financial Condition and Results of Operations**

*You should readthe following discussion in conjunction with our consolidated financial statementsand related notes appearing elsewhere in this annual report. In addition tohistorical information, this discussion contains forward-lookingstatements that involve risks, uncertainties and assumptions that could causeactual results to differ materially from management’s expectations.*

**Overview**

We are one of the leadingmanufacturers of hardwood cabinet doors and components and engineered woodproducts in the United States. Our products include (1) hardwood cabinetdoor components, face frames and drawer fronts, (2) fully assembledhardwood cabinet doors, (3) rigid thermofoil, or RTF, cabinet doors andcomponents, (4) veneer raised panels, or VRPs, and (5) a variety oflaminated and profile-wrapped components. We generate approximately 94% of our salesfrom the kitchen and bath cabinet manufacturing industry. Our customers, inturn, distribute their products through various sales channels, includingspecialty kitchen and bath cabinet dealers, home center retailers andhomebuilders. We conduct all of our operations through our Woodcraft, PrimeWoodand Brentwood subsidiaries and we operate eleven manufacturing facilitieslocated in Minnesota, North Dakota, Oregon, Ohio, Kansas, Pennsylvania, Utahand Kentucky that allow us to distribute our products nationwide.

In the past nineyears, we have consummated four strategic acquisitions that have enhanced ourmarket position, product breadth and geographic reach. In June 1998, weacquired PrimeWood, a manufacturer of RTF, VRP and profile-wrapped engineered woodproducts based in North Dakota. In July 2002, we acquired Brentwood, amanufacturer of solid wood and RTF cabinet doors located in Oregon. InApril 2004, we acquired Grand Valley, a manufacturer of solid wood cabinetdoors located in Ohio.  In July 2005, weacquired substantially all of the assets of Dimension Moldings, Inc. (DMI), anOhio corporation, which was in the business of manufacturing hardwood componentmoldings at a facility located in Middlefield, Ohio.  Following the acquisition, our Woodcraftsubsidiary manufactures hardwood component moldings at the Middlefield facilityfor sale to one of our major customers.

InFebruary 2004, we entered into a senior secured revolving credit facilityand used the proceeds from the sale of our 10% Senior Notes due 2012 to pay offthe term loans and revolving line of credit under our old senior creditfacility, pay a dividend of approximately $21.5 million, to repurchase anaggregate of 3,317,580 shares of our voting and non-voting common stock from ourformer stockholders on a proportionate basis for an aggregate purchase price ofapproximately $17.5 million or $5.29 per share and to pay financing costsof $7.4 million.

InSeptember 2005, we amended and restated our existing senior secured revolvingcredit facility (which is referred to herein as the “2005 Senior CreditFacility”), by expanding the revolving line of credit capacity to $40.0million, advancing a $7.5 million nonamortizing term loan, and allowing theflexibility to advance up to $7.5 million through June 30, 2006 on anonamortizing capital expenditure loan. As of December 31, 2006, we had not borrowed any funds under thenonamortizing capital expenditure loan. The 2005 Senior Credit Facility was terminated on January 9, 2007 inconnection with the 2007 Acquisition, and all outstanding borrowings thereunderwere repaid.

The2007 Acquisition was completed on January 9, 2007.  The aggregate purchase price paid by Parentfor all of the shares of capital stock of the Company and options to purchaseshares of capital stock of the Company in the 2007 Acquisition wasapproximately $295.5 million, less indebtedness and certain expenses, andsubject to customary adjustments.  Parentfinanced the 2007 Acquisition through the following transactions:

· borrowings of approximately $86.0million by Parent through the issuance of $43.0 million in principal amount ofsenior pay-in-kind notes to OCM Mezzanine Fund II, L.P. and $43.0 million inprincipal amount of junior pay-in-kind notes to Olympus Growth Fund IV, L.P.;

· the issuance and sale of equitysecurities of Parent (including rollover equity from management) to the Olympusfunds, co-investors and certain members of management of approximately $86.2million; and

· borrowings of approximately $10.2million by the Company under the New Senior Credit Facility (as defined below).

10

----

In connection withthe 2007 Acquisition, the Company entered into a new senior credit facility(the “New Senior Credit Facility”), with Credit Suisse, Cayman Islands Branch,which provided for (i) a senior secured first term loan facility in anaggregate principal amount of $150.0 million (the “First Lien Term Facility”)and (ii) a senior secured first lien revolving credit facility in an aggregateprincipal amount of $25.0 million (the “Revolving Facility”), of which $10.0 isavailable through a subfacility in the form of letters of credit.  Subjectto certain conditions, the First Lien Term Facility may be increased by up to$30.0 million during the life of the First Lien Term Facility at the request ofthe Company with the consent from those lenders that agree to participate insuch increase.

##### **Resultsof Operations**

***Year EndedDecember 31, 2006 Compared to the Year Ended December 31, 2005***

The years ended December 31,2006 and 2005 are shown in the table below. The following table sets forthselected operating data derived from our consolidated statements of operationsand presents this information as a percentage of net sales.
|                           | ** ** | **Year Ended  December 31, 2006** | ** ** | **Year Ended  December 31, 2005** | ** ** |
|---------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                | ** ** | **(Dollars in thousands)**             | ** ** |
| Net sales                 |       | $                                                | 285,633    |                                             | $          | 259,603 |   |
| *% of net sales*          |       | 100.0                                            | %          | 100.0                                            | %          |
| Cost of sales             |       | 237,289                                          |       | 217,625                                          |       |
| *% of net sales*          |       | 83.1                                             | %          | 83.8                                             | %          |
| Gross profit              |       | 48,344                                           |       | 41,978                                           |       |
| *% of net sales*          |       | 16.9                                             | %          | 16.2                                             | %          |
| Operating  expenses       |       | 18,024                                           |       | 14,805                                           |       |
| *% of net sales*          |       | 6.3                                              | %          | 5.7                                              | %          |
| Operating income          |       | 30,320                                           |       | 27,173                                           |       |
| *% of net sales*          |       | 10.6                                             | %          | 10.5                                             | %          |
| Other expenses:           |       |                                             |       |                                             |       |
| Interest expense          |       | 14,038                                           |       | 13,561                                           |       |
| *% of net sales*          |       | 4.9                                              | %          | 5.2                                              | %          |
| Other loss  (income), net |       | (88                                              | )          | (50                                              | )          |
| *% of net sales*          |       | 0.0                                              | %          | 0.0                                              | %          |
| Income taxes              |       | 6,627                                            |       | 5,487                                            |       |
| *% of net sales*          |       | 2.3                                              | %          | 2.1                                              | %          |
| Net income                |       | 9,743                                            |       | 8,175                                            |       |
| *% of  net sales*         |       | 3.4                                              | %          | 3.1                                              | %          |
|                           |            |                                                  |            |                                                  |            |  |  |

 

*Net Sales.*  Net salesincreased $26.0 million, or 10.0%, from $259.6 million for the yearended December 31, 2005 to $285.6 million for the year endedDecember 31, 2006. Our hardwood product line increased $32.0million, attributable to (i) increases in volume due to overall industrygrowth and market share gain, (ii) the inclusion of the results of the businessacquired in the purchase of the assets of Dimension Moldings, Inc. in July 2005,and (iii) to a lesser extent, price adjustments made in response to priorincreases in raw material costs. This increase was offset by a$6.0 million decrease in sales related to our engineered wood productsline, attributable to softness in the engineered wood products industry anddecreases in market share.

*Cost of Sales.*  Cost ofsales increased $19.7 million, or 9.1%, from $217.6 million for theyear ended December 31, 2005 to $237.3 million for the year endedDecember 31, 2006.  This increase incost of sales is primarily attributable to higher material, labor, and overheadcosts as a result of higher volume of sales, but other factors include; (i) theacquisition of the assets of Dimension Moldings, Inc. in July 2005, (ii)start-up costs in our Pennsylvania facility, (iii) board cost increasesrelated to our engineered wood product line, and (v) stock compensationexpense.  These costs were partiallyoffset by (i) improved operational performance, primarily at our Ohio andOregon door making facilities, and (ii) leveraging our fixed costs over alarger sales base.

*Gross Profit.*  Grossprofit increased $6.3 million, or 15.0%, from $42.0 million for theyear ended December 31, 2005 to $48.3 million for the same period in2006 as a result of the factors described above. As a percentage of net sales,our gross profit increased 70 basis points from 16.2% for the year endedDecember 31, 2005 to 16.9% for the same period in 2006. This 

11

----

increase reflects (i) improved operationalperformance, primarily at our Ohio and Oregon door making facilities, (ii)lower raw material costs in our hardwood product line, and (iii) leveraging ourfixed costs over a larger sales base. This increase was partially offset with board cost increases related toour engineered wood product line and startup costs in our Pennsylvaniafacility.

*Operating Expenses.*  Operatingexpenses increased $3.2 million, or 21.6%, from $14.8 million for theyear ended December 31, 2005 to $18.0 million for the year endedDecember 31, 2006.  The increaseconsists primarily of (i) $1.8 million of additional stock compensation expensein 2006, (ii) $0.6 million due to the inclusion of seven full months ofoperations of our Middlefield facility, which includes $0.5 million ofamortization for a customer relationship intangible asset, and (iii) $0.8million of additional professional fees relating to transaction costs incurredwith the acquisition by the Olympus funds. As a percentage of sales, operating expenses increased from 5.7% for theyear ended December 31, 2005 to 6.3% for the same period in 2006, as a resultof the factors described above.

*Operating Income.*  Operatingincome increased by $3.1 million, or 11.4%, from $27.2 million forthe year ended December 31, 2005 to $30.3 million for the year endedDecember 31, 2006 as a result of the net effect of the factors describedabove.

*Interest Expense.*  Interestexpense increased $0.4 million, or 2.9%, from $13.6 million for theyear ended December 31, 2005 to $14.0 million for the year endedDecember 31, 2006.  Thisincrease relates to a higher average debt balance due to increased capitalexpenditures and the acquisition of the assets of Dimension Moldings, Inc. inJuly 2005.

*Other loss (income).*  Otherincome increased from $50,000 for the year ended December 31, 2005 to $88,000 for the year ended December 31, 2006.

*Income taxexpense.*  Income tax expense increased$1.1 million, or 20.0% from $5.5 million for the year endedDecember 31, 2005 to $6.6 million for the year endedDecember 31, 2006 as a result of higher earnings, and a higher effectivetax rate. The effective tax rate increased 30 basis points from 40.2% in 2005to 40.5% in 2006 due to additional state taxes owed as a result of acquisitionsand the Pennsylvania expansion.

*Net Income.*  Net incomeincreased $1.5 million, or 18.3%, from $8.2 million for the year endedDecember 31, 2005 to $9.7 million for the year endedDecember 31, 2006 as a result of the factors described above.

***Year EndedDecember 31, 2005 Compared to the Year Ended December 31, 2004***

The years ended December 31,2005 and 2004 are shown in the table below. The following table sets forthselected operating data derived from our consolidated statements of operationsand presents this information as a percentage of net sales.
|                           | ** ** | **Year Ended  December 31, 2005** | ** ** | **Year Ended  December 31, 2004** | ** ** |
|---------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                | ** ** | **(Dollars in thousands)**             | ** ** |
| Net sales                 |       | $                                                | 259,603    |                                             | $          | 203,066 |   |
| *% of net sales*          |       | 100.0                                            | %          | 100.0                                            | %          |
| Cost of sales             |       | 217,625                                          |       | 167,279                                          |       |
| *% of net sales*          |       | 83.8                                             | %          | 82.4                                             | %          |
| Gross profit              |       | 41,978                                           |       | 35,787                                           |       |
| *% of net sales*          |       | 16.2                                             | %          | 17.6                                             | %          |
| Operating  expenses       |       | 14,805                                           |       | 12,643                                           |       |
| *% of net sales*          |       | 5.7                                              | %          | 6.2                                              | %          |
| Operating income          |       | 27,173                                           |       | 23,144                                           |       |
| *% of net sales*          |       | 10.5                                             | %          | 11.4                                             | %          |
| Other expenses:           |       |                                             |       |                                             |       |
| Interest expense          |       | 13,561                                           |       | 12,767                                           |       |
| *% of net sales*          |       | 5.2                                              | %          | 6.3                                              | %          |
| Other loss  (income), net |       | (50                                              | )          | 3,414                                            |       |
| *% of net sales*          |       | 0.0                                              | %          | 1.7                                              | %          |
| Income taxes              |       | 5,487                                            |       | 2,684                                            |       |
| *% of net sales*          |       | 2.1                                              | %          | 1.3                                              | %          |
| Net income                |       | 8,175                                            |       | 4,279                                            |       |
| *% of  net sales*         |       | 3.1                                              | %          | 2.1                                              | %          |
|                           |            |                                                  |            |                                                  |            |  |  |

 

12

----

*Net Sales.*  Net salesincreased $56.5 million, or 27.8%, from $203.1 million for the yearended December 31, 2004 to $259.6 million for the year endedDecember 31, 2005. Our hardwood product line increased$50.7 million, attributable to (i) increases in volume due in part tooverall industry growth and in part to market share gain, (ii) the acquisitionof Grand Valley in 2004 and the acquisition of the assets of DimensionMoldings, Inc. in July 2005, and (iii) to a lesser extent, price adjustmentsdue to increases in raw material costs. The remaining $5.8 million increasein sales relates to our engineered wood products line and is attributable toincreases in volume due to overall industry growth and market share gain.

*Cost of Sales.*  Cost ofsales increased $50.3 million, or 30.1%, from $167.3 million for theyear ended December 31, 2004 to $217.6 million for the year endedDecember 31, 2005.  This increase incost of sales is primarily attributable to higher material, labor, and overheadcosts as a result of higher volume of sales, but other factors include; (i) increasedmaterial and labor costs related to operational inefficiencies at our GrandValley facility, (ii) additional costs, such as overtime pay, as a result of usoperating at near full capacity, (iii) inflation, primarily in respect ofraw material costs, in each case related to both our hardwood and engineeredwood product lines, (iv) start-up costs in our Pennsylvania facility, and (v)unfavorable margins on an import program. These costs were partially offset by gains in operational efficienciesin our other facilities and by spreading our fixed costs over a larger salesbase.

*Gross Profit.*  Grossprofit increased $6.2 million, or 17.3%, from $35.8 million for theyear ended December 31, 2004 to $42.0 million for the same period in2005 as a result of the factors described above. As a percentage of net sales,our gross profit decreased 140 basis points from 17.6% for the year endedDecember 31, 2004 to 16.2% for the same period in 2005. Thisdecrease in gross profit margins is attributable to (i) increased materialand labor costs related to operational inefficiencies at our Grand Valleyfacility, (ii) additional costs, such as overtime pay, as a result of usoperating at near full capacity, (iii) inflation, primarily in respect ofraw material costs, in each case related to both our hardwood and engineeredwood product lines, (iv) start-up costs in our Pennsylvania facility, and (v)unfavorable margins on an import program.  These costs were partially offset by gains in operational efficienciesin our other facilities and by spreading our fixed costs over a larger salesbase.

*Operating Expenses.*  Operatingexpenses increased $2.2 million, or 17.5%, from $12.6 million for theyear ended December 31, 2004 to $14.8 million for the year endedDecember 31, 2005.  The increaseconsists partially of (i) $0.7 million for additional stock compensationexpense in 2005, (ii) $1.0 million due to the inclusion of twelve fullmonths of operations of Grand Valley in 2005, which includes $0.3 million ofamortization for a Customer Relationship intangible asset, (iii) $0.5 milliondue to the inclusion of five full months of operations of our Middlefieldfacility, which includes $0.4 million of amortization for a CustomerRelationship intangible asset,  (iv) $0.1million for twelve full months of amortization on financing fees related to the2004 credit facility, (v) $0.2 million for additional telephone and informationsystems expenses, (vi) $0.1 million for additional bad debt expense, and (vii)$0.3 million for additional professional fees. The increase in operating expenses for the fiscal year ended December31, 2005 is partially offset by certain expenses incurred in the fiscal yearended December 31, 2004  which include(i) $0.8 million of additional incentive compensation paid to certain keyemployees in February 2004 in recognition of our improved financialperformance and the successful completion of the offering of the senior notes,and (ii) $0.3 million of consulting and noncompete expense in 2004 for theprevious owner of a subsidiary of Woodcraft Industries, Inc.  As a percentage of sales, operating expensesdeclined from 6.2% for the year ended December 31, 2004 to 5.7% for the sameperiod in 2005, reflecting the scale benefits of a higher sales base in 2005and the higher level of certain expenses incurred in 2004, as described above.

*Operating Income.*  Operatingincome increased by $4.0 million, or 17.2%, from $23.2 million forthe year ended December 31, 2004 to $27.2 million for the year endedDecember 31, 2005 as a result of the net effect of the factors describedabove.

*Interest Expense.*  Interestexpense increased $0.8 million, or 6.3%, from $12.8 million for theyear ended December 31, 2004 to $13.6 million for the year endedDecember 31, 2005.  Thisincrease relates to the increase in debt and the higher interest rate inconnection with the issuance of the $120.0 million senior notes inFebruary 2004.

*Other loss (income).*  Other loss(income) changed from $3.4 million of other loss for the year endedDecember 31, 2004 to $0.1 million ofother income for the year ended December 31, 2005 primarilyreflecting the write-off of financing fees related to the senior creditfacility, which was subsequently paid-off in February 2004.

13

----

*Income taxexpense.*  Income tax expense increased$2.8 million, or 103.7% from $2.7 million for the year endedDecember 31, 2004 to $5.5 million for the year endedDecember 31, 2005 as a result of increased earnings. The effective taxrate increased 170 basis points from 38.5% in 2004 to 40.2% in 2005. Thisincrease is a result of the increase in the tax rate due to additional statetaxes owed as a result of acquisitions.

*Net Income.*  Net incomeincreased $3.9 million, or 90.7%, from $4.3 million for the year endedDecember 31, 2004 to $8.2 million for the year endedDecember 31, 2005 as a result of the factors described above.

**Liquidity and Capital Resources**

Our primary cash needs areworking capital, capital expenditures and debt service. We have historicallyfinanced these cash requirements through internally generated cash flow andfunds borrowed under our prior and existing senior secured credit facilities.

*Refinancing*.  OnFebruary 18, 2004, we issued $120.0 million of 10% senior notes due in2012, and paid the entire outstanding balance of our old senior secured creditfacility and terminated the related credit agreement. Under that creditfacility, we had three outstanding term loans and a $15.0 millionrevolving credit facility. Our $55.0 million 2005 Senior Credit Facility, whichwas amended and restated in September 2005, provided for revolving credit of upto $40.0 million subject to a borrowing base, a $7.5 million nonamortizingterm loan, and a $7.5 million nonamortizing capital expenditure loan to bedrawn upon through June 30, 2006.  As ofJune 30, 2006 the nonamortizing capital expenditure loan had expired.  The outstanding principal bore interest at afluctuating rate equal to either the base rate plus 2 3¤4% per annum or LIBOR plus 3.0% per annum. As ofDecember 31, 2006, the borrowing base allowed for $34.7 million revolvingcredit.  We had no amount outstandingunder our revolving credit for either the year ended December 31, 2006 orthe year ended December 31, 2005.  As ofDecember 31, 2006, we had $7.5 million outstanding under the nonamortizing termloan.  Under the 2005 Senior CreditFacility, we were required to comply with certain financial covenants includingmaintenance of a minimum fixed charge coverage ratio, a maximum total leverageratio and an EBITDA minimum. As of December 31, 2006 and December 31, 2005, wewere in compliance with these covenants under the 2005 Senior CreditFacility.  As of December 31, 2006,we had $1.1 million of capital lease obligations, of which $0.6 million wascurrent and as of December 31, 2005, we had $2.5 million of capital leaseobligations, of which $1.3 million was current.

