**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-K**

**FOR ANNUAL AND TRANSACTION REPORTS PURSUANTTO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe fiscal year ended December 31, 2006**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe transition period from                              to                              **

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**Commissionfile number:  333-138178**

**INDALEX HOLDINGS FINANCE, INC.***

(Exact name of registrantas specified in its charter)

| **Delaware**                                                     |   | **3350**                                              |   | **20-4065041**                        |
|------------------------------------------------------------------|--------|-------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (Primary Standard  Industrial  Classification Number) |   | (I.R.S. Employer  Identification No.) |

 

**75 Tri-StateInternational, Suite 450**

**Lincolnshire, IL 60069**

**Telephone: (847) 810-3000**

(Address, including zip code, and telephone number,including area code, of registrants’ principal executive offices)

 

Securitiesregistered pursuant to Section 12(b) of the Act: None

Securities registeredpursuant to Section 12(g) of the Act: None

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.

Yes  o    No  x

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act.

Yes  o    No  x

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for at least the past 90 days.

Yes  o    No  x

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, tothe best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K  o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

| Large accelerated  filer  o | Accelerated filer  o | Non-accelerated filer  x |
|---------------------------------------|--------------------------------|------------------------------------|

 

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

Yes  o    No  x

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The aggregate market valueof the registrant’s common stock held by non-affiliates of the registrant as ofJune 30, 2006 was $10.5 million.

The number ofshares of the registrant’s common stock outstanding as of March 15, 2007was 1,000,024.

 

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**TABLEOF CONTENTS**

| PART I   |   | 3                                                                                                |
|---------------|--------|--------------------------------------------------------------------------------------------------|
| ITEM  1.      |   | BUSINESS                                                                                         |   | 3 |
| ITEM  1A.     |   | RISK  FACTORS                                                                                    |   | 21 |
| ITEM 1B.      |   | UNRESOLVED STAFF  COMMENTS                                                                       |   | 41 |
| ITEM  2.      |   | PROPERTIES                                                                                       |   | 41 |
| ITEM  3.      |   | LEGAL  PROCEEDINGS                                                                               |   | 41 |
| ITEM 4.       |   | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS                                             |   | 41 |
| PART II       |   | 42                                                                                               |
| ITEM 5.       |   | MARKET FOR  COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY  SECURITIES |   | 42 |
| ITEM 6.       |   | SELECTED FINANCIAL  DATA                                                                         |   | 43 |
| ITEM 7.       |   | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      |   | 46 |
| ITEM 7A.      |   | QUANTITATIVE  AND QUALITATIVE DISCLOSURE OF MARKET RISKS                                         |   | 68 |
| ITEM 8.       |   | CONSOLIDATED AND  COMBINED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                           |   | 69 |
| ITEM 9.       |   | CHANGES IN AND  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE            |   | 70 |
| ITEM 9A.      |   | CONTROLS AND  PROCEDURES                                                                         |   | 70 |
| ITEM 9B.      |   | OTHER INFORMATION                                                                                |   | 70 |
| PART III |   | 71                                                                                               |
| ITEM 10.      |   | DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                          |   | 71 |
| ITEM 11.      |   | EXECUTIVE  COMPENSATION                                                                          |   | 73 |
| ITEM 12.      |   | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS |   | 84 |
| ITEM 13.      |   | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                       |   | 85 |
| ITEM 14.      |   | PRINCIPAL  ACCOUNTING FEES AND SERVICES                                                          |   | 88 |
| PART IV  |   | 89                                                                                               |
| ITEM 15.      |   | EXHIBITS AND  FINANCIAL STATEMENT SCHEDULES                                                      |   | 89 |

 

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**PART I**

**ITEM1.**             BUSINESS

**Our Company**

We are the second largest aluminum extruder, and thelargest independent aluminum extruder, in the United States and Canada, basedon shipment volume data compiled by the Aluminum Association, the AluminumExtruders Council and management estimates. As an independent aluminumextruder, we are not involved in aluminum mining, refining or smelting. In2006, approximately 94% of our products were customized, made-to-orderaluminum extrusions for use in a wide array of end-user markets. Inaddition to aluminum extrusion, we also offer a broad range of services,including fabrication, painting and anodizing. For the year ended December 31,2006, our net sales and income from operations were $1,242.9 million and $0.7 million,respectively, and our net loss was $22.3 million.

We serve over 3,500 customers, including a broadspectrum of national, regional and local accounts, with our largest customeraccounting for approximately 6% of our net sales in 2005 and approximately 6%of our net sales in 2006. We offer a wide range of products that are sold intoa wide array of end-user markets, none of which represented more than 31%of our shipment volume in 2006. The following chart identifies the percentageof our 2005 and 2006 shipment volume and the principal products sold in each ofthe end-user markets we serve.

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| **End-user markets  served**               | ** ** | ** **                                                                        | ** ** | **Principal products** | ** ** | **Percent of   2006 Shipment  Volume** | ** ** | **Percent of  2005 Shipment  Volume** |
|--------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------------------|------------|---------------------------------------|
| Transportation  (exclusive of  automotive) |       | Components used in truck  trailers, trucks and recreational vehicles              |       | 31%                    |       | 30%                                    |
| Residential building and    construction   |       | Components used in  windows, doors, sunrooms and skylights                        |       | 28%                    |       | 28%                                    |
| Distribution channel                       |       | Products sold in other  end-user markets through distributors                     |       | 14%                    |       | 14%                                    |
| Electric and cable                         |       | Components used in heat  sinks, cable sheathing, electrical fixtures and conduit  |       | 7%                     |       | 7%                                     |
| Commercial building and   construction     |       | Components used in  commercial windows, store fronts and railings                 |       | 7%                     |       | 7%                                     |
| Consumer durables                          |       | Components used in  office furniture, refrigerators and pleasure boats            |       | 6%                     |       | 6%                                     |
| Machinery and equipment                    |       | Components used in  ladders, scaffolds and industrial equipment such as conveyors |       | 5%                     |       | 6%                                     |
| Automotive                                 |       | Components used in passenger cars and light trucks                                |       | 2%                     |       | 2%                                     |

 

At the end of 2005, basedon the latest available shipment volume data compiled by the AluminumAssociation, the Aluminum Extruders Council and management estimates, we heldthe number one market position in the residential building and construction end-usermarket and the number two market position in the transportation (inclusive ofautomotive) end-user market. The transportation (inclusive of automotive)and the residential building and construction end-user markets eachrepresented approximately 27% and 26%, respectively, of the aluminum extrusionindustry’s annual shipment volume in 2005 in the United States and Canadaaccording to data compiled by the Aluminum Association and managementestimates. We believe we offer a very attractive value proposition to ourcustomers, and believe we have grown our market share in the U.S. and Canadianaluminum extrusion market, measured by shipment volume, from approximately 13%in 2001 to approximately 16% in 2006 according to data compiled by the AluminumAssociation and management estimates.

Aluminum extrusion is the process of shaping aluminumbillet into product or component parts by heating it and forcing it to flowthrough a shaped die at the end of an extrusion press. The principal rawmaterials in the aluminum extrusion process are aluminum billets and ingot,which represented approximately $596.2 million or 63% of our cost of salesin 2005 and approximately $763.9 million or 66% of our cost of sales in 2006.We manage the risk of base aluminum price increases through one of four pricingmechanisms and through several hedging programs. The “base aluminum” priceconsists of two components: the price quoted for primary aluminum ingot on theLondon Metals Exchange, or the “LME,” and the Midwest Transaction Premium, orthe “MWP,” a market price for the cost of aluminum shipping and warehousing. Onapproximately 90% of our shipment volume, we are insulated from base 

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aluminum price volatilityor specifically hedge the cost of base aluminum that is charged to ourcustomers. Our four pricing mechanisms and our estimate of the shipment volumeattributable to each are as follows:

·                    Approximately65% of our shipment volume is priced by a formula pricing mechanism based onthe prior month’s base aluminum price plus a conversion margin for ourservices. We use hedge instruments to mitigate our exposure to changes in thebase aluminum price for the time period between our purchase of aluminum billetand when we process it for a customer order.

·                    Forapproximately 20% of our shipment volume, we enter into contracts for aspecified period to provide customers with a fixed price for the aluminum. Weuse hedge instruments traded on the LME to specifically hedge our exposureunder fixed price contracts.

·                    Approximately5% of our shipment volume is made through tolling arrangements in which customersprovide aluminum ingot to us for extrusion and separately pay for our aluminumextrusion and other services.

·                    Theremaining 10% of our shipment volume is based on a spot price set by us. Wereview the spot price monthly and adjust the spot price periodically forchanges in the base aluminum price.

We operate an extensive network of manufacturingfacilities in the United States and Canada, consisting of 15 facilities and twocasting facilities with approximately 750 million pounds of annualproduction capacity. From the beginning of 2000 to the end of 2006, werationalized our operations, reducing the number of our facilities from 23 to17. In addition, we are in the process of closing our Watsonville, Californiafacility, which will be closed during the first half of 2007. We believe thatas a result of these restructuring activities we are well positioned to reactto changes in market demand, with sufficient available capacity to benefit froman increase in demand for our products without significantly increasing ourfixed operating costs. At the same time, we believe that opportunities exist tofurther rationalize operations by combining facilities or expanding ouroutsourcing relationships into other countries with lower production costs asnecessary to react to changing market conditions.

Since 2000, we have imported aluminum extrusions fromChina to take advantage of the lower cost structure of Chinese extruders and toprovide additional capacity during periods of peak demand. Through our “Asia Secure”program, we are able to offer our customers security of supply by committingour facilities as a backup producer if the Chinese supply chain were to bedisrupted by external factors. We currently import aluminum extrusions fromfive suppliers in China, although the majority of our imports from China comesfrom AAG, a large aluminum extruder operating five production facilities inChina, in which we have an approximately 25% ownership interest. We have a non-exclusivesupply agreement with AAG that provides for arms length pricing. We areentitled to receive an annual cash dividend equal to our pro rata share of atleast 40% of the net realized profits of AAG. We have agreed not to engage inany competing aluminum extrusion activities in China so long as we have anownership interest in AAG.

In this report, referencesto “Indalex,” “we” “us” and “our” are to Indalex Holdings Finance, Inc.and its subsidiaries, and references to “Holdings” are to Indalex HoldingsFinance, Inc., exclusive of its subsidiaries. Our fiscal year consists ofa 52-week period ending on the Sunday closest to December 31. Thefiscal years presented in this report for 2004, 2005 and 2006 are for the 52-weekperiods ending December 31, 2004, December 31, 2005 and December 31,2006, respectively. References to an “independent” aluminum extruder refer toan aluminum extruder that does not have an aluminum smelting operation;references to the “aluminum extrusion market” refer to the soft alloy aluminumextrusion market and not to the hard alloy aluminum extrusion market; andreferences to “United States and Canada” refer to the United States market andthe Canada market collectively and not individually, unless the contextotherwise requires.

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**Our CompetitiveStrengths**

We enjoy the following competitive strengths:

*Leading industryposition*

We are the second largestaluminum extruder, and the largest independent aluminum extruder, in the UnitedStates and Canada, based on shipment volume data compiled by the AluminumAssociation and management estimates, with approximately 750 millionpounds of annual production capacity. We believe our leading industry positiongives us the ability to attract and retain large national accounts that requireextensive product and service capabilities not provided by many of our localand regional competitors.

*Significantpurchasing power*

We believe we are thelargest independent third-party buyer of aluminum billets, the rawmaterial for the extrusion process, in the United States and Canada accordingto data compiled by the Aluminum Association, the Aluminum Extruders Counciland management estimates. We purchased approximately 650 million pounds ofaluminum billet in 2006, and we have a diversified supplier base ofapproximately 15 suppliers located in North America, South America and theMiddle East, with no billet supplier representing more than 26% of ourpurchases in 2006. The cost of aluminum billet is based upon three components:the LME, the MWP and a “billet premium,” which is a cost that is added to thebase aluminum price and represents the charge from the smelter for convertingaluminum ingot to billet. We are generally able to negotiate favorable supplyagreements with smelters for billet premiums that represent a discount toprevailing market prices. We believe we are the largest buyer of paint used inaluminum extrusions in the United States and Canada, providing us with acompetitive advantage over smaller extruders with lower requirements for paint.In addition, we have successfully leveraged our purchasing power to obtain alower cost pricing for extrusion dies by reducing our number of outsidesuppliers of dies from 26 to four over the last two years.

*Customer solutionsand centralized sales force*

One of our businessstrategies is to focus on adding value for the customer rather than solelybuilding shipment volume and supplying standard aluminum extrusions. We have acentralized sales force, with sales personnel designated to serving the needsof specific customers rather than to increasing production at any one of ourmanufacturing facilities. We believe that our solution-based approach andcentralized sales force differentiates us from other large aluminum extrudersand has enhanced our customer relationships. For example, our largest customer,Utility Trailer Manufacturing Co., has multiple locations throughout the UnitedStates. We have been able to provide a single point of contact for sales tofacilitate ordering and fulfillment, to develop offshore sourcing solutions andto monitor routing of orders to the appropriate location. We believe that manyof our smaller competitors are unable to provide these capabilities, which webelieve are important to this customer.

*Established anddiversified customer base in a variety of end-user markets*

We have long-standingrelationships with large companies in a variety of end-user markets,including Utility Trailer Manufacturing Co. in the transportation market; Jeld-wen, Inc.in the residential building and construction market; and Ryerson Tull, Inc.in the distribution channel. Our top ten customers in 2006 have been purchasingour products for an average of more than 20 years. We serve over 3,500customers across the United States and Canada, including a broad spectrum ofnational, regional and local accounts. Our top 10 customers representedapproximately 28% of our net sales in 2005, with our largest customerrepresenting approximately 6% of our net sales in that year, and our top 10customers represented approximately 29% of our net sales in 2006, with ourlargest customer representing approximately 6% of our net sales in that period.We serve a variety of customers in the United States and Canada, includingcustomers in the transportation, residential and commercial building andconstruction, electrical and cable, consumer durables and machinery andequipment end-user markets. Our broad customer base diversifies 

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ourrevenue stream and reduces our exposure to downturns in any of the specific end-usermarkets we serve.

*Insulation frombase aluminum price volatility*

Through various pricingmechanisms and hedging programs, we are generally able to insulate ourselvesfrom increases in the price of base aluminum. Approximately 65% of our shipmentvolume is priced by a formula pricing mechanism based on the prior month’s basealuminum price plus a conversion margin for our services. We use hedgeinstruments to mitigate our exposure to changes in the base aluminum price forthe time period between our purchase of aluminum billet and when we process itfor a customer order. For approximately 20% of our shipment volume, we enterinto fixed price contracts and specifically hedge our base aluminum price riskunder those contracts. The remaining 15% of our shipment volume is throughtolling arrangements or is based on spot prices, which we review monthly andadjust for changes in the base aluminum price periodically. Our ability to passthrough the cost of base aluminum enables us to maintain our gross margins evenwhen base aluminum prices increase. In addition, our in-house billetcasting capabilities, which supply approximately 21% of our needs, enable us torecycle and reuse our production scrap in our extrusion business. We are ableto achieve cost savings of approximately 20% by using aluminum billet producedfrom scrap from our extrusion business when compared to the billet premium thatwe would be charged by aluminum smelters.

*Extensivemanufacturing network*

We maintain a network of15 coordinated manufacturing facilities in the United States and Canada. Ourgeographic reach places us in close proximity to many of our customers, betterensuring on-time delivery and reducing our freight costs. Our ability todeliver products throughout the United States and Canada through a singlecustomer contact is a key differentiator for large, geographically-dispersedcustomers. Through our coordinated manufacturing facilities, our ability toshift production among our 15 facilities, subject to the constraints offreight costs and disparities in the production capabilities of our facilities,and our centralized customer service organization, we are able to costeffectively serve national customers as they expand and to substantially reduceutilization disparities among our facilities.

*Effectiveoutsourcing strategy*

Our volume of productsimported from China has grown rapidly since 2000; in 2006 we importedapproximately 6% of our volume from that country. We believe that therelationships we have developed in China and our experience in managing thesupply chain positions us well to take advantage of the lower production coststructure in China. Using aluminum extruders from China such as AAG has enabledus to eliminate some of our more costly domestic operations while maintainingour shipment volume. In addition, our relationship with Chinese suppliersprovides us incremental capacity to meet seasonal demands. Conversely, ifdemand for our products were to decline, we have the flexibility to limit thenumber of orders we outsource to China and fill more of our orders through ourown manufacturing facilities because we typically maintain duplicate extrusiondies and have the manufacturing capabilities to produce most of the orders weimport from China in our own facilities. We believe that we can use our supplymodel in other lower production cost countries and we are currently exploringvarious alternatives to supplement our existing Chinese sourcing strategy.

*Experienced andcommitted management team*

The eight members of oursenior management team have an average of approximately 13 years ofextrusion industry experience both with Indalex and other leading globalindustrial organizations. Led by Timothy R.J. Stubbs, who has15 years of aluminum extrusion industry experience, the senior managementteam has been successful at focusing on customers, rationalizing operations andimproving employee productivity. Our entire management team owns common stockand stock options representing approximately 7% of Holdings on a fully-dilutedbasis.

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**Our BusinessStrategy**

We have identified severalgrowth opportunities that we believe will allow us to continue to gain marketshare and increase net sales, cash flow and profitability.

*Expand serviceofferings to existing customers*

We intend to further penetrateour existing customer base through sales of higher value-added products.For example, in the transportation end-user market, where we havehistorically experienced strong sales, we have been able to expand our serviceofferings by providing fabrication and finishing services to existing customersthat had historically purchased existing mill finish, or extrusion only,products. Only 43% of our shipment volume in 2005 and 41% of our shipmentvolume in 2006 underwent painting, anodizing or fabrication. We believe thereis an opportunity for us to increase this percentage, and we intend to pursueopportunities to provide additional value-added services to ourcustomers. We believe our strong customer relationships will facilitateadditional sales to our existing customers.

*Continued emphasison rationalizing operations and enhancing productivity*

We intend to continue tofocus on efficiency and on increasing capacity utilization. From the beginningof 2000 to the end of 2006, we reduced the number of our facilities from 23 to17, divested two non-core businesses and reduced overhead byapproximately 300 employees, and through these reductions, together with thecentralization of shared services, reduced our annual fixed costs, excludingdepreciation, by approximately $5 million despite increases in insuranceand benefits costs. During this same period, we increased our productivity peremployee by approximately 40%, based on shipment volume per employee, and weincreased our outsourced manufacturing as a percentage of shipment volume. In September 2004,we closed our Berlin, Connecticut facility and transferred its customers to ourMontreal facility. We continue our review of future rationalization andoverhead reduction programs, which may include closing higher cost facilities,combining facilities or expanding our outsourcing relationships into othercountries with lower production costs. As a result of our efforts over the lastfew years, we believe that we are now better able to withstand an economic downturnthan we were during the last downturn in 2001.

*Target incrementalgrowth in select end-user segments and regions*

We intend to continue topursue additional market share in targeted high growth segments of our end-usermarkets and in regions of the United States in which we do not have asignificant presence. We are currently focusing on the transportation end-usermarket, particularly the truck trailer manufacturing segment, and theresidential and commercial building and construction end-user markets, aswell as on selling our products through distribution channels, because webelieve these markets present a significant opportunity for growth. Forexample, from the beginning of 2002 to the end of 2006, our annual shipmentvolume to truck trailer manufacturers grew approximately 400%, fromapproximately 24 million pounds to approximately 120 million pounds.This segment is the second largest user of aluminum extrusion in the UnitedStates and Canada according to data compiled by the Aluminum Association. Inthe residential building and construction end-user market, we enhancedour paint capabilities by adding a powder paint line, which is more durablethan wet paint and will permit our door and window customers to offer theircustomers longer product warranties at a lower price. We are also targetingincremental growth in regions of the country in which we do not have asignificant presence, such as the Southwestern United States. We intend topursue growth opportunities by selectively acquiring existing facilities,constructing new facilities or partnering with others to develop newoperations.

*Cultivate smallerOEM customers*

We believe thatsubstantial opportunities exist to increase sales to our smaller originalequipment manufacturer, or “OEM,” accounts, which only accounted forapproximately 9% of our net sales in 2006, and are focused in particular on theresidential building and construction and machinery and equipment 

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end-usermarkets. The smaller OEMs are primarily served by local owner-operated extrusionfacilities or by independent distributors. These customers are typically moreconcerned with quality and on-time delivery, and tend to be less price-sensitive,and as a result, the profit margin on sales to these smaller customers tends tobe greater than that for our larger customers. In 2004, we created a designatedsales group focused on smaller OEM customers, which is targeting thesecustomers for customized extrusion and value-added services in an effortto add incremental, high margin business. This program added approximately 400 newaccounts in 2006, and these new accounts represented additional shipment volumeof approximately 5.2 million pounds in that year.

*Selectively pursueacquisitions*

We believe there are aselect number of strategic acquisition opportunities. We regularly evaluatepotential acquisition candidates that we believe could fit our businessstrategy, any of which may or may not be material in size and scope. We intendto apply a selective and disciplined acquisition strategy, which is focused ondiversifying our customer base, adding manufacturing capabilities in low costmarkets and further penetrating new geographic regions of the United States byleveraging our existing infrastructure. We continuously evaluate acquisitionopportunities as they present themselves. At this time, we have not enteredinto a material agreement with any party.

*Focus on cash flowmanagement and debt reduction*

In the past, we havesuccessfully pursued organic and external growth opportunities and increasedprofitability while maintaining working capital and capital expenditurediscipline. We intend to focus on generating cash and on pursuing opportunitiesto reduce the amount of working capital necessary to operate our business. Forexample, we hope to reduce our working capital needs through greater use oftolling arrangements, in which aluminum billet is provided by our customers,through shorter customer payment terms and through increased use of consignmentinventory. We have historically used cash on hand to pay for our assets, and weexpect to make greater use of leasing arrangements to manage the timing andamount of our cash outflows on our capital spending in the future.

**Corporate History**

The Indalex group ofcompanies was first formed when Caradon plc, a U.K.-based conglomeratewith an existing aluminum extrusion business, purchased Easco Inc., anOhio-based aluminum products manufacturer, in September 1999. Theacquisition of Easco Inc. gave Caradon a total of 15 extrusion facilities andthree casting facilities in the United States. In May 2000, Caradonacquired the California aluminum extrusion businesses of Columbia VenturesCorporation, which provided Caradon with three extrusion facilities inCalifornia and one additional cast house. Caradon was renamed Novar plc in November 2000.In March, 2005, Honeywell International Inc. acquired Novar plc andannounced its intention to sell the aluminum extrusion business. On February 2,2006, Indalex, a wholly-owned direct subsidiary of Holdings, an entitycontrolled by affiliates of Sun Capital Partners, Inc., acquired all ofthe outstanding capital stock of Indalex Inc. and Indalex Limited fromHoneywell International Inc.

**Industry Overview**

An alloy is a material made up of two or more metals.Aluminum alloy used for extrusion contains aluminum and small amounts of otherelements which are added to enhance the natural properties of aluminum withcertain specific characteristics. The different types of aluminum alloy arecharacterized using a four-digit system. Aluminum alloy in the 1,000 series,which has no other elements, aluminum alloy in the 3,000 series, which istypically alloyed with manganese, and aluminum alloy in the 6,000 series, whichis typically alloyed with magnesium and silicon, are referred to as “softalloy.” Soft alloy is heat treatable and has a good strength to weight ratioand corrosion resistance. Aluminum alloy in the 2,000 and 7,000 series, whichis typically alloyed with copper and zinc, respectively, is referred to as “hardalloy.” Hard alloy 

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is heat treatable and hasvery high strength characteristics. Hard alloy aluminum extrusions are commonlyused in the aerospace industry. All of our extrusions are soft alloy extrusionsand all references in this report to aluminum extrusions are to soft alloyaluminum extrusions only.

Unless otherwise indicated, information contained inthis report concerning the aluminum extrusion industry and its end-usermarkets and segments and our market position within them are based on managementestimates. These estimates are derived from publicly available informationreleased by third-party sources, as well as data from our own internalresearch and assumptions we have made based on that data and our knowledge ofthe aluminum extrusion industry and its end-user markets and segments,which we believe to be reasonable. References to the “Aluminum Association” areto The Aluminum Association, an industry trade association for producers ofprimary aluminum, recyclers and producers of rolling, casting and extrusionproducts, as well as suppliers, and references to data compiled by the AluminumAssociation are to data included in the “Aluminum Statistical Review for 2005”report dated October 2006 and other data compiled by the Aluminum Association.Our internal research and other sources have not been verified by anyindependent source, and we and the initial purchasers have not independentlyverified any third-party information and cannot assure you of itsaccuracy or completeness. In addition, while we believe the market positioninformation included herein is generally reliable, such information isinherently imprecise. Estimates of historical growth rates in the markets inwhich we operate are not necessarily indicative of future growth rates in thosemarkets. While we are not aware of any misstatements regarding the industry orsimilar data presented herein, such data involve risks and uncertainties andare subject to change based on various factors, including those discussed underthe “Item 1A. Risk Factors”.

China and the United States and Canada are the secondand third largest markets in the global aluminum extrusion industry, accountingfor an estimated 44% of the global market. Approximately 4.2 billionpounds of aluminum extrusions were produced in the United States and Canada in 2006,representing a 4% compound annual growth rate in shipment volume from 2001.There is no reliable industry data for the Chinese market, but we believe thatapproximately 4.8 billion pounds of aluminum extrusions were produced inthat market in 2006, and that it has experienced a faster growth rate than theU.S. and Canadian market in recent years.

Despite recent consolidation, the U.S. and Canadianmarket remains fragmented, with approximately five to seven large aluminumextruders shipping over 200 million pounds per year worldwide and anestimated 120 to 150 small to mid-sized regional aluminum extruders shippinglesser amounts. Given the cost of freight, small to mid-sized competitors generallycompete for smaller volume orders with customers within their geographic reach.They do not benefit from scale advantages, and generally have a higher coststructure than larger competitors.

We estimate the demand for aluminum extrusions in theUnited States and Canada fell by approximately 2% in 2006, measured by shipmentvolume. This demand is expected to be driven by the growth of the economy andthe increasing ability of aluminum to be used as a substitute for other rawmaterials, primarily steel, which has a less attractive strength to weightratio.

In 2006, approximately 9%of the total aluminum extrusions, measured by shipment volume, sold in theUnited States and Canada were imported from China. While we expect thispercentage to grow over the long term, we believe there are several constraintsthat will limit the penetration of Chinese imports to the United States andCanada. First, savings in labor and manufacturing costs must offset significantincremental freight and duty costs. Second, outsourcing to China is less costeffective in the production of low volume, customized extrusions. Third,certain types of aluminum extrusions do not fit easily or at all into standardshipping containers, making it impractical to import them to the United Statesand Canada. While we believe that China will continue to be an opportunity tooutsource certain of our products, we believe these constraints will limit thethreat of losing U.S. customers to Chinese extruders.

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**Processes**

We offer a broad range of services, including aluminumextrusion, fabrication, painting and anodizing. In 2006, approximately 94% ofour products were customized, made-to-order aluminum extrusions foruse in a wide array of end-user markets.

The figure belowillustrates the aluminum extrusion process. Our operations are represented bythe area surrounded by a dashed line.

***Aluminum extrusion.******  ***Aluminumextrusion is the process of shaping aluminum into products or component partsby heating it and forcing it to flow through a shaped die at the end of anextrusion press. In the aluminum extrusion process, an aluminum billet is firstheated to approximately 900 degrees Fahrenheit, placed into an extrusion press,and then forced, or extruded, through a uniquely shaped die to produce a pieceof metal in the shape of the die. Most of the extrusions we produce for ourcustomers have their own steel die designed according to their specifications.We currently have approximately 45,000 dies for our customers. Extrusions arethen straightened by stretching and cut to the required lengths which rangefrom a few inches to more than 50 feet. Most extrusions are hardened by agingin large ovens for approximately six to 12 hours where they are re-heatedto a temperature of approximately 400 degrees Fahrenheit. These extrusions arethen packaged and shipped, or receive one or more of the other services weprovide, such as fabrication, painting or anodizing as specified by thecustomer. Typically, 75% of the results of the aluminum extrusion process aresalable products, and the remaining 25% are aluminum scrap, which we eitherrecast into aluminum billet in one of our two casting facilities or sell on theopen market to metal dealers.

We offer both custom and standard aluminum extrusionsin a wide variety of shapes, including solid, semi-hollow and hollowdesigns. These shapes are offered as elongated products or short parts cut from

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lengthy longer extrusions,and can be produced with considerable precision and tight tolerances. If acustomer needs a customized shape, we have the capability to engineer a diethat will meet the specified requirements, including parts that hinge,interlock or self-assemble.

We refer to both custom and standard aluminumextrusions that have not received any of our value-added services as “millfinish” extrusions. Mill finish extrusions represented approximately 57% of ourshipment volume in 2005 and 59% of our shipment volume in 2006. Approximately43% of our shipment volume in 2005 and 41% of our shipment volume in 2006underwent an additional fabrication, painting or anodizing process.

***Fabricatedcomponents.******  ***Once the aluminum billet has beenshaped through the extrusion process, it is often fabricated to make the rawmetal suitable for the end user. We use a variety of fabrication processes,including cutting, punching, notching, bending, drilling, tight tolerancecutting, computerized numerical control, machining and manual and roboticwelding and assembly to serve a customized need or fit a certain use. We havethe fabrication knowledge and facilities to transform extruded aluminum intoprecisely engineered components. Examples of fabricated products include asimple cut-to-length extrusion notched and punched for use as adoor frame, a step assembly for a truck cab, a curved and fully formed trim capfor use on an office partition and components used in heat sinks for use in keyelectronics. Our fabrication capabilities range from assistance with conceptdesign to the delivery of a finished, ready-to-assemble part. Webelieve our fabrication operations are attractive to customers interested inoutsourcing certain manufacturing in order to better control operating costs,manage inventory or accommodate growth. Approximately 11% of our shipmentvolume in 2005 and in 2006 underwent a fabrication process.

Our mill finish extrusions and fabricated componentscan then be either painted or anodized.

***Paint services.******  ***We believe weare the leading painter of extruded aluminum in the United States and Canadaaccording to Aluminum Extruders Council data and management estimates. We havenine wet paint lines in our facilities in the United States and Canada. Themajority of our paint lines have multiple paint booths, providing quickthroughput for multi-coat applications such as Kynar®, a highvalue-added wet paint used in commercial building and constructionapplications. We have the ability to supply small batches of custom color orhigh volume runs on standard colors, using a wide variety of types of liquidpaint from acrylic to polyester to fluoropolymer finishers. Wet paint’s primaryadvantage is its ability to be custom made to meet the specific color anddurability requirements of specific projects. Approximately 28% of our shipmentvolume in 2005 and in 2006 was painted in one of our painting facilities.

We have installed in our Gainesville, Georgiafacility, what we believe to be one of the first vertical powder coat paintlines in the United States. Powder paint is more durable than wet paint andwill permit our door and window customers to offer longer warranties at a lowerprice. In powder coating, a powdered paint is sprayed and bondedelectrostatically. We have a purchase agreement with one of the leading globalpaint and coating manufacturers to supply us with powder paint. We are jointlydeveloping and co-branding a specially formulated high-performancepowder that requires only one coat compared to up to four coats for wet paints.Pursuant to the terms of our agreement, the supplier will co-invest inthe powder paint line and their investment will be repaid quarterly over fiveyears.

***Anodizing services.******  ***Anodizing isan electro-chemical process that converts aluminum surface into aluminumoxide, a ceramic-like material. We offer a range of anodizingcapabilities, including basic etching, architectural anodizing and Bright Dip,a type of anodizing which provides a polished, mirrored finish in a variety ofcolors. We have four anodizing facilities in the United States, each with arange of capabilities. For high value-added sub-segments such asshower and tub enclosures, we produce numerous specialty finishes, such aschemical and mechanical buffing and polishing, and mechanical graining andsanding. We also produce a brushed nickel finish that replicates the popularlook of stainless steel at a lower cost. Approximately 8% of our shipmentvolume in 2005 and 7% of our shipment volume in 2006 underwent an anodizingprocess.

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**End Users**

Ouraluminum extrusions are sold to a wide array of end-users that usealuminum products in the transportation, residential and commercial buildingand construction, electric and cable, consumer durables and machinery andequipment industries.

| **End-user markets   Served**               | ** ** | ** **                    | ** ** | **Primary customers**                          | ** ** | **Principal products** |
|---------------------------------------------|------------|-------------------------------|------------|------------------------------------------------|------------|------------------------|
| Transportation (non-automotive)             |       | Manufacturers of  vehicles    |       | Components used in truck  trailers, trucks and |
|                                        |       | and their suppliers           |       | recreational vehicles                          |
| Residential building  and construction |       | Manufacturers,  assemblers    |       | Components used in  windows, doors,            |
|                                        |       | and contractors               |       | sunrooms and skylights                         |
| Distribution channel                        |       | Distributors of aluminum      |       | Products sold in other  end-user markets       |
|                                        |       | extrusions                    |       | through distributors                           |
| Electric and cable                          |       | Electrical equipment          |       | Components used in heat  sinks, cable          |
|                                        |       | manufacturers and  utilities  |       | sheathing, electrical  fixtures and conduit    |
| Commercial building and  construction       |       | Manufacturers,  assemblers    |       | Components used in  commercial windows,        |
|                                        |       | and contractors               |       | store fronts and  railings                     |
| Consumer durables                           |       | Manufacturers and             |       | Components used in  office furniture,          |
|                                        |       | assemblers of finished  goods |       | refrigerators and boats                        |
| Machinery and equipment                     |       | Manufacturers of  machinery   |       | Components used in  ladders, scaffolds and     |
|                                        |       | and equipment                 |       | industrial equipment  such as conveyors        |
| Automotive                                  |       | Automotive suppliers          |       | Components used in passenger cars and light    |
|                                        |       |                          |       | trucks                                         |

 

***Transportation (non-automotive).******  ***We providecomponents for truck trailers, truck bodies, recreational vehicles, railcars,delivery vehicles, van conversions, emergency vehicles, military vehicles,livestock trailers and motor homes to manufacturers of vehicles and theirsuppliers. Our principal focus is on truck trailer and recreational vehiclemanufacturing, and we provide products to most major trailer and recreationalvehicle manufacturers in the United States and Canada. Aluminum extrusions soldto trailer and recreational vehicle manufacturers represented approximately 75%of our shipment volume within this end-user market in 2005 and 80% of ourshipment volume within this end-user market in 2006. Transportation was thefastest growing of our end-user markets in 2005 according to datacompiled by the Aluminum Association. These customers have multiple productionlocations and typically require their suppliers to have manufacturingcapabilities in close proximity to their location. We believe recent increasesin steel and fuel prices have caused manufacturers to find ways to use aluminumas a cheaper and lighter substitute for steel. For example, by substitutingaluminum for steel, trailer manufacturers can increase the fuel efficiency oftheir trailers as increased aluminum content reduces the weight of a trailer,which in turn reduces fuel costs. We believe that customers in thetransportation and other end-user markets we serve will continue to findnew ways to replace heavier, more expensive steel components with aluminum. Ourproducts sold to the transportation end-user market accounted forapproximately 30% of our shipment volume in 2005 and 31% of our shipment volumein 2006, and 26% and 28% of our net sales in 2005 and in 2006.

We believe the recentincrease in fuel prices may provide an additional incentive for our customersin the transportation end-user market to substitute aluminum for steel incertain applications, which would result in an increase in the demand foraluminum extrusions.

***Residential building and construction.******  ***We providecomponents for new and replacement windows, storm door frames, storm shutters,railings, structural beams, patio enclosures, sunrooms, sky lights, tub 

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enclosures,hurricane security shelters, boat docks and other products for manufacturers,assemblers and contractors in the residential building and construction market.Components used in doors and windows represented approximately 57% and 55% ofour shipment volume within this end-user market in 2005 and in 2006.Residential construction represented the second largest end-user marketfor aluminum extrusions in 2005 according to data compiled by the AluminumAssociation and management estimates. Typically, aluminum extrusion productsfor the residential building and construction end-user market have highermargins and are subject to lower risk of substitution due to the buyers’product orientation and aluminum’s high tolerance requirements. Our productssold to the residential building and construction end-user marketaccounted for approximately 28% of our shipment volume in 2005 and in 2006, and29% and 28% of our net sales in 2005 and in 2006.

***Commercial building and construction.******  ***We providecomponents for replacement windows, wall partitions, door frames, balconyrailings, structural beams, skylights, curtain wall and store fronts tomanufacturers, assemblers and contractors for use in the construction ofcommercial buildings. Similar to the residential building and construction end-usermarket, aluminum extrusion products for the commercial building andconstruction end-user market typically have higher than average margins.Our products sold to the commercial building and construction end-usermarket accounted for approximately 7% of our shipment volume in 2005 and in2006, and 8% and 7% of our net sales in 2005 and in 2006.

***Electric and cable.******  ***We providecomponents for heat sinks, cable sheathing, conduit, lighting fixtures andelectrical fixtures to electrical equipment manufacturers and utilities. Wehave been selling branded aluminum conduit, which is the metal pipe used toenclose electrical wire in compliance with applicable fire code regulations,under the Indalex Rigid Aluminum Conduit private label, for approximately25 years. Historically, aluminum conduit had not been price competitivewith steel conduit, but recent rises in steel costs and an understanding of thebenefits of aluminum have increased acceptance of aluminum conduit incommercial markets because it provides superior corrosion resistance and longerusable product life, and its material costs are up to approximately 20% to 50%less expensive than rigid steel. In addition, due to aluminum’s lighter weightand ease of handling, the cost of installation labor is up to 35% lessexpensive than rigid steel. Cable sheathing is used as the protective cover forunderground cable systems and has very little substitution risk because it isthin walled and flexible, which facilitates installation. The inherentadvantages of aluminum, such as its weight to strength ratio and its corrosionresistance, are additional factors reducing aluminum’s substitution risk incable sheathing. Our products sold to the electrical and cable end-usermarket accounted for approximately 7% of our shipment volume in 2005 and 7% ofour shipment volume in 2006, and 8% and 7% of our net sales in 2005 and in2006.

***Consumer durables.******  ***We typicallyprovide components for office furniture and partitions, refrigerators, boats,healthcare equipment and sporting and athletic goods to manufacturers andassemblers of consumer goods. These customers are increasingly using aluminumto give their products a decorative appearance while improving resistance tocorrosion and mechanical wear. The aluminum content in each of these productstends to be low, and customers are typically less concerned with price and moreconcerned with on-time delivery. We serve a majority of these customersthrough our Indalex Direct program, which focuses on customers that purchaselow volumes of extrusions and place more emphasis on quality and on-timedelivery than on price sensitivity. Our products sold to the consumer durablesend-user market accounted for approximately 6% of our shipment volume in2005 and in 2006, and 6% and 7% of our net sales in 2005 and in 2006.

***Machinery and equipment.******  ***We providecomponents for ladders, scaffolds and industrial equipment such as conveyors tomanufacturers of machinery and equipment. There is a significant amount offabrication work required for these products, and, as a result, there istypically a long development process to design the extrusion to be used inmanufacturing machinery and equipment. Our engineering team works with thecustomer to develop product design and specifications. Our products sold to themachinery and equipment end-user market accounted for approximately 6%and 5% of our shipment volume in 2005 and in 2006, and 6% and 5% of our netsales in 2005 and in 2006.

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***Automotive.******  ***We providecomponents to suppliers who produce component systems for automobile and lighttruck manufacturers. While the automotive market is not a primary focus forIndalex, we selectively pursue niche automotive applications where we canprovide higher margin value-added services. Aluminum extrusions sold toautomotive manufacturers and suppliers represented approximately 2% of ourshipment volume in 2005 and in 2006, and 2% of our net sales in 2005 and in2006.

***Distribution.******  ***We also shipproducts through distributors, who in turn sell those products to end users.These products are both standard aluminum extrusions such as rod, bar, angles,channels and tubes and custom aluminum extrusions. The distributors of standardaluminum extrusions typically sell to small end users, who may buy as little as50 pounds at a time, providing a valuable stock carrying service. Thedistributors of custom aluminum extrusions provide aggregating services such asshort lead times, credit or, in some cases, value-added services such aspainting or fabricating. Our products sold through distributors accounted forapproximately 14% of our shipment volume in 2005 and in 2006, and 14% of ournet sales in 2005 and in 2006.

**Customers**

We serve over 3,500customers, including a broad spectrum of national, regional and local accounts.Our largest customer represented approximately 6% of our net sales in 2005 and2006, and our top 10 customers represented 28% of our net sales in 2005 and 29%of our net sales in 2006.

We focus our efforts oncustomer service and product innovation, which we believe have helped us toestablish and maintain long-standing relationships across various end-usermarkets. We develop our relationships with customers by offering them a networkof manufacturing facilities in the United States and Canada, developingcustomized products and solutions and focusing our sales efforts at thecustomer level. We have specific dies, paint colors and other custom featuresfor the production of highly specialized products for many of our customers. Wework with our customers to understand their needs, and we often retool ourfacilities to provide a customized set of solutions. Our top ten customers in2006 have been purchasing our products for an average of more than 20 years. Wesell standard aluminum extrusions through distributors for use in a widevariety of end-user markets.

Due to the high volume ofmade-to-order business our stocking requirements to support order fulfillmentare minimal. The customer’s right to return relates to production defects orvariances from specification that are to be reported within 30 days ofshipment. Standard payment terms are also 30 days from shipment.

**Raw Materials**

***Aluminum***

Our principal raw materialis aluminum billet purchased on the open market or supplied by one of our twocasting facilities, which use aluminum scrap and ingot to produce billet.Aluminum is a commodity and, as such, has a value based upon a variety ofmarket driven factors. The price of aluminum ingot is primarily set by supplyand demand on the London Metal Exchange, or the “LME.”  Like many exchange-traded commodities,the price is subject to periodic fluctuation in the short-term, often dueto the actions of commodity market speculators. Aluminum billet and ingotrepresented $596.2 million or 63% of our cost of sales in 2005 and $763.9 millionor 66% of our cost of sales in 2006. Aluminum scrap is generated in ourextrusion operations and is used, together with purchases of aluminum ingotfrom third parties, in our casting facilities to manufacture aluminum billets.

We have aluminum billetcasting capability at two casting facilities. In 2005, we sold approximately12%, or 23 million pounds, of our manufactured billet to third party customers,which represented approximately 1% of our net sales in 2005. In 2006, we soldapproximately 10%, or 19 million pounds, of our manufactured billet to thirdparty customers, which represented approximately 1% of our net sales in 2006.The first step in the casting process is to melt primary aluminum ingot andaluminum scrap in a large furnace. Molten aluminum must be at least 10% to 15%aluminum ingot with approximately 80% to 90% aluminum scrap to meet the purityrequirement for 6000 series soft alloy aluminum. The molten aluminum 

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iseither directly alloyed in the furnace or transferred to another furnace wherethe alloying materials are added. The aluminum is then cast into logs ofvarying diameters with lengths of up to 16 feet. These logs are heated and thencooled at a controlled rate to allow the cast aluminum to achieve the optimallydistributed chemical composition for extrusion. Afterwards, the aluminum logsare either cut into shorter lengths called aluminum billets, the primary rawmaterial for the production of aluminum extrusions, or transferred to ourextrusion plant in log form for subsequent production of aluminum extrusions aswell as to third party customers. Our in-house billet castingcapabilities supplied us with approximately 21% of our aluminum billet needs in2005 and in 2006.

We seek to reduce ourexposure to the volatility in base aluminum prices by passing cost increasesthrough to customers or by hedging against committed fixed price sales. Welimit our hedging activities to committed purchases and sales and do not engagein speculative hedging. We also seek to maintain inventory at levels consistentwith operating needs through centralized purchasing and logistics.

***Electricity andNatural Gas***

We use electricity andnatural gas to heat aluminum billets as part of the extrusion process. We alsouse electricity and natural gas at our casting facilities to produce aluminumbillets. We purchase natural gas used for heating during the extrusion processfrom a third party using 36-month forward purchase contracts that weenter into on a monthly basis. This hedging program has insulated us fromrecent increases in natural gas prices. We purchase a portion of ourelectricity requirements pursuant to long term contracts in the regions in whichwe operate. A number of our facilities are located in regions with regulatedprices. We spent approximately $25.9 million on electricity and naturalgas in 2005, which represented approximately 2.7% of our cost of sales for thatyear, and $31.2 million in 2006, which represented 2.7% of our cost of salesfor that period.

***Paint***

We purchase paint for usein our painting operation in seven of our facilities. Paint is currentlypurchased in liquid form and applied by spraying in large vertical paintbooths. We spent approximately $9.2 million on paint in 2005, whichrepresented approximately 1% of our cost of sales for that year, andapproximately $12.8 million in 2006, which represented approximately 1% of our cost of sales for thatperiod.

**Principal Suppliers**

Our principal rawmaterial, aluminum billet, is a global commodity and is widely available. Thereare a large number of global, large scale aluminum billet suppliers for theextrusion industry. We purchase our aluminum billet from approximately 15different suppliers around the world, including suppliers in the United States,Canada, South America and the Middle East, including the United Arab Emiratesand Bahrain. Approximately 76% of our aluminum billet that we purchased fromthird parties was purchased in the United States and Canada in 2006. Wepurchased approximately 14% of our aluminum billet requirements that wepurchased from third parties from South America and the Middle East in 2006. Wepurchased 63% of our annual aluminum billet requirements from five suppliers in2006. Our largest billet supplier is Alcoa Inc. which represented 26% ofour aluminum billet supply in 2006. We purchased approximately 650 millionpounds of aluminum billet from third parties in 2006, which permits us tomaintain numerous strategic sourcing arrangements and capitalize on regionalprice and supply imbalances and source low cost aluminum billet withoutsacrificing quality. Furthermore, our internal casting capabilities, whichprovide low cost billet by converting production scrap generated through theextrusion process, provided 21% of our total aluminum billet supply in 2006.The casting facilities provide greater certainty of supply during periods ofaluminum billet shortages.

Our largest supplier ofliquid paint, PPG Industries, provides us with approximately 90% of our paintrequirements. Our contract with PPG Industries expires in 2008. We purchasepaint from three other suppliers, and since liquid paint is largely acommodity, we can shift our purchases among suppliers.

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**Asia Aluminum Group**

We have an 25.01% ownership interest in Asia AluminumGroup Limited, or “AAG,” by virtue of an investment decision by a prior owner.Our principal investment partner, Asia Aluminum Holdings Limited, or “AAH,” wasfounded in 1992 and was a publicly traded company listed on the Main Board ofThe Stock Exchange of Hong Kong, until the privatization discussed below tookplace. AAG is recognized by the Ministry of Construction of China as one of thelargest investor-owned aluminum extrusion businesses in Asia and servesthe infrastructure, transportation, industrial and home improvement end-usermarkets in China, the United States, and the Pacific Rim. AAG currentlyoperates five production facilities in Nanhai in China’s Guangdong Province withan aggregate capacity of 150,000 metric tons per year. AAG is starting up a newfacility in the neighboring city Zhaoqing, which will include modern extrusionand casting equipment and is expected to increase its extrusion capacity to300,000 metric tons per year.

We do not have the ability to exercise any controlover the day-to-day operations of AAG through our minorityownership interest. However, so long as we retain at least a 10% ownershipinterest of AAG, certain specified actions by AAG require our prior approval.For example, we must approve any issuance of any new shares or securities, anychanges to the authorized or issued share capital, the incurrence of additionaldebt that would cause AAG’s aggregate debt to exceed HK $10.0 million andany capital expenditures in aggregate that exceed HK $15.0 million. If adisagreement arises between us and AAH with respect to any action requiring ourconsent, and we are unable to resolve this disagreement, we will have the rightto sell our entire ownership interest in AAG to AAH. In the event we exercisethis right, AAH will purchase our shares of AAG at a price agreed upon by usand AAH, or in the absence of such agreement, at a price determined by anindependent international firm of accountants in accordance with the terms ofthe AAG shareholders agreement. If AAG commits a material breach of theshareholders agreement and does not remedy the breach within 30 days after weserve a default notice, we may exercise a call option to purchase all of AAH’sshare of AAG at 95% of their fair value as determined by an international firmof accountants. If AAG incurs additional debt that does not cause AAG’saggregate debt to exceed HK $10.0 million, we will be required toguarantee our pro rata share of such additional debt. We may also be requiredto guarantee certain indebtedness of AAG. See “Item 1A. Risk Factors—Wemay be required to guarantee certain indebtedness of AAG.”  AAG is required to distribute not less than40% of its realized profits in each fiscal year to us and AAH. We are entitledto receive an annual cash dividend equal to our approximately 25% share of atleast 40% of the net realized profits of AAG.

Pursuant to the stock purchase agreement with AAH, wehave agreed not to engage in any competing aluminum extrusion activities inChina so long as we have an ownership interest in AAG.

We also have a non-exclusivelong-term supply arrangement with AAG to import aluminum extrusions.Purchases under this agreement are done by purchase order. This non-exclusivesupply agreement with AAG provides for arms-length pricing, which isbased on the prevailing three month forward price quoted on the LME at the timeour order is confirmed plus a processing fee based on the complexity of theextrusion products. The agreement does not require us to purchase any specifiedquantity and does not require AAG to supply any specified quantity. We used AAGfor approximately 87% and 93% of our total import volume in 2005 and for 2006,respectively. Our orders represented approximately 4.2% of AAG’s sales for itsfiscal year ended June 30, 2006. See our combined financial statements andthe related notes included elsewhere in this report.

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**Pricing and Hedging**

We offer ourcustomers four basic pricing alternatives. On approximately 90% of our shipmentvolume, we either pass on the cost of base aluminum directly to our customersor specifically hedge the cost of base aluminum that is charged to ourcustomers. Our four pricing mechanisms and our estimates of the percentage ofour shipment volume attributable to each are as follows:

·                    Formulapricing.   Formula pricing is based on:   (1) the prior monthsimple average of aluminum ingot cost published on the LME, (2) the MWP,which is the published prior month simple average of cost of aluminum shippingand warehousing, and (3) a conversion margin for our services, which isthe negotiated cost for mill finish extrusion and any value-addedservices we provide. The cost published on the LME plus the MWP is referred toas the “base aluminum” cost. In formula pricing, the base aluminum cost ispassed on to our customers. We use hedge instruments to mitigate our exposureto changes in the base aluminum price for the time period between our purchaseof aluminum billet and when we process it for a customer order. Formula basedpricing is a common form of pricing in the aluminum extrusion industry andrepresents approximately 65% of our shipment volume.