The 2005 Senior Credit Facility was terminated, and all outstandingborrowings thereunder repaid, on January 9, 2007 in connection with the 2007Acquisition.  On January 9, 2007,we entered into the New Senior Credit Facility. As of March 15, 2007, we haveincurred borrowings of approximately $10.2 million under First Lien TermFacility and no borrowings have been incurred under the RevolvingFacility.  The outstanding principal ofsuch indebtedness currently bears interest at a fluctuating rate equal toeither the base rate plus 1.75% per annum or LIBOR plus 2.75% per annum.  We mustcomply with certain financial covenants under our New Senior Credit Facility,including maintenance of a an interest coverage ratio, a senior leverage ratioand a total leverage ratio.

The 2005acquisition of substantially all of the assets of Dimension Moldings, Inc, andassociated fees and expenses at closing were funded one-half by the sale ofshares of the Company’s voting common stock to the Company’s formerstockholders, and the remainder with operating cash and a draw down on theCompany’s senior secured credit facility. In the first quarter 2006, we paid an accelerated earn-out payment inthe amount of $2.0 million to the owners of DMI as a result of the operationsof the DMI assets meeting agreed upon earnings targets.

Our New Senior Credit Facility and the indenture for the senior notesimpose certain restrictions on our ability to incur indebtedness, paydividends, make investments, grant liens, sell our assets and engage in certainother activities. Indebtedness for borrowed money incurred under our First LienTerm Facility under our New Senior Credit Facility is secured by substantiallyall of our assets, including our real and personal property, inventory,accounts receivable, intellectual property and other intangibles.

*Cash flow from operating activities.*  As ofDecember 31, 2006, we had $8.0 million of cash and cash equivalents availablefor working capital purposes.  Asof December 31, 2005, we had $4.0 million of cash and cash equivalentsavailable for working capital purposes. Cash provided by operating activities for the years ended December 31,2006 and 2005 was $23.4 million and $13.0 million, respectively.  The increase is mainly attributable to (i)increased net income and noncash stock compensation expense for the year endedDecember 31, 2006, and (ii) improved cash flows from changes in operatingassets and liabilities due to fewer days of receivables outstanding for theyear ended December 31, 2006.

*Cash flow from investing activities.*  Net cash used in investing activities was$18.0 million for the year ended 

14

----

December 31, 2006 and $20.2 million for the year endedDecember 31, 2005. Capital expenditures in 2006 were $16.2 million compared to$11.1 million for the year ended December 31, 2005.  The increase is primarily due to expendituresin 2006 for (i) the expansion of our St. Cloud door plant and (ii) theequipment for the roughmill facility in Greenville, Pennsylvania.  Net cash used in investing activitiesincludes $9.3 million for the year ended December 31, 2005 due to theacquisition of the assets of Dimension Moldings, Inc.

*Cash flow from financing activities.*  Net cash used by financing activities for theyear ended December 31, 2006 was $1.3 million, primarily due to paymentson capital leases.  Net cash provided byfinancing activities in the year ended December 31, 2005 totaled$11.2 million, primarily attributable to cash inflows from the new $7.5million term loan funded under the 2005 Senior Credit Facility and $4.7 millionfor stock issued for the Dimension Moldings, Inc. acquisition.

Weanticipate that the funds generated by operations and funds available under theNew Senior Credit Facility will be sufficient to meet working capitalrequirements and to finance capital expenditures for the foreseeable futureincluding the next twelve months. We cannot provide assurances that ourbusiness will generate sufficient cash flow from operations, that anticipatednet sales growth and operating improvements will be realized or that futureborrowings will be available under our New Senior Credit Facility in an amountsufficient to enable us to service our indebtedness, including the notes, or tofund our other liquidity needs.  Inaddition, we cannot provide assurances that we will be able to refinance any ofour indebtedness, including borrowings under our New Senior Credit Facility andthe notes, on commercially reasonable terms, if at all.

**Schedule of Contractual Obligations**

The following table details ourprojected payments for our contractual obligations as of December 31,2006. The table is based upon available information and certain assumptionsthat we believe are reasonable.
| ** **                           | ** ** | ** **                           | ** ** | **Payments Due by Period** | ** ** | ** **         | ** ** | ** **                       | ** ** |
|--------------------------------------|------------|--------------------------------------|------------|-------------------------------------------|------------|--------------------|------------|----------------------------------|------------|
| **Contractual Obligations**     | ** ** | **Less than  1 year**      | ** ** | **1-3 years**                        | ** ** | **3-5 years** | ** ** | **More than 5  years** | ** ** | **Total** | ** ** |
| ** **                           | ** ** | **(Dollars in thousands)** | ** ** | ** **                                | ** ** |
| Long-term debt  obligations          |       | $                                    | —     |                                      | $          | —             |       | $                                | 7,500      |   | $ | 120,000 |   | $ | 127,500 |   |
| Interest expense on  fixed rate debt |       | 12,042                               |       | 24,015                                    |       | 24,000             |       | 1,643                            |       | 61,700 |   |
| Capital lease  obligations           |       | 581                                  |       | 530                                       |       | —             |       | —                           |       | 1,111 |   |
| Operating lease  obligations         |       | 656                                  |       | 1,215                                     |       | 853                |       | —                           |       | 2,724 |   |
| Total contractual cash obligations   |       | $                                    | 13,279     |                                      | $          | 25,760             |       | $                                | 32,353     |   | $ | 121,643 |   | $ | 193,035 |   |

 

In addition to thesummary of contractual obligations, we will incur annual interest onoutstanding variable rate debt.  As ofDecember 31, 2006, variable interest rate debt was $7.5 million at aweighted average interest rate of 10.0%.

InFebruary 2004, the Company completed the offering of $120 million of10% senior notes due 2012.  The 10%interest on the $120 million of senior notes is paid every six months.

In September 2005,the Company entered into the 2005 Senior Credit Facility that included a $40.0million revolving line of credit, a $7.5 million nonamortizing term loan, and a$7.5 million nonamortizing capital expenditure loan to be drawn upon throughJune 30, 2006.   As of June 30, 2006 thenonamortizing capital expenditure loan had expired.  Theoutstanding principal bore interest at a fluctuating rate equal to either thebase rate plus 2 3¤4% per annum or LIBOR plus 3.0% per annum. As ofDecember 31, 2006 the Company had $7.5 million outstanding under our 2005Senior Credit Facility.  The 2005 SeniorCredit Facility was terminated, and all outstanding borrowings thereunderrepaid, on January 9, 2007 in connection with the 2007 Acquisition.

The Company leases certain equipment under capital lease agreements withinterest rates of 3.65% to 4.97%. The agreements expire at various datesthrough 2008.

From time to time, we acquire the use of certainassets, such as warehouses, forklifts, trailers, and office equipment throughoperating leases. Many of these operating leases have termination penalties.However, because the assets are used in the conduct of our business operations,it is unlikely that any significant portion of these operating leases would beterminated prior to the normal expiration of their lease terms. Therefore, weconsider the risk related to termination penalties to be minimal.

15

----

**Off-Balance Sheet Arrangement**

Withthe exception of routine operating leases, we had no off-balance sheetfinancing arrangements at December 31, 2006 or 2005.

**Inflation**

Our cost of sales is subject to inflationary pressures onlabor costs, prices of the raw materials we use and various overhead costs. Wegenerally have been able over time to offset the effects of inflation and pricefluctuations through a combination of sales price increases and operationalefficiencies.  We currentlybelieve that raw material cost pressure has moderated.  We continue to attempt to pass along thesecosts, but such efforts typically lag behind in material costs and we can notguarantee a full offset.

**Seasonality**

Our sales historically have beenmoderately seasonal, reflecting the temporary slow down in consumer purchasingactivity during the winter holiday season and the summer months.

**Critical Accounting Policies**

The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America (GAAP) requires management to make estimates,assumptions and judgments that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Because of the uncertainty inherent in thesematters, actual results could differ from those estimates. We believe that theestimates, assumptions and judgments involved in the accounting policies belowhave the greatest potential impact on our financial statements.

*RevenueRecognition.*  We recognize revenues and related cost ofsales when title passes, which is usually upon shipment of product under FOBshipping point terms. Returns are estimated and provided for at the time ofsale based on historical experience and current trends.

*Allowance forDoubtful Accounts.*  We make estimates of potentiallyuncollectible accounts receivable. Our reserves are based on an analysis ofcustomers’ accounts and historical write-off experience. Our analysis includesthe age of the receivable, customer creditworthiness and general economicconditions. We believe the results could be materially different if historicaltrends do not reflect actual results or if economic conditions worsened.

*Goodwill.*  We adoptedStatement of Financial Accounting Standards, (SFAS) No. 142, Goodwill andOther Intangible Assets, and accordingly have discontinued the amortization ofgoodwill. We evaluate goodwill for impairment annually or whenever an indicatorof impairment occurs. If events or circumstances change, including reductionsin anticipated cash flows generated by operations, goodwill could become impairedand result in a charge to earnings.

*Impairment ofLong-Lived Assets.*  We evaluate the carrying value of long-livedassets, such as property, plant and equipment, for impairment when events orchanges in circumstances indicate that the carrying amount of an asset or groupof assets may not be recoverable. Assets are grouped and evaluated forimpairment at the lowest level for which there is identifiable cash flows. Ifimpairment indicators are present and the estimated future undiscounted cashflows are less than the carrying value of the asset or group of assets, thecarrying value is reduced to its estimated fair value. Fair value is estimatedbased on the best information available, including prices for similar assets orresults of valuation techniques such as discounting estimated future cashflows.

*InsuranceBenefit Accruals.*  Each accounting period, we estimate an amountto accrue for medical costs incurred but not yet reported under our self-fundedemployee medical and workers compensation insurance plans. We base ourdetermination on an evaluation of past rates of claim payouts and trends in theamount of payouts. This determination requires significant judgment and assumespast patterns are representative of future payment patterns. A significant shiftin usage and payment patterns within these plans could necessitate significantadjustments to these accruals in future accounting periods.

*PurchaseAccounting.*  We accounted for our acquisitions under thepurchase method of accounting and, accordingly, the acquired assets andliabilities assumed are recorded at their respective fair values. The recordedvalues of assets and liabilities 

16

----

are based on third-party estimates andvaluations when available. The remaining values are based on management’s judgmentsand estimates. Our financial position and results from operations may beaffected by changes in estimates and judgments.

*Income Taxes.*** **The Company accounts for income taxes inaccordance with the liability method of accounting, which requires recognitionof deferred tax assets and liabilities for the expected future tax consequencesof events that were included in the consolidated financial statements and taxreturns. Under this method, deferred tax assets and liabilities are determinedbased on the difference between the financial statement and tax bases of assetsand liabilities using enacted tax rates expected to be in effect for the yearin which the differences are expected to reverse. The Company records avaluation allowance when it is more likely than not that the net deferred taxassets will not be realized.

The Company issubject to audits in the tax jurisdictions in which it operates.  Upon audit, these taxing jurisdictions couldretroactively disagree with our tax treatment of certain items.  Consequently, the actual liabilities withrespect to any year may be determined long after financial statements have beenissued.  The Company establishes taxreserves for estimated tax exposures. These potential exposures result from varying applications of statutes,rules, regulations, case law and interpretations.  The settlement of these exposures primarilyoccurs upon finalization of tax audits. However, the amount of the exposures can also be impacted by changes intax laws and other factors.  The Companybelieves that it has established the appropriate reserves for these estimatedexposures.  However, actual results maydiffer from these estimates.  Theresolution of these tax matters will not have a material effect on theconsolidated financial condition of the Company, although a resolution couldhave a material impact on the Company’s consolidated statement of operationsfor a particular future period and on the Company’s effective tax rate.

**New Accounting Standards**

In November 2004, the FASB issued SFAS No. 151, *Inventory Costs*.  This Statement requires that abnormal amountsof idle facility expense, freight, handling costs, and spoilage be recognizedas current period charges.  The Statementalso requires that fixed production overhead be allocated to conversion costsbased on the normal capacity of the production facilities.  SFAS No. 151 was effective for inventorycosts incurred by the Company beginning January 1, 2006.  The adoption of this Statement did not have amaterial impact on the Company’s consolidated financial position, results ofoperations, or cash flows.

In July 2006, theFASB issued FASB Interpretation No. (FIN) 48, *Accountingfor Uncertainty in Income Taxes, an interpretation of FASB Statement 109,*which clarifies the accounting for uncertainty in income taxes recognized inaccordance with FASB Statement No. 109, *Accountingfor Income Taxes.*FIN 48 is a comprehensive model for how a companyshould recognize, measure, present, and disclose in its financial statementsuncertain tax positions that the company has taken or expects to take in a taxreturn. If an income tax position exceeds a more likely than not (greater than50%) probability of success upon tax audit, the company will recognize anincome tax benefit in its financial statements. Additionally, companies arerequired to accrue interest and related penalties, if applicable, on all taxexposures consistent with jurisdictional tax laws. This interpretation iseffective on January 1, 2007 for WII Components, Inc. and the Company iscurrently in the process of evaluating the impact of this interpretation on itsfinancial condition or results of operations.

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*. SFAS No. 157defines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles and expands disclosures about fairvalue measurements. This Statement applies under other accountingpronouncements that require or permit fair value measurements, the FASB havingpreviously concluded in those accounting pronouncements that fair value is therelevant measurement attribute. Accordingly, this Statement does not requireany new fair value measurements. SFAS No. 157 is effective for fiscal yearsbeginning after December 15, 2007. We plan to adopt SFAS No. 157 beginning inthe first quarter of fiscal 2008. We are currently evaluating the impact, ifany, the adoption of SFAS No. 157 will have on our operating income or netearnings.

In February 2007, FASB Issued SFAS No. 159, *Establishing the Fair Value Option for FinancialAssets and Liabilities*(SFAS 159). The Financial AccountingStandards Board has issued SFAS 159 to permit all entities to choose to elect,at specified election dates, to measure eligible financial instruments at fairvalue. An entity shall report unrealized gains and losses on items for whichthe fair value option has been elected in earnings at each subsequent reportingdate, and recognize upfront costs and fees related to those items in earnings asincurred and not deferred. SFAS 159 applies to fiscal years beginning afterNovember 15, 2007, or our 2008 fiscal year, with early adoption permittedfor an entity that has also elected to apply the provisions of SFAS 157, FairValue Measurements. An entity is prohibited from retrospectively applying SFAS159, unless it chooses early adoption. SFAS 159 also applies to eligible itemsexisting at November 15, 2007 (or early 

17

----

adoption date). The Company has not completed itsanalysis but does not expect the adoption of SFAS 159 to have a material effecton the Company’s financial condition or results of operations.

**Item 7A.Quantitative and Qualitative Disclosures about Market Risk**

We are subject to various marketrisks such as fluctuating lumber prices, interest rates, and market conditions.

*Commodity PriceRisk.*  Hardwood lumber accounts for the largestportion of our material costs. Our profitability is therefore affected by theprices of lumber which may fluctuate based on a number of factors beyond ourcontrol, including, among others, changes in supply and demand, generaleconomic conditions, labor costs, competition and, in some cases, governmentregulation. Though we are not dependent on any single supplier for our rawmaterials, we have no long-term supply contracts and thus, are subject tochanges in the prices charged by our suppliers. The prices for the primaryhardwood species we use in the production of our hardwood doors and componentsare subject to some volatility.

*Interest RateRisk.*  We are exposed to market risk relating tochanges in interest rates in respect of a portion of our long-term debt and aportion of our capital leases. As of December 31, 2006, we had $7.5 millionoutstanding under the nonamortizing term loan issued under our 2005 SeniorCredit Facility, all of which bears interest at variable rates. In addition, asof that date, we had approximately $0.7 million of capital leases thatbear interest at variable rates. We believe that a one percent (1%) increase inthe interest rates currently in effect would not have a material adverse effecton our financial condition, results of operations, or cash flows.

*Market Conditions. *The Company derives a significant portion of its revenue as a result ofthe demand for its products created by the building of new homes, and repairand remodeling of existing homes.  Duringthe second half of 2006, the growth in the home building, repair and remodelingindustry experienced a slowdown as a result of general economicconditions.  If this slowdown in growthwere to continue or worsen over an extended period of time, it could have amaterial adverse effect on the Company’s business, financial condition orresults of operations.

18

----

# **Item 8. Financial Statements andSupplementary Data**

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders of WII Components, Inc.**St. Cloud, Minnesota

We have audited the accompanying consolidatedbalance sheets of WII Components, Inc.and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and therelated consolidated statements of operations, stockholders’ equity, and cashflows for each of the three years in the period ended December 31, 2006.  Our audits also included the financialstatement schedule listed in the Index at Item 15.  These financialstatements and financial statement schedule are the responsibility of theCompany’s management.  Our responsibility is to express an opinion on thefinancial statements and financial statement schedule based on our audits.

We conducted our audits in accordance withthe standards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  The Company is not required to have, nor were weengaged to perform, an audit of its internal control over financialreporting.  Our audits included consideration of internal control overfinancial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting.  Accordingly, we express no such opinion.  An audit alsoincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation.  We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion, such consolidated financialstatements present fairly, in all material respects, the financial position ofWII Components, Inc. and subsidiaries**asof December 31, 2006 and 2005, and the results of their operations and theircash flows for each of the three years ended December 31, 2006, in conformitywith accounting principles generally accepted in the United States of America.  Also, in our opinion, such financialstatement schedule, when considered in relation to the basic consolidatedfinancial statements taken as a whole, presents fairly in all material respectsthe information set forth therein.
| */s/ Deloitte & Touche LLP* | * * |
|---------------------------------|----------|
|                            |
| Minneapolis, Minnesota          |
| March 27, 2007                  |

 

19

----

**WII COMPONENTS, INC. ANDSUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**DECEMBER 31, 2006 AND 2005**

**(In thousands, except share and per share amounts)**

 
| ** **                                                                                                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **ASSETS**                                                                                                                   |       |     |       |     |       |
| CURRENT ASSETS:                                                                                                              |       |     |       |     |       |
| Cash and cash  equivalents                                                                                                   |       | $        | 8,048      |     | $          | 3,981 |   |
| Accounts receivable—net  of allowance for doubtful accounts of $104 and $118, respectively                              |       | 11,322   |       | 14,682   |       |
| Inventories                                                                                                                  |       | 21,500   |       | 20,770   |       |
| Deferred income  taxes                                                                                                       |       | 1,422    |       | 1,163    |       |
| Other current  assets                                                                                                        |       | 486      |       | 1,329    |       |
| Total current  assets                                                                                                        |       | 42,778   |       | 41,925   |       |
| PROPERTY, PLANT, AND EQUIPMENT:                                                                                              |       |     |       |     |       |
| Land                                                                                                                         |       | 3,439    |       | 4,218    |       |
| Buildings and  yards                                                                                                         |       | 25,703   |       | 21,896   |       |
| Equipment                                                                                                                    |       | 49,971   |       | 37,552   |       |
| Less accumulated  depreciation                                                                                               |       | (19,237  | )          | (13,745  | )          |
| Property, plant,  and equipment—net                                                                                     |       | 59,876   |       | 49,921   |       |
| GOODWILL AND OTHER  ASSETS:                                                                                                  |       |     |       |     |       |
| Goodwill                                                                                                                     |       | 108,748  |       | 107,748  |       |
| Customer  relationship—net                                                                                              |       | 13,239   |       | 14,896   |       |
| Noncompete  agreements—net                                                                                              |       | 384      |       | 849      |       |
| Other assets                                                                                                                 |       | 5,289    |       | 6,255    |       |
| Total goodwill  and other assets                                                                                             |       | 127,660  |       | 129,748  |       |
| TOTAL                                                                                                                        |       | $        | 230,314    |     | $          | 221,594 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                               |       |     |       |     |       |
| CURRENT LIABILITIES:                                                                                                         |       |     |       |     |       |
| Current  maturities of capital lease obligations                                                                             |       | $        | 581        |     | $          | 1,262 |   |
| Accounts payable                                                                                                             |       | 4,937    |       | 6,993    |       |
| Accrued payroll                                                                                                              |       | 3,826    |       | 3,674    |       |
| Other current  liabilities                                                                                                   |       | 12,101   |       | 13,027   |       |
| Total current  liabilities                                                                                                   |       | 21,445   |       | 24,956   |       |
| LONG-TERM DEBT                                                                                                               |       | 127,500  |       | 127,500  |       |
| CAPITAL LEASE  OBLIGATIONS—Net of current maturities                                                                    |       | 530      |       | 1,204    |       |
| DEFERRED INCOME TAXES                                                                                                        |       | 2,560    |       | 4,015    |       |
| OTHER LONG-TERM  LIABILITIES                                                                                                 |       | 300      |       | —   |       |
| COMMITMENTS AND  CONTINGENCIES (Note 7)                                                                                      |       |     |       |     |       |
| STOCKHOLDERS’ EQUITY:                                                                                                   |       |     |       |     |       |
| Common stock:                                                                                                                |       |     |       |     |       |
| Voting, $0.01  par—28,000,000 shares authorized; 21,762,081 and 21,751,331 shares issued and  outstanding, respectively |       | 217      |       | 217      |       |
| Nonvoting, $0.01  par—1,000,000 shares authorized; 854,261 issued and outstanding                                       |       | 9        |       | 9        |       |
| Additional paid-in  capital                                                                                                  |       | 56,244   |       | 51,927   |       |
| Retained  earnings                                                                                                           |       | 21,509   |       | 11,766   |       |
| Total  stockholders’ equity                                                                                             |       | 77,979   |       | 63,919   |       |
| TOTAL                                                                                                                        |       | $        | 230,314    |     | $          | 221,594 |   |

 

See notes to consolidated financial statements.

20

----

 

**WII COMPONENTS, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Inthousands)**

 
| ** **                                | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| NET SALES                                 |       | $                                          | 285,633    |   | $ | 259,603 |   | $ | 203,066 |   |
| COST OF SALES                             |       | 237,289                                    |       | 217,625 |   | 167,279 |   |
| Gross profit                              |       | 48,344                                     |       | 41,978 |   | 35,787 |   |
| OPERATING  EXPENSES:                      |       |                                       |       |   |   |   |   |
| General and administrative                |       | 14,869                                     |       | 11,581 |   | 9,731 |   |
| Selling and marketing                     |       | 3,287                                      |       | 3,222 |   | 2,949 |   |
| (Gain) loss on sale of assets             |       | (132                                       | )          | 2 |   | (37 | ) |
| Total operating expenses                  |       | 18,024                                     |       | 14,805 |   | 12,643 |   |
| OPERATING INCOME                          |       | 30,320                                     |       | 27,173 |   | 23,144 |   |
| OTHER INCOME  (EXPENSE):                  |       |                                       |       |   |   |   |   |
| Interest income                           |       | 89                                         |       | 45 |   | 28 |   |
| Interest expense                          |       | (14,038                                    | )          | (13,561 | ) | (12,767 | ) |
| Loss on modification of debt              |       | —                                     |       | — |   | (3,454 | ) |
| Other (expense) income                    |       | (1                                         | )          | 5 |   | 12 |   |
| Total other expense                       |       | (13,950                                    | )          | (13,511 | ) | (16,181 | ) |
| INCOME BEFORE  PROVISION FOR INCOME TAXES |       | 16,370                                     |       | 13,662 |   | 6,963 |   |
| PROVISION FOR  INCOME TAXES               |       | 6,627                                      |       | 5,487 |   | 2,684 |   |
| NET INCOME                                |       | $                                          | 9,743      |   | $ | 8,175 |   | $ | 4,279 |   |

 

See notes to consolidated financial statements.

21

----

 

**WIICOMPONENTS, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**(Inthousands, except share amounts)**

 
| ** **                        | ** ** | **Common Stock** | ** ** | **Additional** | ** ** | ** **  | ** ** | **Accumulated  Other** | ** ** | ** **        | ** ** |
|-----------------------------------|------------|-----------------------|------------|----------------|------------|-------------|------------|------------------------|------------|-------------------|------------|
| ** **                        | ** ** | **Voting**            | ** ** | **Nonvoting**  | ** ** | **Paid-in** | ** ** | **Retained**           | ** ** | **Comprehensive** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **Shares**            | ** ** | **Amount**     | ** ** | **Shares**  | ** ** | **Amount**             | ** ** | **Capital**       | ** ** | **Earnings** | ** ** | **Income** | ** ** | **Total** | ** ** |
| BALANCE—December  31, 2003   |       | 14,813,827            |       | $              | 148        |        | 1,000,000  |                   | $          | 10                |       | $ | 47,283 |   | $ | 6,552 |   | $ | 141 |   | $ | 54,134 |   |
| Conversion of convertible note    |       | 6,950,000             |       | 70             |       |        |       |                   |       | 20,780            |       |   |   |   |   | 20,850 |   |
| Repurchase of common stock        |       | (3,171,841            | )          | (32            | )          | (145,739    | )          | (1                     | )          | (17,517           | )          |   |   |   |   | (17,550 | ) |
| Dividend distribution             |       |                  |       |           |       |        |       |                   |       | (14,209           | )          | (7,240 | ) |   |   | (21,449 | ) |
| Stock compensation  expense       |       |                  |       |           |       |        |       |                   |       | 844               |       |   |   |   |   | 844 |   |
| Stock issued to  fund acquisition |       | 2,142,857             |       | 21             |       |        |       |                   |       | 8,229             |       |   |   |   |   | 8,250 |   |
| Net income                        |       |                  |       |           |       |        |       |                   |       |              |       | 4,279 |   |   |   | 4,279 |   |
| Derivative instrument             |       |                  |       |           |       |        |       |                   |       |              |       |   |   | (141 | ) | (141 | ) |
| Total comprehensive income        |       |                  |       |           |       |        |       |                   |       |              |       |   |   |   |   | 4,138 |   |
| BALANCE—December  31, 2004   |       | 20,734,843            |       | $              | 207        |        | 854,261    |                   | $          | 9                 |       | $ | 45,410 |   | $ | 3,591 |   | $ | — |   | $ | 49,217 |   |
| Stock  compensation expense       |       |                  |       |           |       |        |       |                   |       | 1,780             |       |   |   |   |   | 1,780 |   |
| Stock issued to  fund acquisition |       | 1,016,488             |       | 10             |       |        |       |                   |       | 4,737             |       |   |   |   |   | 4,747 |   |
| Net income                        |       |                  |       |           |       |        |       |                   |       |              |       | 8,175 |   |   |   | 8,175 |   |
| BALANCE—December  31, 2005   |       | 21,751,331            |       | $              | 217        |        | 854,261    |                   | $          | 9                 |       | $ | 51,927 |   | $ | 11,766 |   | $ | — |   | $ | 63,919 |   |
| Stock  compensation expense       |       |                  |       |           |       |        |       |                   |       | 4,294             |       |   |   |   |   | 4,294 |   |
| Stock issued                      |       | 10,750                |       | 0              |       |        |       |                   |       | 23                |       |   |   |   |   | 23 |   |
| Net income                        |       |                  |       |           |       |        |       |                   |       |              |       | 9,743 |   |   |   | 9,743 |   |
| BALANCE—December 31, 2006    |       | 21,762,081            |       | $              | 217        |        | 854,261    |                   | $          | 9                 |       | $ | 56,244 |   | $ | 21,509 |   | $ | — |   | $ | 77,979 |   |

 

See notes to consolidated financial statements.

22

----

 

**WII COMPONENTS, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands)**
| ** **                                                                         | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                         | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| OPERATING  ACTIVITIES:                                                             |       |                                       |       |   |   |   |   |
| Net income                                                                         |       | $                                          | 9,743      |   | $ | 8,175 |   | $ | 4,279 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                                       |       |   |   |   |   |
| Loss on modification of debt                                                       |       | —                                     |       | — |   | 3,454 |   |
| Depreciation and amortization                                                      |       | 7,925                                      |       | 6,760 |   | 6,071 |   |
| Amortization of debt issue costs                                                   |       | 1,077                                      |       | 1,054 |   | 1,011 |   |
| Deferred income taxes                                                              |       | (1,714                                     | )          | (234 | ) | 145 |   |
| (Gain) loss on sale of assets                                                      |       | (132                                       | )          | 2 |   | (37 | ) |
| Stock compensation expense                                                         |       | 4,294                                      |       | 1,780 |   | 844 |   |
| Change in operating assets and liabilities:                                        |       |                                       |       |   |   |   |   |
| Accounts receivable                                                                |       | 3,360                                      |       | (4,750 | ) | (190 | ) |
| Inventories                                                                        |       | (730                                       | )          | (2,929 | ) | (3,263 | ) |
| Other current assets                                                               |       | 899                                        |       | 649 |   | 1,481 |   |
| Accounts payable                                                                   |       | (1,823                                     | )          | 149 |   | (811 | ) |
| Accrued payroll and other current liabilities                                      |       | 227                                        |       | 2,334 |   | 2,985 |   |
| Other long-term liabilities                                                        |       | 300                                        |       | — |   | — |   |
| Total adjustments                                                                  |       | 13,683                                     |       | 4,815 |   | 11,690 |   |
| Net cash provided by operating activities                                          |       | 23,426                                     |       | 12,990 |   | 15,969 |   |
| INVESTING  ACTIVITIES:                                                             |       |                                       |       |   |   |   |   |
| Purchases of property, plant, and equipment                                        |       | (16,231                                    | )          | (11,136 | ) | (5,733 | ) |
| DMI acquisition                                                                    |       | —                                     |       | (9,289 | ) | — |   |
| Grand Valley acquisition                                                           |       | —                                     |       | — |   | (15,937 | ) |
| DMI earn-out payment                                                               |       | (2,000                                     | )          | — |   | — |   |
| Proceeds from sale of assets                                                       |       | 205                                        |       | 234 |   | 2 |   |
| Change in other assets                                                             |       | —                                     |       | (17 | ) | 59 |   |
| Net cash used in investing activities                                              |       | (18,026                                    | )          | (20,208 | ) | (21,609 | ) |
| FINANCING ACTIVITIES:                                                              |       |                                       |       |   |   |   |   |
| Principal payments under long-term financing  agreements                           |       | (2,256                                     | )          | (16,655 | ) | (92,097 | ) |
| Borrowings of long-term debt                                                       |       | 900                                        |       | 23,500 |   | 135,782 |   |
| Dividend distribution                                                              |       | —                                     |       | — |   | (21,449 | ) |
| Issuance of common stock                                                           |       | 23                                         |       | 4,747 |   | 8,250 |   |
| Repurchase of common stock                                                         |       | —                                     |       | — |   | (17,550 | ) |
| Debt issuance costs                                                                |       | —                                     |       | (395 | ) | (7,385 | ) |
| Termination of interest rate collar                                                |       | —                                     |       | — |   | 52 |   |
| Net cash (used in) provided by financing activities                                |       | (1,333                                     | )          | 11,197 |   | 5,603 |   |
| NET INCREASE  (DECREASE) IN CASH                                                   |       | 4,067                                      |       | 3,979 |   | (37 | ) |
| Cash and cash  equivalents—Beginning of period                                |       | 3,981                                      |       | 2 |   | 39 |   |
| Cash and cash  equivalents—End of period                                      |       | $                                          | 8,048      |   | $ | 3,981 |   | $ | 2 |   |
| SUPPLEMENTAL  CASH FLOW INFORMATION:                                               |       |                                       |       |   |   |   |   |
| Cash paid for interest                                                             |       | $                                          | 12,884     |   | $ | 12,498 |   | $ | 9,050 |   |
| Cash paid for income taxes—net                                                |       | $                                          | 8,345      |   | $ | 3,682 |   | $ | 664 |   |
| NONCASH  ACTIVITY:                                                                 |       |                                       |       |   |   |   |   |
| Capital Expenditures in Accounts Payable                                           |       | $                                          | 419        |   | $ | 651 |   | $ | — |   |
| Note receivable in connection with the sale of  property, plant and equipment      |       | $                                          | 167        |   | $ | — |   | $ | — |   |
| DMI earn out-contingent consideration                                              |       | $                                          | 1,000      |   | $ | 2,000 |   | $ | — |   |
| Conversion of  subordinated convertible note and accrued interest to common stock  |       | $                                          | —     |   | $ | — |   | $ | 20,850 |   |

 

See notes to consolidated financial statements.

23

----

 

**WII COMPONENTS, INC. AND SUBSIDIARIES**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

###### **DECEMBER 31, 2006 AND 2005**

**1. NATURE OF BUSINESS**

***CompanyBackground***  WII Components, Inc. (formerly WIIHoldings, Inc. and referred to herein as the “Company”), a Delaware corporation,was formed to acquire 100% of the common stock of WoodcraftIndustries, Inc. and Subsidiaries in a buyout (the “Acquisition”) from theformer owners. On April 9, 2003, pursuant to a sale agreement between WIIComponents, Inc. and the former owners, WII Components, Inc. acquiredthe common stock of Woodcraft Industries, Inc. for a total ofapproximately $145.0 million. For accounting purposes, the acquisitiondate was considered to be April 1, 2003. WII Components, Inc. has noassets or operations independent of its subsidiaries other than the seniornotes discussed in Note 6 and its investments in guarantor subsidiaries.

InFebruary 2004, WII Components, Inc. completed an equity restructuringusing the proceeds from its $120.0 million 10% senior notes offering(Note 6) to pay off the outstanding term loans and revolving line ofcredit, to pay a dividend of approximately $21.5 million, to repurchaseapproximately $17.5 million of the Company’s outstanding common stock, andto pay financing costs of approximately $7.4 million.

TheCompany acquired a cabinet door manufacturer operating under the name GrandValley Door Co. (“Grand Valley”) on April 30, 2004.

TheCompany acquired substantially all of the assets of a molding manufactureroperating under the name Dimension Moldings, Inc. on July 28, 2005 (Note5).  Those assets are being operated as adivision of Woodcraft Industries, Inc, which is referred to as WoodcraftMiddlefield.

***Descriptionof Business***  The Company is a leading manufacturer of woodcabinet doors, hardwood components, and engineered wood products in the UnitedStates. Its products are sold principally to leading national and regionalkitchen and bathroom cabinet manufacturers. Its reputation for high quality andreliable performance has enabled the Company to establish strong, long-standingrelationships with its customers. Its customers, in turn, distribute productsthrough various sales channels, including specialty kitchen and bathroomcabinetry dealers, home center retailers, and homebuilders.

***Principles ofConsolidation***  The consolidated financial statementsinclude the accounts of the Company and its wholly owned subsidiaries. On April9, 2003, the Company completed the acquisition of WoodcraftIndustries, Inc. and its wholly owned subsidiaries, PrimeWood, Inc. (“PrimeWood”)and Brentwood Acquisition, Corp. (“Brentwood”). On April 30, 2004 the Company completed the acquisition of Grand Valley,and on July 28, 2005 the Company completed the acquisition of substantially allof the assets of Dimension Moldings, Inc. (Note 5).  Grand Valley was merged with and intoWoodcraft Industries, Inc. on December 31, 2006.  All intercompany accounts and transactions havebeen eliminated in the preparation of the consolidated financial statements.

**2. SIGNIFICANT ACCOUNTING POLICIES**

***Cash Equivalents***  All highlyliquid investments with a maturity of three months or less at the date ofpurchase are considered to be cash equivalents.

***RevenueRecognition***  Sales are recognized when revenue is realizedor realizable and has been earned.  TheCompany’s policy is to recognize revenue and the related cost of sales whenrisk and title passes to the customer. This is generally on the date of shipment, however certain sales areshipped FOB destination and revenue is recognized when received by thecustomer.  Freight billed to customers isincluded in sales and shipping costs are included in cost of sales.  Rights of return amounts are estimable, andthe Company records provisions for anticipated returns at the time revenue isrecognized based on historical experience and current trends.  Provisions for sales returns are recorded asa reduction of net sales.

24

----

 

***Concentration of Credit Risk***  Accountsreceivable comprises primarily trade receivables related to the sale of theCompany’s products to its customers, primarily in the United States. TheCompany’s customers representing 10% or more of consolidated sales are asfollows:

 
| ** ** | ** ** | **Year Ended December 31,** | ** ** |
|------------|------------|--------------------------------------------|------------|
| ** ** | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| A          |       | 36.2                                       | %          | 27.4 | % | 16.9 | % |
| B          |       | 17.0                                       |       | 17.1 |   | 20.1 |   |

 

The Company’s customers that represent 10% or more of consolidatedaccounts receivable as of December 31 are as follows:

 
| ** ** | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------|------------|----------|------------|----------|------------|
| A          |       | 38.5     | %          | 33.7     | %          |
| B          |       | 13.5     |       | 10.7     |       |

 

***Inventories ***Inventories as of December 31 consisted of the following (in thousands):

 
| ** **      | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
| Raw materials   |       | $        | 12,270     |     | $          | 11,369 |   |
| Work in process |       | 4,768    |       | 5,954    |       |
| Finished goods  |       | 5,037    |       | 4,360    |       |
| LIFO adjustment |       | (575     | )          | (913     | )          |
|            |       | $        | 21,500     |     | $          | 20,770 |   |

 

The majority of inventory isvalued at the lower of last-in, first-out (“LIFO”) cost or market. Theremainder of the inventory is valued under the first-in, first-out method (“FIFO”).As of December 31, 2006, and 2005, inventory on the LIFO methodrepresented 61% and 59% of the inventory balance, respectively.

***Property, Plant, and Equipment*** Improvements are capitalized and expenditures for maintenance andrepairs are charged to operations as incurred. Depreciation is computed usingthe straight-line method (for financial reporting purposes) and the acceleratedmethod (for income tax reporting purposes). Estimated useful lives forfinancial reporting purposes are as follows:

 
| Buildings and  yards          |   | 20 - 40 years |   |
|-------------------------------|--------|---------------|--------|
| Equipment  (machinery)        |   | 7 - 10 years  |   |
| Equipment (computer  related) |   | 3 - 5 years   |   |

 

Equipment includes assets under capital leases of $2.4 million and $5.0million and accumulated depreciation and amortization related to such assets of$0.9 million and $2.3 million at December 31, 2006 and 2005, respectively.

Depreciation for the years ended December 31, 2006,  2005, and 2004 was $5.8 million, $5.2million, and $5.0 million, respectively.

***Goodwill***  TheCompany accounts for goodwill in accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 142, *Goodwilland Other Intangible Assets*. In part, SFAS No. 142 states thatcompanies must evaluate goodwill for impairment at least annually.  The Company has elected to perform its annualtests for goodwill impairment as of December 31 of each year. Fair valueis measured using a market multiple valuation method.