·                    Fixedprice contracts.   With a fixed price contract, the customer is charged aflat price for a specific time period, and there is a fixed price for the basealuminum. We use hedge instruments traded on the LME to specifically hedge ourexposure under fixed price contracts. We also attempt to manage our exposure tochanges in the MWP through the use of hedge instruments. Fixed price contractsrepresent approximately 20% of our shipment volume.

·                    Spotpricing.   In spot pricing, the price for an aluminum extrusion is set inadvance. We review the spot price monthly and adjust the spot priceperiodically for changes in the base aluminum price. Spot pricing is primarilyused for customers who want the certainty of a price at order time but cannotcommit to the volume required of a fixed price contract. Because the spot priceis set in advance, spot pricing does not pass increases in the cost of basealuminum to the customer. Rather, we adjust spot prices as base aluminum costsincrease. Spot pricing represents approximately 10% of our shipment volume.

·                    Tollconversion.   Toll conversion is an arrangement in which customers providealuminum ingot to fill existing and future extrusion orders. When the extrusionis shipped, we bill only for the conversion margin on the extrusion. Tollconversion represents approximately 5% of our shipment volume.

**Sales and Marketing**

Traditionally, salespersonnel worked at each manufacturing facility and were responsible only forthe production of aluminum extrusions at their respective facilities. In 2002,we shifted our efforts from selling plant capacity to selling customersolutions by centralizing our sales effort and assigning sales personnel to aspecific customer.

In 2004, we furtherrefined our sales effort by segmenting the sales personnel by customer type aswell as by service. We created a structure with three customer groups:  National, Regional and Indalex Direct.Separately, there is an international sales force responsible for promoting theAsia Secure program as well as working with customers that seek offshoresourcing solutions. This sales structure keeps the sales force focused oncustomers based on how those customers purchase from us.

Oursales force divisions are responsible for the three customer groups as follows:

·       TheNational Accounts division comprised ten accounts and approximately 24% of ourshipment volume in 2006. The division markets to large, consolidated, multi-locationbuyers that typically require their suppliers to have nationwide sourcing,production and delivery capabilities. 

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These customers areserviced in multiple locations out of multiple facilities and are looking toset shared objectives and work with us as partners toward their goals. Theprimary goal of this division is to grow our business with these customers, byincreasing account share, increasing sales of value-added services andincreasing the use of outsourcing from China for some of their products.

·       TheRegional Accounts division comprised approximately 1,800 accounts andapproximately 67% of our shipment volume in 2006. The division focuses onmedium to large customers that buy primarily based on plant location andrelationships. This division solicits new accounts and also strives to growaccount share with existing customers. A primary focus of the Regional Accountsdivision is to increase international business and develop incremental value-addedsolutions.

·       TheIndalex Direct division comprised approximately 1,700 accounts andapproximately 9% of our shipment volume in 2006. The division actively solicitsnew accounts that are smaller than the accounts served by the Regional Accountsdivision. A typical Indalex Direct customer purchases less than 200,000 poundsof extrusion annually and is generally less price sensitive than largercustomers. These customers typically use aluminum for a small part of their endproduct and place more emphasis on on-time delivery. The Indalex Directsales division generated approximately 400 new customers during 2006.

To further develop ourrelationship with customers we launched our Products Team in 2004. The ProductsTeam is a group of field-based experts focusing on the fabrication,painting and anodizing businesses which report to each of the sales forcegroups.

**Competition**

Our competitors in theUnited States and Canadian market include Alcoa Inc., Norsk Hydro ASA,Sapa AB, Kaiser Aluminum Corporation and Tredegar Corporation. We also competewith approximately 120 to 150 small to mid-sized regional operators. TheNorth American aluminum extruding industry is highly competitive, with pressurecoming from international producers looking to grow their North Americancapabilities. Despite some recent consolidation, the aluminum extrusionindustry remains fragmented, with a handful of major competitors and manysmaller, regional and local operators. We have historically competed againstfully integrated aluminum providers as well as other independent aluminumextruders.

We compete on the basis ofproduct quality, on-time delivery performance and price, with pricerepresenting a more important factor for our larger customers and for sales ofstandard aluminum extrusions. Smaller OEM customers tend to be more concernedwith on-time delivery, whereas larger customers that order large volumeshipments tend to be more price sensitive.

In 2006, approximately 9%of the total aluminum extrusions sold in the United States and Canada wereimported from China, up from less than 1% in 2000. While we expect thispercentage to grow over the long term, we believe there are several constraintsthat will limit the penetration of Chinese imports to the United States andCanada. First, savings in labor and manufacturing costs must offset significantincremental freight and duty costs. Second, outsourcing to China is less costeffective in the production of low volume, customized extrusions. Third,certain types of aluminum extrusions do not fit easily or at all into standardshipping containers. While we believe that China will continue to be anopportunity to outsource certain products, we believe these constraints willlimit the threat of losing U.S. customers to Chinese suppliers.

**Employees**

As of December 31,2006, we had approximately 3,000 employees, approximately 1,900, or 64%, ofwhom were covered under union contracts. Our facilities are covered by 13 unionagreements, with no one 

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agreementcovering more than 10% of our overall work force. The contract at ourMountaintop, Pennsylvania facility expired on March 1, 2006. Despitereaching an agreement with the union bargaining committee, the employees didnot ratify the agreement, and the employees at this facility went on strikeeffective May 1, 2006. We finalized an agreement on May 5, 2006, andthe employees at this facility returned to work that day. The contract coveringour Niles, Ohio and Vancouver, British Columbia facilities were successfully renegotiatedduring 2006. Three more contracts will expire in 2007, including expirations ofour contracts covering our Burlington, North Carolina and Calgary, Albertafacilities, which each expire on April 30, 2007. We have historicallymaintained satisfactory relations with all of our unions. We have experiencedfour work stoppages in the last ten years, including the one describedabove, and prior to that, a one-week work stoppage in Mississauga, Ontarioin 2003. In January 2006, we successfully renegotiated the contract at ourMississauga plant and in April 2006, we successfully renegotiated thecontract at our Modesto, California plant.

**Backlog**

We have a significantbacklog of orders, which during the summer months is typically equal to morethan our average monthly shipment volume during that period. The backlog allowsus to effectively plan our production shifts and to transfer business aroundour network of facilities. Our backlog is generally lower in the winter monthsbut generally does not fall below 60% of our monthly shipments during thatperiod. As of December 31, 2006, our backlog had a value of approximately$77.0 million, all of which is expected to ship during fiscal 2007. As of December 31,2005, our backlog had a value of approximately $82.0 million.

**Environmental Matters**

We are subject to extensiveand evolving environmental laws, regulations and rules that have beenenacted in response to technological advances and increased concern overenvironmental issues. These regulations are administered by the U.S.Environmental Protection Agency, or the “EPA,” and other federal, state andlocal environmental, transportation and health and safety agencies. We believethat over time there will continue to be increased legislation, regulation andregulatory enforcement actions.

In order to operate ourbusiness, we must obtain and maintain one or more permits for each of ourfacilities and comply with complex regulations and rules governing airemissions, waste water discharges, the use, storage, treatment and disposal ofsolid and hazardous wastes and other items which might affect environmentalquality. As a result, we are, from time to time, required to make expendituresfor pollution control equipment and for other purposes related to our permitsand compliance. For example, by the end of 2007, certain of our manufacturingfacilities, including those in Gainesville, Georgia; Montreal, Quebec; andGirard, Ohio may be required to comply with more stringent air emissionregulations applicable to metal parts coating operations. Compliance with theseregulations may require certain operational upgrades at these facilities. Inaddition, from time to time we are subject to enforcement actions or penaltiesfor failing to comply with environmental regulations. For example, we paid an$80,000 penalty to the EPA in January 2005 to settle allegations that ourfacility in Modesto, California had failed to accurately report certainchemicals handled at that facility.

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Among the laws that mayaffect us are the Comprehensive Environmental Response, Compensation, andLiability Act of 1980, or “CERCLA,” and analogous state laws that, in certaincircumstances, may impose joint and several liability, without regard to fault,on persons who own or operate locations where there has been, or is threatenedto be, a release of hazardous substances into the environment, as well as onpersons who disposed of or arranged for the disposal of such substances at suchlocations. These persons may become liable for the costs of investigating andremediating contamination at these locations. There are often also substantiallegal and administrative expenses incurred in dealing with remediation claimsand activities. Hazardous substances have been detected at some of our currentand former properties, as well as at sites to which we have sent wastes fordisposal. As part of our environmental management program, we are currentlyinvolved in investigatory or remedial actions at certain of these properties.For example, we are currently conducting investigatory actions at our owned andoperated facility in Watsonville, California and at a property that we formerlyowned and operated as a manufacturing facility in Dayton, New Jersey. We haveestablished a reserve in the amount of $1,190,000 to cover the cost of cleaningup contamination at these and certain other current and former properties. Wehave also been identified as potentially responsible party under CERCLA withrespect to approximately nineteen offsite locations to which we sent wastematerials for disposal in the past. We have established a reserve totaling $480,000to cover our anticipated liabilities at certain of these sites.

We cannot predict whatenvironmental legislation or regulations will be enacted in the future, howexisting and future laws or regulations will be administered or interpreted, orwhat environmental conditions may be found to exist. Enactment of morestringent laws or regulations or more strict interpretation of existing lawsand regulations could require additional expenditures by us, some of whichcould be material. We are not a party to any judicial or administrativeproceedings relating to environmental issues.

**ITEM 1A.**                  RISKFACTORS

**Risk Factors Related to the Notes**

***Our substantialamount of indebtedness may adversely affect our cash flow and our ability tooperate our business, remain in compliance with debt covenants and makepayments on our indebtedness, including the notes.***

We area highly leveraged company, and our substantial level of indebtedness increasesthe risk that we may be unable to generate cash sufficient to pay amounts duein respect of our indebtedness, including the notes. The aggregate amount ofour outstanding indebtedness was $328.6 million as of December 31,2006. Our substantial indebtedness, combined with our other financialobligations and contractual commitments could have other important consequencesto holders of the notes. For example, it could:

·                    make it moredifficult for us to satisfy our obligations with respect to our indebtedness,including under the notes, and any failure to comply with the obligations ofany of our debt instruments, including any financial and other restrictivecovenants, could result in an event of default under the indenture governingthe notes or under the agreements governing our other indebtedness which, ifnot cured or waived, could result in the acceleration of our indebtedness underthe revolving credit facility and under the notes;

·                    make us morevulnerable to adverse changes in general economic, industry and competitiveconditions and to adverse changes in government regulation;

·                    require us todedicate a substantial portion of our cash flow from operations to payments onour indebtedness, including any indebtedness we may incur in the future,thereby reducing the availability of our cash flows to fund working capital,capital expenditures, acquisitions and other general corporate purposes;

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·                    increase ourinterest expense if interest rates in general increase because all of ourindebtedness under our revolving credit facility bears interest at floatingrates;

·                    limit ourflexibility in planning for, or reacting to, changes in our business and theindustry in which we operate;

·                    place us at acompetitive disadvantage compared to our competitors that have less debt; and

·                    limit ourability to borrow additional amounts or to sell capital stock for workingcapital, capital expenditures, acquisitions, debt service requirements,execution of our business strategy or other general corporate purposes.

Any of the above listedfactors could materially adversely affect our business, cash flows, financialcondition and results of operations.

***To service ourindebtedness, we will require a significant amount of cash. Our ability togenerate cash depends on many factors beyond our control, and any failure tomeet our debt service obligations could harm our business, financial conditionand results of operations.***

We may not generate sufficientcash to satisfy our debt service obligation. Our ability to make payments onand to refinance our indebtedness, including our revolving credit facility andthe notes, and to fund our operations, working capital, capital expendituresand acquisitions will principally depend upon our ability to generate cash flowfrom operations in the future. To a certain extent, our cash flow is subject togeneral economic, industry, financial, competitive, operating, legislative,regulatory and other factors, many of which are beyond our control. Inaddition, all of our indebtedness under our revolving credit facility bearsinterest at floating rates, and therefore if interest rates increase, our debtservice requirements will also increase.

If we do not generatesufficient cash flow from operations or if future borrowings under ourrevolving credit facility or from other sources are not available to us in anamount sufficient to satisfy our debt service obligations, including paymentson the notes, or to fund our other liquidity needs, we may have to takeactions, such as refinancing or restructuring our indebtedness, including thenotes, selling assets, reducing or delaying capital expenditures andacquisitions or seeking to raise additional capital, any of which could have amaterial adverse effect on our operations. Additionally, we cannot assure youthat we will be able to effect any of these actions, if necessary, oncommercially reasonable terms, or at all. Our ability to restructure orrefinance our indebtedness, including our revolving credit facility and thenotes, will depend on the condition of the capital markets and our financialcondition at such time.

Any refinancing of ourdebt could be at higher interest rates and may require us to comply with moreonerous covenants, which could further restrict our business operations. Theterms of existing or future debt instruments, including the credit agreementgoverning our revolving credit facility and the indenture governing the notes,may limit or prevent us from taking any of these actions. In addition, any failureto make scheduled payments of interest and principal on our outstandingindebtedness would likely result in a reduction of our credit rating, whichcould harm our ability to incur additional indebtedness on commerciallyreasonable terms or at all. Our inability to generate sufficient cash flow tosatisfy our debt service obligations, or to refinance or restructure ourobligations on commercially reasonable terms or at all, would have an adverseeffect, which could be material, on our business, financial condition andresults of operations, as well as on our ability to satisfy our obligations inrespect of the notes or the revolving credit facility.

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***Despite oursubstantial indebtedness, we may still incur significantly more debt, whichcould further exacerbate the risks described above.***

Although covenants underthe credit agreement governing our revolving credit facility and the indenturegoverning the notes limit our ability and the ability of our present and futuresubsidiaries to incur additional indebtedness, the terms of the creditagreement and the indenture permit us to incur significant additionalindebtedness, including unused availability under our revolving creditfacility, which could further exacerbate the risk that we may be unable to meetour debt service obligations. As of December 31, 2006, we had $95.3million available for additional borrowing under our revolving credit facility(after giving effect to $55.7 million of borrowings and $10.4 million ofoutstanding undrawn letters of credit), all of which was first-prioritysecured, and therefore, effectively senior to the notes. In addition, neitherthe credit agreement nor the indenture prevent us from incurring obligationsthat do not constitute indebtedness as defined in those documents. To theextent that we incur additional indebtedness or such other obligations, therisks associated with our substantial indebtedness described above, includingour possible inability to service our debt, would increase.

***Indalex HoldingCorp. is a holding company, and therefore its  ability to repay its indebtedness, includingthe notes, is dependent on cash flow generated by its subsidiaries and theirability to make distributions to Indalex Holding Corp.***

In the event that IndalexHolding Corp. does not receive distributions from our subsidiaries, or to theextent that the earnings from, or other available assets of, its subsidiariesare insufficient, it may be unable to make required principal and interestpayments on our indebtedness, including the notes. Indalex Holding Corp. is aholding company with no significant operations or material assets other thanthe capital stock of its subsidiaries. As a result, its ability to repay itsindebtedness, including the notes, is dependent on the generation of cash flowby our subsidiaries and their ability to make such cash available to IndalexHolding Corp., by dividend, debt repayment or otherwise. Unless they areguarantors of the notes, its subsidiaries do not have any obligation to payamounts due on the notes or to make funds available for that purpose.

Further, while Holdingsand each of our domestic subsidiaries unconditionally guarantee the notes andthe guarantees are secured on a second-priority basis by substantiallyall of the guarantors’ assets, such guarantees and the related securityinterests could be rendered unenforceable for the reasons described below. Inthe event that such guarantees and security interests were renderedunenforceable, the holders of the notes would lose their direct claim againstthe entities holding substantially all of our operating assets.

In addition, oursubsidiaries may not be able to, or be permitted to, make distributions toenable us to make payments in respect of our indebtedness, including the notes.Each of our subsidiaries is a distinct legal entity and, under certaincircumstances, legal and contractual restrictions, as well as the financialcondition and operating requirements of our subsidiaries, may limit our abilityto obtain cash from our subsidiaries. While the indenture governing the noteslimits the ability of our subsidiaries to incur consensual restrictions ontheir ability to pay dividends or make other intercompany payments to us, theselimitations are subject to certain qualifications and exceptions. For example,under the indenture governing the notes, Indalex Holding Corp.’s foreignsubsidiaries are permitted to incur indebtedness in an aggregate amount not toexceed $15 million and the terms of such indebtedness may include, amongother things, restrictions on their ability to make distributions to theirparent entities and Indalex Holding Corp.’s foreign subsidiaries are permittedto incur purchase money indebtedness, subject to the limits described under “Descriptionof the Notes,” that limits their ability to transfer the assets being financed.

In addition, Holdings alsoguarantees the notes. However, Holdings is also a holding company whose entireoperating income and cash flow is derived from Indalex Holding Corp. and whoseonly material asset is the capital stock of Indalex Holding Corp. Therefore,you should not place undue reliance on Holdings’ guarantee in evaluatingwhether to invest in the notes.

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***There may not besufficient collateral to pay all or any of the notes.***

In the event of aforeclosure, liquidation, bankruptcy or similar proceeding, the proceeds fromany sale or liquidation of the collateral may be insufficient to pay ourobligations under the notes, in full or at all, after first satisfying ourobligations in full under the first-priority lien obligations and any otherobligations secured by a first-priority lien on the collateral. Indebtednessunder the U.S. portion of our revolving credit facility, guarantees by theguarantors of the notes of the indebtedness under the Canadian revolving creditsub-facility and obligations in respect of hedging obligations or certaincash management services are secured by (i) a first-priority lien onsubstantially all of the assets directly owned by Indalex Holding Corp. andeach guarantor and (ii) a first-priority pledge of 100% of thecapital stock of Indalex Holding Corp. and Indalex Holding Corp.’s domesticsubsidiaries and of 65% of the capital stock of Indalex Holding Corp.’s foreignsubsidiaries directly owned by Indalex Holding Corp. or any of its domesticsubsidiaries. In addition, indebtedness under the Canadian revolving credit sub-facilityis secured by substantially all of the assets of Indalex Holding Corp., eachguarantor of the notes and certain foreign subsidiaries of Indalex HoldingCorp. and by a first-priority pledge of 100% of the capital stock of IndalexHolding Corp., each guarantor of the notes and all foreign subsidiaries of IndalexHolding Corp. The notes are secured by a second-priority lien on theassets directly owned by Indalex Holding Corp. and each guarantor to the extentsuch assets secure the borrowings under our revolving credit facility and asecond-priority pledge of 100% of Indalex Holding Corp.’s and itsdomestic subsidiaries’ capital stock and 65% of the capital stock of ourforeign subsidiaries directly owned by Indalex Holding Corp. or any domesticsubsidiary (in each case, subject to certain limitations). In the event of abankruptcy, liquidation, dissolution, reorganization or similar proceedingagainst us or any existing or future domestic subsidiary, the assets andcapital stock that are pledged as shared collateral securing the first-prioritylien obligations and the notes must be used first to pay the applicable first-prioritylien obligations in full before making any payments on the notes.

As of December 31,2006, Indalex Holding Corp.’s senior indebtedness was $328.6 million, allof which was secured. Of the $328.6 million in secured indebtedness,$5.9 million were capital lease obligations, and $55.7 million werefirst-priority lien obligations and, therefore, effectively senior in rightof payment to the notes. In addition, the credit agreement governing ourrevolving credit facility and the indenture governing the notes allow us toincur a significant amount of additional first-priority lien obligations,including the remaining availability of our revolving credit facility, andadditional second-priority secured indebtedness in an amount that may besignificant. Any additional indebtedness or obligations secured by a lien onthe collateral securing the notes (whether senior to or equal with the second-prioritylien of the notes) will adversely affect the relative position of the holdersof the notes with respect to the collateral securing the notes.

The assets owned by ourforeign subsidiaries are not part of the initial collateral securing the notesbut certain of such assets do, as of the closing date, secure the CanadianBorrower’s borrowings under the Canadian revolving credit sub-facility.As of December 31, 2006, our foreign subsidiaries had $271.3 millionof total assets and $235.4 million of total indebtedness and otherliabilities, including trade payables. Our foreign subsidiaries are permittedto incur substantial indebtedness in compliance with the covenants under ourrevolving credit facility and the indenture governing the notes. Although thenotes are secured by a second-priority pledge of 65% of the capital stockof Indalex Holding Corp.’s foreign subsidiaries directly owned by IndalexHolding Corp. or any of its domestic subsidiaries, in the event of aliquidation, bankruptcy or similar proceeding, the holders of notes would notreceive any amounts with respect to the notes from the assets of such foreignsubsidiary until after the payment in full of such foreign subsidiaries’creditors, including preferred stockholders, and the lenders under ourrevolving credit facility. With respect to those assets that are not part ofthe collateral securing the notes but which secure other obligations, the notesare effectively junior to these obligations to the extent of the value of suchassets. 

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There isno requirement that the holders of the first-priority lien obligationsfirst look to these excluded assets before foreclosing, selling, or otherwiseacting upon the collateral shared with the notes.

The value of thecollateral at any time will depend on market and other economic conditions,including the availability of suitable buyers for the collateral. By theirnature, some or all of the pledged assets may be illiquid and may have noreadily ascertainable market value. The value of the assets pledged ascollateral for the notes could be impaired in the future as a result ofchanging economic conditions, our failure to implement our business strategy,competition and other future trends. Accordingly, there may not be sufficientcollateral to pay all or any of the amounts due on the notes. Any claim for thedifference between the amount, if any, realized by holders of the notes fromthe sale of the collateral securing the notes and the obligations under thenotes will rank equally in right of payment with all of our other unsecuredunsubordinated indebtedness and other obligations, including trade payables.

***Holders of noteswill not control decisions regarding collateral.***

The holders of the first-prioritylien obligations control substantially all matters related to the collateralsecuring the first-priority lien obligations and the notes. To the extentshared collateral is released from securing the first-priority lienobligations, the second-priority liens securing the notes will alsoautomatically be released. JPMorgan Chase Bank, N.A., the intercreditoragent under the intercreditor agreement and the collateral agent under thefirst-lien security agreements, is one of the principal lenders under ourrevolving credit facility. The holders of the first-priority lienobligations may cause the collateral agent to dispose of, release or forecloseon, or take other actions with respect to the shared collateral with whichholders of the notes may disagree or that may be contrary to the interests ofholders of the notes. In addition, the security documents generally providethat, so long as the first-priority lien obligations are in effect, theholders of the first-priority lien obligations may change, waive, modifyor vary the security documents without the consent of the holders of the notes,provided that any such change, waiver or modification does not materiallyadversely affect the rights of the holders of the notes and not the othersecured creditors in a like or similar manner.

Furthermore, the securitydocuments generally allow us and our subsidiaries to remain in possession of,retain exclusive control over, to freely operate, and to collect, invest anddispose of any income from, the collateral securing the notes. In addition, tothe extent we sell any assets that constitute collateral, the proceeds fromsuch sale will be subject to the second-priority lien securing the notesonly to the extent such proceeds would otherwise constitute “collateral”securing the notes under the security documents. To the extent the proceedsfrom any such sale of collateral do not constitute “collateral” under thesecurity documents, the pool of assets securing the notes would be reduced andthe notes would not be secured by such proceeds. In addition, if we sell any ofour domestic assets which constitute collateral securing the notes and, withthe proceeds from such sale, purchase assets which would not constitutecollateral, the holders of the notes would not receive a security interest insuch assets purchased.

***The capital stocksecuring the notes will automatically be released from the second-prioritylien and no longer be deemed to be collateral to the extent the pledge of suchcapital stock would require the filing with the SEC of separate financialstatements for the Issuer or any of its subsidiaries.***

Rule 3-16 ofRegulation S-X promulgated by the SEC requires financial statementsof an entity to be provided if the capital stock or other securities of suchentity constitute collateral for a class of registered securities and if thegreatest of the par value, book value or market value of such capital stock orsecurities equals 20% or more of the principal amount of the secured class ofsecurities. As a result, the indenture governing the notes and the securitydocuments provide that, to the extent that separate financial statements of IndalexHolding Corp. or any of its subsidiaries would be required by the rules ofthe SEC (or any other governmental agency) due to the fact that Indalex HoldingCorp.’s or such subsidiary’s capital stock or other securities secure thenotes, then such capital stock or other securities will automatically be deemednot to be part of the collateral securing the notes to the extent necessary tonot 

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besubject to such requirement. In such event, the security documents may beamended, without the consent of any holder of notes, to the extent necessary torelease the second-priority liens on such capital stock or securities.The book value and market value of the capital stock of each of Indalex HoldingCorp. and Indalex Inc. currently exceeds 20% of the aggregate principalamount of the notes. As a result, the pledge of the capital stock and othersecurities of these entities with respect to the notes is limited such that thepercentage of the capital stock of each such entity that is pledged has a valueof less than 20% of the aggregate principal amount of the notes. As of December 31,2006 the net book value of the capital stock securing the notes was $59.3million and the book value of all other property and assets securing the noteswas $260.8 million.