***Customer Relationship ***Customer relationship relates to an intangibleasset recorded through the purchase price allocation of the Grand Valleyacquisition and the acquisition of the assets of Dimension Moldings, Inc. forrelationships with a significant customer.  The original cost of these customerrelationships is $16.6 million, and the related accumulated amortization as ofDecember 31, 2006 is $3.4 million.  Theintangible assets are being amortized over the estimated life of 10 years.Amortization for the year 

25

----

ended December 31,2006 was $1.7 million.  Expectedamortization is as follows for the years ended December 31 (in thousands):

 

 
| 2007      |   | $     | 1,658  |   |
|-----------|--------|-------|--------|--------|
| 2008      |   | 1,657 |   |
| 2009      |   | 1,658 |   |
| 2010      |   | 1,657 |   |
| 2011      |   | 1,658 |   |
| 2012-2015 |   | 4,951 |   |

 

***Noncompete Agreement***  Noncompete agreements primarily relate toagreements with the former owners of Brentwood, Grand Valley, and DimensionMoldings, Inc. The original cost of these noncompete agreements is $2.4million, and the related accumulated amortization as of December 31, 2006 is$2.0 million.  Noncompete rights arebeing amortized over the applicable terms of the agreements (5 years,7 years, and 5 years, respectively), and are expected to be fullyamortized by July 2007, April 2011, and July 2010, respectively.  Amortization for the years ended December 31,2006, 2005, and 2004 was $464,000, $453,000, and $516,000, respectively.  As of December 31, 2006 the net noncompeteintangible asset was $0.4 million. Expected amortization is as follows for the years ended December 31(in thousands):

 
| 2007 |   | $  | 285    |   |
|------|--------|----|--------|--------|
| 2008 |   | 34 |   |
| 2009 |   | 34 |   |
| 2010 |   | 26 |   |
| 2011 |   | 5  |   |

 

***OtherAssets***  Other assets primarily represent financingfees and are amortized straight-line, which approximates the effective interestmethod, over the term of the related financing agreement. During 2004 thecompany terminated its credit agreement and recorded a loss of $3.5 million.

***Impairmentof Long-Lived Assets***  The Company evaluates the carrying value oflong-lived assets for impairment when events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. If impairmentindicators are present and the estimated future undiscounted cash flows areless than the carrying value of the assets, the carrying value is reduced tothe estimated fair value as measured by the associated discounted cash flows.There was no impairment write-downs during any of the periods presented.

***Fair Value of FinancialInstruments***  The carrying amounts of cash and cashequivalents, accounts receivable, accounts payable and accrued liabilities arethe approximate fair value, because of the short maturity of theseinstruments.  The fair value of long-termdebt is based on quoted market prices for the same or similar issues or on thecurrent rates offered to the Company for a term equal to the same remainingmaturities.  The fair value of the TermLoan (Note 6) approximates the carrying amount due to the variable interestrate on this obligation.  Based on quotedmarket values, the fair value of the Senior Notes was determined to be $123.6million and $118.2 million at December 31, 2006 and December 31, 2005,respectively.

***OtherCurrent Liabilities ***Other current liabilities consisted of thefollowing (in thousands):
|                                           | ** ** | **December 31,** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|
| ** **                                | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Self-insurance  reserve                   |       | $                     | 2,004      |   | $ | 1,789 |   |
| Accrued interest  expense                 |       | 4,645                 |       | 4,617 |   |
| Income tax  payable                       |       | 1,266                 |       | 1,270 |   |
| Contingent  consideration of acquisitions |       | 1,000                 |       | 2,000 |   |
| Accrued Bonuses                           |       | 782                   |       | 819 |   |
| Other                                     |       | 2,404                 |       | 2,532 |   |
|                                      |       | $                     | 12,101     |   | $ | 13,027 |   |

 

The Company is partially self-insured for medical andworkers’ compensation costs, subject to maximum individual stop-lossamounts.  The Company has establishedreserves related to insurance that are included in other current liabilities asnoted above.

***IncomeTaxes***  The Company accounts for income taxes inaccordance with the liability method of accounting, which requires recognitionof deferred tax assets and liabilities for the expected future tax consequencesof events that were included in the consolidated financial statements and taxreturns. Under this method, deferred tax assets and liabilities are determinedbased on the difference between the financial statement and tax basis of assetsand liabilities using enacted tax rates expected to be in

26

----

 

effect for the year in which the differences are expectedto reverse. The Company records a valuation allowance when it is more likelythan not that the net deferred tax assets will not be realized.

***Stock Options*** Information regarding stock options under all plans is summarized asfollows:
|                                                 | ** ** | **Year Ended  December 31,**2006 | ** ** | **Year Ended  December 31,**2005 | ** ** | **Year Ended  December 31,**2004 | ** ** |
|-------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                      | ** ** | **Options**                                | ** ** | **Weighted  Average  Exercise  Price**     | ** ** | **Options**                                | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| Outstanding,  beginning of period               |       | 2,351,000                                  |       | $                                          | 2.62       |                                       | 2,056,000  |   | $ | 2.32 |   | 1,617,000 |   | $ | 3.00 |   |
| Granted                                         |       | 250,000                                    |       | 5.51                                       |       | 295,000                                    |       | 4.67 |   | 539,000 |   | 3.85 |   |
| Exercised                                       |       | 10,750                                     |       | 2.12                                       |       |                                       |       |   |   |   |   |   |   |
| Canceled                                        |       | 71,750                                     |       | 4.26                                       |       |                                       |       |   |   | 100,000 |   | 1.78 |   |
| Outstanding, end  of period                     |       | 2,518,500                                  |       | $                                          | 2.86       |                                       | 2,351,000  |   | $ | 2.62 |   | 2,056,000 |   | $ | 2.32 |   |
| Vested or  expected to vest, end of period      |       | 2,415,673                                  |       | $                                          | 2.87       |                                       |       |   |   |   |   |   |   |   |
| Exercisable, end  of period                     |       | 1,452,125                                  |       | $                                          | 2.28       |                                       | 893,250    |   | $ | 2.09 |   | 379,250 |   | $ | 1.78 |   |
| Weighted average  fair value of options granted |       |                                       |       | $                                          | 1.43       |                                       |       |   | $ | 1.03 |   |   |   | $ | .80 |   |

 

InApril 2003, the 2003 Stock Option and Grant Plan (“2003 Plan”) wasapproved by the stockholders of the Company. The 2003 Plan allows the grantingof both incentive stock options and nonqualified stock options. Under the termsfor the 2003 Plan, a maximum of 2,500,000 shares of stock, subject toadjustment, were made available for awards to officers, employees, directors,consultants, and other key persons of the Company. Awards may include, but arenot limited to, stock options, restricted stock, unrestricted stock awards, andsubstitute performance awards.  Option awards are generally granted with anexercise price equal to the calculated fair market value of the Company’sstock.  Options generally vest over fouryears and have 10-year contractual terms. On May 31, 2006, the 2003 Plan was amended by the Board to provide forthe issuance of an additional 500,000 options for a total of 3,000,000 options.  The stockholders approved the amendment onJune 8, 2006.

In May 2003, 1,617,000 options were granted withterms of 10 years from the date of grant, and at an exercise price of$3.00 per share under the 2003 Plan.  Thefair value of options granted during the nine months ended December 31,2003 was estimated on the date of the grant using the Black-Scholesoption-pricing model with the following assumptions: a risk-free interest rateof 3.0%, an expected life of six years, and no volatility.  During 2004, 100,000 options were cancelled.  As a part of the February 2004 equityrestructuring (Note 6), the Company repriced the outstanding stockoptions. The Company has adopted variable plan accounting for these optionsfrom the date of the repricing.  During2006, 71,750 options were cancelled, and 10,750 options were exercised.

InApril and November 2004, the Company granted 489,000 and 50,000 options,respectively under the 2003 Plan. The fair value of these options was estimatedon the date of the grant using the Black-Scholes option-pricing model with thefollowing assumptions: a risk-free interest rate in April and November of 3.9%and 4.2%, respectively, an expected life of six years, and no volatility.

InAugust and October 2005, the Company granted 255,000 and 40,000 options,respectively, under its 2003 Plan. The fair value of these options wasestimated on the date of the grant using the Black-Scholes option-pricing modelwith the following assumptions: a risk-free interest rate in August and Octoberof 4.2% and 4.4%, respectively, an expected life of six years, and novolatility.

Effective January 1, 2006 the Company adopted Statement of FinancialAccounting Standards No. 123(R), *Share Based Payment*(SFAS No. 123(R)), which requires all share-based payments, including grants ofstock options, to be recognized in the statement of operations as an operatingexpense, based on their fair values over the requisite service period. Prior to2006, the Company utilized the minimum value method for pro forma disclosurepurposes under SFAS No. 123, *Accounting for Stock-BasedCompensation*.  In conjunctionwith the adoption of SFAS 123(R), the Company utilized the prospectivetransition method as permitted by SFAS 123(R). Under this transition method,SFAS No. 123(R) is applied prospectively to all new awards issued as well asawards modified, repurchased, or cancelled

27

----

 

afterthe effective date.  The Companycontinued to account for the 2,351,000 options outstanding at the effectivedate of SFAS 123(R) using the accounting principles originally applied to thoseoptions.  The Company recorded$4,294,000, $1,780,000 and $844,000 for the years ended December 31, 2006,2005, and 2004, respectively, of related stock-based compensation expense. Ofthe $4,294,000, $67,000 was the incremental impact related to the 2006 adoptionof SFAS 123(R).  The total income taxbenefit for share-based compensation arrangements was $1,739,000, $715,000 and$325,000 for the years ended December 31, 2006, 2005, and 2004, respectively.  In accordance with the prospective transitionmethod of SFAS 123(R), results for prior periods have not been restated.

As of December 31, 2006, $786,000 of unrecognized compensation costsrelated to non-vested awards is expected to be recognized over a weightedaverage period of approximately four months. In addition, $286,000 of unrecognized compensation costs related tonon-vested awards is expected to be recognized over a weighted average periodof approximately two years six months. The remaining weighted average contractual life for options outstanding,vested or expected to vest, and exercisable as of December 31, 2006 is 7.1,7.1, and 6.6 years respectively.

OnMarch 9, 2006 the Company issued 10,000 stock options under the 2003 Plan to anemployee.  The options vest over a fouryear period, and have an exercise price per share of $4.74 at the date ofissuance.  The Company used theBlack-Scholes option pricing model to determine the weighted average fair valueof options. The weighted average fair value of options was calculated to be$1.80 per share.

On May31, 2006 the Company issued 80,000 stock options under the 2003 Plan to anemployee.  The options vest over a fouryear period, and have an exercise price per share of $5.54 at the date ofissuance.  The Company used theBlack-Scholes option pricing model to determine the weighted average fair valueof options. The weighted average fair value of options was calculated to be$2.21 per share.

On May 31, 2006 the Company issued 160,000 incentivestock options under the 2003 Plan to an employee.  The options fully vest at the earlier of asale event or June 30, 2009, and have an exercise price per share of $5.54 atthe date of issuance.  The options’exercise price increases by $0.83 on July 1, 2007, and each anniversary datethereafter until termination of the options. The Company used a bi-nominal option pricing model to determine theaverage fair value of these options due to this adjusting exercise price.  The fair value of these options wascalculated to be $1.02 per share.  Theactivity for these options is immaterial and is therefore not statedseparately, but included in the tables above with the other option activity.

TheCompany uses the Black-Scholes option pricing model to determine the weightedaverage fair value of the non-adjusting exercise price options, and abi-nominal option pricing model for the adjusting exercise price options asdescribed above. The weighted average fair value of options granted during theyear ended December 31, 2006 was $1.43. The fair value of options at the dateof grant and the weighted-average assumptions utilized to determine such valuesare indicated in the following table:

 

|                           | ** ** | **Year Ended  December 31, 2006** | ** ** |
|---------------------------|------------|--------------------------------------------------|------------|
| Risk-free  interest rate  |       | 4.94                                             | %          |
| Expected  volatility      |       | 28.0                                             | %          |
| Expected life  (in years) |       | 6.5                                              |       |
| Dividend yield            |       | —                                           |       |

 

The risk-free interest rate is based on a treasury instrument whose termis consistent with the expected life of our stock options.  The expected volatility is based on theaverage historical volatility of the stock of similar companies with publiclytraded shares.  The Company estimated theexpected life of the stock options and stock option forfeitures based onhistorical experience.  As a result ofthe Merger (Note 12), all outstanding stock options were terminated andcanceled on January 9, 2007, and there are currently no stock options of theCompany issued and outstanding.

***DerivativeInstruments and Hedging Activities***  All derivatives, whetherdesignated in hedging relationships or not, are recorded on the balance sheetat fair value. If the derivative is designated in a cash flow hedge, changes inthe fair value of the derivative are recorded in other comprehensive income andrecognized in the statement of operations when the hedged item affectsearnings. SFAS No. 133, *Accounting forDerivative Instruments and Hedging Activities*, as amended, definesthe requirements for designation and documentation of hedging relationships aswell as ongoing effectiveness assessments in order to use hedge accounting. Fora derivative that is not designated as or does not qualify as a hedge, changesin fair value are recognized in earnings. Management has determined that theCompany has no freestanding or embedded derivatives as of December 31, 2006.  The Company’s policy is to not usefreestanding derivatives for speculative purposes.

28

----

 

***Useof Estimates***  The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

***New Accounting Pronouncements***In November 2004, the FASB issued SFAS No.151, *Inventory Costs*.  This Statement requires that abnormal amountsof idle facility expense, freight, handling costs, and spoilage be recognizedas current period charges.  The Statementalso requires that fixed production overhead be allocated to conversion costsbased on the normal capacity of the production facilities.  SFAS No. 151 was effective for inventorycosts incurred by the Company beginning January 1, 2006.  The adoption of this Statement did not have amaterial impact on the Company’s consolidated financial position, results ofoperations, or cash flows.

In July 2006, theFASB issued FASB Interpretation No. (FIN) 48, *Accountingfor Uncertainty in Income Taxes, an interpretation of FASB Statement 109,*which clarifies the accounting for uncertainty in income taxes recognized inaccordance with FASB Statement No. 109, *Accountingfor Income Taxes.*FIN 48 is a comprehensive model for how a company shouldrecognize, measure, present, and disclose in its financial statements uncertaintax positions that the company has taken or expects to take in a tax return. Ifan income tax position exceeds a more likely than not (greater than 50%)probability of success upon tax audit, the company will recognize an income taxbenefit in its financial statements. Additionally, companies are required toaccrue interest and related penalties, if applicable, on all tax exposuresconsistent with jurisdictional tax laws. This interpretation is effective onJanuary 1, 2007 for WII Components, Inc. and the Company is currently in theprocess of evaluating the impact of this interpretation on its financialcondition or results of operations.

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*. SFAS No. 157defines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles and expands disclosures about fairvalue measurements. This Statement applies under other accountingpronouncements that require or permit fair value measurements, the FASB havingpreviously concluded in those accounting pronouncements that fair value is therelevant measurement attribute. Accordingly, this Statement does not requireany new fair value measurements. SFAS No. 157 is effective for fiscal yearsbeginning after December 15, 2007. We plan to adopt SFAS No. 157 beginning inthe first quarter of fiscal 2008. We are currently evaluating the impact, ifany, the adoption of SFAS No. 157 will have on our operating income or netearnings.

In February 2007, FASB Issued SFAS No. 159, *Establishing the Fair Value Option for FinancialAssets and Liabilities*(SFAS 159). The Financial AccountingStandards Board has issued SFAS 159 to permit all entities to choose to elect,at specified election dates, to measure eligible financial instruments at fairvalue. An entity shall report unrealized gains and losses on items for whichthe fair value option has been elected in earnings at each subsequent reportingdate, and recognize upfront costs and fees related to those items in earningsas incurred and not deferred. SFAS 159 applies to fiscal years beginning afterNovember 15, 2007, or our 2008 fiscal year, with early adoption permittedfor an entity that has also elected to apply the provisions of SFAS 157, FairValue Measurements. An entity is prohibited from retrospectively applying SFAS159, unless it chooses early adoption. SFAS 159 also applies to eligible itemsexisting at November 15, 2007 (or early adoption date). The Company hasnot completed its analysis but does not expect the adoption of SFAS 159 to havea material effect on the Company’s financial condition or results ofoperations.

**3. BUSINESS SEGMENTS**

The Company conducts its businesswithin one reportable segment: the wood kitchen and bath products segment. TheCompany has two primary product categories: hardwood products and engineeredwood products. Hardwood products produce a comprehensive line of hardwood doorsand components. Engineered wood products includes rigid thermofoil doors andcomponents, veneer raised panels, and wrapped profiles.

The Company’s sales by productcategory are as follows (in thousands):

|                           | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------|------------|--------------------------------------------|------------|
| ** **                | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Hardwood  products        |       | $                                          | 233,392    |   | $ | 201,402 |   | $ | 150,713 |   |
| Engineered wood  products |       | 52,241                                     |       | 58,201 |   | 52,353 |   |
| Total                     |       | $                                          | 285,633    |   | $ | 259,603 |   | $ | 203,066 |   |

 

29

----

 

Substantially all sales are madewithin North America.

**4. GOODWILL**

TheCompany has elected to perform its annual tests for goodwill impairment as ofDecember 31 of each year.  Based onthe impairment test performed on December 31, 2006, the Company’s fairvalue exceeds the carrying value, resulting in no goodwill impairment.

The changes in the carryingamount of goodwill were as follows (in thousands):

|                                   | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------|------------|--------------------------------------------|------------|
| ** **                        | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Balance—Beginning  of period |       | $                                          | 107,748    |   | $ | 107,601 |   | $ | 104,041 |   |
| Goodwill  acquired                |       | —                                     |       | — |   | 3,770 |   |
| DMI contingent  consideration     |       | 1,000                                      |       | — |   | — |   |
| Purchase  accounting adjustment   |       | —                                     |       | 147 |   | (210 | ) |
| Balance—End of period        |       | $                                          | 108,748    |   | $ | 107,748 |   | $ | 107,601 |   |

 

**5. ACQUISITIONS**

On July 28, 2005, theCompany acquired substantially all of the assets of a moldings manufacturingcompany operating under the name of Dimension Moldings, Inc.  The Company paid a cash purchase price atclosing of $9.3 million and will be required to pay up to an aggregate of$7.0 million if certain earnings targets are met at the end of each calendaryear from 2005 to 2010, which may be accelerated upon certain events.  In the first quarter 2006, the Company paid$2.0 million to the sellers of Dimension Moldings as a result of the acquiredbusiness meeting the earnings target set for 2005 and this was included in theclosing purchase price.  Slightly lessthan half of the purchase price paid at closing was funded with borrowingsunder the 2005 Senior Credit Facility and the remainder was funded from theproceeds of an equity contribution from existing stockholders. The acquiredassets of Dimension Moldings, Inc are now operated and owned by WoodcraftIndustries, Inc., the Company’s subsidiary.

The acquisition of theassets of Dimension Moldings, Inc. was accounted for using the purchase methodof accounting. Accordingly, the assets acquired and the liabilities assumed bythe Company were recorded at fair value as of the date of the acquisition,including assigning value to certain intangible assets acquired (a customerrelationship for $8.7 million and a noncompete for $0.1 million).  Based on the purchase price allocation, theCompany determined the fair value of the net assets acquired exceeded the $9.3million closing purchase price by approximately $2.0 million.  As a result, the Company recorded a currentliability of $2.0 million, which was paid in the first quarter of 2006.  Any additional contingent consideration paidin excess of the original purchase price allocation will be recorded asgoodwill.  Based on year-to-date resultsthe earnings targets were met for 2006. The Company therefore accrued $1.0 million contingent consideration atJune 30, 2006, the maximum earn-out payment for the year, which was allocatedto goodwill. The components of the purchase price allocation are as follows (inthousands):

 
| Current assets                  |   | $      | 1,504  |   |
|---------------------------------|--------|--------|--------|--------|
| Property, plant,  and equipment |   | 1,271  |   |
| Goodwill                        |   | 147    |   |
| Customer  Relationship          |   | 8,704  |   |
| Noncompete  agreement           |   | 100    |   |
| Assets acquired                 |   | 11,726 |   |
| Liabilities  assumed            |   | (437   | )      |
| Net assets  acquired            |   | 11,289 |   |
| Contingent  consideration       |   | (2,000 | )      |
| Closing purchase price          |   | $      | 9,289  |   |

 

As aresult of the Merger on January 9, 2007, the remaining $5.0 million potentialearnout obligation, which includes the $1.0 accrued at June 30, 2006, wasaccelerated and paid.

30

----

 

**6. FINANCING ARRANGEMENTS**

Long-term debt consisted of the following (in thousands):

 
| ** **                                     | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Senior notes  (10%) due 2012                   |       | $                           | 120,000    |                        | $          | 120,000 |   |
| Term loan (10%  at December 31, 2006) due 2010 |       | 7,500                       |       | 7,500                       |       |
| Total debt                                     |       | 127,500                     |       | 127,500                     |       |
| Less current maturities                        |       | —                      |       | —                      |       |
|                                           |       | $                           | 127,500    |                        | $          | 127,500 |   |

 

***Senior Notes ***On February 18,2004, the Company completed the offering of $120 million of 10% seniornotes due 2012. The net proceeds of the offering of the senior notes were usedto pay off the outstanding term loans and revolving line of credit, to pay adividend of approximately $21.5 million, to repurchase approximately$17.5 million of the Company’s outstanding common stock, and to payfinancing costs of $7.4 million. Additionally in February 2004, theCompany entered into a new $25 million revolving line of credit.

Eachof the Company’s subsidiaries, which are all 100% owned subsidiaries of theCompany, have fully and unconditionally guaranteed the senior notes on a jointand several basis. The Company has no assets or operations independent of itssubsidiaries other than the senior notes and its investments in guarantorsubsidiaries.  As a result, the Companyhas not presented separate financial statements of the subsidiary guarantors.

***Credit Facility***** On September 23, 2005, the Company enteredinto an Amended and Restated Credit Facility (the “2005 Senior Credit Facility”)amending its prior $25.0 million revolving line of credit.  The 2005 Senior Credit Facility included a$40.0 million revolving line of credit, a $7.5 million nonamortizing term loan,and a $7.5 million nonamortizing capital expenditure loan to be drawn uponthrough June 30, 2006.  As of June 30,2006 the nonamortizing capital expenditure loan had expired.  The outstanding principal bears interest at afluctuating rate equal to the base rate plus 2.75% per annum or LIBOR plus 3.0%per annum.  It is optional for theCompany, without penalty, to prepay the term loan throughout the loan commitmentperiod.

TheCompany’s 2005 Senior Credit Facility and the indenture for the notes imposecertain restrictions on our ability to incur indebtedness, pay dividends, makeinvestments, grant liens, sell our assets and engage in certain otheractivities. The Company must comply withcertain financial covenants under the credit facility including maintenance ofa minimum fixed charge coverage ratio, a maximum total leverage ratio and anEBITDA minimum. As of December 31, 2006 the Company was in compliance withthese covenants.  Indebtednessunder the 2005 Senior Credit Facility is secured by substantially all of theassets, including real and personal property, inventory, accounts receivable,intellectual property and other intangibles.

As aresult of the Merger on January 9, 2007, the 2005 Senior Credit Facility wasterminated, and all outstanding borrowings thereunder were repaid.

***Subordinated Convertible Debt ***The Company issuedapproximately $20 million of 5% Convertible Subordinated Notes dueApril 9, 2004 in April 2003. These notes were convertible at any timeprior to maturity, unless previously redeemed, at the option of the holdersinto shares of the Company’s common stock at a conversion price of $3.00 pershare, subject to certain adjustments. The notes were subordinated to the Company’ssenior indebtedness. The notes were not subordinated to the Company’s tradepayables or other general creditors of the Company. On February 9, 2004,these notes, along with approximately $0.9 million of related accruedinterest, were converted into approximately 7.0 million shares of theCompany’s $0.01 par value common stock.

***CreditAgreement and Term Loans***  In April 2003 the Company entered into a$90,500,000 credit facility that provides for $75,500,000 in term loans and arevolving line of credit of $15,000,000. In July 2003, the Company entered into a three-year interest ratecollar transaction with a notional amount of $55,550,000 to limit the interestrate (LIBOR rate) on a portion of this variable rate debt between a floor of1.2% and a cap of 6.0%.  The Companydiscontinued this interest rate hedge in connection with the repayment of itsold credit facility as described above, resulting in the receipt ofapproximately $52,000 upon settlement in 2004.

***Maturitiesof Long-Term Debt***  The Company has no long-term debt maturinguntil after December 31, 2010.  TheCompany’s $120 million of 10% senior notes are set to mature in February 2012.

31

----

 

***Capital Leases***  TheCompany leases certain equipment under capital lease agreements with interestrates of 3.65% to 4.97%. The agreements expire at various dates through 2008.Future minimum lease payments required under these capital leases atDecember 31, 2006 are as follows (in thousands):

 
| **Year Ending December 31**                | ** ** | ** ** | ** ** |
|-----------------------------------------------------------|------------|------------|------------|
| 2007                                                      |       | $          | 623        |   |
| 2008                                                      |       | 545        |       |
| Total capital  lease obligations                          |       | 1,168      |       |
| Less amount  representing interest                        |       | 57         |       |
| Present value of  capital lease obligations               |       | 1,111      |       |
| Less current  maturities                                  |       | 581        |       |
| Capital lease  obligations—net of current maturities |       | $          | 530        |   |

 

**7. COMMITMENTS AND CONTINGENCIES**

***Operating Leases***  TheCompany is obligated under various operating leases for warehouse space andplant equipment. Rental expense under these agreements was approximately$599,000 for the year ended December 31, 2006, $289,000 for the year endedDecember 31, 2005, and $290,000 for the year ended December 31, 2004. Futureminimum lease payments are as follows (in thousands) as of December 31,2006:

 
| **Year Ending December 31** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|------------|------------|
| 2007                                       |       | $          | 656        |   |
| 2008                                       |       | 633        |       |
| 2009                                       |       | 582        |       |
| 2010                                       |       | 447        |       |
| 2011                                       |       | 406        |       |
|                                       |       | $          | 2,724      |   |

 

***WoodcraftIndustries, Inc. Retirement Assurance Plan***  TheCompany sponsors a 401(k) and profit sharing plan which covers certainfull-time employees who meet eligibility requirements as to age and length ofservice. Employees are allowed to make pretax contributions up to the maximumamount permitted by law. Employer contributions to the plan are made at thediscretion of the Board of Directors. The Company’s contribution wasapproximately $666,000, $596,000, and $488,000 during the years ended December31, 2006, 2005 and 2004, respectively.

***Litigation***  In thenormal course of business, the Company is subject to various instances oflitigation. In the opinion of the Company’s management and legal counsel, theultimate settlement of such matters will not have a material adverse effect onthe Company’s financial position, results of operations, or cash flows.

**8. INCOME TAXES**

The provision for income taxesconsisted of the following (in thousands):

|                                 | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------|------------|--------------------------------------------|------------|
| ** **                      | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Current  provision:             |       |                                       |       |   |   |   |   |
| Federal                         |       | $                                          | 6,916      |   | $ | 4,465 |   | $ | 2,210 |   |
| State                           |       | 1,425                                      |       | 1,259 |   | 329 |   |
|                            |       | 8,341                                      |       | 5,724 |   | 2,539 |   |
| Deferred tax  (benefit) expense |       | (1,714                                     | )          | (237 | ) | 145 |   |
| Provision for income  taxes     |       | $                                          | 6,627      |   | $ | 5,487 |   | $ | 2,684 |   |

 

 

The provision for income taxesdiffers from the amount of income tax determined by applying the U.S. federaltax rate to pretax income due to the following:

32

----

 
|                                                      | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                           | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Tax provision at  federal rate                       |       | $                                          | 5,730      |   | $ | 4,782 |   | $ | 2,367 |   |
| Increase  (decrease) in income taxes resulting from: |       |                                       |       |   |   |   |   |
| Nondeductible expenses                               |       | 29                                         |       | 29 |   | 121 |   |
| Federal tax credits                                  |       | (125                                       | )          | (125 | ) | (125 | ) |
| Section 199                                          |       | (209                                       | )          | (158 | ) | — |   |
| State income taxes—net of federal benefit       |       | 970                                        |       | 865 |   | 321 |   |
| Other                                                |       | 232                                        |       | 94 |   | — |   |
| Provision for income  taxes                          |       | $                                          | 6,627      |   | $ | 5,487 |   | $ | 2,684 |   |

 

Net deferred tax assets(liabilities) consist of the following components as of December 31:
| ** **                             | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|
| Depreciation                           |       | $        | (5,716     | )        | $          | (5,893 | ) |
| Noncompete  agreements                 |       | 1,224    |       | 1,286    |       |
| Goodwill and other  amortizable assets |       | (229     | )          | (283     | )          |
| Accruals                               |       | 2,774    |       | 1,136    |       |
| Inventory                              |       | (592     | )          | (857     | )          |
| Capital leases                         |       | 289      |       | 768      |       |
| Bad debt expense                       |       | 41       |       | 47       |       |
| Accrued payroll  and health insurance  |       | 1,071    |       | 944      |       |
| Net deferred tax  liabilities          |       | $        | (1,138     | )        | $          | (2,852 | ) |
| Whereof:                               |       |     |       |     |       |
| Current                                |       | $        | 1,422      |     | $          | 1,163 |   |
| Noncurrent                             |       | (2,560   | )          | (4,015   | )          |
|                                   |       | $        | (1,138     | )        | $          | (2,852 | ) |

 

The Company issubject to audits in the tax jurisdictions in which it operates.  Upon audit, these taxing jurisdictions couldretroactively disagree with our tax treatment of certain items.  Consequently, the actual liabilities withrespect to any year may be determined long after financial statements have beenissued.  The Company establishes taxreserves for estimated tax exposures. These potential exposures result from varying applications of statutes,rules, regulations, case law and interpretations.  The settlement of these exposures primarilyoccurs upon finalization of tax audits. However, the amount of the exposures can also be impacted by changes intax laws and other factors.  The Companybelieves that it has established the appropriate reserves for these estimatedexposures.  However, actual results maydiffer from these estimates.  Theresolution of these tax matters will not have a material effect on the consolidatedfinancial condition of the Company, although a resolution could have a materialimpact on the Company’s consolidated statement of operations for a particularfuture period and on the Company’s effective tax rate.

**9. STOCKHOLDERS’EQUITY**

The Company’s Amended andRestated Certificate of Incorporation authorized the aggregate issuance of30,000,000 shares of stock divided into three classes: 28,000,000 shares ofvoting common stock, $0.01 par value; 1,000,000 shares of nonvoting commonstock, $0.01 par value; and 1,000,000 undesignated preferred stock, par value$0.01.

In February 2004, the Companycompleted an equity restructuring using a portion of the proceeds from its $120million 10% senior notes offering (Note 6) to pay a dividend of approximately$21.5 million and to repurchase 3,317,580 shares of common stock forapproximately $17.5 million.  Inconjunction with this equity restructuring, the Company’s convertible noteswere converted into 6,950,000 shares of common stock.

In April 2004, the Company issued2,142,857 shares of common stock for approximately $8.3 million in connectionwith the Grand Valley acquisition.

In July 2005, the Company issued1,016,488 shares of common stock for approximately $4.7 million in connectionwith the Dimension Moldings, Inc. acquisition (Note 5).

As a result of the January 9,2007 Merger, all the outstanding capital stock of WII Components, Inc. wasacquired by WII Holding, Inc. (“Parent”) through the Merger of a newly formedwholly owned subsidiary of Parent with and into WII Components, Inc.

33

----

**10. RELATED-PARTY TRANSACTIONS**

The Company has amanagement services agreement with an affiliate of the Company’s former largeststockholder, Behrman Capital III L.P., whereby the Company pays a transactionfee to the affiliate for services provided for each financing, refinancing,acquisition, or similar nonrecurring transaction.  The Company received services from thisaffiliate related to the acquisition of the assets of Dimension Moldings, Inc.totaling $313,000, which was included in the purchase price allocation.

TheCompany entered into a noncompete agreement on April 30, 2004 with theformer owners of Grand Valley, and on July 28, 2005 with the owners ofDimension Moldings, Inc. (Notes 2 and 5).

**11.QUARTERLY FINANCIAL DATA (UNAUDITED):**

**The following is a condensed summary of actual quarterly results ofoperations for 2006 and 2005 (in thousands):**
| ** **       | ** ** | **First**  | ** ** | **Second** | ** ** | **Third**  | ** ** | **Fourth** | ** ** | **Year**   | ** ** |
|------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **2006:**        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales        |       | $          | 76,341     |       | $          | 75,761     |       | $          | 69,852     |       | $          | 63,679 |   | $ | 285,633 |   |
| Gross profit     |       | 12,656     |       | 13,130     |       | 11,958     |       | 10,600     |       | 48,344     |       |
| Operating income |       | 7,895      |       | 8,665      |       | 7,495      |       | 6,265      |       | 30,320     |       |
| Net income       |       | 2,666      |       | 3,056      |       | 2,551      |       | 1,470      |       | 9,743      |       |
|             |       |       |       |       |       |       |       |       |       |       |       |
| **2005:**        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales        |       | $          | 57,808     |       | $          | 66,306     |       | $          | 68,067     |       | $          | 67,422 |   | $ | 259,603 |   |
| Gross profit     |       | 9,115      |       | 10,958     |       | 10,695     |       | 11,210     |       | 41,978     |       |
| Operating income |       | 5,772      |       | 7,149      |       | 7,047      |       | 7,205      |       | 27,173     |       |
| Net income       |       | 1,601      |       | 2,383      |       | 2,200      |       | 1,991      |       | 8,175      |       |

 

**12.SUBSEQUENT EVENTS:**

On December 11, 2006, WII Components, Inc. (the “Company”)entered into an Agreement and Plan of Merger (as further amended and restatedon January 5, 2007, the “Merger Agreement”) with WII Holding, Inc. (“Parent”),WII Merger Corporation, a wholly owned subsidiary of Parent (“Mergerco”) andBehrman Capital III L.P., solely in its capacity as the representative of thestockholders of the Company (“Behrman”). On January 9, 2007, the Company completed the merger of Mergerco withand into the Company (the “Merger”) pursuant to the Merger Agreement, andParent acquired 100% ownership of the Company, which was the survivingcorporation in the Merger.  Parent is anentity controlled by Olympus Growth Fund IV, L.P.  Prior to the Merger, the Company wascontrolled by entities affiliated with Behrman Capital III L.P.

Theaggregate purchase price paid for all of the shares of the common stock andoptions to purchase shares of the common stock in the Merger was approximately$295.5 million, less indebtedness and certain expenses, and subject tocustomary adjustments.  The aggregatepurchase price and related fees and expenses were funded by new creditfacilities and private offerings of debt and equity securities by Parent andthe Company.  The purchase price will beallocated based on a valuation of assets acquired and liabilities assumed.

Inconjunction with the Merger Agreement, the Company entered into a new seniorcredit facility (the “New Senior Credit Facility”), with Credit Suisse, CaymanIslands Branch, which provides for (i) a senior secured first lien term loanfacility in an aggregate principal amount of $150.0 million (the “First LienTerm Facility”) and (ii) a senior secured first lien revolving credit facilityin an aggregate principal amount of $25.0 million (the “Revolving Facility”and, together with the First Lien Term Facility, the “First Lien Facilities”),of which $10.0 million is available through a subfacility in the form ofletters of credit.  Subject to certainconditions, the First Lien Term Facility may be increased by up to $30.0million during the life of the First Lien Term Facility at the request of theCompany with the consent from those lenders that agree to participate in suchincrease.  Borrowings of $10.2 millionhave been incurred under the First Lien Term Facility primarily to refinancethe Company’s then outstanding bank borrowings and provide workingcapital.  The outstanding principal ofsuch indebtedness bears interest at a fluctuating rate equal to either the baserate plus an applicable margin or LIBOR plus an applicable margin.

34

----

**PART III**

**Item 9.Changes in and Disagreements With Accountants on Accounting and FinancialDisclosure**

There were nochanges in or disagreements with the accountants on accounting and financialdisclosure.

**Item 9A.Controls and Procedures**

DisclosureControls and Procedures.  As required byRule 13a-15 under the Securities Exchange Act of 1934, we carried out anevaluation under the supervision and with the participation of our management,including our Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures as of the end of the period covered by this annual report. Indesigning and evaluating our disclosure controls and procedures, we and ourmanagement recognize that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving thedesired control objectives, and our management necessarily was required toapply its judgment in evaluating and implementing possible controls and procedures.Based upon that evaluation, our Chief Executive Officer and Chief FinancialOfficer have concluded that they believe that, as of the date of completion ofthe evaluation, our disclosure controls and procedures were reasonablyeffective to ensure that information required to be disclosed by us in thereports we file or submit under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the Securitiesand Exchange Commission’s rules and forms. The Chief Executive Officer andChief Financial Officer have also concluded that controls and procedures aredesigned to ensure that information required to be disclosed is accumulated andcommunicated to our management, including our principal executive and principalfinancial officers as appropriate to allow timely decisions regarding requireddisclosure.  We will continue to reviewand document our disclosure controls and procedures on an ongoing basis, andmay from time to time make changes aimed at enhancing their effectiveness andto ensure that our systems evolve with our business.

Changesin Internal Controls Over Financial Reporting. There were no changes in our internal controls over financial reportingduring our fourth fiscal quarter that have materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

# **Item 9B. Other Information**

Not applicable.

**Item 10.Directors, Executive Officers andCorporate Governance**

The following table sets forththe names and ages (as of March 15, 2007) of our executive officers anddirectors and the positions that they hold at WII Components, Inc. and,where applicable, at Parent. Directors of WII Components hold their positionsuntil the annual meeting of the stockholders at which their term expires oruntil their respective successors are elected and qualified. Directors ofParent are elected pursuant to the terms of a stockholders agreement among allof Parent’s existing stockholders.  See “CertainRelationships and Related Transactions - Stockholders Agreement.”  Executive officers of WII Components holdtheir positions until the annual meeting of the Board of Directors or untiltheir respective successors are elected and qualified.
| Name                 | ** ** | **Age** | ** ** | **Position**                                                                                                                             |
|----------------------|------------|---------|------------|------------------------------------------------------------------------------------------------------------------------------------------|
| John Fitzpatrick     |       | 63      |       | Director, Chief Executive Officer and President—Parent;  and  Director, Chief Executive Officer and President—WII Components   |
| Dale Herbst          |       | 38      |       | Chief Financial Officer, Treasurer and  Secretary—Parent; and Chief Financial Officer, Treasurer and Secretary—WII  Components |
| Joel Beyer           |       | 47      |       | Vice President of Operations—PrimeWood                                                                                              |
| Robert S. Morris     |       | 52      |       | Director—Parent; and Director—WII Components                                                                                   |
| Louis J.  Mischianti |       | 47      |       | Director—Parent; and Director —WII Components                                                                                  |
| L. David  Cardenas   |       | 40      |       | Director—Parent; and Director —WII Components                                                                                  |
| Keith Heffernan      |       | 37      |       | Director—Parent; and Director —WII Components                                                                                  |

 

*Mr. Fitzpatrick* has served as Woodcraft’s President and ChiefExecutive Officer since 2000. Prior to joining us he was Chief OperatingOfficer at Nexcycle, Inc., a privately held consolidator of specialtyrecycling businesses with over $120 million of sales in the United States,Canada and the United Kingdom. He also was a corporate officer of ITEQ andgeneral manager for 

35

----

Graco, Inc. after spending 20 years withGeneral Electric Company, where he held various management positions in severaldivisions. Mr. Fitzpatrick received a BS in Mechanical Engineering fromthe University of Notre Dame and an MBA from the University of Pittsburgh.