***Rights of holdersof notes in the collateral may be adversely affected by bankruptcy proceedings.***

The right of thecollateral agent to repossess and dispose of the collateral securing the notesupon acceleration is likely to be significantly impaired by federal bankruptcylaw if bankruptcy proceedings are commenced by or against us prior to orpossibly even after the collateral agent has repossessed and disposed of thecollateral. Consequently, rights of holders of notes in the collateral may beadversely affected by bankruptcy proceedings. Under the U.S. Bankruptcy Code, asecured creditor, such as the collateral agent, is prohibited from repossessingits security from a debtor in a bankruptcy case, or from disposing of securityrepossessed from a debtor, without bankruptcy court approval.

Moreover, bankruptcy lawpermits the debtor to continue to retain and to use collateral, and theproceeds, products, rents or profits of the collateral, even though the debtoris in default under the applicable debt instruments, provided that the securedcreditor is given “adequate protection.” The meaning of the term “adequateprotection” may vary according to circumstances, but it is intended in generalto protect the value of the secured creditor’s interest in the collateral andmay include cash payments or the granting of additional security, if and atsuch time as the court in its discretion determines, for any diminution in thevalue of the collateral as a result of the stay of repossession or dispositionor any use of the collateral by the debtor during the pendency of thebankruptcy case. In view of the broad discretionary powers of a bankruptcycourt, it is impossible to predict how long payments under the notes could bedelayed following commencement of a bankruptcy case, whether or when thecollateral agent would repossess or dispose of the collateral, or whether or towhat extent holders of the notes would be compensated for any delay in paymentof loss of value of the collateral through the requirements of “adequateprotection.” Furthermore, in the event the bankruptcy court determines that thevalue of the collateral is not sufficient to repay all amounts due on thenotes, the holders of the notes would have “undersecured claims” as to thedifference. Federal bankruptcy laws do not permit the payment or accrual ofinterest, costs and attorneys’ fees for “undersecured claims” during thedebtors bankruptcy case.

***Rights of holdersof notes in the collateral may be adversely affected by the failure to perfectsecurity interests in certain collateral acquired in the future.***

The security interest inthe collateral securing the notes includes domestic assets, both tangible andintangible, whether now owned or acquired or arising in the future. The failureto perfect the security interest in after-acquired collateral may result in theloss of the security interest therein or the priority of the security interestin favor of the notes against third parties. Applicable law requires thatcertain property and rights acquired after the grant of a general securityinterest can only be perfected at the time such property and rights areacquired and identified. The trustee or the collateral agent may fail tomonitor our future acquisition of property and rights that constitutecollateral, and the necessary action may not be taken to properly perfect thesecurity interest in such after-acquired collateral.

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***Restrictivecovenants in the credit agreement governing our revolving credit facility andthe indenture governing the notes may limit our current and future operations,particularly our ability to respond to changes in our business or to pursue ourbusiness strategies.***

Ourcredit agreement governing the revolving credit facility and the indenturegoverning the notes contain, and any future indebtedness of ours may contain, anumber of restrictive covenants that impose significant operating and financialrestrictions, including restrictions on our ability to take actions that webelieve may be in our interest. Our credit agreement and the indenture, amongother things, limit our ability to:

·                    incuradditional indebtedness and guarantee indebtedness;

·                    pay dividendson or make distributions in respect of capital stock or make certain otherrestricted payments or investments;

·                    enter intoagreements that restrict distributions from restricted subsidiaries;

·                    sell orotherwise dispose of assets, including capital stock of restrictedsubsidiaries;

·                    enter intotransactions with affiliates;

·                    create orincur liens;

·                    enter intosale/leaseback transactions;

·                    merge,consolidate or sell substantially all of our assets;

·                    makeinvestments and acquire assets;

·                    make certainpayments on indebtedness;

·                    amend certainmaterial agreements;

·                    issue certainpreferred stock or similar equity securities; and

·                    change ourfiscal year.

Also, the credit agreementgoverning our revolving credit facility requires us to maintain compliance witha fixed charge coverage ratio if either an average borrowing availability overa three-calendar-month period (or twelve-calendar-weekperiod, as the case may be) or actual borrowing availability for fourconsecutive business days falls below $25.0 million. Our ability to complywith this ratio may be affected by events beyond our control, and we cannotassure you that we will meet this ratio.

Therestrictions contained in the credit agreement governing the revolving creditfacility and in the indenture governing the notes could adversely affect ourability to:

·                    finance ouroperations;

·                    make neededcapital expenditures;

·                    make strategicacquisitions or investments or enter into alliances;

·                    withstand afuture downturn in our business or the economy in general;

·                    engage inbusiness activities, including future opportunities, that may be in ourinterest; and

·                    plan for orreact to market conditions or otherwise execute our business strategies.

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***A breach of therestrictive covenants in the credit agreement governing our revolving creditfacility or the indenture governing the notes, or our inability to comply withthe fixed charge coverage ratio in the credit agreement, would have adverseconsequences to you as a holder of the notes.***

A breach of any of therestrictive covenants or our inability to comply with the fixed charge ratio ifeither an average borrowing availability over a three-calendar-monthperiod (or twelve-calendar-week period, as the case may be) oractual borrowing availability for four consecutive business days falls below$25.0 million could result in an event of default under the creditagreement governing the revolving credit facility. If an event of defaultoccurs that is not cured or waived, the lenders under the revolving creditfacility may elect to declare all outstanding borrowings, together with accruedinterest and other fees, to be immediately due and payable, which would resultin an event of default under the indenture governing the notes and could resultin a cross default under any of our other material debt agreements.

If, when required, we areunable to repay or refinance our indebtedness under, or amend the covenantscontained in, the credit agreement governing the revolving credit facility, orif a default otherwise occurs that is not cured or waived, the lenders underthe revolving credit facility could elect to terminate their commitmentsthereunder, cease making further loans, declare all borrowings outstanding,together with accrued interest and other fees, to be immediately due andpayable or institute foreclosure proceedings against those assets that securethe borrowings under the revolving credit facility. Any such actions couldforce us into bankruptcy or liquidation, and we cannot provide any assurancethat we could repay our obligations under the notes in such an event.

***Not all of oursubsidiaries are guarantors and therefore the notes are structurallysubordinated in right of payment to the indebtedness and other liabilities ofour existing and future subsidiaries that do not guarantee the notes.***

The guarantors includeonly Holdings and our existing and future domestic subsidiaries that incurindebtedness (subject to certain exceptions), and each of our foreign subsidiariesthat enters into a guarantee of any of our senior indebtedness (other thanindebtedness incurred by another foreign subsidiary). In addition, anysubsidiary that we properly designate as an unrestricted subsidiary under theindenture governing the notes, will not provide guarantees of the notes. As ofDecember 31, 2006, each of our domestic subsidiaries and none of ourforeign subsidiaries guaranteed the notes.

The claims of creditors ofany entity that does not guarantee the notes, including Indalex Limited and ourforeign subsidiaries that guarantee the Canadian sub-facility portion ofour revolving credit facility, will be required to be paid before the holdersof the notes have a claim, if any, against those subsidiaries and their assets.Therefore, if there was a dissolution, bankruptcy, liquidation orreorganization of any such subsidiary, the holders of notes would not receiveany amounts with respect to the notes from the assets of such subsidiary untilafter the payment in full of the claims of creditors, including preferredstockholders, of such subsidiary.

On a *pro forma* basis, after giving effect tothe Honeywell Acquisition and the Transactions, the aggregate net sales andoperating income of our non-guarantor subsidiaries were $376.0 million and $4.7 million, respectively, forthe year ended December 31, 2005 and $450.6 million and $6.2 million, respectively, for2006, and their total assets at December 31, 2006 was $271.3 million. As of December 31,2006, our non-guarantor subsidiaries had $235.4 million of totalindebtedness and other liabilities, including trade payables.

***We may not be ableto repurchase the notes upon any change of control as required by the indenturegoverning the notes, which would result in a default under the indenturegoverning the notes and would adversely affect our business and financialcondition.***

Upon the occurrence of a “changeof control”, as defined in the indenture governing the notes, we will berequired to make an offer to repurchase all outstanding notes at a price equalto 101% of the principal 

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amountthereof, plus any accrued and unpaid interest, and additional interest, if any,to the date of repurchase. We may not have sufficient funds available to makeany required repurchases of the notes, and restrictions under our creditagreement governing our revolving credit facility may not allow thatrepurchase. If we fail to repurchase notes in that circumstance, we will be indefault under the indenture governing the notes and, in turn, under our creditagreement.

In addition, the creditagreement governing our revolving credit facility provides that certain changeof control events, including a change of control under the indenture governingthe notes, will constitute an event of default. Such a default under our creditagreement would result in a default under the indenture governing the notes ifthe administrative agent or the lenders accelerate the debt under our revolvingcredit facility. In addition, any future credit agreement or other agreementsrelating to our indebtedness to which we become a party would likely containsimilar provisions.

If we experience a changeof control, we could seek to obtain a waiver of such default from the lendersor you as a holder of the notes or seek to refinance the indebtedness under ourrevolving credit facility and the notes. We cannot assure you, however, that wewould be able to obtain a waiver or to refinance our indebtedness oncommercially reasonable terms, if at all, and in the event we are unable toobtain such a waiver or to refinance our indebtedness on commerciallyreasonable terms, if at all, such default could result in all amountsoutstanding under our revolving credit facility and the notes being declareddue and payable.

***Holders of notesmay not be able to determine when a change of control has occurred.***

Under the indenture,within 30 days following the date on which a change of control occurs, we arerequired to send holders of notes and the trustee a notice of the offer torepurchase the notes. In some cases, such as, for example, a sale ofsubstantially all of our assets, holders of notes may not be able to determinewhen a change of control giving rise to the right to have us repurchase noteshas occurred, which may adversely affect the ability of holders of notesability to enforce this provision of the indenture.

***The terms of thenotes may not protect you if we enter into transactions including acquisitions,refinancings or other recapitalizations that would not constitute a change ofcontrol under the indenture.***

We may enter intotransactions including acquisitions, refinancings, recapitalizations or otherhighly leveraged transactions. Such a transaction may not be included in thedefinition of change of control in the indenture or otherwise restricted by theterms of the indenture****but couldincrease the amount of indebtedness outstanding or otherwise affect our capitalstructure or credit ratings and may substantially impair our ability to repaythe notes. In such an event, the indenture will not afford holders of notesprotection from any adverse aspects of such transaction.

***Federal and statestatutes allow courts, under specific circumstances, to void the guarantees andsecurity interests, subordinate claims in respect of the guarantees andsecurity interests and require noteholders to return payments received from theguarantors.***

Thenotes are guaranteed by Holdings and, subject to limited exceptions, each of IndalexHolding Corp.’s existing and future domestic subsidiaries that incursindebtedness, and each of our foreign subsidiaries that enters into a guaranteeof any of our senior indebtedness (other than indebtedness incurred by anotherforeign subsidiary). As of December 31, 2006, each of our domesticsubsidiaries and none of our foreign subsidiaries guaranteed the notes on asecond-priority secured basis. The issuance of the guarantees and therelated security interest by any guarantor may be subject to review under stateand federal laws if a bankruptcy, liquidation or reorganization case or alawsuit, including in circumstances in which bankruptcy is not involved, werecommenced at some future date by, or on behalf of, the unpaid creditors of suchguarantor. Under the federal bankruptcy laws and comparable provision of statefraudulent transfer laws, a court may void or otherwise decline to enforce aguarantor’s guarantee or the related security interest, subordinate suchguarantee to the guarantor’s existing and future indebtedness or 

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take other action detrimental to the noteholders.While the relevant laws may vary from state to state, a court might do so if itfound, among other things, that when the guarantor entered into its guaranteeand the related security agreements or, in some states, when payments becamedue under such guarantee, the guarantor received less than reasonablyequivalent value or fair consideration and either:

·                    the guarantorwas insolvent, or rendered insolvent, by reason of such incurrence;

·                    the guarantorwas engaged in a business or transaction for which the guarantor’s remainingassets constituted unreasonably small capital; or

·                    the guarantorintended to incur, or believed or reasonably should have believed that theguarantor would incur debts beyond such guarantor’s ability to pay such debtsas they mature.

The court might also voida guarantee or the related security interest of a guarantor without regard toany of the above factors, if the court found that the guarantor entered intoits guarantee or the related security interest with actual intent to hinder,delay or defraud its creditors. In addition, any payment by a guarantorpursuant to its guarantee could be voided and required to be returned to suchguarantor or to a fund for the benefit of such guarantor’s creditors.

A court would likely findthat a guarantor did not receive reasonably equivalent value or fairconsideration for such guarantee and the related security interest if suchguarantor did not substantially benefit directly or indirectly from theissuance of the notes and the applicable guarantee and security interestthereunder. If a court were to void a guarantee and the related securityinterest, you would no longer have a claim against the applicable guarantor.Sufficient funds to repay the notes may not be available from other sources,including the remaining guarantors, if any. In addition, the court might directyou to repay any amounts that you already received from any guarantor.

Themeasures of insolvency for purposes of these fraudulent transfer laws will varydepending upon the law applied in any proceeding to determine whether afraudulent transfer has occurred. Generally, however, an entity would beconsidered insolvent if:

·                    the sum of itsexisting debts, including contingent liabilities, was greater than the fairsaleable value of all of its assets;

·                    the presentfair saleable value of all of its assets were less than the amount that wouldbe required to pay the probable liability on its existing debts, includingcontingent liabilities, as they become absolute and mature; or

·                    it cannot payits debts as they become due.

The indenture governingthe notes limits the liability of each subsidiary guarantor on its guarantee tothe maximum amount that the subsidiary guarantor can incur without risk thatthe guarantee and the related security interest will be subject to avoidance asa fraudulent transfer. We cannot assure you that this limitation will protectthe guarantees from fraudulent transfer attack or, if it does, that theremaining amount due and collectible under the guarantees would suffice, ifnecessary, to pay the notes when due.

To the extent a courtvoids any of the guarantees and the related security interest as fraudulenttransfers or holds any of the guarantees or security agreements unenforceablefor any other reason, holders of notes would cease to have any direct claimagainst the applicable guarantor. If a court were to take this action, theapplicable guarantor’s assets would be applied first to satisfy the applicableguarantor’s liabilities before its remaining assets, if any, could be appliedto the payment of the notes.

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**Risk Factors Related to our Business**

***Thealuminum extrusion industry is cyclical and highly dependent on economicconditions of end-user markets in the United States and Canada, and thecyclicality and volatility of these markets could adversely affect us.***

Our profitability dependsin part on the varying economic and other conditions of the end-usermarkets we serve. All of the end-user markets we serve, including our twolargest markets, the transportation and residential building and constructionend-user markets, are subject to volatility and, as a result, ourcustomers’ demand for our products may change due to changes in general andregional economic conditions, consumer confidence, the housing market, fuel andenergy prices and availability, employment and income growth trends andinterest rates, each of which are beyond our control. In the event of aneconomic downturn in any of the end-user markets we serve, our customersmay delay purchase orders, extend seasonal shutdowns or discontinue operationsat certain of their manufacturing facilities and otherwise reduce productionlevels. Any of these events would adversely affect our profitability and cashflows.

For example, in 2001, the22% decline in shipment volume in the United States and Canada aluminumextrusion market had a negative impact on our net sales, which dropped 21%, andon our plant operating earnings, which dropped by more than half, compared to2000. A significant portion of our net sales in the transportation end-usermarket is to manufacturers of truck trailers, which experienced shipment volumedeclines of 48% in the U.S. in 2001 from 2000, which was greater than theoverall industry volume decline during the same period. The downturn from 2000to 2001 was the most significant single year downturn since 1975, when ourindustry experienced a decline of approximately 31% in shipment volume comparedto the prior year. There have been a few less significant single year downturnssince 1975. Declines in shipment volume can have a disproportionate impact onour results of operations due to the fixed operating cost requirements inherentin our operations.

Demand for our products in the residential buildingand construction end-user market is driven by new residential construction andremodeling activity, which are impacted by demographic trends, interest ratelevels, and overall economic conditions. In recent years, we have experienced strong demand in this end-usermarket due to strong new housing starts, the increasing size of new homes andincreased remodeling and repair activity. However, after showing strong growth during recent years, that marketslowed considerably during the second half of 2006, and our shipments to thatmarket were down 26% in the fourth quarter of 2006 as compared to the fourthquarter of 2005.  According to datapublished by the U.S. Census Bureau, housing starts in the United States weredown 32% year over year in the first two months of 2007.  Remodeling activity has slowed, as well.  We continue to believe that there is goodlong-term growth potential for the residential building and constructionmarket, but we cannot be certain of when the current downturn in this marketwill end. 

In the event of aneconomic downturn, we would also experience a higher level of bad debts thatusually accompany a downturn. Any decrease in demand within one or more of ourend-user markets may be significant and may last for a lengthy period oftime. We cannot provide any assurance that future downturns in the economy willnot adversely affect our profitability and as a result of the volatility in anyof the end-user markets we serve, we may have difficulty increasing ormaintaining our level of sales or profitability if we are not able to divertsales of our products to customers in other end-user markets when one ormore of our end-user markets is experiencing a decline. In addition, weare not able to predict the timing, extent and duration of the economic cyclesin any of the end-user markets in which we operate.

Our industry historicallyexperiences a seasonally driven slow down, and we experience lower net salesfrom November through February. This slow down is largely due to theseasonal nature of the businesses for a large portion of our customer base,slower manufacturing during the holiday period, reduced year end inventory andslow ramp up by our customers. Cold weather during the winter months causesslow downs in the residential and commercial building and construction industryin Canada and the northern United States. As a result, quarter to quartercomparisons of our net sales, operating results and cash flows 

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shouldnot be relied on as an indication of future performance, and the results of anyquarterly period may not be indicative of expected results for a full year.

***Themarkets for our products are highly competitive, and our inability to competeeffectively in the aluminum extrusion industry could result in the loss ofcustomers, which would have an adverse effect on our net sales, results ofoperations and cash flows.***

The aluminum extrusionindustry is fragmented and we face intense competition from regional, nationaland global companies in each of the end-user markets we serve. Thiscompetition could have an adverse effect on our net sales, results ofoperations and cash flows. Depending on the size of our customer and the typeof product we sell, we compete on the basis of product quality, on-timedelivery performance and price, with price representing a more important factorfor our larger customers and for sales of standard aluminum extrusions. Ourcompetitors include other independent aluminum extruders as well as certainvertically integrated aluminum companies that participate in the extrusionindustry. Some of our competitors have greater financial and other resourcesthan we do, and vertically integrated aluminum extruders may be able to obtainaluminum billet at lower prices than we can. Our competitors may foresee thecourse of market development more accurately than we do, produce similarproducts at a lower cost than we can or adapt more quickly to new technologiesor industry and customer requirements.

We operate in amarketplace that is becoming more global, and the threat of lower cost importsis increasing. For example, imports of extrusions from China now representapproximately 9% of the United States and Canada aluminum extrusion marketbased on shipment volume, up from less than 1% in 2000. Chinese extrusions aretypically good quality products that are priced lower than those manufacturedin the United States and Canada. In the future, Chinese aluminum extruders maydevelop new ways of packaging and transporting aluminum extrusions that couldmitigate the freight cost and other shipping limitations that we believecurrently limit their ability to more fully penetrate the U.S. and Canadianaluminum extrusion market. If our customers in any of the end-usermarkets we serve shift their production outside the United States and Canada,then those customers would likely source aluminum extrusions overseas, and, asa result, our net sales and results of operations would be adversely affected.

If we are not able tocontinue to differentiate ourselves in ways other than by reducing prices, wemay lose market share and suffer reduced profit margins. If our competitorslower their prices, it could inhibit our ability to compete for customers withhigher value-added sales. If our product mix changed as a result ofcompetitive pricing, it could have an adverse impact on our gross margins andprofitability. In addition, our competitive position with the global aluminumextrusion industry may be affected by, among other things, the recent trendtowards consolidation among our competitors. We cannot assure you that we willbe able to compete successfully or that competition will not have a materialadverse effect on our business.

***Thewillingness of our customers to accept substitutes for our products couldadversely affect our financial condition and results from operations.***

Aluminum competes withother materials, such as vinyl, steel, plastics and glass, among others, forvarious applications in our end-user markets. In the past, customers havedemonstrated a willingness to substitute other materials for aluminum. Forexample, over the past decade, vinyl, with its penetration of the residentialwindow and door market, has been the most commonly used substitute for aluminumextrusions. Steel may be another substitute for aluminum if aluminum costs riseto such an extent that steel becomes a viable economic alternative for certainmanufacturing needs, especially in the transportation market. If steel pricesfall or if aluminum prices increase, steel could become more attractive to ourcustomers than aluminum. The steel industry has responded to the increased useof aluminum as a substitute for steel by developing lighter weight steelproducts. Lighter weight steel products, lower steel costs or higher aluminumcosts could slow or reverse the rate at which aluminum is used as a substitutefor steel. An increase in the use of substitutes for aluminum extrusions couldhave a material adverse effect on our financial condition, cash flows andresults from operations.

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***Equipmentfailures, delays in deliveries or catastrophic loss at any of our facilitiescould lead to production or service curtailments or shutdowns, which would havean adverse effect on our sales and results from operations.***

We have 15 manufacturingfacilities and two casting facilities in the United States and Canada. Aninterruption in production or service capabilities at any of these facilitiesas a result of equipment failure or other reasons could result in our inabilityto produce our products, which would reduce our net sales and results fromoperations. In the event of a stoppage in production at any of ourfacilities, even if only temporary, or if we experience delays as a result ofevents that are beyond our control, delivery times to our customers could beseverely affected. Any significant delay in deliveries to our customers couldlead to increased returns or cancellations, could result in damage to ourreputation or permanent loss of customers that seek out alternative suppliers.Furthermore, because many of our customers are, to varying degrees, dependenton deliveries from our facilities, customers that have to reschedule their ownproduction due to our missed deliveries could pursue financial claims againstus.

Our facilities are alsosubject to the risk of catastrophic loss due to unanticipated events such asfires, explosions, adverse weather conditions or other events. We haveexperienced, and may experience in the future, periods of reduced production asa result of extrusion press failures, delays in aluminum billet deliveries,prolonged power outages, work stoppages or paint fires. If any of theseevents occur in the future, they could have a material adverse effect on ourbusiness, financial condition or results from operations. While we maintaininsurance policies covering, among other things, physical damage, businessinterruptions and product liability, these policies may not cover all of ourlosses and we could incur uninsured losses and liabilities arising from suchevents. We have four facilities which each contribute from 10% to 21% of ourplant operating earnings from manufacturing, and loss of or reduction inproduction at any of these facilities would have a material adverse effect onour results of operations. These facilities are located in Gainesville,Georgia; Burlington, North Carolina; Elkhart, Indiana; and Girard, Ohio;.

***Werely on electricity and natural gas to produce our products, and rising costsor shortages of electric power and natural gas could adversely affect ourresults from operations and cash flows.***

As part of the extrusionprocess, aluminum billets are heated by electric and gas heaters which requirea large and continuous supply of electricity and natural gas. In addition, ourtwo cast houses, which provide us with approximately 21% of our aluminumbillets, use significant amounts of natural gas during the billet production process.Interruptions of electricity supply can result in lengthy production shutdowns,increased costs associated with restarting production and waste of productionin progress. In extreme cases, interruptions of electricity supply can alsocause damage to or destruction of our equipment and facilities. We do notmaintain back-up generators or other sources of secondary power supply atany of our facilities. Electricity and natural gas costs were approximately$25.9 million in 2005, and approximately $31.2 million for 2006.While we have hedging arrangements that insulate us in the short term from therecent increases in natural gas prices, if the recent increases in natural gasprices continue, our financial results and cash flow will be significantlyimpacted. We do not have electricity contracts at some of our facilities, we donot have a guaranteed supply and we have experienced rolling power outages inthe past. In addition, increases in fuel oil costs have a correspondingincrease on our freight costs. Shortages of electrical generating capacity inour facilities or increases in energy costs could have a significant impact onour results of operations.

***Risingcosts of aluminum and disruptions in our aluminum supply could adversely impactour financial results.***

The primary raw materialin the manufacturing of aluminum extrusions is aluminum billets and ingot,which represented 63% of our cost of sales in 2005 and 66% of our costs ofsales for 2006. We have entered into several long-term contracts withmetal suppliers to purchase aluminum billet at the market price of basealuminum plus a negotiated billet premium. If our aluminum supply is disrupted,or if the cost of aluminum increases, our financial results could be adverselyimpacted. We cannot assure you that we will be able to renew these contractswhen they expire, on terms that are favorable to us or at all.