*Mr. Herbst* has served as Woodcraft’s Chief Financial Officersince 2002. Since joining us in 1992, he has served as a Controller, AccountingManager and General Accountant. Mr. Herbst received a BS in FinancialManagement and Accounting from the University of North Dakota.

*Mr. Beyer* has served as Vice President of our PrimeWoodsubsidiary since 1998. He joined PrimeWood in 1977. Mr. Beyer has servedin many capacities during his career with us, including Director of Operations,Director of Engineering, Project Engineer and Production Manager.

*Mr. Morris* joined our board of directors in January2007.  Mr. Morris founded OlympusPartners in 1989 and serves as the Managing Partner of Olympus Partners and itsaffiliated investment partnerships.  Mr.Morris serves as a Director of several Olympus portfolio companies and as aDirector of Hamilton College Endowment Fund and heads The Polio Foundation’sresearch efforts in regeneration medicine. Mr. Morris received an A.B. from Hamilton College and an M.B.A. from theAmos Tuck School of Business at Dartmouth College.

*Mr. Mischianti* joined our board of directors in January2007.  Mr. Mischianti joined OlympusPartners as a Partner in 1994.  Mr.Mischianti serves as a Director of several Olympus portfolio companies.  Mr. Mischianti received an A.B. from YaleUniversity.

*Mr. Cardenas* joined our board of directors in January2007.  Mr. Cardenas joined OlympusPartners as a Principal in 1997 and has been a Partner of Olympus since1998.  Mr. Cardenas serves as a Directorof several Olympus portfolio companies. Mr. Cardenas received a B.S. from the University of Virginia and anM.B.A. from the University of North Carolina.

*Mr. Heffernan* joined our board of directors in January2007.  Mr. Heffernan joined Olympus Partnersas an Associate in 1998 and has been a Partner of Olympus since 2004.  Mr. Heffernan has served as a Director ofseveral Olympus portfolio companies.  Mr.Heffernan received a B.S. from the Wharton School of the University ofPennsylvania and an M.B.A. from the Stanford University Graduate School ofBusiness.

**Board of Directors**

As of March 15, 2007, Parent hasa five-member board of directors consisting of Messrs. Fitzpatrick,Morris, Mischianti, Cardenas and Heffernan. The bylaws of Parent permit thedirectors to increase the size of the board of directors of Parent byresolution approved by a majority vote. All of Parent’s stockholders are party to a stockholders agreementwhereby (i) Olympus Growth Fund IV, L.P. has the right to designate each representativeto the board of directors of Parent and each of its subsidiaries (including theCompany) and (ii) the stockholders of Parent agree to take all appropriateaction to fix the size of the board of directors of Parent at five (or suchhigher number as determined by Olympus Growth Fund IV, L.P.) and to vote theshares over which they exercise voting power in favor of the election of to theboard of Parent and each of its subsidiaries each designee to the respectiveboard thereof as designated by Olympus Growth Fund IV, L.P..  As of March 15, 2007, the board of directorsof each of Parent and the Company consists of Messrs. Fitzpatrick, Morris,Mischianti, Cardenas and Heffernan.  See “CertainRelationships and Related Party Transactions and Director Independence -Stockholders Agreement.”

As a privatecompany, we do not have an audit, compensation or nominating committee. We havenot determined whether any member of our board of directors is an “auditcommittee financial expert” as defined in Item 407 of Regulation S-K.

**Compensation Committee Interlocks andInsider Participation**

  Our board is currently composed of fivedirectors, of which Mr. Fitzpatrick is an executive officer of the Company andhe participated in deliberations of the board concerning executive officercompensation during 2006 (other than his own compensation).  For a descriptionof the transactions between us and our directors, and entities affiliated withsuch directors, see the sections entitled “Executive Compensation” and “CertainRelationships and Related Party Transactions, and Director Independence.” None of our

36

----

executive officers has served as a member of the boardof directors or compensation committee of another entity that had one or moreof its executive officers serving as a member of our board of directors. 

**Corporate Code of Ethics**

We have a code of conduct policyfor all of our officer and employees. The Company hereby undertakes to providea copy of its code of ethics to any person without charge, upon request. Suchrequest may be made by contacting the Human Resource Department at 320-252-1503.

**Item 11. ExecutiveCompensation**

# ***CompensationPolicies and Practices.**** *The primary objectives of ourexecutive compensation program are to (i) attract and retain the best possibleexecutive talent, (ii) achieve accountability for performance by linking basesalary and bonuses to our financial performance, and (iii) align executives’compensation with stockholder value creation.

**Our executive compensationprograms are designed to encourage our executive officers to operate thebusiness in a manner that enhances stockholder value.  In addition, a substantial portion of ourexecutive’s overall compensation is tied to our financial performance,specifically EBITDA.  Our compensationphilosophy provides for a direct relationship between compensation and theachievement of our EBITDA goals and includes management in upside rewards.**

We have sought toachieve an overall compensation program that provides foundational elementssuch as base salary and benefits that are generally competitive with themarketplace, as well as an opportunity for variable incentive compensation thatis significant when financial performance goals are met.

Our executivecompensation consists of the following components (i) base salary, (ii) annualcash bonus, and (iii) long-term incentive awards – stock option grants.

***BaseSalary. ***Basesalary is established based on the experience, skills, knowledge andresponsibilities required of the executive officer.  When establishing the 2006 base salaries ofthe executive officers, a number of factors were considered, including theindividual’s performance and growth of duties and responsibilities.  We seek to maintain base salaries that arecompetitive with the marketplace, to allow us to attract and retain executivetalent.

Salaries forexecutive officers are reviewed on an annual basis, at the time of a promotionor other change in level of responsibilities, as well as when competitivecircumstances require review.  Increasesin salary are determined upon increased levels of responsibility and aperformance evaluation.  The base salaryof John Fitzpatrick is determined by the Board of Directors, and Mr.Fitzpatrick, in consultation with the Board of Directors, sets the salaries forthe balance of the executives.

***AnnualCash Bonus Incentive. ***Executivesdirectly affect the Company’s ability to attain its strategic objectives.  The annual cash bonus is designed to motivateand provide incentive to executives to attain those Company objectives.  The Board of Directors determines Mr.Fitzpatrick’s bonus percentage, and Mr. Fitzpatrick, in consultation with theBoard of Directors, determines the percentage of base salary that is bonuseligible for the other executives. Success is measured on EBITDA of Woodcraft Industries, Inc., WoodcraftDivision, Primewood Division, Brentwood Division, Hardwood, Engineered Wood ora combination.  The percent of plannedEBITDA achieved will determine the amount of bonus to be paid based on theirsharing percentage and their bonus percentage (as a percent of salary).  The 2006 bonus plan for Mr. Fitzpatrick, Mr.Herbst, and Mr Beyer provided for a target cash bonus of $227,500, $56,800, and$52,500, respectively, based upon their respective base salaries for 2006.  In 2006, the cash bonuses for Messrs.Fitzpatrick, Herbst, and Beyer were based entirely on the amount by whichactual EBITDA exceeds certain planned levels for such year.  They will earn no bonus if EBITDA is below aplanned threshold, 100% of their target cash bonuses if EBITDA meets the targetthreshold and up to 200% of their target cash bonuses if EBITDA meets orexceeds a predetermined maximum EBITDA threshold.  The bonuses are pro rated between thresholdand target and between target and maximum and cannot exceed 200% of the targetcash bonus.

**For 2006, Mr. Fitzpatrick earned,as incentive compensation, a percentage of his base salary, up to a maximum of130%. The incentive compensation has been determined on the basis of the actualEBITDA of the Company as compared to the Company’s planned EBITDA.  Based on the Company’s performance, Mr.Fitzpatrick’s annual cash bonus for 2006 was $155,233, which representsapproximately 68% of Mr. Fitzpatrick’s target cash bonus.**

For 2006, Mr.Herbst earned, as incentive compensation, a percentage of his base salary, upto a maximum of 80%. The incentive compensation has been determined on theactual EBITDA of the Company. as compared to the Company’s 

37

----

planned EBITDA. Based on the Company’s performance, Mr. Herbst’s annual cash bonus for2006 was $39,381, which represents approximately 69% of Mr. Herbst’s targetcash bonus.

**For 2006, Mr. Beyer earned, asincentive compensation, a percentage of his base salary, up to a maximum of75%.  The incentive compensation has beendetermined, in part on the basis of actual EBITDA of the Company as compared tothe Company’s planned EBITDA and, in part, on the basis of actual EBITDA of thePrimeWood division as compared to the planned EBITDA for the PrimeWooddivision.  Based on the performance ofthe Company and PrimeWood, Mr. Beyer’s annual cash bonus for 2006 was $7,280,which represents approximately 14% of Mr. Beyer’s target cash bonus.**

***Long Term Incentive Awards.***  As ofDecember 31, 2006, all of our executive officers have received equitycompensation awards in the form of either incentive stock options and/ornon-qualified stock options.  We grantedlong term incentive awards in the form of stock options because it is a commonmethod for privately-held companies to provide equity incentives to executiveofficers.  The options were designed toalign the interests of our executive officers with our stockholders’ long-terminterests by providing them with equity-based awards that vest over a period oftime and become exercisable upon the occurrence of certain events, as well asto reward executive officers for performance. On May 31, 2006, we granted options to Mr. Fitzpatrick to purchase240,000 shares of our common stock.  See “Mr.Fitzpatrick 2006 Bonus Agreement.”  Thesestock options had an exercise price equal to the fair market value of our commonstock on the date of issuance, as determined in good faith by representativesof our board of directors.  Ofthese options issued to Mr. Fitzpatrick, options to purchase 80,000 shares ofour common stock vested over a four year period, and had an exercise price pershare of $5.54 at the date of issuance. The remaining incentive stockoptions issued under the 2003 Stock Option and Grant Plan fully vested at theearlier of a sale event or June 30, 2009, and had an exercise price per shareof $5.54 at the date of issuance.  Theseremaining options’ per share exercise price increases by $0.83 on July 1, 2007,and each anniversary date thereafter until termination of the options.  We will be entitled to a tax deduction in theyear in which the stock options are exercised in an amount equal to the amountby which the fair market value of the shares underlying the option on the dateof exercise exceeds the option exercise price. As a result of the 2007 Acquisition, all of the foregoing options whichwere outstanding at the time of the 2007 Acquisition were cashed out andterminated on January 9, 2007.

***Other Programs.***  Our NamedExecutive Officers can participate in our Company sponsored benefit programs atthe same level as offered to all other employees.  These benefits include life, health, dental,401(k) matching, short-term disability, typical holiday and vacation benefits,etc.  Also offered to the Named ExecutiveOfficers is a long-term disability plan, which is also offered to other certainmanagement members.

***Compensation CommitteeReport.***  The Board of Directors has reviewed anddiscussed with management the Compensation Discussion and Analysis provisionsincluded in this Form 10-K.  Based on thereviews and discussions referred to above, the Board of Directors recommends thatthe Compensation Discussion and Analysis referred to above be included in theForm 10-K.

Board of DirectorsJohn Fitzpatrick (Chair)Robert S. MorrisLouis J. MischiantiL. David CardenasKeith Heffernan

***SummaryCompensation.***  The following summary compensation table setsforth information concerning compensation for services rendered in allcapacities awarded to and earned by our Chief Executive Officer, ChiefFinancial Officer, and our only other executive officer who was serving as anexecutive officer on December 31, 2006.

38

----

 
| **Name and  Principal  Position**                          | ** ** | **Year**   | ** ** | **Salary** | ** ** | **Bonus**  | ** ** | **Stock  Awards** | ** ** | **Option  Awards** | ** ** | **Non-Equity  Incentive  Plan  Compensation** | ** ** | **Change in  Pension Value  and  Nonqualified  Deferred  Compensation  Earnings** | ** ** | **All  Other  Compensation (4)** | ** ** | **Total**  | ** ** |
|-----------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------------|------------|--------------------|------------|-----------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|------------|------------|
| ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **         | ** ** | ** **                                    | ** ** | ** **                                                                                  | ** ** | ** **                            | ** ** | ** ** | ** ** |
| John Fitzpatrick,  President and Chief Executive Officer        |       | 2006       |       | $          | 350,000    |       | $          | 155,233           |       | —             |       | $                                             | 340,307    | (1)                                                                                         | $          | 1,327,600                             | (2)        | (3         | )          | $ | 4,400 | (4) | $ | 2,177,540 |   |
| Dale Herbst,  Chief Financial Officer, Treasurer, and Secretary |       | 2006       |       | $          | 141,346    |       | $          | 39,381            |       | —             |       | —                                        |       | $                                                                                           | 466,268    | (2)                                   | (3         | )          | $          | 3,534 | (4) | $ | 650,529 |   |
| Joel Beyer,  Vice President of Operations-Primewood             |       | 2006       |       | $          | 140,000    |       | $          | 7,280             |       | —             |       | —                                        |       | $                                                                                           | 339,250    | (2)                                   | (3         | )          | $          | 5,011 | (5) | $ | 491,541 |   |
|                                                                 |            |            |            |            |            |            |            |                   |            |                    |            |                                               |            |                                                                                             |            |                                       |            |            |            |  |  |  |  |  |  |

 

----

(1)                                  Represents the total fair value of options grantedto John Fitzpatrick on May 31, 2006 to purchase 240,000 shares of the Company’scommon stock.  See “Mr. Fitzpatrick 2006Bonus Agreement.”  The total fair valuewas determined by the Black-Scholes option pricing model for the optionsgranted to purchase 80,000 shares and a bi-nominal option pricing model wasused to determine the total fair value of the options granted to purchase theremaining 160,000 shares that include an $0.83 increase to the exercise priceon July 1, 2007, and each anniversary date thereafter.  The following assumptions were used whendetermining the fair value of these options: a discount rate of 4.95%, an expected life of six and one-half years,and a volatility rate of 28.04%.  

(2)                                  Represents the number of options vested in 2006multiplied by the difference of the estimated fair market value as of December31, 2006 and the exercise price.  Inaddition, it includes options vested in prior years multiplied by thedifference in estimated fair market value as of December 31, 2006 and theestimated fair market value as of December 31, 2005.

(3)                                  The Company has no pension plan or nonqualifieddeferred compensation plan.

(4)                                  Consists of contributions by us to his 401(k)account.

(5)                                  Includes $3,794 in contributions by us to his401(k) account; and $1,217 in taxable wages related to an escrow payment in2006 due to stock options held in conjunction with the April 2003 acquisitionby Behrman Capital III L.P.

***Mr. Fitzpatrick 2006 BonusAgreement. ***On May 31, 2006, the Company entered into a bonusagreement with John Fitzpatrick, its chief executive officer.  The arrangement consisted of a cash bonus ofup to $658,800, the grant of options to purchase up to 240,000 shares of theCompany’s voting common stock and the acceleration of the vesting of theunvested portion of Mr. Fitzpatrick’s existing stock options.  Mr. Fitzpatrick received the full amount ofthe cash payment and the vesting acceleration upon the sale of the Company inconnection with the 2007 Acquisition. The 240,000 options granted in connection with the bonus arrangement hadan exercise price of $5.54 per share, and 160,000 of these options’ exerciseprice increases $0.83 on July 1, 2007, and each anniversary date thereafteruntil termination of the options.  TheCompany’s obligations under this agreement were fully satisfied in connectionwith the 2007 Acquisition and all stock options granted thereunder wereterminated and canceled in connection with the 2007 Acquisition.

***OptionGrants.***  As a result of the 2007 Acquisition,all outstanding stock options were terminated and canceled and there arecurrently no stock options of the Company issued and outstanding***.***  The table belowsets forth information concerning the individual grants of stock options toeach of the executive officers listed below who received grants in 2006. Theexercise price per share of each option was equal to the fair market value ofthe voting common stock on the date of grant, as determined by the board ofdirectors based on its good faith estimate of the fair market value. We havenever granted any stock appreciation rights. The following table summarizesinformation regarding our 2006 bonus plans and stock options granted under our2003 Stock Option and Grant Plan during 2006: 

39

----

 
|                  | ** ** | ** **          | ** ** | ** **       | ** ** | **Estimated Future Payouts Under** | ** ** | **All Other  Option  Awards:  Number of  Securities** | ** ** | **Exercise  or Base  Price of** | ** ** | **Grant Date  Fair Value  of Stock** | ** ** |
|------------------|------------|---------------------|------------|------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **       | ** ** | ** **          | ** ** | **Approval**     | ** ** | **Non-Equity Incentive Plan**           | ** ** | **Underlying**                                                  | ** ** | **Option**                                | ** ** | **and Option**                                 | ** ** |
| **Name**         | ** ** | **Grant Date** | ** ** | **Date**         | ** ** | **Threshold**                                     | ** ** | **Target**                                                      | ** ** | **Maximum**                               | ** ** | **Options**                                         | ** ** | **Awards** | ** ** | **Awards** | ** ** |
| ** **       | ** ** | ** **          | ** ** | ** **       | ** ** | **($)**                                           | ** ** | **($)**                                                         | ** ** | **($)**                                   | ** ** | **(#)**                                             | ** ** | **($/Sh)** | ** ** | ** ** | ** ** |
| John Fitzpatrick |       | May  31, 2006       |       | May  31, 2006    |       | —                                            |       | —                                                          |       | —                                    |       | 80,000                                              |       | $ | 5.54 |   | $ | 177,107 |   |
|                  |       | May  31, 2006       |       | May  31, 2006    |       | —                                            |       | —                                                          |       | —                                    |       | 160,000                                             |       | $ | 5.54 |   | $ | 163,200 |   |
|                  |       | January  1, 2006    |       | January  1, 2006 |       | —                                            |       | $                                                               | 227,500    |                                      | $          | 455,000                                             |       | — |   | — |   | — |   |
| Dale Herbst      |       | January  1, 2006    |       | January  1, 2006 |       | —                                            |       | $                                                               | 56,800     |                                      | $          | 113,600                                             |       | — |   | — |   | — |   |
| Joel Beyer       |       | January 1, 2006     |       | January 1, 2006  |       | —                                            |       | $                                                               | 52,500     |                                      | $          | 105,000                                             |       | — |   | — |   | — |   |

 

***2006Bonus Plan for Messrs. Fitzpatrick, Herbst, and Beyer. ***The 2006 bonus plan for Mr. Fitzpatrick, Mr. Herbst, and Mr. Beyerprovided for a target cash bonus of $227,500, $56,800, and $52,500,respectively, based upon their respective base salaries for 2006 of $350,000,$142,000, and $140,000, respectively.  In2006, the cash bonuses for Messrs. Fitzpatrick, Herbst, and Beyer were basedentirely on the amount by which actual EBITDA exceeded certain planned levelsfor such year.  They were not entitled toearn a bonus if actual EBITDA for the year ended December 31, 2006 was belowthe planned threshold for such period, were entitled to 100% of their targetcash bonuses if actual EBITDA met the target threshold and were entitled to upto 200% of their target cash bonuses if EBITDA met or exceeded a pre-determinedmaximum EBITDA threshold.  The bonusesare pro rated between threshold and target and between target and maximum andcannot exceed 200% of the target cash bonus. The actual cash bonus to be paid in 2007 in respect of 2006 to Messrs.Fitzpatrick, Herbst, and Beyer is approximately 68%, 69%, and 14%, respectivelyof their target cash bonuses.