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We are subject to theshort-term commodity risk of carrying aluminum in our inventory which weattempt to mitigate through the use of hedge instruments. Although we seek totime our hedges to coincide with the period we expect to carry our inventory,we may not accurately predict the timing in all cases. If we experience delaysin production or shipments and the market price of base aluminum declines, wecould experience a loss if we have not hedged our exposure to price increasescorrectly. In addition, because changes in base aluminum prices are generallypassed through to our customers, but our customer billings are carried asreceivables for a period of time, increases or decreases in base aluminumprices cause corresponding increases and decreases in reported net sales andfluctuations in working capital that are unrelated to the level of businessactivity. As base aluminum prices rise, which causes sales dollars to increase,our customer receivables and raw material inventory carrying value increase,having a negative impact on working capital, and, conversely, as prices and netsales fall, our working capital decreases. We expect that the recent increasesin natural gas prices will affect the billet premiums charged by our suppliers,and since we do not pass the billet premium directly to our customers anyunwillingness by our customers to accept higher prices for our products wouldhave an adverse affect on our results of operations.

Recently, producers ofbase aluminum have incurred increased costs of production due to the risingprice of energy and alumina, which have increased the price of base aluminum.Aluminum prices on the LME reached an eighteen-year high of $3,240 permetric ton as of May 11, 2006. To the extent we are not able to pass thefull cost of base aluminum to customers and we are not able to effectivelyhedge our exposure to offset the effects of higher base aluminum costs, theincreasing price of primary aluminum could materially affect our financialresults. As a result of our increased leverage, our hedge counterparties maycease to trade aluminum futures with us or may choose not to offer credit tous. An inability to hedge our base aluminum price risk would have a negativeimpact on our financial results. We are subject to Financial AccountingStandards No. 133, “Accounting for Derivative Instruments and HedgingStatement Activities,” as amended, which requires us to record our hedgeinstruments at current market value, known as “mark to-market,” in ourfinancial statements. The rules require us to recognize all derivativeinstruments on the balance sheet at fair value, while the physical positionwhich created the need for the derivative, is not marked to market value. Dueto volatile market prices of base aluminum, this mark-to-market adjustment canresult in a material positive or negative adjustment to our operating earnings.

Any major disruption inthe availability of aluminum may cause a shortage of aluminum billets and couldadversely affect the billet premium we pay. For example, during 2004, ashortage of aluminum billets in the United States and Canada caused some of ourcompetitors to have disruptions in supply which resulted in production outages,and we may face similar circumstances in the future. Furthermore, we purchasedapproximately 14% of our third party aluminum billet requirements from SouthAmerica and the Middle East in 2006, and we intend to increase that percentagein the near future. Shipping billet from overseas suppliers increasestransportation risk, and we may not be able to easily replace billet from oursuppliers in South America or the Middle East with billet from other sources.Unexpected delays or losses in the delivery of foreign-sourced billet dueto factors such as weather, work stoppages, theft, customs issues or war couldcause one or more of our facilities to run out of billet. A shortage ofaluminum billets or an increase in the billet premium could result in temporaryor permanent facility shutdowns or higher costs that we may not be able to passon to our customers, which would have a significant adverse impact on ourfinancial results.

***Wehave restructured our operations from time to time in the past, and expect tocontinue to do so from time to time in the future. The charges associated withthese restructurings could materially and adversely affect our earnings andliquidity in future periods.***

We have closed,consolidated or idled five plants since 1999. We have also worked to centralizeour administrative and processing functions and have eliminated a significantnumber of administrative positions since 2000. As a result of these actions, weincurred restructuring charges of $2.9 million, $6.1 

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million,$0.5 million, and $1.8 million in 2003, 2004, 2005 and 2006, respectively. Wecurrently employ over 3,000 employees and currently operate 15 extrusionfacilities and two secondary remelt facilities, and within those facilities,operate 39 extrusion presses, nine paint lines and significant processingequipment. There is considerable variation in the age of our equipment and theproductivity of our plants and presses. Some of our facilities also haveoverlapping customer bases and geographic coverage.  As a result, we expect to continue torestructure our operations from time to time in an ongoing effort to make ouroperations more productive and more profitable. While restructurings aredesigned to improve our operating results over time, restructuring charges maybe incurred before the benefits, if any, are realized. As a result, we mayincur material restructuring costs that adversely impact our profitability andliquidity in future periods. We have not finalized any restructuring plans for2007, but expect to incur restructuring charges in 2007 within the range ofcharges that we have incurred over the past four years. Future restructuringsmay not be successful, and future restructuring charges may have a materialadverse impact on our earnings and liquidity.

***Ouroperations are subject to numerous complex and increasingly stringentenvironmental laws and regulations, and the costs of complying withenvironmental laws and regulations, including participation in assessments andcleanups of sites, are significant and will continue to be so for the future.***

We are subject to a widevariety of federal, state and local environmental laws and regulations,including those governing air emissions, wastewater discharges, the generation,storage, handling, use and transportation of hazardous materials, and employeehealth and safety. From time to time, we are subject to fines or penaltiesassessed for alleged violations of environmental laws and to claims andlitigation based upon those laws. For example, we paid an $80,000 penalty tothe EPA in January 2005 to settle allegations that our facility inModesto, California had failed to accurately report certain chemicals handledat that facility. As an owner of real property and a generator of hazardouswastes, we are also subject to laws imposing liability for the cleanup ofcontaminated property, including our currently and formerly owned or operatedproperties as well as offsite locations to which we have sent our wastes fordisposal. Hazardous substances have been detected at some of our current andformer properties, as well as at sites to which we have sent wastes fordisposal. As part of our environmental management program, we are currentlyinvolved in investigatory or remedial actions at certain of these properties.

For example, we arecurrently conducting investigatory actions at our owned and operating facilityin Watsonville, California and at a property that we formerly owned andoperated as a manufacturing facility in Dayton, New Jersey. We have establisheda reserve in the amount of $1,190,000 to cover the cost of cleaning upcontamination at these and certain other current and former properties. We havealso been identified as a potentially responsible party under CERCLA withrespect to approximately nineteen offsite locations to which we sent wastematerials for disposal in the past. We have established a reserve totaling $480,000to cover our anticipated liabilities at certain of these sites. The total costof environmental assessment and remediation depends on a variety of regulatory,technical and factual issues, some of which cannot be anticipated. While webelieve that our reserves are adequate to cover presently identifiedenvironmental liabilities, the discovery of additional contaminants or theimposition of additional cleanup obligations at these or other sites couldresult in additional costs. We cannot assure you that reserved amounts will beadequate to cover the ultimate costs of these liabilities or the costs of environmentalliabilities that may arise or be identified in the future.

Furthermore, futureenvironmental regulations are expected to impose stricter compliancerequirements on the aluminum industry. For example, by the end of 2007, certainof our manufacturing facilities, including the facilities in Gainesville,Georgia; Montreal, Quebec, and Girard, Ohio, may be required to comply withmore stringent air emission regulations applicable to metal parts coatingoperations. However, we cannot estimate the precise effect of these or otherfuture changes to laws and regulations, and compliance with these or otherfuture requirements may make it necessary, at costs which may be substantialand in excess of our estimates, to retrofit existing facilities with additional

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pollution-controlequipment and to undertake new measures in connection with the storage,transportation and disposal of by-products and wastes. We are not a partyto any judicial or administrative proceedings relating to environmental issues.

***Wehave liabilities and expenses for pensions and other postretirement benefitsand could be required to make unexpected contributions to our defined benefitplans as a result of adverse changes in interest rates and the capital markets,or if our assumptions relating to our employee workforce are inaccurate.***

We provide a number ofqualified and non-qualified and registered defined benefit pension andother postretirement benefit arrangements to certain union, non-union andexecutive employees in the United States and Canada and we could be required tomake unexpected contributions to these plans. Based on our valuation as of December 31,2006, the qualified and non-qualified and registered defined benefitpension had an unfunded liability of approximately $18.3 million on aprojected benefit obligation basis. In addition, our unfunded benefit obligationwith respect to other postretirement benefit obligations, was approximately $4.9 millionas of December 31, 2006. In 2006, we made cash payments of $11.0 millionand in 2007, we expect to make cash payments of $6.1 million for these benefitobligations. Our estimates of liabilities and expenses for pensions and otherpostretirement benefits incorporate a number of significant assumptionsincluding the rate used to discount our future estimated liability, the long-termrate of return on plan assets and several assumptions relating to our employeeworkforce, including salary increases, medical costs, retirement age andmortality. Our results of operations, liquidity or stockholders’ equity in aparticular period could be adversely affected because of additional requiredcontributions to the pension and other postretirement benefit plans as a resultof capital market returns that are less than their assumed long-term rateof return, by a decline in the interest rate used to discount our futureestimated liability, increased funding requirements or other changes mandatedby law or by changes in employee workforce assumptions. In addition, if we arerequired to make unexpected cash contributions to our pension plans in thefuture, we would be prevented from using such cash for other purposes, whichmay adversely affect our business.

***Wemay be adversely impacted by work stoppages and other labor matters.***

As of December 31,2006, we had approximately 3,000 employees, approximately 1,900, or 64%, ofwhom were covered under union contracts. The contract at our Mountaintop,Pennsylvania facility expired on March 1, 2006. Despite reaching anagreement with the union bargaining committee, the employees did not ratify theagreement, and the employees at this facility went on strike effective May 1,2006. We finalized an agreement on May 5, 2006, and the employees at thisfacility went back to work that day. The contracts covering our Niles, Ohio andVancouver, British Columbia facilities were successfully negotiated during 2006.Three more contracts will expire in 2007, including expirations of ourcontracts covering our Burlington, North Carolina and Calgary, Alberta facilities,which each expire on April 30, 2007. We may be unable to resolve any ofthese contract negotiations without work stoppages or significantincreases in costs, which could have a material adverse effect on our financialcondition, cash flows and operating results. We have experienced four work stoppages inthe last ten years, including the one described above, and prior to that, a one-weekwork stoppage in Mississauga, Ontario in 2003. We cannot assure you thatour relationships with our employees and their unions will be satisfactory orthat we will not encounter further strikes, unionization efforts or other typesof conflicts with labor unions or our employees. Further, existing unionagreements may not prevent a strike or work stoppage at any of ourfacilities in the future.

***Wedepend on the service of key individuals, the loss of whom could materiallyharm our business.***

Our success will depend,in part, on the efforts of our executive officers and other key employees,including Timothy R.J. Stubbs, our Chief Executive Officer. Although we do notanticipate that we will have to replace any of our executive officers in thenear future, the loss of the services of any of our executive officers or otherkey employees could have a material adverse effect on our business, results ofoperations and financial condition.

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***Weare controlled by our principal equityholder, which has the power to takeunilateral action.***

Affiliates of Sun Capitalown 90.4% of our common stock and 100% of our voting common stock, and, as aresult, control our business affairs and policies. Three of our directors areemployed by affiliates of Sun Capital. Circumstances may occur in which theinterests of affiliates of Sun Capital could be in conflict with the interestsof the holders of the exchange notes. In addition, affiliates of Sun Capitalmay pursue acquisitions, divestitures or other transactions that may, in theirjudgment, enhance their equity investment, even though such transactions mightinvolve risks to holders of the exchange notes. See “Certain Relationships andRelated Transactions” and “Security Ownership and Certain Beneficial Owners.”

***Our investment inand relationship with AAG may face uncertainties.***

We have a 25.01% ownershipinterest in Asia Aluminum Group Limited, or “AAG” by virtue of an investment bya prior owner. Any decrease or loss in the dividend we receive from AAG wouldnegatively impact our cash flow. Our principal investment partner, AsiaAluminum Holdings Limited, or “AAH” was founded in 1992, and was a publiclytraded company listed on the Main Board of the Stock Exchange of Hong Kong,until it was privatized in 2006. AAG is currently investing significant capitalin a new facility in mainland China, and the significant cash requirementassociated with this investment may decrease or eliminate AAG’s excess cash,which may decrease or eliminate cash available for payment of the annualdividend we would otherwise be entitled to receive. We do not have the abilityto exercise any control over the day-to-day operations of AAGthrough our minority ownership interest. However, so long as we retain at leasta 10% ownership interest of AAG, certain specified actions by AAG require ourprior approval. If a disagreement arises between us and AAH with respect to anyaction requiring our consent, and we are unable to resolve this disagreement,we will have the right to sell our entire ownership interest in AAG to AAH. Inthe event we exercise this right, AAH will purchase our shares of AAG at aprice agreed upon by us and AAH, or in the absence of such agreement, at aprice determined by an independent international firm of accountants inaccordance with the terms of the AAG shareholders agreement. If we were to sellour investment in AAG, we would lose our right to the annual cash dividend.

The operations of AAG aresubject to the risks inherent in the aluminum extrusion industry, which mayinclude: dependence on economic conditions of end-user markets; seasonalslowdowns in the end-user markets; the highly competitive nature of thealuminum extrusion industry; willingness of customers to accept substitutes forextrusions; equipment failures or catastrophic loss at any of our facilities;rising costs or shortages of electricity and natural gas; rising costs orshortages of aluminum billet; and labor stoppages. As a result of thesefactors, AAG’s profits may be reduced, which would eliminate cash available topay the annual dividend or may adversely affect the ability of AAG to fund itsoperations through its cash flows from operations.

Inaddition, our investment in AAG is subject to risks and uncertainties inherentin international investments, which include, among other things:

·                    fluctuationsin currency valuation;

·                    currencyinconvertibility;

·                    expropriationand confiscatory taxation;

·                    laws relatingto foreign investment;

·                    regulation orrequirements for governmental approvals, permits and licenses; and

·                    politicalinstability.

***We may be requiredto guarantee certain indebtedness of AAG.***

Pursuant to the AAGshareholders agreement, we agreed in certain limited circumstances upon therequest of AAG’s lenders to provide guarantees of certain borrowings of AAGthat were outstanding on June 8, 2001, the date we entered into the AAGshareholders agreement, in proportion to our approximately 25% equity ownershipin AAG in the event that any of such borrowings are cancelled by a lender orare required by a lender to be restructured or renewed. We have not guaranteedor been asked to guarantee any borrowings of AAG under this provision since theexecution of the AAG shareholders 

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agreementon June 8, 2001. The aggregate U.S. dollar equivalent (based onexchange rates at December 31, 2006) of the borrowings we potentiallycould have been required to guarantee at the time we entered into the AAGshareholders agreement was our approximately 25% share of approximately$71.6 million, or approximately $17.9 million. Based on theinformation we have received from AAG to date, we believe that the borrowingshave been cancelled, repaid, restructured or refinanced. Based on ourinterpretation of the AAG shareholders agreement, we believe that our potentialobligation to guarantee any item of the specified borrowings applies only tothe first such cancellation, restructuring or renewal thereof and is thereafterextinguished. As a result, based on the information we have received from AAGto date, we do not believe we could be required to guarantee any amountsoutstanding as of the date hereof. Based on a different interpretation of theAAG shareholders agreement by the majority shareholder and based on informationwe have received from AAG to date, we believe the maximum U.S. dollarequivalent (based on exchange rates at December 31, 2006) of theborrowings we potentially could be required to guarantee at this time is ourapproximately 25% share of approximately $88.3 million, or approximately$22.1 million. While we believe that we have correctly interpreted the AAGshareholders agreement, the AAG shareholders agreement and our interpretationthereof are not free from doubt and, accordingly, we cannot assure you that themajority shareholder will not challenge our interpretation of the AAGshareholders agreement. If we were required to guarantee indebtedness of AAGand AAG were to default on such indebtedness, it could have a material negativeimpact on our liquidity position.

***AAGand our other China sources are subject to risks which could affect our abilityto effectively outsource aluminum extrusions from them.***

Through our supplyarrangement with AAG, we use AAG for approximately 93% of our total importvolume, which amounted to approximately 5% of our shipment volume in 2006. AAGand our other China sources are subject to the risks of China’s political,social and economic environment, and these risks could affect our ability toeffectively outsource aluminum extrusions from AAG and our other China sources.The role of the Chinese government in the Chinese economy is significant, andits policies toward economic liberalization could change, resulting in greaterrestrictions on the ability of AAG and other China sources to do business withus. The Chinese government could reduce its export subsidies, which would makeit more costly for us to outsource aluminum extrusions to China. Aluminumextrusions from AAG and our other China sources are also subject to shippingand other transportation delays and risks, and there may be productiondisruptions as a result of construction or other delays at AAG’s new facility.If our China sources are unable to provide us with extrusions or if theirshipments were to experience prolonged delays or suffer damages while intransit, we cannot assure you that we would be able to produce an equivalentshipment volume in our United States and Canada facilities. Our supplyagreement with AAG does not require AAG to supply us with any specifiedquantity of extrusions. If the volume of extrusions AAG is willing to supply uswere to decrease, we may not be able to enter into new supply arrangements withother suppliers in a timely manner to provide a sufficient volume of qualityproducts at prices that are satisfactory to us.

***Fluctuationsin currency exchange rates may significantly impact our results of operationsrecorded in U.S. dollars and may materially adversely affect the comparabilityof our results between financial periods.***

We have operations inCanada. Approximately 11% of our net sales in 2006 were made in Canadiandollars. We incur currency transaction risk whenever we enter into either apurchase or sale transaction using a currency other than the local currency ofthe transacting entity. The U.S. dollar to Canadian dollar exchange rate mayvary from the time we invoice the shipment and the time we are paid, whichcould result in a realized currency loss in our results of operations if wehave not hedged our exposure to currency fluctuations correctly. In addition,we may set prices for our Canadian business in U.S. dollars and if these pricesare not adjusted for changes in the relative values of the currencies, we couldexperience reduced operating margins. The U.S. dollar value of our sales inCanada varies with currency exchange rate fluctuations between the U.S. dollarand the Canadian dollar. The results of the operations and the financialposition of our Canadian subsidiaries are reported in Canadian dollars and thentranslated into 

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U.S.dollars at the applicable exchange rates for inclusion in our combinedfinancial statements. We report our results in U.S. dollars and our financialresults are impacted by currency fluctuations between the U.S. dollar andthe Canadian dollar. Changes in currency exchange rates could have an adverseeffect on our reported results of operations. Upon consummation of theTransactions, we will have Canadian-dollar borrowings under our revolvingcredit facility. To the extent the U.S. dollar declines against theCanadian dollar, our interest expense for our Canadian dollar-denominatedindebtedness will increase for financial reporting purposes. For a descriptionof our indebtedness, see “Capitalization.”

***Wemay experience difficulties operating as a stand alone company.***

We have historicallyoperated as a business unit of Novar plc and subsequently Honeywell. Prior to February 2,2006, we had not operated as a stand-alone company, and we may experiencedifficulty operating as a stand-alone company. We received financial supportand technical and administrative services from Novar plc and Honeywell,including certain risk management, tax, legal and treasury services. Althoughwe believe we will be able to perform all of these services internally orthrough arrangements with third parties, we may not be able to obtain theseservices at comparable costs after February 2, 2006.

Because we have been ableto leverage our structural integration with Novar plc and Honeywell in thepast, the historical financial information included in this report may notreflect what our results of operations, financial position and cash flows wouldhave been had we operated as a separate, stand-alone company without the sharedresources of Novar plc and Honeywell, as applicable, for the periods presented,and are not necessarily indicative of our future results of operations,financial position and cash flows.

***We will incursubstantial ongoing costs to comply with federal securities law requirements.***

In connection with the registrationof our 111¤2%second-priority senior secured notes, we became subject to the reportingrequirements of the Securities Exchange Act of 1934 and the Sarbanes-OxleyAct of 2002. These requirements may place a strain on our management, systemsand resources and cause us to incur substantial ongoing costs. The Exchange Actrequires that we file annual, quarterly and current reports with respect to ourbusiness and financial condition. The Sarbanes-Oxley Act requires that wemaintain effective disclosure controls and procedures and internal controlsover financial reporting. In order to maintain and improve the effectiveness ofour disclosure controls and procedures and internal controls over financialreporting, significant resources and management oversight will be required.This may divert management’s attention from other business concerns. Uponissuance of the exchange notes, we will begin to incur substantial ongoingcosts as a result of having to comply with the Exchange Act and the Sarbanes-OxleyAct. We currently estimate that we will incur approximately $1.0 millionof costs in 2007 and approximately $0.2 million of costs in 2008 as aresult of having to comply with the Sarbanes-Oxley Act. We currently estimatethat we will incur approximately $0.5 million of costs annually as aresult of having to comply with the Exchange Act.

***Wemay pursue strategic acquisitions, which could have an adverse impact on ourbusiness.***

Wemay, from time to time, consider acquiring complementary companies or businesses.To do so, we would need to identify suitable acquisition candidates, negotiateacceptable acquisition terms and obtain appropriate financing. Any acquisitionthat we pursue, whether or not successfully completed, may involve risks,including:

·                    the diversionof our capital and our management’s attention from other business issues andopportunities;

·                    difficultiesin successfully integrating companies or businesses that we acquire, includingpersonnel, financial systems and operations;

·                    material adverseeffects on our operating results, particularly in the fiscal quartersimmediately following the acquisition as it is integrated into our operations;and

·                    the incurrenceof debt and contingent liabilities and impairment charges related to goodwilland other intangible assets, any of which could harm our business and financialcondition.

39

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**Forward-LookingStatements**

This annual report on Form 10-K containsforward-looking statements within the meaning of the federal securitieslaws. These statements relate to analyses and other information, which arebased on forecasts of future results and estimates of amounts not yetdeterminable. These statements also relate to our future prospects,developments and business strategies.

Theseforward-looking statements are identified by the use of terms and phrases suchas “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,”“predict,” “project,” “will” and similar terms and phrases, includingreferences to assumptions. However, these words are not the exclusive means ofidentifying such statements. These statements are contained in many sections ofthis report, including those entitled “Summary,” “Business” and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations.”Although we believe that our plans, intentions and expectations reflected in orsuggested by such forward-looking statements are reasonable, we cannotassure you that we will achieve those plans, intentions or expectations.Important factors that could cause actual results to differ materially from theforward-looking statements we make in this report include, but are notlimited to:

·                    thecyclicality of the aluminum extrusion industry in the United States and Canadaas a result of its dependence on economic conditions of end-user marketsin the United States and Canada, which has caused fluctuations in our shipmentvolume;

·                    seasonalslowdowns in the end-user markets we serve;

·                    competitionin the markets for our products, and the risk we will be unable to competeeffectively in the aluminum extrusion industry, which could result in the lossof customers;

·                    therisk that our customers will accept substitutes for our products;

·                    therisk of equipment failures, delays in deliveries or catastrophic loss at any ofour facilities;

·                    therisk of rising costs or shortages of electricity and natural gas;

·                    therisk of rising costs or shortages of aluminum billet;

·                    thecosts of complying with environmental laws and regulations, includingparticipation in assessments and cleanups of sites;

·                    therisk that we may be required to make unexpected contributions to our definedbenefit plans;

·                    employeeworkforce factors including the hiring and retention of key executives,collective bargaining agreements with union employees or labor stoppages;

·                    therisk that the interests of our principal equityholder could be in conflict withyour interests as a holder of the notes;

·                    uncertaintiesregarding our investment in and relationship with AAG;

·                    therisk that we may be required to guarantee indebtedness of AAG;

·                    therisk that fluctuations in currency exchange rates will impact our results ofoperations;

·                    therisk that we will face difficulties operating as a stand alone company;

·                    thecosts of complying with federal securities laws and regulations; and

·                    therisk that future acquisitions will have a negative impact on us.

All forward-lookingstatements attributable to Indalex or persons acting on our behalf areexpressly qualified in their entirety by the cautionary statements contained inthis report under the heading “Risk Factors.”

40

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**ITEM 1B.**       UNRESOLVEDSTAFF COMMENTS

None.

**ITEM 2.**                PROPERTIES

Weoperate 39 extrusion presses, nine electrostatic paint lines and four anodizinglines. The following table provides selected information regarding ourprincipal facilities:

| **Location**                  | ** ** | ** **                   | ** ** | **Operations** | ** ** | **Approximate  square  footage** | ** ** | **Number  of  presses** | ** ** | **Ownership  interest** |
|-------------------------------|------------|------------------------------|------------|----------------|------------|----------------------------------|------------|-------------------------|------------|-------------------------|
| Burlington, North  Carolina   |       | extrusion                    |       |           | 270,000    |                             |       |                    | 4          |                    |   | owned |
| Calgary, Alberta              |       | extrusion/painting/anodizing |       |           | 56,000     |                             |       |                    | 1          |                    |   | owned |
| City of Industry,  California |       | extrusion/casting            |       |           | 184,000    |                             |       |                    | 3          |                    |   | owned |
| Connersville, Indiana         |       | extrusion                    |       |           | 109,000    |                             |       |                    | 1          |                    |   | owned |
| Elkhart, Indiana              |       | extrusion                    |       |           | 79,000     |                             |       |                    | 3          |                    |   | owned |
| Gainesville, Georgia          |       | extrusion/painting           |       |           | 315,000    |                             |       |                    | 5          |                    |   | owned |
| Girard, Ohio                  |       | extrusion/painting           |       |           | 240,000    |                             |       |                    | 3          |                    |   | owned |
| Kokomo, Indiana               |       | extrusion                    |       |           | 234,000    |                             |       |                    | 2          |                    |   | leased |
| Modesto, California           |       | extrusion/painting/anodizing |       |           | 124,000    |                             |       |                    | 2          |                    |   | owned |
| Montreal, Quebec              |       | extrusion/painting           |       |           | 240,000    |                             |       |                    | 3          |                    |   | owned |
| Mountaintop,  Pennsylvania    |       | extrusion/anodizing          |       |           | 291,000    |                             |       |                    | 3          |                    |   | owned |
| Mississauga, Ontario          |       | extrusion/painting           |       |           | 342,000    |                             |       |                    | 4          |                    |   | owned |
| Niles, Ohio                   |       | extrusion                    |       |           | 32,000     |                             |       |                    | 2          |                    |   | owned |
| Vancouver, British  Columbia  |       | extrusion/painting           |       |           | 90,000     |                             |       |                    | 1          |                    |   | owned |
| Watsonville, California       |       | extrusion/anodizing          |       |           | 135,000    |                             |       |                    | 2          |                    |   | owned |
| North York, Ontario           |       | casting                      |       |           | 56,000     |                             |       |                    | —     |                    |   | owned |

 

The casting facilities in City of Industry,California, which are connected to the extrusion facility, and North York,Ontario convert aluminum scrap and aluminum ingot purchased from third partiesinto aluminum billet. In 2006, 21% of the aluminum billet we used in productionwas supplied through those two casting facilities. Although we resoldapproximately 19 million pounds, or 10%, of our manufactured aluminumbillet to third parties in 2006, which represented approximately 1% of our netsales in that year, the primary purpose of the cast operations is for internalsupply. The benefit of maintaining cast operations is that scrap generatedthrough the manufacturing process can be converted to aluminum billet in a cost-effectivemanner and re-used in production.

On January 5, 2007,we announced that we will close our Watsonville, California, extrusion facilityby the end of April 2007. This closure results from our need to realignour production capacity with the needs of the market. Customers currentlyserviced from the Watsonville plant will be serviced from our Modesto,California facility.

**ITEM 3.**                LEGALPROCEEDINGS

We are involved in variouslegal proceedings, claims and litigation arising in the ordinary course ofbusiness. We believe that the outcome of each such proceeding or claim which ispending or known to be threatened will not have a material adverse effect onour financial condition, cash flows or results of operations.

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matterssubmitted to a vote of stockholders during the fourth quarter of 2006.

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**PART II**

**ITEM 5.**                MARKETFOR COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES

**Market Information**

There is no public tradingmarket for our common stock.

**Stockholders**

There were approximately23 owners of record of our common stock as of March 1, 2007.

**Dividends**

We do not anticipatepaying any cash dividends in the foreseeable future. Any future determinationto pay dividends will be at the discretion of our board of directors and willbe dependent upon then existing conditions, including our financial condition,results of operations, contractual restrictions, capital requirements, businessprospects, and other factors our board of directors deems relevant. Inaddition, our current financing arrangements effectively prohibit us frompaying cash dividends for the foreseeable future.

**Unregistered Salesof Equity Securities**

**None.**

**Issuer Purchases ofEquity Securities**

Thefollowing table sets forth information in connection with purchases made by usof shares of our common stock during the quarterly period ended December 31,2006:

| ** **                                             | ** ** | **(a) Total Number of  Shares (or Units)  Purchased** | ** ** | **(b) Average Price  Paid per Share  (or Unit)** | ** ** | **(c) Total Number of  Shares (or Units)  Purchased as Part  of Publicly  Announced Plans  or Programs** | ** ** | **(d) Maximum  Number (or  Approximate Dollar  Value) of Shares  (or Units) that May  Yet be Purchased  Under the Plans  or Programs** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Month #1 (October  2, 2006 through October 31, 2006)   |       |                                                                           | —     |                                                                      |       |                                                                                                                                                       | —     |                                                                                                                                                                                                    |       |   | — |   |   |   | — |   |   |
| Month #2  (November 1, 2006 through November 30, 2006) |       |                                                                           | 90         |                                                                      |       |                                                                                                                                                       | $          | 111.25                                                                                                                                                                                                  |       |   |   | — |   |   |   | — |   |   |
| Month #3 (December 1,  2006 through December 31, 2006) |       |                                                                           | —     |                                                                      |       |                                                                                                                                                       | —     |                                                                                                                                                                                                    |       |   | — |   |   |   | — |   |   |
|                                                        |            |                                                                                |            |                                                                           |            |                                                                                                                                                            |            |                                                                                                                                                                                                         |            |  |  |  |  |  |  |  |  |  |

 

We did not repurchase anyof our common stock as part of a stock repurchase program during the fourthquarter of 2006; however, we purchased 90 shares of our common stock from oneof our employees.

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**ITEM 6.**                SELECTEDFINANCIAL DATA

The following table sets forth selected historicalcombined financial data for the periods ended and at the dates indicated below.We have derived the selected historical combined financial data as ofDecember 31, 2003 and for the year ended December 31, 2003 from ouraudited combined financial statements and related notes. We have derived theselected historical combined financial data as of December 29, 2002 andfor the year ended December 29, 2002 from our audited combined financialstatements. We have derived the summary historical combined financial data asof December 31, 2004, and December 31, 2005 and for the year ended December 31,2004 and the periods from January 1, 2005 to March 31, 2005 andApril 1, 2005 to December 31, 2005 from our audited financialstatements and related notes. We have derived the summary historical financialdata as of December 31, 2006 and for the period from January 1, 2006to February 1, 2006 and from February 2, 2006 to December 31,2006 from our historical audited condensed consolidated financial statementsincluded elsewhere in this report. In the opinion of management, such unauditedcondensed combined financial data reflects all adjustments, consisting of onlynormal and recurring adjustments, necessary for a fair presentation of theresults for those periods. The combined results of operations for the interimperiods are not necessarily indicative of the results to be expected for thefull year or any future period.

Theselected historical combined financial data should be read in conjunction with“Risk Factors,” “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and our historical combined financial statements andaccompanying notes included elsewhere in this report.

| ** **                                          | ** ** | **Predecessor 1**                          | ** ** | **Predecessor   2**                        | ** ** | **Succ-   essor**                          | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                          | ** ** | ** **                                 | ** ** | ** **                                 | ** ** | ** **                                 | ** ** | **Fiscal Year Ended** | ** ** | **Fiscal Year Ended** | ** ** |
| ** **                                          | ** ** | ** **                                 | ** ** | ** **                                 | ** ** | ** **                                 | ** ** | **December 31, 2005** | ** ** | **Dec. 31, 2006** | ** ** |
| ** **                                          | ** ** | **Fiscal Years Ended**                     | ** ** | **Period   from   Jan. 1,   2005 to**      | ** ** | **Period   from   April 1,   2005 to**     | ** ** | **Period   from   Jan. 1,   2006 to** | ** ** | **Period   from   Feb. 2,   2006 to** | ** ** |
| ** **                                          | ** ** | **Dec. 29,   2002**                   | ** ** | **Dec. 31,   2003**                   | ** ** | **Dec. 31,   2004**                   | ** ** | **March 31,**   2005 | ** ** | **Dec. 31,   2005** | ** ** | **Feb. 1,   2006** | ** ** | **Dec. 31,   2006** | ** ** |
| **Statement of income data:**                       | ** ** | ** **                                 | ** ** | ** **                                 | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                           | ** ** | $                                          | 734,312    |                                       | $          | 748,468                                    |       | $ | 932,696 |   | $ | 239,849 |   | $ | 781,521 |   | $ | 100,019 |   | $ | 1,142,842 |   |
| Costs and expenses:                                 | ** ** | ** **                                 | ** ** | ** **                                 | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of sales(1)                                    | ** ** | 75,588                                     |       | 684,043                                    |       | 854,386                                    |       | 221,542 |   | 727,799 |   | 95,127 |   | 1,058,677 |   |
| Selling, general and administrative                 | ** ** | 75,576                                     |       | 47,450                                     |       | 52,619                                     |       | 15,593 |   | 35,933 |   | 5,548 |   | 54,966 |   |
| Management fees to affiliates(2)                    | ** ** | 4,382                                      |       | 2,902                                      |       | 2,771                                      |       | 700 |   | 1,131 |   | 125 |   | 1,634 |   |
| Amortization of intangibles                         | ** ** |       — |       |       — |       |       — |       |       — |   | 8,282 |   | 920 |   | 10,736 |   |
| Other (income) expense                              | ** ** | —                                     |       | 1,415                                      |       | 2,298                                      |       | 993 |   | (825 | ) | 195 |   | 1,016 |   |
| Restructuring charges(3)                            | ** ** | 2,467                                      |       | 2,897                                      |       | 6,086                                      |       | 694 |   | (222 | ) | — |   | 1,772 |   |
| Impairment of long-lived assets(4)                  | ** ** | 389                                        |       | —                                     |       | 2,728                                      |       | 381 |   | 636 |   | — |   | 7,248 |   |
| (Gain) loss on disposal of assets(5)                | ** ** | 515                                        |       | 3,817                                      |       | (675                                       | )          | (274 | ) | (146 | ) | — |   | 255 |   |
| Mark-to-market on derivatives(6)                    | ** ** | (2,505                                     | )          | (4,167                                     | )          | (3,638                                     | )          | 285 |   | (1,200 | ) | (3,619 | ) | 7,560 |   |
| Total costs and expenses                            | ** ** | 722,627                                    |       | 738,357                                    |       | 916,575                                    |       | 239,914 |   | 771,388 |   | 98,296 |   | 1,143,864 |   |
| Income (loss) from operations                       | ** ** | 11,685                                     |       | 10,111                                     |       | 16,121                                     |       | (65 | ) | 10,133 |   | 1,723 |   | (1,022 | ) |
| Other income (expense):                             | ** ** | ** **                                 | ** ** | ** **                                 | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest to affiliates—net(7)                  | ** ** | (10,152                                    | )          | (8,717                                     | )          | (8,637                                     | )          | (1,208 | ) | (3,712 | ) | — |   | — |   |
| External interest—net                          | ** ** | (248                                       | )          | 58                                         |       | 50                                         |       | — |   | (189 | ) | (24 | ) | (35,745 | ) |
| Deferred financing costs                            | ** ** | —                                     |       | —                                     |       | —                                     |       | — |   | — |   | — |   | (2,220 | ) |
| Income from equity method investment in AAG(8) | ** ** | 6,005                                      |       | 7,869                                      |       | 14,807                                     |       | 1,557 |   | 9,380 |   | 643 |   | 11,841 |   |
| Affiliated acquisition fees                         | ** ** | —                                     |       | —                                     |       | —                                     |       | — |   | — |   | — |   | (5,475 | ) |
| Dividend income from affiliates(9)                  | ** ** | 14,724                                     |       | 12,728                                     |       | 15,102                                     |       | 9,077 |   | — |   | — |   | — |   |
| Income (loss) before income taxes                   | ** ** | 22,014                                     |       | 22,049                                     |       | 37,443                                     |       | 9,361 |   | 15,612 |   | 2,342 |   | (32,621 | ) |
| Income tax (benefit) provision                      | ** ** | 1,522                                      |       | (2,295                                     | )          | (5,808                                     | )          | 9 |   | 1,912 |   | 703 |   | (8,723 | ) |
| Income from continuing operations                   | ** ** | 20,492                                     |       | 24,344                                     |       | 43,251                                     |       | 9,352 |   | 13,700 |   | 1,639 |   | (23,898 | ) |
| Discontinued operations(10)                         | ** ** | 3,945                                      |       | 2,540                                      |       | 1,126                                      |       | (50 | ) | — |   | — |   | — |   |
| Net income (loss)                                   | ** ** | $                                          | 24,437     |                                       | $          | 26,884                                     |       | $ | 44,377 |   | $ | 9,302 |   | $ | 13,700 |   | $ | 1,639 |   | $ | (23,898 | ) |

 

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| ** **                                                  | ** ** | **Predecessor 1**        | ** ** | **Predecessor   2**                   | ** ** | **Succ-   essor**                      | ** ** |
|-------------------------------------------------------------|------------|--------------------------|------------|---------------------------------------|------------|----------------------------------------|------------|
| ** **                                                  | ** ** | ** **               | ** ** | ** **                            | ** ** | ** **                             | ** ** | **Fiscal Year Ended** | ** ** | **Fiscal Year Ended** | ** ** |
| ** **                                                  | ** ** | ** **               | ** ** | ** **                            | ** ** | ** **                             | ** ** | **December 31, 2005** | ** ** | **Dec. 31, 2006** | ** ** |
| ** **                                                  | ** ** | **Fiscal Years Ended**   | ** ** | **Period   from   Jan. 1,   2005 to** | ** ** | **Period   from   April 1,   2005 to** | ** ** | **Period   from   Jan. 1,   2006 to** | ** ** | **Period   from   Feb. 2,   2006 to** | ** ** |
| ** **                                                  | ** ** | **Dec. 29,   2002** | ** ** | **Dec. 31,   2003**              | ** ** | **Dec. 31,   2004**               | ** ** | **March 31,**   2005 | ** ** | **Dec. 31,   2005** | ** ** | **Feb. 1,   2006** | ** ** | **Dec. 31,   2006** | ** ** |
| **Balance sheet data (at end of  period):**                 | ** ** | ** **               | ** ** | ** **                            | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and cash equivalents                                   | ** ** | $                        | —     |                                  | $          | 18,550                                 |       | $ | 23,522 |   | $ | 17,775 |   | $ | 9,366 |   | $ | 1,192 |   | $ | 11,157 |   |
| Working capital(11)                                         | ** ** | 34,898                   |       | 74,483                                |       | 110,982                                |       | 124,326 |   | 96,623 |   | 90,168 |   | 20,880 |   |
| Total assets                                                | ** ** | 869,470                  |       | 885,910                               |       | 895,278                                |       | 658,903 |   | 618,392 |   | 622,453 |   | 597,683 |   |
| Total debt                                                  | ** ** | 332,647                  |       | 276,981                               |       | 147,725                                |       | 6,000 |   | 3,869 |   | 3,766 |   | 328,591 |   |
| Total stockholders’ equity                             | ** ** | 365,771                  |       | 439,123                               |       | 561,852                                |       | 431,501 |   | 423,106 |   | 412,764 |   | 89,398 |   |
| **Other financial and operating  data:**                    | ** ** | ** **               | ** ** | ** **                            | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Capital expenditures                                        | ** ** | $                        | 26,772     |                                  | $          | 21,480                                 |       | $ | 33,275 |   | $ | 8,770 |   | $ | 20,228 |   | $ | 3,006 |   | $ | 21,277 |   |
| Cash flows provided by (used in) operating  activities | ** ** | 64,242                   |       | 35,327                                |       | 47,363                                 |       | (31,198 | ) | 58,032 |   | 3,346 |   | 31,288 |   |
| Cash flows provided by (used in) investing  activities | ** ** | (60,071                  | )          | (20,684                               | )          | 873                                    |       | (8,032 | ) | (18,189 | ) | (3,006 | ) | (434,476 | ) |
| Cash flows provided by (used in) financing  activities | ** ** | (4,782                   | )          | 2,821                                 |       | (37,028                                | )          | 30,596 |   | (46,480 | ) | (8,487 | ) | 414,151 |   |
| Cash dividends received from AAG(12)                        | ** ** | —                   |       | 3,152                                 |       | —                                 |       | 4,602 |   | — |   | — |   | 4,891 |   |
| Ratio of earnings to fixed charges(13)                      | ** ** | 2.31x                    |       | 2.60x                                 |       | 3.07x                                  |       | 8.06x |   | 2.11x |   | 9.13x |   | 0.00x |   |
| Pounds shipped                                              | ** ** | 520,039                  |       | 532,000                               |       | 617,088                                |       | 154,698 |   | 470,887 |   | 52,456 |   | 603,151 |   |

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(1)          The last-in, first-out (“LIFO”)method was used for purposes of determining the cost of certain aluminumextrusion inventories, which approximated 63%, 66%, 48%, 63%, 59% and 53% oftotal inventory at December 29, 2002, December 31, 2003 and 2004, March 31,2005, December 31, 2005 and December 31, 2006, respectively.

(2)          Represents the amount of shared corporate servicesallocated to us by Novar plc and Honeywell and management fees payable to SunCapital, as applicable. See “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—The Transactions—Stand Alone Company.”

(3)          Represents restructuring charges: (i) for 2002,consisting primarily of severance costs related to two overhead reductionprograms implemented in 2002; (ii) for 2003, severance and leasetermination costs related to two overhead reduction programs implemented in2003; (iii) for 2004, severance costs related to the 2003 overheadreduction program, severance costs related to an overhead reduction programimplemented in 2004, and additional costs relating to the September 2004closure of our Berlin, Connecticut facility, consisting primarily of severancecosts; (iv) for the period from January 1, 2005 to March 31,2005, $525 in severance costs and $169 in additional costs relating to our July 2005closure of our Fostoria, Ohio facility; (v) for the period from April 1,2005 to December 31, 2005, a reversal of $222 of the accrual for theFostoria closure, as better information became available, enabling us to reducethe charge; and (vi) for the period from February 2, 2006 to December 31,2006, a charge of $1,772 related to an overhead reduction program implementedin 2006.

(4)          Represents non-cash impairment charges: (i) for2002 relating to the write down of machinery and equipment at our Ahoskie,North Carolina facility; (ii) for 2004, a write-off of long-livedfixed assets associated with the closure of our Berlin, Connecticut facilityand the sale of our Ahoskie, North Carolina facility; (iii) for the periodfrom January 1, 2005 to March 31, 2005, relating to our July 2005closure of our Fostoria, Ohio facility; (iii) for the period from April 1,2005 to December 31, 2005, relating to our Ahoskie, North Carolinafacility, and (iv) for the period from February 2, 2006 to December31, 2006, a write-down of our Winton, North Carolina plant resulting from thesale of that facility, a writedown of our Watsonville, California facilityresulting from the coming closure of that facility, and a writedown related tothe closure of one press at its Connersville, Indiana facility.

(5)          Represents non-cash gains and losses on disposalsof fixed assets: (i) in 2002, a loss of $515 resulting from the sale of aportion of the acreage surrounding our City of Industry, California facility; (ii) for2003, a loss of $3,366 resulting from our donation of extrusion and castingproperty at our Dolton, Illinois facility to the village of Dolton and a lossof $451 resulting from the sale of an extrusion press; (iii) for 2004, again of $1,225 resulting from the exchange of our Niles cast house for anextrusion facility in Connersville, Indiana and a loss of $556 resulting fromthe sale of an extrusion press and (iv) for the periods from January 1,2005 

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to March 31, 2005, April 1, 2005 to December 31,2005 and February 2, 2006 to December 31, 2006, gains and losses inthe normal course of business.

(6)          Represents non-cash unrealized gains and losseson the mark-to-market of foreign currency contracts and aluminumhedges.

(7)          Represents interest on notes payable to affiliatesarising from intercompany financing arrangements with Novar plc.

(8)          Consists of our approximately 25% investment in AAG,which is accounted for under the equity method.

(9)          Consists of dividends on non-voting preferredshares of other indirect wholly owned subsidiaries of Novar plc. Thesepreferred shares were redeemed in connection with the Honeywell Acquisition.

(10)   For 2002, 2003 and 2004 and for the periods from January 1,2005 to March 31, 2005 and April 1, 2005 to December 31, 2005,represents the operations of Brampton, which was sold in February 2004,and ITI, which was sold in July 2004.

(11)   Working capital means current assets minus currentliabilities.

(12)   Represents cash dividends received from AAG. Under thestockholders agreement governing our investment in AAG, AAG is required to distributenot less than 40% of its net realized profits to AAH and us. We are thereforeentitled to receive cash dividends equal to our approximately 25% share of atleast 40% of the net realized profits of AAG. However, cash dividends declaredin respect of a fiscal period are sometimes paid in a subsequent period. Due tothis timing difference, dividends declared by AAG in respect of earnings forAAG’s fiscal year ended June 30, 2004 were not paid until 2005 anddividends declared by AAG in respect of earnings for AAG’s fiscal year ended June 30,2005 were not paid until 2006. Cash dividends from AAG for 2004 are thereforereflected in our 2005 statement of cash flows. Cash dividends from AAG for 2005are reflected in the 2006 statement of cash flows. The dividends presented hereare also included in operating cash flows.

(13)   For purposes of calculating the ratio of earnings tofixed charges, earnings consist of earnings before provision for income taxesplus fixed charges. Fixed charges consist of interest expensed or capitalizedand the portion of rental expense we believe is representative of the interestcomponent of rental expense. Earnings before fixed charges were inadequate tocover fixed charges by $39,571 in the period from February 2, 2006 to December 31,2006.

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**ITEM7.****             MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The financial information of Indalex Holding Corp.contained in this report is the combined financial information ofIndalex Inc., Indalex America Inc., Indalex West Inc., IndalexAluminum Solutions Inc. and Indalex Limited and each of their consolidatedsubsidiaries. On December 31, 2004, Indalex Aluminum Solutions Inc.,Indalex West Inc. and Indalex America Inc. were merged with and intoIndalex Inc. On March 31, 2005, Honeywell acquired our former parentcompany, Novar plc. On February 2, 2006, Indalex Holding Corp. acquiredall of the outstanding capital stock of Indalex Inc. and Indalex Limitedin connection with the Holdings Acquisition.

The following discussion and analysis of our resultsof operations covers periods before the Transactions in most cases and, in somecases, before the Honeywell Acquisition on March 31, 2005. Accordingly,the discussion and analysis of these periods does not reflect the subsequentimpact that the Honeywell Acquisition and the Transactions have had on ourfinancial condition, results of operations and cash flows, including, in thecase of the Transactions, our significantly increased debt levels and liquidityrequirements. You should read the following discussion and analysis inconjunction with the information set forth under “Unaudited Pro Forma CondensedCombined Financial Data” set forth in exhibit 99 to this annual report onForm 10-K and “Item 6. Selected Financial Data” and our combinedfinancial statements and the notes to those statements included elsewhere inthis report.

The statements in thediscussion and analysis regarding industry outlook, our expectations regardingthe future performance of our business and the other non-historicalstatements are forward-looking statements. These forward-lookingstatements are subject to numerous risks and uncertainties, including, but notlimited to, the risks and uncertainties described in “Item 1A. RiskFactors.” Our actual results may differ materially from those contained in anyforward-looking statements. You should read the following discussiontogether with the sections entitled “Item 1A. Risk Factors,” “UnauditedPro Forma Condensed Combined Financial Data,” set forth in exhibit 99.1 tothis annual report on Form 10-K “Item 6. Selected Financial Data” andour combined financial statements and related notes thereto included elsewherein this report. See “Forward-Looking Statements.”

**Overview**

We are the second largestaluminum extruder, and the largest independent aluminum extruder, in the UnitedStates and Canada, based on shipment volume data compiled by the AluminumAssociation and management estimates. Our aluminum extrusion products arewidely used throughout industrial, commercial and residential applications.Unlike a typical commodity metals business, extruded aluminum products aretypically customized to meet end-user specific requirements andunderlying commodity prices are passed on to the customer. As a result, we arelargely insulated from aluminum price volatility. In addition to aluminumextrusion, we also offer a broad range of services, including fabrication,painting and anodizing. In 2006, approximately 94% of our products werecustomized, made-to-order aluminum extrusions for use in a widearray of end-user markets, including the transportation, residentialbuilding and construction, electric and cable, commercial building and construction,consumer durables and machinery and equipment end-user markets, as wellas through distribution channels.

**The Transactions**

**The HoldingsAcquisition**

On September 16, 2005, the Indalex Holding Corp.,a wholly-owned subsidiary of Indalex Holdings Finance, Inc., entered intoa stock purchase agreement pursuant to which it agreed to acquire all of theoutstanding capital stock of Indalex Inc. and Indalex Limited,subsidiaries of Honeywell International Inc., for a total purchase priceof approximately $425.0 million in cash (subject to a post-closingworking capital 

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adjustment of$5.9 million). Indalex Holding Corp. is a holding company that is a wholly-owneddirect subsidiary of Holdings, which is beneficially owned by affiliates of SunCapital Partners, Inc. and certain other investors and members of ourmanagement team.

On February 2,2006, concurrently with the closing of the Holdings Acquisition, the followingevents occurred. We refer to these events, together with the HoldingsAcquisition and the use of the financing proceeds, as the “Transactions”:

·                    certainof the equity investors contributed approximately $111.3 million in cashin the form of an equity investment in Holdings, which was contributed to IndalexHolding Corp.;

·                    IndalexHolding Corp. and Indalex Limited entered into a five-year senior first-prioritysecured asset-based revolving credit facility providing for borrowings ofup to $200.0 million, up to $80.0 million of which is available undera Canadian sub-facility (the “revolving credit facility”);

·                    IndalexHolding Corp. issued $270.0 million of the outstanding notes, whichincluded $15.0 million of notes issued to Sun Capital Securities OffshoreFund, Ltd., an affiliate of the equity sponsor (the $15.0 million of noteswere subsequently sold to unaffiliated purchasers on July 18, 2006); and

·                    IndalexHolding Corp. paid approximately $21.7 million of fees and expensesincurred in connection with the Transactions.

The Holdings Acquisition was accounted for using thepurchase method of accounting. As a result, the purchase price was allocated tothe tangible and intangible assets acquired and liabilities assumed based upontheir respective fair values as of the date of the Holdings Acquisition. Theapplication of purchase accounting in connection with both the HoldingsAcquisition and the Honeywell Acquisition (as defined below) resulted in newentities for reporting purposes. We refer to the Indalex entities prior to theHoneywell Acquisition as “Predecessor 1” and the Indalex entities following theHoneywell Acquisition and prior to the Holdings Acquisition as “Predecessor 2.”We refer to Indalex following the Holdings Acquisition as “Successor.”