***Option Grants for Mr.Fitzpatrick. ***OnMay 31, 2006 the Company issued stock options to purchase 80,000 shares of theCompany’s common stock under the 2003 Plan to Mr. Fitzpatrick.  These options vested over a four year period,and had an exercise price per share of $5.54 at the date of issuance.  In addition, on that same date, the Company issued additional incentive stockoptions to purchase 160,000 shares of the Company’s common stock under the 2003Plan to Mr. Fitzpatrick.  These optionsfully vest at the earlier of a sale event or June 30, 2009, and had an exerciseprice per share of $5.54 at the date of issuance.  The 160,000 options’ exercise price increasesby $0.83 on July 1, 2007, and each anniversary date thereafter untiltermination of the options.  As a resultof the 2007 Acquisition, all of the foregoing options which were outstanding atthe time of the 2007 Acquisition were cashed out and terminated on January 9,2007.

***Option Grants Exercised.***  Therewere no option grants exercised during 2006 by our Named Executive Officers. 

**2003 Stock Option and Grant Plan**

Under our 2003 Stock Option andGrant Plan, our board of directors could award up to an aggregate of 2,500,000shares of our voting common stock to directors, officers, consultants and otherkey persons of WII Components, Inc. and our subsidiaries in the form ofincentive stock options (which may be awarded to employees only), nonqualifiedstock options, restricted stock awards, unrestricted stock awards and anycombination of the foregoing. The exercise price per share for an incentivestock option could not be less than 100% of the fair market value of theunderlying shares on the grant date. The exercise price per share for anincentive stock option granted to a person owning stock possessing more than10% of the total combined voting power of all classes of our stock could not beless than 110% of the fair market value of the underlying shares on the grantdate, and may not be exercisable after the expiration of five years from thedate of grant. Otherwise, options could not be exercisable after the expirationof ten years from the date of grant. Our board of directors had full discretionto administer and interpret the 2003 Stock Option and Grant Plan, to adopt suchrules, regulations and procedures as it deems necessary or 

40

----

advisable, and to determine the persons eligible toreceive awards, the time or times at which the awards may be exercised andwhether and under what circumstances an award may be exercised.  As a result of the 2007 Acquisition, the 2003Stock Option and Grant Plan, and all then outstanding stock options grantedthereunder, was terminated, and there are currently no stock options of theCompany issued and outstanding.

The following table summarizesthe outstanding equity awards held by our Named Executive Officers as ofDecember 31, 2006:
|                  | ** ** | **Option Awards**                                                         | ** ** |
|------------------|------------|--------------------------------------------------------------------------------|------------|
| **Name**         | ** ** | **Number  of  Securities  Underlying  Unexercised  Options  (#)  Exercisable** | ** ** | **Number  of  Securities  Underlying  Unexercised  Options  (#)  Unexercisable** | ** ** | **Equity  Incentive  Plan  Awards:  Number  of  Securities  Underlying  Unexercised  Unearned  Options  (#)** | ** ** | **Option  Exercise  Price  ($)** | ** ** | **Option  Expiration  Date** | ** ** |
| John Fitzpatrick |       | 375,000                                                                        |       | 125,000 |   | — |   | $ | 1.78 |   | May  9, 2013 |   |
|                  |       | 60,000                                                                         |       | 60,000 |   | — |   | $ | 3.85 |   | April  22, 2014 |   |
|                  |       | —                                                                         |       | 80,000 |   | — |   | $ | 5.54 |   | May  31, 2016 |   |
|                  |       | —                                                                         |       | 160,000 |   | — |   | $ | 5.54 | (1) | May  31, 2016 |   |
| Dale Herbst      |       | 129,000                                                                        |       | 43,000 |   | — |   | $ | 1.78 |   | May  9, 2013 |   |
|             |       | 19,000                                                                         |       | 19,000 |   | — |   | $ | 3.85 |   | April  22, 2014 |   |
|             |       | 6,250                                                                          |       | 18,750 |   | — |   | $ | 4.67 |   | August  15, 2015 |   |
| Joel Beyer       |       | 93,750                                                                         |       | 31,250 |   | — |   | $ | 1.78 |   | May  9, 2013 |   |
|                  |       | 12,500                                                                         |       | 12,500 |   | — |   | $ | 3.85 |   | April  22, 2014 |   |
|                  |       | 6,250                                                                          |       | 18,750 |   | — |   | $ | 4.67 |   | August 15, 2015 |   |

 

----

(1)           The exercise price of these optionsincreases by $0.83 on July 1, 2007, and each anniversary date thereafter untiltermination of the options.

**Pension Benefits**

The Company has nopension benefit plan.

41

----

**Non-Qualified DeferredCompensation**

The Company has nonon-qualified deferred compensation plan.

**Employment Agreements**

On April 9, 2003, we enteredinto employment agreements with Messrs. Fitzpatrick, Herbst and Beyer (the“2003 Agreements”). Other than Mr. Fitzpatrick’s agreement, which has aterm of two years, each of the agreements had a term of one year. All of the2003 Agreements were automatically renewed upon the completion of the initialterm for successive one-year periods until either we or the executive gave60 days prior written notice of intent not to extend. Each 2003 Agreementprovided for the payment of base salary, incentive compensation and theprovision of certain fringe benefits to the executive. The 2003 Agreementsrequired the officers to refrain from competing with us and from hiring ouremployees for a period of time following the termination of their employmentagreements. Under his 2003 Agreement, Mr. Fitzpatrick was prohibited fromcompeting with us for a period of twelve months from the termination of hisemployment and prohibited from hiring our employees for a period of24 months from the termination of his employment. Generally, the otherofficers were prohibited from competing with us for a period ranging from sixmonths to one year following the termination of their employment and wereprohibited from hiring our employees for a period of 24 months from thetermination of their employment. Each 2003 Agreement also provided for certainpayments and benefits for each officer in the event his employment with us isterminated as a result of his death or disability. In general, in the case of atermination by an officer for good reason, or by us without cause, the officerwas entitled to receive the greater of either the base salary due to him forthe remainder of the term or six months salary (except in the case ofMr. Fitzpatrick who shall receive two years base salary) and if theofficer had remained employed with us for at least six months of the fiscalyear in which his employment terminated, he was entitled to receive a proratedportion of the annual incentive bonus that would have been payable to him hadhe remained employed with us at the end of the fiscal year.

On December 11, 2006, Parentand a newly formed wholly owned subsidiary of Parent (“Mergerco”), in anticipationof the consummation of the 2007 Acquisition entered into employment agreements(each a “New Employment Agreement”) with the Messrs. John Fitzpatrick, as ChiefExecutive Officer, Dale Herbst, as Chief Financial Officer,and Joel Beyer, as Vice President of Operations (PrimeWood division).  Pursuant to each New Employment Agreement,upon consummation of the 2007 Acquisition, the New Employment Agreements ofMessrs. Fitzpatrick, Herbst and Beyer superceded and preempted their respective2003 Agreements. On January 9, 2007, by operation of law upon consummation ofthe 2007 Acquisition, each New Employment Agreement was assigned by Mergerco tothe Company.

The table below summarizesthe provisions in the New Employment Agreements of our Named Executive Officers.  The Named Executive Officers will receive nocash severance payments for termination with cause, voluntary terminationwithout good reason, death, or any transaction involving a change in control ofParent or the Company.  As of January 9,2007, there were no stock options or restricted stock agreements outstanding.
| Name             | ** ** | **Benefit**    | ** ** | **Termination without  Cause**                                                                      | ** ** | **Voluntary  Termination with  Good Reason**                                                        | ** ** | **Disability**                                                                                      |
|------------------|------------|----------------|------------|-----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|
| John Fitzpatrick |       | Cash Severance |       | $700,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |       | $700,000  (plus, under certain circumstances, a pro rata portion of the current year’s bonus)  |       | $700,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |
| Dale Herbst      |       | Cash Severance |       | $142,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |       | $142,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |       | $142,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |
| Joel Beyer       |       | Cash Severance |       | $140,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |       | $140,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |       | $140,000  (plus, under certain circumstances, a pro rata portion of the current year’s  bonus) |

 

42

----

Mr. Fitzpatrick’sNew Employment Agreement provides for an initial annual base salary of $350,000and an annual performance-based bonus of up to one-hundred thirty percent(130%) of his base salary for fiscal year 2007. Mr. Fitzpatrick’s New Employment Agreement provides for annual reviews ofMr. Fitzpatrick’s base salary to determine whether an adjustment to his annualbase salary is appropriate.  Mr. Fitzpatrick’sNew Employment Agreement provides that Mr. Fitzpatrick, subject to hiseligibility, be included in all employee benefit plans established by theCompany.  Mr. Fitzpatrick’sNew Employment Agreement may be terminated at any time, with or without cause,by either party.  Mr. Fitzpatrick’sNew Employment Agreement also contains non-disclosure provisions and prohibitsMr. Fitzpatrick from competing with the Company during the term of hisemployment and for a period of two years thereafter.

Mr. Herbst’s New Employment Agreement provides for aninitial annual base salary of $142,000 and an annual performance-based bonus ofup to eighty percent (80%) of his base salary for fiscal year 2007.  Mr. Herbst’s New Employment Agreementprovides for annual reviews of Mr. Herbst’s base salary to determine whether anadjustment to his annual base salary is appropriate.  Mr. Herbst’s New Employment Agreementprovides that Mr. Herbst, subject to his eligibility, be included in allemployee benefit plans established by the Company.  Mr. Herbst’s New Employment Agreement may beterminated at any time, with or without cause, by either party.  Mr. Herbst’s New Employment Agreement alsocontains non-disclosure provisions and prohibits Mr. Herbst from competing withthe Company during the term of his employment and for a period of one yearthereafter.

Mr. Beyer’s New Employment Agreement provides for aninitial annual base salary of $140,000 and an annual performance-based bonus ofup to seventy-five percent (75%) of his base salary for fiscal year 2007.  Mr. Beyer’s New Employment Agreement providesfor annual reviews of Mr. Beyer’s base salary to determine whether anadjustment to his annual base salary is appropriate.  Mr. Beyer’s New Employment Agreement providesthat Mr. Beyer, subject to his eligibility, be included in all employee benefitplans established by the Company.  Mr.Beyer’s New Employment Agreement may be terminated at any time, with or withoutcause, by either party.  Mr. Beyer’s NewEmployment Agreement also contains non-disclosure provisions and prohibits Mr.Beyer from competing with the Company during the term of his employment and fora period of one year thereafter.

# **Directors Compensation**

Our directors do not receivecompensation for attending board meetings, other than reimbursement ofreasonable out-of-pocket expenses incurred in connection with attending anyboard meeting or any committee meetings.

**Item 12.Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters**

As of March 15, 2007, all of theCompany’s capital stock is owned by Parent. As of March 15, 2007, the following table sets forth certain informationregarding the beneficial ownership of Parent’s Series A Preferred Stock, parvalue $0.01 per share (“Parent Preferred”), and Common Stock, par value $0.01per share (“Parent Common”), by (i) each person known to us tobeneficially own more than 5% of the outstanding shares of either ParentPreferred and Parent Common; (ii) each of our directors; (iii) eachnamed executive officer and (iv) all of our executive officers anddirectors as a group. Beneficial ownership is determined in accordance with therules of the SEC. These rules generally attribute beneficial ownership ofshares to persons who possess sole or shared voting and/or investment powerwith respect to the shares shown as beneficially owned and include shares ofcommon stock issuable upon the exercise of stock options that are immediatelyexercisable or exercisable within 60 days. Unless otherwise indicated inthe footnotes to this table, the address of all listed stockholders is c/o WIIComponents, Inc., 525 Lincoln Avenue, SE, St. Cloud, Minnesota 56304.
| ** **                                                   | ** ** | **Parent Preferred**       | ** ** | **Parent Common**              | ** ** |
|--------------------------------------------------------------|------------|---------------------------------|------------|-------------------------------------|------------|
| **Name of Beneficial Owner**                  | ** ** | **Shares  Beneficially  Owned** | ** ** | **Percentage  Beneficially  Owned** | ** ** | **Shares  Beneficially  Owned** | ** ** | **Percentage  Beneficially  Owned** | ** ** |
| Olympus funds(1)                                             |       | 75,395,914                      |       | 93                                  | %          | 609,949 |   | 93 | % |
| Robert S.  Morris(1)                                         |       | 75,395,914                      |       | 93                                  | %          | 609,949 |   | 93 | % |
| Louis J.  Mischianti(1)                                      |       | 75,395,914                      |       | 93                                  | %          | 609,949 |   | 93 | % |
| L. David  Cardenas(1)                                        |       | 75,395,914                      |       | 93                                  | %          | 609,949 |   | 93 | % |
| Keith  Heffernan(1)                                          |       | 75,395,914                      |       | 93                                  | %          | 609,949 |   | 93 | % |
| John  Fitzpatrick(2)                                         |       | 940,001                         |       | 1                                   | %          | 7,604 |   | 1 | % |
| Dale Herbst                                                  |       | 211,501                         |       |                                | *          | 1,711 |   |   | * |
| Joel Beyer                                                   |       | 169,199                         |       |                                | *          | 1,368 |   |   | * |
| All directors and  executive officers as a group (7 persons) |       | 76,716,615                      |       | 95                                  | %          | 620,634 |   | 95 | % |

----

*              Representsless than 1% of the outstanding voting capital stock.

43

----

 

(1)           Consistsof 75,003,855 shares of Parent Preferred and 606,778.23 shares of Parent Commonbeneficially owned by Olympus Growth Fund IV, L.P. and 392,059 shares of ParentPreferred and 3,171.74 shares of Parent Common beneficially owned by OlympusExecutive Fund, L.P.  The sharesbeneficially owned by Olympus Growth Fund IV, L.P. are beneficially ownedindirectly by OGP IV, LLC, the general partner of Olympus Growth Fund IV, L.P.,and by Mr. Morris, the managing member of OGP IV, LLC.  The shares beneficially owned by OlympusExecutive Fund, L.P. are beneficially owned indirectly by OEF, L.P., thegeneral partner of Olympus Executive Fund, L.P., and by RSM, Corporation, themanaging general partner of OEF, L.P, and by Robert S. Morris, the president(and sole stockholder) of RSM, Corporation.

Mr. Morris, a member of Parent’s board of directors, isthe managing partner of Olympus Partners and is the managing member of OGP IV,LLC and is the president (and sole stockholder) of the managing general partnerof OEF, L.P., and, in such capacities, has voting and investment power withrespect to all shares held by the Olympus funds and has a pecuniary interest incertain of those shares.  Mr. Mischianti,a member of Parent’s board of directors, is a partner of Olympus Partners andis a member of OGP IV, LLC, and, in such capacities, has a pecuniary interestin certain of those shares. Messrs. Cardenas and Heffernan, also members of Parent’s board ofdirectors, are partners of Olympus Partners and are members of OGP IV, L.L.C.and, in such capacities, have a pecuniary interest in certain of the sharesheld by the Olympus funds.  Each ofMessrs. Morris, Mischianti, Cardenas and Heffernan disclaims beneficialownership of the shares owned by these entities, except to the extent of theirproportionate pecuniary interest therein. The address for Olympus Partners, the Olympus funds andMessrs. Morris, Mischianti, Cardenas and Heffernan is c/o OlympusPartners, Metro Center, One Station Place, Stamford, Connecticut, 06902.

(2)           Mr.Fitzpatrick’s shares are held by the John P Fitzpatrick Revocable Trust U/A12/31/01.  Mr.  Fitzpatrick is a trustee of the John PFitzpatrick Revocable Trust U/A 12/31/01 and Mr. Fitzpatrick and members of hisfamily are the primary beneficiaries.

# **Item 13. Certain Relationshipsand Related Party Transactions,and Director Independence**

**Stockholders Agreement**

Pursuant to our StockholdersAgreement, dated as of April 9, 2003, entered into with Behrman CapitalIII L.P., one of Behrman Capital III’s affiliates, certain members of ourmanagement (including the named executive officers) and certain otherstockholders, each of the current stockholders, other than Behrman Capital IIIL.P. and its affiliate was subject to certain transfer restrictions, includingrights of first refusal and co-sale, and was entitled to co-sale rights oncertain transfers by Behrman Capital III L.P. and its affiliate. BehrmanCapital III L.P. had the right to force all of the other stockholders toparticipate in a sale event in which it elects to participate. Subject tocertain standard exceptions, all stockholders had pre-emptive rights on futuresales of securities. Under the provisions of this Stockholders Agreement, allof the parties agreed to elect as members of our board of directors two BehrmanCapital III L.P. nominees. Finally, each member of our management who was aparty to the Stockholders Agreement had the right under certain circumstancesto require us to repurchase his or her shares of our stock at the then fairmarket value in the event of the termination of his or her employment.  This Stockholders Agreement was terminated onJanuary 9, 2007 in connection with the 2007 Acquisition.

On January 9, 2007, Parent and eachof Parent’s stockholders entered into a Stockholders Agreement (the “ParentStockholders Agreement”).  Under theprovisions of the Parent Stockholders Agreement, the authorized number ofdirectors on Parent’s board of directors is established at 5 directors (or suchhigher number as determined by Olympus Growth Fund IV, L.P.) and all of theparties agree to elect as members of our board of directors each representativedesignated from time to time by Olympus Growth Fund IV, L.P., as a nominee.Pursuant to the Parent Stockholders Agreement, Parent’s stockholders aresubject to certain transfer restrictions, including rights of first refusal andco-sale rights on certain transfers by Olympus Growth Fund IV, L.P.  The Olympus Growth Fund IV, L.P. (as the holdersof a majority of Parent’s capital stock) and board of directors of Parent havethe right to force all of the other stockholders to participate in a sale eventinvolving a change of control of Parent or all or substantially all of Parent’sassets on a consolidated basis.  Inaddition, subject to certain exceptions, all stockholders of Parent havepre-emptive rights on future sales of equity securities of Parent.  Finally, pursuant to the Parent StockholdersAgreement, 

44

----

Parent granted certain customary registration rights,including demand, piggyback and resale shelf registration rights. Demandregistration rights were granted only to the holders of a majority of Parent’scapital stock.

**Equity Registration Rights Agreement**

We entered into a Registration RightsAgreement, dated as of April 9, 2003, with Behrman Capital III L.P. andone of its affiliates, certain members of our management (including the namedexecutive officers) and certain other stockholders. Pursuant to this agreement,we granted certain customary registration rights, including demand, piggy backand resale shelf registration rights. Demand registration rights were grantedonly to Behrman Capital III L.P. and one of its affiliates.  This Registration Rights Agreement wasterminated on January 9, 2007 in connection with the 2007 Acquisition.

**Financial Advisor Agreement**

We entered into a FinancialAdvisor Agreement dated as of April 9, 2003, with Behrman BrothersManagement Corp., or Behrman Brothers, an affiliate of our former largeststockholder, Behrman Capital III L.P. Under this agreement, Behrman Brothersprovided us with advice regarding our financial management, potentialacquisitions, dispositions, financial transactions and other issues. In theevent that we consummate a transaction (such as a merger with, or acquisitionof, another company, a sale of our company or significant events relating tochanges in our equity structure), we were required to pay Behrman Brothers afee for its role as our advisor and reimburse any expenses incurred by BehrmanBrothers in providing such advice. This agreement was terminated on January 9,2007 in connection with the 2007 Acquisition.

**Advisory Services Agreement**

Parent entered into an AdvisoryServices Agreement, dated as of January 9, 2007, with Olympus AdvisoryPartners, Inc., an affiliate of the Olympus funds.  Under this agreement, Olympus AdvisoryPartners, Inc. provides Parent with advice regarding corporate, business andfinancial strategy, potential acquisitions, financial management and otherissues.  In addition to a quarterlyconsulting fee, in the event that Parent or any of its subsidiaries consummatea capital transaction (such as an acquisition of another company, a sale ofParent or any of its subsidiaries, or significant events relating to changes inthe capital structure of Parent and its subsidiaries), Parent is required topay Olympus Advisory Partners, Inc. a fee for its role as Parent’sadvisor.  Neither the Company nor any ofits subsidiaries is party to this Agreement.

**Indemnification Agreements**

We have entered intoindemnification agreements with our directors, Rodney Cohen and Tom Perlmutter.The form of indemnification agreement provides that the directors will beindemnified for expenses incurred because of their status as a director to thefullest extent permitted by Delaware law and our certificate of incorporationand bylaws.  These agreements wereterminated on January 9, 2007 in connection with the 2007 Acquisition.

We have also entered intoindemnification agreements with our executive officers, John Fitzpatrick andDale Herbst.  The form of indemnificationagreement provides that the directors and officers will be indemnified forexpenses incurred because of their status as a director or officer, asapplicable, to the fullest extent permitted by Delaware law and our certificateof incorporation and bylaws.

Our certificate of incorporation,as amended, contains a provision permitted by Delaware law that generallyeliminates the personal liability of directors for monetary damages forbreaches of their fiduciary duty, including breaches involving negligence orgross negligence in business combinations, unless the director has breached hisor her duty of loyalty, failed to act in good faith, engaged in intentionalmisconduct or a knowing violation of law, paid a dividend or approved a stockrepurchase or redemption in violation of the Delaware General Corporation Lawor obtained an improper personal benefit. This provision does not alter adirector’s liability under the federal securities laws and does not affect theavailability of equitable remedies, such as an injunction or rescission, forbreach of fiduciary duty. Our bylaws provide that directors shall be, and inthe discretion of the board of directors, our officers and non-officeremployees may be, indemnified to the fullest extent authorized by Delaware law,as it now exists or may in the future be amended, against all expenses andliabilities reasonably incurred in connection with service for or on behalf ofthe company. Our bylaws also provide that the right of our directors andofficers to indemnification shall be a contract right and shall not beexclusive of any other right now possessed or hereafter acquired under anystatute, bylaw, agreement, vote of stockholders, directors or otherwise.

45

----

Insofar as indemnification forliabilities arising under the Securities Act may be permitted to our directors,officers and persons controlling us as described above, we have been advisedthat in the opinion of the SEC such indemnification is against public policy asexpressed in the Securities Act and is therefore unenforceable. At present,there is no pending material litigation or proceeding involving any of ourdirectors, officers, employees or agents in which indemnification will berequired or permitted.

**Policies and Procedures for RelatedParty Transactions**

As a private company, our board of directors generallyreviews our related party transactions, although we have not historically hadformal policies and procedures regarding the review and approval of relatedparty transactions

**DirectorIndependence**

Theboards of Parent and the Company are currently composed of five directors, noneof whom would qualify as an independent director based on the definition ofindependent director set forth in Rule 4200(a)(15) of the Nasdaq Marketplacerules. Because affiliates of Olympus own approximately 93% of the voting commonstock of Parent, and we do not otherwise have any securities listed on anysecurities exchange, we are not subject to corporate governance rules thatrequire that a board of directors be composed of a majority of independentdirectors. 

**Item 14.Principal Accountants and Services**

Aggregate fees billed to the company for the fiscalyears ended December 31, 2006, and 2005 by the Company’s principal accountingfirm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu,and their respective affiliates:
|                                     | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------|------------|--------------------------------------------|------------|
| ** **                          | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| Audit Fees (a)                      |       | $                                          | 213,849    |   | $ | 157,367 |   |
| Audit-Related  Fees (b)             |       | 6,355                                      |       | — |   |
| Total audit and  audit-related fees |       | 220,204                                    |       | 157,367 |   |
| Tax Fees (c)                        |       | 88,425                                     |       | 39,736 |   |
| Total Fees                          |       | $                                          | 308,629    |   | $ | 197,103 |   |

 

----

(a)Fees for auditservices billed in 2006 and 2005 consist of:

·                  Audit of theCompany’s annual financial statements

·                  Reviewsof the Company’s quarterly financial statements

(b) Fees foraudit-related services billed in 2006 consist of:

·                  Reviewof audit workpapers in connection with the potential sale of the company.

( c) Fees for taxservices billed in 2006 and 2005 consist of:

·                  Preparation of tax returns

·                  Researchand assistance with earnings and profit, state matters, and other miscellaneousprojects

**Preapproval Policies**

The company has nopreapproval policy for services performed by our independent registered pubicaccounting firm.

**PART IV**

**Item 15.Exhibits, Financial Statement Schedules**

(a)  List of Financial Statements, FinancialStatement Schedules and Exhibits

(1)  *Financial Statements*.  Consolidated FinancialStatements of WII Components, Inc. and Subsidiaries as of December 31, 2006 and2005 and for the years ended December 31, 2006, 2005 and 2004.
| Report of Independent Registered  Public Accounting Firm |   |
|----------------------------------------------------------|--------|
| Consolidated Balance Sheets                              |   |
| Consolidated Statements of Operations                    |   |
| Consolidated Statements of Stockholders’ Equity     |   |
| Consolidated Statements of Cash Flows                    |   |
| Notes to Consolidated Financial Statements               |   |

 

46

----

(2)         *Financial Statement Schedules*.  All schedules for which provisionis made in the applicable accounting regulations of the SEC have been omittedas not required or not applicable, or the information required has beenincluded elsewhere by reference in the financial statements and related notes,except for Schedule II.

(3) Exhibits:
| Exhibit No. | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                          |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                                                                                             |
| *2.1        |       | Amended and Restated Agreement and Plan of Merger  dated January 5, 2007, by among WII Holding, Inc., a Delaware corporation,  WII Merger Corporation, a Delaware corporation, WII Components, Inc. and  Behrman Capital III, L.P., solely in its capacity as stockholders’  representative |
|        |       |                                                                                                                                                                                                                                                                                             |
| 3.1         |       | Second Amended and Restated Certificate of  Incorporation of WII Components, Inc. (incorporated herein by reference to  Exhibit 3.1 to the Company’s Registration Statement on Form S-4, as amended,  File No. 333-115490)                                                                  |
|        |       |                                                                                                                                                                                                                                                                                             |
| 3.2         |       | Amended and Restated By-laws of WII Components, Inc.  (incorporated herein by reference to Exhibit 3.2 to the Company’s  Registration Statement on Form S-4, as amended, File No. 333-115490)                                                                                               |
|        |       |                                                                                                                                                                                                                                                                                             |
| 3.3         |       | Restated Articles of Incorporation of Woodcraft  Industries, Inc. (incorporated herein by reference to Exhibit 3.3 to the  Company’s Registration Statement on Form S-4, as amended, File No.  333-115490)                                                                                  |
|        |       |                                                                                                                                                                                                                                                                                             |
| 3.4         |       | Restated Bylaws of Woodcraft Industries, Inc.  (incorporated herein by reference to Exhibit 3.4 to the Company’s  Registration Statement on Form S-4, as amended, File No. 333-115490)                                                                                                      |
|        |       |                                                                                                                                                                                                                                                                                             |
| 3.5         |       | Articles of Incorporation of PrimeWood, Inc.  (incorporated herein by reference to Exhibit 3.5 to the Company’s  Registration Statement on Form S-4, as amended, File No. 333-115490)                                                                                                       |
|        |       |                                                                                                                                                                                                                                                                                             |
| 3.6         |       | Bylaws of PrimeWood, Inc. (incorporated herein by  reference to Exhibit 3.6 to the Company’s Registration Statement on Form S-4,  as amended, File No. 333-115490)                                                                                                                          |
|        |       |                                                                                                                                                                                                                                                                                             |
| 3.7         |       | Certificate of Incorporation of Brentwood  Acquisition Corp. (incorporated herein by reference to Exhibit 3.7 to the  Company’s Registration Statement on Form S-4, as amended, File No.  333-115490)                                                                                       |
|        |       |                                                                                                                                                                                                                                                                                             |
| 3.8         |       | Bylaws of Brentwood Acquisition Corp. (incorporated  herein by reference to Exhibit 3.8 to the Company’s Registration Statement on  Form S-4, as amended, File No. 333-115490)                                                                                                              |
|        |       |                                                                                                                                                                                                                                                                                             |
| 3.9         |       | Certificate of Incorporation of Grand Valley  Acquisition, Inc. (incorporated herein by reference to Exhibit 3.9 to the  Company’s Amendment No. 1 to the Registration Statement on Form S-4, as  amended, File No. 333-115490)                                                             |
|        |       |                                                                                                                                                                                                                                                                                             |
| 3.10        |       | Bylaws of Grand Valley Acquisition, Inc.  (incorporated herein by reference to Exhibit 3.10 to the Company’s Amendment  No. 1 to the Registration Statement on Form S-4, as amended, File No.  333-115490)                                                                                  |
|        |       |                                                                                                                                                                                                                                                                                             |
| *3.11       |       | Third Amended and Restated Certificate of  Incorporation of WII Components, Inc.                                                                                                                                                                                                                 |
|        |       |                                                                                                                                                                                                                                                                                             |
| *3.12       |       | Bylaws of WII Merger Corporation, which are the  current Bylaws of WII Components, Inc. as a result of the Amended and  Restated Agreement and Plan of Merger attached as Exhibit 2.1                                                                                                            |

 

47

----

 
| Exhibit No. | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                                            |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.1         |       | Indenture dated as of February 18, 2004 by and among  WII Components, Inc., and U.S. Bank National Association  (incorporated herein by reference to  Exhibit 4.3 to the Company’s Registration Statement on Form S-4, as amended,  File No. 333-115490)                                                                                                                 |
|        |       |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.2         |       | Registration Rights Agreement dated as of February  18, 2004, by and among WII Components, Inc. and the Initial Purchasers as  defined therein (incorporated herein by reference to Exhibit 4.5 to the  Company’s Registration Statement on Form S-4, as amended, File No.  333-115490)                                                                                       |
|        |       |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.3         |       | Form of WII Components, Inc. 10% Senior Note due  2012 (incorporated herein by reference to Exhibit 4.3 to the Company’s  Registration Statement on Form S-4, as amended, File No. 333-115490)                                                                                                                                                                                |
|        |       |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.4         |       | Supplemental Indenture, dated as of June 25, 2004 by  and among WII Components, Inc. and the Initial Purchasers as defined therein  (incorporated herein by reference to Exhibit 4.7 to the Company’s Amendment  No. 1 to the Registration Statement on Form S-4, as amended, File No.  333-115490)                                                                           |
|        |       |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.1        |       | WII Holdings, Inc. 2003 Stock Option and Grant  Plan  (incorporated herein by reference  to Exhibit 10.1 to the Company’s Registration Statement on Form S-4, as  amended, File No. 333-115490)                                                                                                                                                                          |
|        |       |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.2        |       | Form of Director Indemnification Agreement  (incorporated herein by reference to  Exhibit 10.2 to the Company’s Registration Statement on Form S-4, as amended,  File No. 333-115490)                                                                                                                                                                                    |
|        |       |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.3        |       | Employment Agreement dated April 9, 2003 between  Woodcraft Industries, Inc. and John Fitzpatrick  (incorporated herein by reference to  Exhibit 10.3 to the Company’s Registration Statement on Form S-4, as amended,  File No. 333-115490) **                                                                                                                          |
|        |       |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.4        |       | Employment Agreement dated April 9, 2003 between  Woodcraft Industries, Inc. and Dale Herbst   (incorporated herein by reference to Exhibit 10.4 to the Company’s  Registration Statement on Form S-4, as amended, File No. 333-115490) **                                                                                                                               |
|        |       |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.5        |       | Employment Agreement dated April 9, 2003 between  Woodcraft Industries, Inc. and Joel Beyer   (incorporated herein by reference to Exhibit 10.7 to the Company’s  Registration Statement on Form S-4, as amended, File No. 333-115490) **                                                                                                                                |
|        |       |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.6        |       | Credit Agreement, dated as of February 18,  2004, by and among WII Components, Inc. as Borrower and Antares Capital  Corporation, for itself and as Agent for all Lenders, and the Financial  Institutions Party thereto   (incorporated herein by reference to Exhibit 10.8 to the Company’s  Registration Statement on Form S-4, as amended, File No. 333-115490) |
|        |       |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.7        |       | Form of Revolving Note  (incorporated herein by reference to  Exhibit 10.9 to the Company’s Registration Statement on Form S-4, as amended,  File No. 333-115490)                                                                                                                                                                                                        |
|        |       |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.8        |       | Stockholders Agreement dated April 9, 2003 by and  among WII Holdings, Inc. and the Stockholders as defined therein  (incorporated herein by reference to  Exhibit 4.1 to the Company’s Registration Statement on Form S-4, as amended,  File No. 333-115490)                                                                                                            |
|        |       |                                                                                                                                                                                                                                                                                                                                                                               |
| 10.9        |       | Registration Rights Agreement dated April 9, 2003 by  and among WII Holdings, Inc.                                                                                                                                                                                                                                                                                                 |

 

48

----

 
| Exhibit No. | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                        |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                                                                                                                           |
|        |       | and the Stockholders as defined therein  (incorporated herein by reference to  Exhibit 4.2 to the Company’s Registration Statement on Form S-4, as amended,  File No. 333-115490)                                                                                                                                    |
|        |       |                                                                                                                                                                                                                                                                                                                           |
| 10.10       |       | Purchase Agreement dated as of February 18, 2004, by  and among WII Components Inc. and the Purchasers as defined therein  (incorporated herein by reference to  Exhibit 4.4 to the Company’s Registration Statement on Form S-4, as amended,  File No. 333-115490)                                                  |
|        |       |                                                                                                                                                                                                                                                                                                                           |
| 10.11       |       | Purchase and Exchange Agreement dated April 9, 2003  by and among WII Holdings, Inc. and The Investors and Management Stockholders  as defined therein  (incorporated herein by reference to Exhibit  2.1 to the Company’s Registration Statement on Form S-4, as amended, File No.  333-115490)                     |
|        |       |                                                                                                                                                                                                                                                                                                                           |
| 10.12       |       | Agreement and Plan of Merger dated as of April 9,  2003 by and among WII Holdings, Inc., Woodcraft Acquisition Subsidiary, Inc.,  and Woodcraft Industries, Inc.  (incorporated herein by reference to Exhibit  2.3 to the Company’s Registration Statement on Form S-4, as amended, File No.  333-115490)           |
|        |       |                                                                                                                                                                                                                                                                                                                           |
| 10.13       |       | Amended and Restated Credit Agreement dated as of  September 23, 2005 by and among WII Components, Inc., Antares Capital  Corporation, and the Financial Institutions party thereto (incorporated herein by reference to Exhibit  10.14 to the Company’s Quarterly Report on Form 10-Q, as amended, File No.  333-115490) |
|        |       |                                                                                                                                                                                                                                                                                                                           |
| 10.14       |       | Bonus Letter Agreement between the Company and John  Fitzpatrick, dated May 31,2006 **                                                                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                           |
| 10.15       |       | Option Agreement dated May 31, 2006, between the  Company and John Fitzpatrick **                                                                                                                                                                                                                                              |
|        |       |                                                                                                                                                                                                                                                                                                                           |
| 10.16       |       | Option Agreement dated May 31, 2006, between the  Company and John Fitzpatrick **                                                                                                                                                                                                                                              |
|        |       |                                                                                                                                                                                                                                                                                                                           |
| *12.1       |       | Statement Regarding Computation of Ratio of Earnings  to Fixed Charges                                                                                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                           |
| 21.1        |       | Subsidiaries of the Registrant (incorporated herein  by reference to Exhibit 21.1 to the Company’s Amendment No. 1 to the  Registration Statement on Form S-4, as amended, File No. 333-115490)                                                                                                                           |
|        |       |                                                                                                                                                                                                                                                                                                                           |
| *23.1       |       | Consent of Independent Registered Public Accounting  Firm                                                                                                                                                                                                                                                                      |
|        |       |                                                                                                                                                                                                                                                                                                                           |
| *31.1       |       | Certification of Chief Financial Officer, Treasurer,  and Secretary of WII Components, Inc., pursuant to Rules 13a-15(e)  and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002                                                                                                  |
|        |       |                                                                                                                                                                                                                                                                                                                           |
| *31.2       |       | Certification of President and Chief Executive  Officer of WII Components, Inc., pursuant to Rules 13a-15(e) and  15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002                                                                                                              |
|        |       |                                                                                                                                                                                                                                                                                                                           |
| *32.1       |       | Certification of Chief Financial Officer, Treasurer,  and Secretary of WII Components, Inc., pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                           |
| *32.2       |       | Certification of President and Chief Executive  Officer of WII Components, Inc., pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the                                                                                                                                                 |

 

49

----

 
| Exhibit No. | ** ** | **Exhibit Description**    |
|-------------|------------|----------------------------|
|        |       |                       |
|        |       | Sarbanes-Oxley Act of 2002 |

 

----

* Filed herewith.

** Compensationarrangement.

50

----

**SCHEDULEII. VALUATION AND QUALIFYING ACCOUNTS**

**Allowancefor Doubtful Accounts**

The transactions in the allowance for doubtfulaccounts for the years ended December 31, 2006, 2005 and 2004 were as follows(in thousands): 
|                             | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------|------------|--------------------------------------------|------------|
| ** **                  | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Balance,  beginning of year |       | $                                          | 118        |   | $ | 209 |   | $ | 237 |   |
| Provision                   |       | 21                                         |       | 61 |   | 27 |   |
| Write-offs                  |       | (35                                        | )          | (152 | ) | (55 | ) |
| Balance, end of year        |       | $                                          | 104        |   | $ | 118 |   | $ | 209 |   |

 

51

----

**Item 16. Signatures**

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, the Registrant has duly causedthis Annual Report to be signed on its behalf by the undersigned thereunto dulyauthorized, this 30th day of March 2007:
| ** ** | **WII COMPONENTS, INC.**                                 |
|------------|----------------------------------------------------------|
| ** ** | ** **                                               |
| * *   | By:                                                      | /s/ John  Fitzpatrick |   |
|       | John Fitzpatrick, President and Chief Executive  Officer |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this Annual Report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.
| Signature | ** **              | **Title** | ** ** | **Date**                                                     |
|-----------|-------------------------|-----------|------------|--------------------------------------------------------------|
|      |                    |      |       |                                                         |
|      | /s/ John  Fitzpatrick   |      |       | President and Chief Executive Officer                        |   | March 28,2007 |
|      | John Fitzpatrick        |      |       | (Principal Executive Officer)                                |   |   |
|      |                    |      |       |                                                         |   |   |
|      | /s/ Dale B. Herbst      |      |       | Chief Financial Officer, Treasurer and Secretary  (Principal |   | March 28,2007 |
|      | Dale B. Herbst          |      |       | Financial Officer and Principal Accounting Officer)          |   |   |
|      |                    |      |       |                                                         |   |   |
|      | /s/ Robert S. Morris    |      |       | Director                                                     |   | March 28,2007 |
|      | Robert S. Morris        |      |       |                                                         |   |   |
|      |                    |      |       |                                                         |   |   |
|      | /s/ Louis J. Mischianti |      |       | Director                                                     |   | March 28,2007 |
|      | Louis J. Mischianti     |      |       |                                                         |   |   |
|      |                    |      |       |                                                         |   |   |
|      | /s/ L. David Cardenas   |      |       | Director                                                     |   | March 28, 2007 |
|      | L. David Cardenas       |      |       |                                                         |   |   |
|      |                    |      |       |                                                         |   |   |
|      | /s/ Keith Heffernan     |      |       | Director                                                     |   | March 28, 2007 |
|      | Keith Heffernan         |      |       |                                                         |   |   |

 

52

----