As a result of theTransactions, we substantially increased our debt levels in comparison tohistorical periods. As a result, our interest expense will increasesignificantly in the periods following the consummation of the Transactions. Asof December 31, 2006, we had $328.6 million of outstanding indebtedness(excluding unused availability of $95.3 million under our revolving creditfacility). For the fiscal year ended December 31, 2005 and 2006, aftergiving pro forma effect to the Transactions, our pro forma cash interestexpense would have been $36.7 millionand $38.8 million, respectively. See “Item 1A. Risk Factors—Oursubstantial amount of indebtedness following this offering may adversely affectour cash flow and our ability to operate our business, remain in compliancewith debt covenants and make payments on our indebtedness, including the notes.”

**The HoneywellAcquisition**

Honeywell acquired our former parent company, Novarplc, on March 31, 2005. Historical financial data for the periodsfollowing the Honeywell Acquisition reflect the application of purchaseaccounting rules, which required Honeywell to allocate the total cost of theacquisition to the assets acquired and the liabilities assumed on the basis oftheir estimated fair values as of the closing date. For a description of theeffects of purchase accounting related to the Honeywell Acquisition, see ouraudited combined financial statements included in this report. The applicationof purchase accounting in connection with the Honeywell Acquisition resulted ina new entity for reporting purposes.

As a result of the Honeywell Acquisition, IndalexLimited exercised a put option to sell its investment in preferred shares ofNovar affiliates. The redemption value of the preferred shares was set at bookvalue, 

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in exchange for a Notereceivable of $161.2 million. Novar plc declared a dividend to Indalex Limitedof $9.1 million for dividends earned according to the shareholder agreement. Thedividend was reflected on the statement of operations as dividend income forthe period from January 1, 2005 through March 31, 2005.

Simultaneously with thistransaction, Novar plc caused Indalex Limited to declare a non-cash dividend of$139.9 million to Novar plc. At the time, Indalex Limited had a loanoutstanding with Novar plc of $30.4 million. The dividend to Novar plcrepresented the difference between the Note receivable of $161.2 million, plusdividends of $9.1 million owed to Indalex Limited; less the $30.4 million dueowed by Indalex Limited to Novar plc. The dividend owed to Novar plc wasaccounted for as a reduction to retained earnings. All of the transactions werenet settled and not settled in cash, so they are reported in the statement ofcash flows as non-cash activities for the period from January 1, 2005through March 31, 2005.

**Stand Alone Company**

We have historically operated as a business unit ofNovar plc and subsequently Honeywell. The financial statements included in thisreport for periods prior to the Holdings Acquisition have been derived from thehistorical consolidated financial statements of Novar plc and, from March 31,2005 through February 1, 2006, Honeywell, and include the assets,obligations and activities of indirect wholly-owned subsidiaries of Novar plcand Honeywell, as applicable. The historical financial information included inthis report may not reflect what our results of operations, financial positionand cash flows would have been had we operated as a separate, stand-alonecompany without the shared resources of Novar plc or Honeywell for the periodspresented, and may not be indicative of our future results of operations,financial position and cash flows. See our combined financial statements andrelated notes thereto included elsewhere in this report.

The historical combined financial statements includedin this document include amounts specifically attributable to Indalex’soperations and a portion of Novar plc’s or Honeywell’s, as applicable, sharedcorporate general and administrative expenses, consisting of certain riskmanagement, tax, legal and treasury services. In addition, a portion of Novarplc’s and Honeywell’s, as applicable, shared corporate general andadministrative expenses that were not specifically identifiable to Indalex’soperations have been allocated to Indalex. Amounts allocated to Indalex arerecorded in the income statements of Predecessor 1 and Predecessor 2 as “Managementfees to affiliates.” Subsequent to the Holdings Acquisition, “Management feesto affiliates” reflects the management fee paid to Sun Capital as described below.In connection with the Holdings Acquisition, substantially all of the legacycorporate functions of Honeywell that were employed with respect to Indalex’soperations were retained by Honeywell. We now perform those services internallyor through arrangements with third parties, and the costs are reflected in “Managementfees to affiliates” and in additional “Selling, general and administrativeexpenses” in our income statements. The amounts allocated by Novar plc andHoneywell for 2003, 2004 and 2005 were $2.9 million, $2.8 million and$1.1 million, respectively.

In connection with this offer to exchange the notes,we will become subject to the reporting requirements of the Securities ExchangeAct of 1934 and the Sarbanes-Oxley Act of 2002. In anticipation of theissuance of the exchange notes, we have begun to incur substantial additionalone time and ongoing costs as a result of having to comply with the ExchangeAct and the Sarbanes-Oxley Act. See “Risk Factors—In connection with theoffer to exchange the notes, we will incur substantial ongoing costs to complywith federal securities law requirements.” In addition, we will pay Sun CapitalPartners Management III, LP, an affiliate of our equity sponsor, amanagement fee equal to the greater of (a) $1 million and (b) 2%of our EBITDA (as defined in the management services agreement) for a givenfiscal year. We will also reimburse Sun Capital PartnersManagement III, LP for all reasonable out-of-pocket feesand expenses it incurs in performing financial and management consultingservices under the management services agreement. See “Certain Relationshipsand Related Transactions—

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Management ServicesAgreement,” “Unaudited Pro Forma Condensed Combined Financial Data” and “RiskFactors—We may experience difficulties operating as a stand alone company.”

For all periods presentedprior to February 2, 2006, Indalex’s operations, excluding Indalex Limitedand its subsidiaries, were included in the consolidated income tax returns ofNovar USA Holdings Inc. The respective state corporate tax returns of eachsubsidiary were filed on a separate or combined entity basis. However, in thehistorical combined financial statements included in this report, income taxeshave been provided based on a calculation of the income tax expense that wouldhave been incurred if we had operated as a separate taxpayer. Indalex Limitedand each of its subsidiaries filed separate tax returns. Income taxes have beenprovided for all items included in the combined statements of income includedherein, regardless of when such items were reported for tax purposes or whenthe taxes were actually paid or refunded. From February 2, 2006, Indalexwill be filing taxes as a stand-alone company and taxes have been provided foraccordingly.

**AAG Investment**

We own a 25.01% interest in Asia Aluminum Group, analuminum extruder in China, as a result of an investment made in 2001. Underthe equity method of accounting, we recorded income from the investment in AAGof $7.9 million, $14.8 million, $10.9 million and $12.5** **million****in 2003, 2004, 2005 and 2006,respectively.

The dividends we receivefrom AAG have also benefited our cash flow. Pursuant to the shareholdersagreement with AAG, we are entitled to receive dividends equal to our approximately25% share of at least 40% of AAG’s net realized profits. Our proportionateshare of these dividends was $3.1 million, $4.6 million and$4.9 million for AAG’s fiscal years ending June 30, 2003, 2004 and2005, respectively. Cash dividends declared in respect of a fiscal period aresometimes paid in a subsequent period. We recognize these dividends in our cashflow statement in the period in which these dividends are received. Dividendsdeclared by AAG in respect of earnings for AAG’s fiscal year ended June 30,2004 were not paid until 2005 and dividends declared by AAG in respect ofearnings for AAG’s fiscal year ended June 30, 2005 were not paid until thesecond quarter of 2006. Cash dividends from AAG for fiscal 2004 are thereforereflected in our 2005 statement of cash flows. We received the$4.9 million of dividends declared for AAG’s fiscal year ended June 30,2005 in the second quarter of 2006.

**Factors AffectingOur Results of Operations**

***End-User Market Demand***

Our profitability depends in part on the varyingeconomic and other conditions of the end-user markets we serve. All ofthe end-user markets we serve, including our two largest markets, thetransportation and residential building and construction end-usermarkets, are subject to volatility and, as a result, our customers’ demand forour products may change due to changes in general and regional economicconditions, consumer confidence, weather, the housing market, fuel and energyprices and availability, employment and income growth trends and interestrates, each of which are beyond our control. These factors cause a significantincrease or decrease in the demand for our products, which would impact ourshipment volume and our operating profitability. No single end-usermarket drives our overall performance, and individual end-user marketsare influenced by conditions in their respective industries.

Demand for our products in the transportation end-usermarket generally correlates positively with the overall economy. For example,during the economic downturn from 2000 to 2001, manufacturers of truck trailersexperienced shipment volume declines of 48%, which caused a negative impact onour operating profitability. In the period of general economic recovery from2001 to 2006, shipment volume to manufacturers of truck trailers grew by acompounded annual growth rate of 12%, and we believe that volume increased by 9%in 2006. Rising fuel costs have a positive impact on demand for aluminum 

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extrusions in trucktrailers, because it makes aluminum a desirable lightweight alternative tosteel, although higher fuel costs tend to dampen demand in other transportationuses, such as recreational vehicles. Growth in imports from Asia has drivendemand for truck trailers used to haul goods shipped from Asia from the coastto their destinations in manufacturing centers across the country. In otherareas of the transportation end-user market, demographic trends can havean effect on the demand for our products. We expect the retirement of the aging“baby boom” generation to have a positive impact on demand for recreationalvehicles.

Demand for our products inthe residential building and construction end-user market is driven bynew residential construction and remodeling activity, which are impacted by demographictrends, interest rate levels and overall economic conditions. In recent years,we have experienced strong demand in this end-user market due to strongnew housing starts, the increasing size of new homes and increased remodelingand repair activity. However, after showing strong growth during recent years,that market slowed considerably during the second half of 2006, and ourshipments to that market were down 26% in the fourth quarter of 2006 ascompared to the fourth quarter of 2005. According to data published by the U.S. Census Bureau, housing starts inthe United States were down 32% year over year in the first two months of2007.   Remodeling activity has slowed,as well.  We continue to believe thatthere is good long-term growth potential for the residential building andconstruction market, but we cannot be certain of when the current downturn inthis market will end.

***Pricing and Margin***

The principal rawmaterials in the aluminum extrusion process are aluminum billets and ingot. Aluminumis a commodity and, as such, is valued based upon a variety of market drivenfactors The price of aluminum ingot is based on the base aluminum price, whichconsists of two components: the price quoted for primary aluminum ingot on theLME and the MWP. The price of aluminum billet is based upon the base aluminumprice plus the “billet premium,” which is a cost that is added to the basealuminum price and represents the charge from the smelter for convertingaluminum ingot to billet. We manage the risk of base aluminum price increasesthrough one of four pricing mechanisms and through several hedging programs.Our four pricing mechanisms and our estimate of the percentage of our shipmentvolume attributable to each are as follows:

·                    Approximately65% of our shipment volume is priced by a formula pricing mechanism based onthe prior month’s base aluminum price plus a conversion margin for ourservices. We use hedge instruments to mitigate our exposure to changes in thebase aluminum price for the time period between our purchase of aluminum billetand when we process it for a customer order.

·                    Forapproximately 20% of our shipment volume we enter into contracts for aspecified period to provide customers with a fixed price for the aluminum. Weuse hedge instruments traded on the LME to specifically hedge our exposureunder fixed price contracts.

·                    Approximately5% of our shipment volume is made through tolling arrangements in whichcustomers provide aluminum ingot to us for extrusion and separately pay for ouraluminum extrusion and other services.

·     The remaining 10% of our shipment volume isbased on a spot price set by us. We review the spot price monthly and adjustthe spot price periodically for changes in the base aluminum price.

We separately negotiate the billet premium we pay, andchanges in the billet premium we pay affect our gross margins.

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We charge our customers a “conversion price,” which isbased upon our costs to produce, including non-aluminum raw materialscosts, the billet premium we pay, shipping costs and what we charge for ourservices. We change the conversion price periodically to reflect changes incompetitive pricing or escalating costs, or to enhance our operating margin,which can have a positive impact on our profitability. Conversion priceadjustments were relatively infrequent until 2004. Since that time, increasingraw material, freight and energy costs have resulted in more frequentconversion price changes. Some of our conversion price increases have not beenwell-received by our customers. For example, in 2004, we raised ourconversion prices due to billet shortages, and in 2005, we selectively scaledback some conversion prices in response to customer feedback. More recent priceincreases implemented in 2006 have been generally well accepted.

Our gross margin is alsoimpacted by factors such as product mix, shipping costs, scrap rates and laborcosts. Gross margins vary depending on the type of customer, shape complexityand the amount of additional services provided, such as painting, anodizing andfabrication, and the extent to which we outsource from China. In general, ourmargins improve as we increase the level of shape complexity and servicesprovided. In addition, scrap rates are relatively high in our industry, andhigh scrap rates negatively impact our gross margins. Labor costs, which aredifficult to reduce in the short term, are impacted by benefits, workerscompensation and base wage rate changes as well as changes in productivity.

***Hedging***

The price of aluminum ingot is primarily set by supplyand demand balance on the London Metal Exchange, and is subject to periodicshort-term fluctuations. We are largely insulated from this pricevolatility because the cost of aluminum ingot is generally passed on to ourcustomers based upon prices established on the LME. Aluminum price volatilityimpacts our working capital levels significantly. Some of our pricingmechanisms, such as spot pricing, can create short-term price risk on thebase aluminum component of sales, which we seek to mitigate through the use offinancial derivatives. Under accounting principles generally accepted in theUnited States, these derivatives are required to be marked to market monthly,which can have a significant short-term impact on our operating results,but does not have a corresponding effect on our cash flows.

We purchase natural gasused for heating during the extrusion process from a third party using 36-monthforward purchase contracts that we enter into on a monthly basis. While thishedging program has insulated us from recent increases in natural gas prices,it could have the opposite impact if natural gas prices decline and our forwardpurchase price is higher than the market price in the month of purchase. Webuild higher energy costs into our conversion margin, but short termsfluctuations in fuel costs can affect our operating results by increasing ourcosts of sales. Because Indalex does not own the derivatives, we do not recordmark-to-market gains and losses for natural gas.

***Seasonality and Cyclicality***

We have historically experienced increased demand forour products from March through October and reduced demand for ourproducts and lower net sales from November through February. This slowdown is largely due to the seasonal nature of the businesses for a largeportion of our customer base, slower manufacturing during the holiday period,accompanied by reductions in year end inventory levels and slower ramp up byour customers. Cold weather during the winter months causes slow downs in theresidential and commercial building and construction industry in Canada and thenorthern United States. As a result, we have excess plant capacity during thistime, which usually results in reduced operating results during these months.However, during these months our working capital requirements decline.

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Working capital typicallydeclines during downturns as a result of lower levels of customer receivables.Reductions in working capital mitigate the cash impact of cyclical or seasonaldownturns. Conversely, periods of strong demand require greater levels ofworking capital.

***Globalization***

Imports of extrusions from China currently representapproximately 9% of the United States and Canadian aluminum extrusion market,up from less than 1% in 2000. We believe Chinese suppliers have the ability toincrease their market share in the U.S. and Canadian market by at least onepercentage point per year. Increased direct participation in the U.S. andCanadian market by extruders in other countries would increase competition,which could adversely affect our operating results.

Globalization of thealuminum extrusion industry also represents an opportunity for us to outsourcehigh volume labor-intensive extrusions to lower-cost providers. Wecurrently outsource approximately 6% of our annual shipment volume to aluminumextruders in China. Outsourcing to China has increased our shipment volume oflower-margin products and has increased our total operating profit.

**Restructuring**

We incurred restructuring expense of $1.8 millionrelated to an overhead restructuring program initiated in September 2006. Theprogram resulted in the termination of 32 employees.

We have historically restructured our overhead andplant operations on an ongoing basis. Since 2002 we have closed two facilities,consolidated certain shared services organizations and scaled back our fixedadministrative and plant overhead. Severance, relocation and otherrestructuring cost levels have been significant but provide for a lower coststructure going forward, positively impacting operating results. The drivingrationale behind our closures is moving volume from less efficient operationsto more cost effective facilities.

In July 2005, we closed our extrusion press inFostoria, Ohio, after refurbishing a press in our Connersville, Indianafacility. Also during 2005, we relocated our Canadian credit and payablesfunctions to Girard, Ohio, reducing overhead costs through lower staffing andlower average wages. We incurred cash restructuring charges of$0.5 million for the 2005 programs and carryover programs from prioryears.

In October 2004, we closed our two-pressBerlin, Connecticut extrusion operation after relocating one press to ourMontreal, Quebec facility. Also in 2004, we relocated our U.S. credit andpayables functions from Bannockburn, Illinois, to Girard, Ohio andsignificantly restructured our administrative management team resulting inlarge charges. In addition, we began the process of consolidating our customerservice organization in order to reduce costs and enhance service by providingour customers with a “one-stop shop” for customer services relatedissues. We incurred cash restructuring charges of $6.1 million for the2004 programs and carryover programs from prior years.

In 2003, we incurred cashrestructuring charges of $2.9 million predominantly related to fixedoverhead charges. In 2002, we incurred cash restructuring charges of$2.5 million related to fixed overhead charges and a small carryover ofplant closure charges related to our Dolton, Illinois extrusion plant closure.For more information on our restructuring programs, please see footnote 8 toour audited combined financial statements.

**Unaudited Pro FormaCondensed Combined Financial Data**

We derived unaudited pro forma condensed combined financialdata by applying pro forma adjustments to the historical year-end combinedfinancial statements of Indalex included elsewhere in this report. Theunaudited pro forma condensed combined statements of operations data for theperiods presented give effect to the Honeywell Acquisition and theTransactions, including the offering of the 

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outstanding notes, and theapplication of the net proceeds therefrom, as if the Honeywell Acquisition andthe Transactions had occurred at the beginning of the periods presented. For adescription of the assumptions underlying the adjustments to the pro formacondensed combined financial data, please see Exhibit 99.1 – Unaudited ProForma Condensed Combined Financial Data.

The Honeywell Acquisition was accounted for under purchaseaccounting. As a result, a portion of the total cost of the HoneywellAcquisition was allocated to our assets and liabilities based upon their fairvalue as of March 31, 2005, the date of the Honeywell Acquisition. The proforma adjustments for the Honeywell Acquisition give effect to these purchaseaccounting adjustments as of the first day of the periods presented. We havealso accounted for the Holdings Acquisition under the purchase method ofaccounting. The pro forma adjustments related to the purchase price allocationin connection with the Holdings Acquisition are subject to finalization of thetax indemnification and based on information obtained to date. The actualpurchase accounting adjustments described in the accompanying notes may differfrom those reflected in these unaudited pro forma condensed combined financialstatements. The actual amounts that we record based on our final allocation ofthe purchase price, after giving effect to the tax indemnification, may differmaterially from those recorded in our unaudited pro forma condensed combinedfinancial data. 

The unaudited pro formacondensed combined financial data is for informational purposes only and shouldnot be considered indicative of actual results that would have been achievedhad the Honeywell Acquisition or the Transactions been consummated on the dateor for the periods indicated and do not purport to indicate results ofoperations as of any future date or any future period.

**Results ofOperations**

The following table sets forth the results ofoperations of Indalex for the years ended December 31, 2003 and 2004,and for the periods from January 1, 2005 to March 31, 2005, from April 1,2005 to December 31, 2005, from January 1, 2006 to February 1,2006 and from February 2, 2006 to December 31, 2006. The datafor the years ended December 31, 2003 and 2004 and for the period from January 1,2005 to March 31, 2005 have been derived from the audited combinedfinancial statements of Predecessor 1. The data for the periods from April 1,2005 to December 31, 2005 and from January 1, 2006 to February 1,2006 have been derived from the audited condensed combined financial statementsfor Predecessor 2. The data for the period from February 2, 2006 to December 31,2006 have been derived from the audited condensed consolidated financialstatements for Successor.

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| ** **                                          | ** ** | **Predecessor 1**                           | ** **                                        | **Predecessor 2**                           | ** ** | **Successor**                                                         | ** ** | ** **                                                             | ** ** | ** **                                                              | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------|---------------------------------------------------|--------------------------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                          | ** ** | ** **                                       | ** **                                        | ** **                                       | ** ** | **Fiscal Year Ended  December 31, 2005**          | ** ** | **Fiscal Year Ended  December 31, 2006**           | ** ** | **Pro Forma**                                                      | ** ** |
| ** **                                          | ** ** | **Fiscal  Year  Ended  December 31,  2003** | ** **                                        | **Fiscal  Year  Ended  December 31,  2004** | ** ** | **Period  from  January 1,  2005 to  March 31,  2005** | ** ** | **Period  from  April 1,  2005 to  December 31,  2005** | ** ** | **Period  from  January 1,  2006 to  February 1,  2006** | ** ** | **Period  from  February 2,  2006 to  December 31,  2006** | ** ** | **Year Ended  December 31,  2005 (1)** | ** ** | **Year Ended  December 31,  2006 (1)** | ** ** |
| **Statement  of income data:**                      |       |                                             |                                              |                                             |       |                                                                  |       |                                                                   |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net sales                                           |       |                                             | $     748,468            |                                             |       |                                                                  | $          | 932,696                                                                |       |                                                                    | $          | 239,849 |   |   | $ | 781,521 |   |   |   | $ | 100,019 |   |   |   | $ | 1,142,842 |   |   |   | $ | 1,021,370 |   |   |   | $ | 1,242,861 |   |   |
| Costs and expenses:                                 |       |                                             |                                              |                                             |       |                                                                  |       |                                                                   |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                                       |       |                                             | 684,043                                           |                                             |       |                                                                  | 854,386    |                                                                   |       | 221,542                                                                 |       |   | 727,799 |   |   |   | 95,127 |   |   |   | 1,058,677 |   |   |   | 945,507 |   |   |   | 1,146,041 |   |   |
| Selling, general  and administrative                |       |                                             | 47,450                                            |                                             |       |                                                                  | 52,619     |                                                                   |       | 15,593                                                                  |       |   | 35,933 |   |   |   | 5,548 |   |   |   | 54,966 |   |   |   | 51,725 |   |   |   | 60,794 |   |   |
| Management fees to  affiliates                      |       |                                             | 2,902                                             |                                             |       |                                                                  | 2,771      |                                                                   |       | 700                                                                     |       |   | 1,131 |   |   |   | 125 |   |   |   | 1,634 |   |   |   | 1,255 |   |   |   | 1,734 |   |   |
| Amortization of intangibles                         |       |                                             | —                                            |                                             |       |                                                                  | —     |                                                                   |       | —                                                                  |       |   | 8,282 |   |   |   | 920 |   |   |   | 10,736 |   |   |   | 11,570 |   |   |   | 11,700 |   |   |
| Other (income) expense                              |       |                                             | 1,415                                             |                                             |       |                                                                  | 2,298      |                                                                   |       | 993                                                                     |       |   | (825 | ) |   |   | 195 |   |   |   | 1,016 |   |   |   | 1,237 |   |   |   | 468 |   |   |
| Restructuring  charges                              |       |                                             | 2,897                                             |                                             |       |                                                                  | 6,086      |                                                                   |       | 694                                                                     |       |   | (222 | ) |   |   | — |   |   |   | 1,772 |   |   |   | — |   |   |   | 1,772 |   |   |
| Impairment of long-lived  assets                    |       |                                             | —                                            |                                             |       |                                                                  | 2,728      |                                                                   |       | 381                                                                     |       |   | 636 |   |   |   | — |   |   |   | 7,248 |   |   |   | — |   |   |   | 7,248 |   |   |
| (Gain) loss on  disposal of assets                  |       |                                             | 3,817                                             |                                             |       |                                                                  | (675       | )                                                                      |       | (274                                                                    | )          |   | (146 | ) |   |   | — |   |   |   | 255 |   |   |   | — |   |   |   | 255 |   |   |
| Mark-to-market  on derivatives                      |       |                                             | (4,167                                            | )                                                |       |                                                                  | (3,638     | )                                                                      |       | 285                                                                     |       |   | (1,200 | ) |   |   | (3,619 | ) |   |   | 7,560 |   |   |   | (915 | ) |   |   | 3,941 |   |   |
| Total costs and  expenses                           |       |                                             | 738,357                                           |                                             |       |                                                                  | 916,575    |                                                                   |       | 239,914                                                                 |       |   | 771,388 |   |   |   | 98,296 |   |   |   | 1,143,864 |   |   |   | 1,010,379 |   |   |   | 1,233,953 |   |   |
| Income (loss) from  operations                      |       |                                             | 10,111                                            |                                             |       |                                                                  | 16,121     |                                                                   |       | (65                                                                     | )          |   | 10,133 |   |   |   | 1,723 |   |   |   | (1,022 | ) |   |   | 10,991 |   |   |   | 8,908 |   |   |
| Other income (expense):                             |       |                                             |                                              |                                             |       |                                                                  |       |                                                                   |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest to  affiliates—net                    |       |                                             | (8,717                                            | )                                                |       |                                                                  | (8,637     | )                                                                      |       | (1,208                                                                  | )          |   | (3,712 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| External  interest—net                         |       |                                             | 58                                                |                                             |       |                                                                  | 50         |                                                                   |       | —                                                                  |       |   | (189 | ) |   |   | (24 | ) |   |   | (35,745 | ) |   |   | (36,728 | ) |   |   | (38,830 | ) |   |
| Deferred financing  costs                           |       |                                             | —                                            |                                             |       |                                                                  | —     |                                                                   |       | —                                                                  |       |   | — |   |   |   | — |   |   |   | (2,220 | ) |   |   | (2,424 | ) |   |   | (2,422 | ) |   |
| Income (loss) from  equity method investment in AAG |       |                                             | 7,869                                             |                                             |       |                                                                  | 14,807     |                                                                   |       | 1,557                                                                   |       |   | 9,380 |   |   |   | 643 |   |   |   | 11,841 |   |   |   | 10,937 |   |   |   | 12,484 |   |   |
| Affiliated  acquisition fees                        |       |                                             | —                                            |                                             |       |                                                                  | —     |                                                                   |       | —                                                                  |       |   | — |   |   |   | — |   |   |   | (5,475 | ) |   |   | — |   |   |   | (5,475 | ) |   |
| Dividend income  from affiliates                    |       |                                             | 12,728                                            |                                             |       |                                                                  | 15,102     |                                                                   |       | 9,077                                                                   |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Income (loss)  before income taxes                  |       |                                             | 22,049                                            |                                             |       |                                                                  | 37,443     |                                                                   |       | 9,361                                                                   |       |   | 15,612 |   |   |   | 2,342 |   |   |   | (32,621 | ) |   |   | (17,224 | ) |   |   | (25,335 | ) |   |
| Income tax  (benefit) provision                     |       |                                             | (2,295                                            | )                                                |       |                                                                  | (5,808     | )                                                                      |       | 9                                                                       |       |   | 1,912 |   |   |   | 703 |   |   |   | (8,723 | ) |   |   | (13,093 | ) |   |   | (6,333 | ) |   |
| Income (loss) from  continuing operations           |       |                                             | 24,344                                            |                                             |       |                                                                  | 43,251     |                                                                   |       | 9,352                                                                   |       |   | 13,700 |   |   |   | 1,639 |   |   |   | (23,898 | ) |   |   | (4,131 | ) |   |   | (19,002 | ) |   |
| Discontinued  operations                            |       |                                             | 2,540                                             |                                             |       |                                                                  | 1,126      |                                                                   |       | (50                                                                     | )          |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Net income (loss)                                   |       |                                             | $       26,884 |                                             |       |                                                                  | $          | 44,377                                                                 |       |                                                                    | $          | 9,302 |   |   | $ | 13,700 |   |   |   | $ | 1,639 |   |   |   | $ | (23,898 | ) |   |   | $ | (4,131 | ) |   |   | $ | (19,002 | ) |   |
| **Other operating data:**                           | ** ** |                                             | ** **                                        | ** **                                       |       |                                                                  | ** ** | ** **                                                             |       | ** **                                                              | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Pounds shipped                                      |       |                                             | 532,000                                           |                                             |       |                                                                  | 617,088    |                                                                   |       | 154,698                                                                 |       |   | 470,887 |   |   |   | 52,456 |   |   |   | 603,151 |   |   |   | 625,585 |   |   |   | 655,607 |   |   |

 

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(1)             Please see “Exhibit 99.1—Unaudited Pro Forma CondensedCombined Financial Data” for more information.

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**Results ofPredecessor 2 for the period from January 1, 2006 to February 1,2006**

***Net sales.***   Net sales were $100.0 million for theperiod from January 1, 2006 to February 1, 2006, with shipments of52.5 million pounds and an average selling price of $1.91 per pound.

***Cost of sales.***   Cost of sales was $95.1 million for theperiod from January 1, 2006 to February 1, 2006, with an average costof $1.81 per pound shipped.

***Selling, general and administrative expenses.****  *Selling, generaland administrative expenses were $5.5 million for the period from January 1,2006 to February 1, 2006.

**Results ofSuccessor for the period from February 2, 2006 to December 31, 2006**

***Net sales.****  *Net sales were $1,142.8 millionfor the period from February 2, 2006 to December 31, 2006, withshipments of 603.2 million pounds and an average selling price of $1.89per pound.

***Cost of sales.******  ***Costof sales was $1,058.7 million for the period from February 2, 2006 toDecember 31, 2006, with an average cost of $1.76 per pound shipped.

***Selling, general and administrative expenses.******  ***Selling,general and administrative expenses were $55.0 million for the period fromFebruary 2, 2006 to December 31, 2006.

**Pro Forma YearEnded December 31, 2006 Compared toPro Forma Year Ended December 31, 2005**

***Net sales.******  ***Netsales were $1,242.9 million for the pro forma results for 2006. Shipmentswere 655.6 million pounds, at an average selling price of $1.90 per pound.Shipment volume grew in the year ended December 31, 2006 as a result ofstrong market demand, particularly in the Transportation, Residential Buildingand Construction, and Commercial Building and Construction end-user markets. Conversionmargin was up 2.7 cents per pound in the year ended December 31, 2006 ascompared to the prior year. Net sales were positively impacted by higheraverage base aluminum prices which are largely passed on to our customers. Basealuminum prices increased on  average by 33.0%in the year ended December 31, 2006 as compared to the prior year. The  increase in the relative value of theCanadian dollar versus the U.S. dollar resulted in an increase in net sales of$23.1 million.

***Cost of sales.******  ***Cost of sales for the proforma year ended December 31, 2006 was $1,146.0 million or 21.2% higher than 2005. During theperiod, we experienced higher base aluminum prices, higher volume, and, to alesser extent, higher energy costs, partially offset by lower unit labor costsas compared to the prior year. We increased our conversion prices in 2006 tocounteract the higher freight, natural gas and electricity costs.

***Selling, generaland administrative expenses.******  ***Selling,general and administrative expenses for the pro forma year ended December 31,2006 was $60.8 million or 17.5%higher than 2005. During the period, we incurred $4.7 million inone-time costs related to the Transactions and the registration of the 111¤2%Notes, an increase of $1.8 million in employee incentive compensation, andan additional $0.7 million in costs of being a stand alone company.

***Management fees toaffiliates.******  ***Managementfees to affiliates for the pro forma year ended December 31, 2006 were $1.7 million.Management fees to affiliates reflects expenses of $1.0 million annually,or 2% of our EBITDA, whichever is greater, payable to an affiliate of SunCapital Partners.

***Amortization of intangibles.******  ***Amortization of intangiblesfor the pro forma year ended December 31, 2006 was $11.7 million. Asa result of the Transactions, we acquired $89.0 million of intangibles,including trademark and customer lists, which are being amortized over theiruseful life using a declining balance method.

***Impairment oflong-lived assets.******  ***Impairmentof long-lived assets for the pro forma year ended December 31, 2006 was $7.2 million,as a result of an impairment charge of $3.4 million related to the 

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closure of ourWatsonville, California plant; an impairment charge of $2.7 millionrelated to the sale of our Winton, North Carolina plant, a charge of$0.5 million related to the closure of a press at our Connersville,Indiana plant, and a charge of $0.4 million related to our closed Fostoria,Ohio plant.

***Other(income)/expense.******  ***Otherexpense for the pro forma year ended December 31, 2006 was $0.5 million,which included expenses related to foreign currency losses of $0.4 million forcertain of our Canadian assets and liabilities due to increases in the Canadiandollar versus the U.S. dollar and $0.1 of other miscellaneous expenses.

***Mark-to-market onderivatives.******  ***Inaccordance with FAS 133, we recorded a loss on our forward aluminumhedging contracts of $3.9 million for the pro forma year ended December 31,2006 due to lower market prices in relation to the price at which weestablished our hedges.

***Income fromoperations.******  ***Incomefrom operations for the pro forma year ended December 31, 2006 was $8.9 million,or $2.1 million lower than 2005, primarily as a result of higher assetimpairment expenses, higher mark-to-market expenses, one time costs related tothe transactions and higher restructuring costs, partially offset by highershipment volumes and higher conversion margins.

***Interest expense.******  ***Interest expense for the proforma year ended December 31, 2006 was $38.8 million, includinginterest expense on the 111¤2%%Notes and the revolving credit facility.

***Deferred financingcosts.******  ***Amortizationexpense for deferred financing costs for the pro forma year ended December 31,2006 was $2.4 million. As part of the Transactions, Indalex incurred$16.8 million in debt issue costs, which are being amortized using thestraight line method over the life of the debt.

***Income from equitymethod investment in AAG.******  ***Equityincome from AAG for the pro forma year ended December 31, 2006 was $12.5 million,$1.5 million higher than 2005. Higher volumes related to the start up oftheir new facility were partially offset by costs related to the startup of thenew facility.

***Affiliatedacquisition fees.******  ***Affiliatedacquisition fees for the pro forma year ended December 31, 2006 were$5.5 million, as a result of fees paid to affiliates of Sun CapitalPartners related to the Transactions.

***Income tax (benefit) provision.******  ***Income tax for the pro formayear ended December 31, 2006 was a benefit of $6.3 million, asinterest expense more than offset income from operations, resulting in a lossbefore income taxes for the period.

**Results ofPredecessor 1  for the period from January 1,2005 to March 31, 2005**

***Net sales.******  ***Netsales were $239.8 million for the period from January 1, 2005 to March 31,2005, with shipments of 154.7 million pounds and an average selling priceof $1.55 per pound.

***Cost of sales.******  ***Costof sales was $221.5 million for the period from January 1, 2005 to March 31,2005, with an average cost of $1.43 per pound.

***Selling, general and administrative expenses.******  ***Selling,general and administrative expenses were $15.6 million for the period fromJanuary 1, 2005 to March 31, 2005.

**Results ofPredecessor 2 for the period from April 1, 2005 to December 31,2005**

***Net sales.*****  **Net sales were$781.5 million for the period from April 1, 2005 to December 31,2005, with shipments of 470.9 million pounds and an average selling priceof $1.66 per pound.

***Cost of sales.***   Cost of sales was $727.8 million for theperiod from April 1, 2005 to December 31, 2005, with an average costof $1.55 per pound shipped.

***Selling, general and administrative expenses.***   Selling, general and administrative expenseswere $35.9 million for the period from April 1, 2005 to December 31,2005.

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**Pro Forma YearEnded December 31, 2005 Compared to Year Ended December 31, 2004**

***Net sales.***   Net sales increased by $88.7 million, or 9.5%,from $932.7 million in 2004 to $1,021.4 million for the pro forma year ended December 31,2005. Shipment volume grew 1.4% as a result of strong shipment volume in thefirst quarter and fourth quarters of 2005, offset by reduced volumes in thesecond and third quarters from the prior period. Net sales were positivelyimpacted by higher average base aluminum prices that are largely passed on toour customers. Base aluminum prices increased on average by 8.4% in 2005 ascompared to 2004. The increase in the relative value of the Canadian dollarversus the U.S. dollar resulted in a $17.6 million increase in net sales in thepro forma year ended December 31, 2005 as compared to the prior yearperiod. The sales from the Connersville, Indiana facility, which we onlyoperated for the latter half of 2004, accounted for $17.2 million of the netsales increase in the pro forma year ended December 31, 2005. We operatedthe Connersville facility for six months in 2004 and for all of 2005.

***Cost of sales.***   Costof sales increased by $91.1 million, or 10.7%, from $854.4 million in 2004 to$945.5 million for the pro forma year ended December 31, 2005, dueprimarily to higher base aluminum prices and, to a lesser extent, to higheraluminum billet premiums charged by our suppliers, higher fuel costs thatresulted in higher freight costs, higher natural gas and electricity costs andhigher direct labor costs per pound. We operated the Connersville, Indianafacility for six months in 2004 and for the full year in 2005, which accountedfor $18.5 million of the increase in cost of sales in the pro forma year ended December 31,2005. The higher aluminum billet premiums were attributable to increased spotmarket billet premiums paid and increases in negotiated billet premiums onrenewed contracts. We increased our conversion prices in 2005 to counteract thehigher freight and natural gas and electricity costs, which has been wellreceived by our customers. The addition of the Connersville, Indiana facility,and the completion of the capacity expansion project in that plant increaseddepreciation by $0.2 million in the pro forma year ended December 31,2005.

***Selling, generaland administrative expenses.***   Selling,general and administrative expenses decreased by $0.9 million, or 1.7%, from$52.6 million in 2004 to $51.7 million for the pro forma year ended December 31,2005.

***Management fees toaffiliates.***   Management fees to affiliatesfor the pro forma year ended December 31, 2005 were $1.3 million.Management fees to affiliates reflects expenses of $1.0 million annually,or 2% of our EBITDA, whichever is greater, payable to an affiliate of SunCapital Partners. Management fees to affiliates for 2004 were $2.8 million.

***Amortization ofintangibles.***   Amortization of intangibles forthe pro forma year ended December 31, 2005 was $11.6 million. As aresult of the Transactions, we acquired $89.0 million of intangibles,including trademark and customer lists, which are being amortized over theiruseful life using a declining balance method. The 2005 expense reflects whatthe expense would have been, if the Transactions had occurred at the beginningof the period.

***Other(income)/expense.***   Other expense was $1.2 millionfor the pro forma year ended December 31, 2005, and included$1.5 million in foreign currency losses, $1.0 million of assetimpairment charges related to the closures of our Fostoria, Ohio and Ahoskie,North Carolina facilities, $0.8 million in warranty and legal expensesrelated to one of our previously divested non-extrusion businesses,$0.5 million in restructuring charges, and $0.9 million in othermiscellaneous expenses, partially offset by a gain of $3.1 millionrelating to the reversal of a retiree medical accrual as the program wasrestructured, and gains on disposal of assets of $0.4 million. In 2004,other expense included expenses related to foreign currency losses for certainof our Canadian assets and liabilities due to increases in the Canadian dollarversus the U.S. dollar, warranty and legal expense related to one of ourpreviously divested non-extrusion businesses, and other miscellaneous expenses.

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***Mark-to-market onderivatives.***   In accordance withFAS 133, we recorded a gain on our forward aluminum hedging contracts of$0.9 million for the pro forma year ended December 31, 2005 due tohigher market prices in relation to the price at which we established ourhedges. In 2004, we recorded a gain on our derivatives of $3.6 million toreflect higher market prices in relation to the price at which we establishedour hedges.

***Income fromoperations.***   Income from operations decreasedby $5.1 million, or 31.7%, from $16.1 million in 2004 to $11.0 million for thepro forma year ended December 31, 2005 as a result of the factorsdescribed above.

***Interest expense.***   Interestexpense for the pro forma year ended December 31, 2005 was$36.7 million, including pro forma interest expense on the 111¤2% Notes andthe revolving credit facility. Interest expense was $8.6 million in 2004.

***Deferred financingcosts.***   Amortization expense for deferredfinancing costs for the pro forma year ended December 31, 2005 was$2.4 million. As part of the Transactions, Indalex incurred$16.8 million in debt issue costs, which are being amortized using thestraight line method over the life of the debt.

***Income from equitymethod investment in AAG.***   Income from ourequity method investment in AAG decreased by $3.9 million, or 26.1%, from $14.8million in 2004 to $10.9 million in the pro forma year ended December 31,2005. The decrease in the pro forma year ended December 31, 2005 was dueto reduced gross margins resulting from higher energy and raw material costs atits existing facility and higher administrative costs related to the startup ofa new manufacturing facility in China.

***Income tax(benefit) provision.***   Income tax for the proforma year ended December 31, 2005 was a benefit of $13.1 million, asinterest expense more than offset income from operations, resulting in a lossbefore income taxes for the period. Income tax benefit was $5.8 million in2004. During 2004, the statute of limitations for tax years 1997 to 2000expired. As a result, we reversed tax reserves of $6.8 million in 2004.

**Liquidity and Capital Resources**

***Cash Flows***

Cash flows from operatingactivities include cash dividends, if any, received from AAG. We arecontractually entitled to receive dividends equal to our 25% share of at least40% of AAG’s annual net realized profits. There is no requirement as to whenthese dividends may be paid but we have received the annual payment rangingfrom December to June. We recognize these dividends in our statements ofcash flows in the period in which these dividends are received. These dividendsrepresent a material portion of our annual cash flows from operations.

Cash flows from operatingactivities are materially impacted by movements in base aluminum costs whichrepresent a high percentage of both our costs and selling price which alsoimpacts accounts receivable and inventory. Base aluminum costs have been veryvolatile over time and in 2006 averaged the highest level in at least thirtyyears. We pass through these costs to our customers so they have little impacton our margins but price movements in base aluminum have a material impact onour working capital. For instance, in December 2006, base aluminum costswere 24 cents per pound higher than December 2005, representing anincrease of 23%. Each 1 cent per pound increase in base aluminum will have anapproximate $700 thousand impact on our accounts receivable. Inventory andaccounts payable tend to offset each other.

***Operating activities.***   Netcash from operations for the period from February 2, 2006 to December 31,2006 was $31.3 million, as accounts receivable and prepaid expenses droppedsignificantly during the period, partially offset by lower accrued expenses, asoverall business levels experienced a seasonal decrease toward the end of theperiod. Cash flow from operations was $3.3 million for the period from January 1,  2006 to February 1, 2006, primarily as aresult of higher accrued expenses, partially offset by an increase accountsreceivable.

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In 2005, cash flow fromoperations was $58.0 million for the period from April 1, 2005 through December 31,2005. Working capital fell during the period, primarily as a result of lowerinventories and accounts payable. Cash used in operations was $31.2 million forthe period from January 1, 2005 to March 31, 2005. Working capitalincreases were driven by higher accounts receivable and inventories.

Net cash flow from operationswas $35.3 million in 2003 and $47.4 million in 2004. Lower workingcapital requirements in 2004 was due to the reduction in current liabilitieswhich more than offset an increase in accounts receivable. The increase inaccounts receivable was primarily attributable to higher volumes, higheraluminum prices, an increase in accounts receivable and days sales’outstanding, due to the acquisition of the Connersville facility. Cash flowsfrom operations included a $3.2 million cash dividend from AAG in 2003.

***Investing activities.***   Netcash used in investing activities for the period from February 2, 2006 to December 31,2006 was $434.5 million. During the period from February 2, 2006 to December 31,2006, the Holdings Acquisition used $418.3 million of cash, and $1.7 million ofcash was used to pay related transaction costs. Capital expenditures during theperiod from February 1, 2006 to December 31, 2006 were $21.3 million,proceeds from the sale of property, plant and equipment were $2.2 million andproceeds from the sale of a business were $4.5 million. Net cash used ininvesting activities was $3.0 million for the period from January 1,2006 to February 1, 2006 which consisted of capital expenditures.

In 2005, cash flow frominvesting activities was $18.2 million for the period from April 1, 2005through December 31, 2005, including capital expenditures of $20.2million, and proceeds from the sale of fixed assets of $2.0 million. Cash usedin investing activities was $8.0 million for the period from January 1,2005 to March 31, 2005, including capital expenditures of $8.8 million,and proceeds from the sale of property, plant and equipment of $0.7 million. Aredemption of investments in affiliates generated $32.9 million in 2004. Capitalexpenditures were $33.3 million in 2004.

Net cash used in investingactivities was $20.7 million in 2003 and net cash flow from investingactivities was $0.9 million in 2004. The redemption of preferred shares inaffiliates of $32.9 million accounted for the difference, and was partiallyoffset by an increase in capital spending of $11.8 million. The increasein capital spending relates primarily to key strategic investments, includingthe installation of a press in Canada and capacity and efficiency upgrades atthe Connersville facility.

***Financing activities.***   Netcash from financing activities for the period from February 2, 2006 to December 31,2006 was $414.2 million, as a result of net proceeds from the issuance of the 111¤2%Notes of $266.6 million, revolver borrowings of $55.7 million and capitalcontributions of $111.3 million during this period, partially offset by debtissuance costs of $16.8 million and a dividend of $1.5 million paid to ourshareholders during this period.

Net cash flow used infinancing activities was $8.5 million for the period from January 1, 2006to February 1, 2006, primarily as a result of a dividend of $6.8 millionpaid to Honeywell during the period.

In 2005, cash flow used infinancing activities was $46.5 million for the period from April 1, 2005through December 31, 2005, as a result of $14.7 million paid on notespayable to affiliates, $25.8 million in dividends and distributions, and therepayment of industrial revenue bonds in the amount of $6.0 million. Cash fromfinancing activities was $30.6 million for the period from January 1, 2005to March 31, 2005 as a result of collections on notes receivable fromaffiliates. In 2004, Novar USA Holdings contributed capital in the amount of$151.5 million, which in turn was used to repay notes to affiliates, whilecapital redemptions of $40.6 million were the primary use of cash in financingactivities.

Net cash flow fromfinancing activities was $2.8 million in 2003 and net cash flow used infinancing activities was $37.0 million in 2004. In 2004, Novar USAHoldings contributed capital in the amount of $151.5 million, which inturn was used to repay notes to affiliates, while capital redemptions of$40.6 million were the primary use of cash in financing activities.

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The primary sources ofliquidity for our business are cash flow generated from operations andborrowings under our revolving credit facility. We expect that our principaluses of cash will be debt service requirements, working capital and capitalexpenditures.

***Debt andCommitments***

We have significant debtservice obligations. As of December 31, 2006, we had outstanding$328.6 million in aggregate indebtedness, with an additional$95.3 million of borrowing capacity available under our revolving creditfacility, net of $10.4 million of outstanding letters of credit, whichreduce availability. Our liquidity requirements are significant, primarily dueto debt service requirements and the cyclicality of our business. On a proforma basis giving effect to the Honeywell Acquisition and the Transactions,our cash interest expense on a combined basis for fiscal year ended December 31,2005 and 2006 would have been $36.7 millionand $38.8 million,respectively.

*Revolving Credit Facility*

We entered into therevolving credit facility on February 2, 2006. The revolving creditfacility provides for a first-priority secured five-year asset-basedrevolving credit facility in an aggregate principal amount of up to$200.0 million, all of which is available in the form of loans denominatedin U.S. dollars to Indalex Holding Corp. and up to $80.0 million of whichis available as a revolving credit sub-facility in the form of loansdenominated in Canadian dollars and loans denominated in U.S. dollars to IndalexLimited or bankers’ acceptances denominated in Canadian dollars, subject ineach case to the borrowing base limitations described below. Up to an aggregateof $30.0 million will be available to Indalex Holding Corp., IndalexLimited and subsidiaries of Indalex Holding Corp., to the extent that IndalexHolding Corp. or Indalex Limited is a co-applicant, for the issuance ofletters of credit. As of December 31, 2006, borrowings under the revolvingcredit facility bore interest at a weighted average rate of 7.4% per annum.

We used the borrowingsunder the revolving credit facility, together with the proceeds of the cashequity contribution and the proceeds of the offering of the 111¤2%Notes, to pay the purchase price of the Holdings Acquisition, to pay the feesand expenses in connection with the Transactions and for general corporatepurposes, including working capital.

The aggregate amount ofloans permitted to be made to Indalex Holding Corp. under the revolving creditfacility may not exceed a borrowing base comprised of the eligible accountsreceivable, inventory, machinery and equipment and real property of IndalexHolding Corp. and its wholly owned domestic subsidiaries, subject to anaggregate total cap, when taken together with loans made to Indalex Limited, of$200.0 million.

The aggregate amount ofloans permitted to be made to Indalex Limited under the Canadian revolvingcredit sub-facility may not exceed a borrowing base comprised of theeligible accounts receivable, inventory, machinery and equipment and realproperty of Indalex Limited and its wholly owned Canadian subsidiaries, subjectto an aggregate sub-cap of $80.0 million and further subject to anaggregate total cap, when taken together with loans made to Indalex HoldingCorp., of $200.0 million.

Our obligations under therevolving credit facility are guaranteed on a first-priority securedbasis by Holdings and each domestic subsidiary of Indalex Holding Corp. Theobligations of Indalex Limited under the Canadian revolving credit sub-facilitywill be guaranteed on a first-priority secured basis by Holdings, IndalexHolding Corp., each domestic subsidiary of Indalex Holding Corp. and certainforeign subsidiaries of the Issuer, other than Indalex Limited.

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Indalex Holding Corp.’s obligations under the U.S.portion of the revolving credit facility and the guarantees thereof are securedby a first-priority lien on all of the tangible and intangible assets ofHoldings, Indalex Holding Corp. and each domestic subsidiary of Indalex HoldingCorp., as well as 100% of the capital stock of Indalex Holding Corp. and ourdomestic subsidiaries and 65% of the capital stock of the foreign subsidiariesdirectly owned by us or any of our domestic subsidiaries. The obligations ofIndalex Limited under the Canadian revolving credit sub-facility and theguarantees thereof are secured by a first-priority lien on all of thetangible and intangible assets of Holdings, Indalex Holding Corp., IndalexLimited, each domestic subsidiary of Indalex Holding Corp. and certain foreignsubsidiaries of Indalex Holding Corp., as well as 100% of the capital stock of IndalexHolding Corp. and its domestic subsidiaries and 100% of the capital stock ofour foreign subsidiaries, including Indalex Limited.

Indalex Holding Corp. andIndalex Limited may, at their option, increase the aggregate commitments underthe revolving credit facility by an additional $40.0 million, subject tothe satisfaction of certain conditions precedent.

*11*1¤2%Second-Priority Senior Secured Notes due 2014

Indalex Holding Corp. issued 111¤2%second-priority senior secured notes due 2074 (the “notes”) on February 2,2006. The notes will mature in 2014 and are guaranteed on a second-prioritysecured basis by each of our domestic subsidiaries that incurs indebtedness,and each of our foreign subsidiaries that enters into a guarantee of any of oursenior indebtedness (other than indebtedness incurred by another foreignsubsidiary). On the closing date, the notes were guaranteed by each of ourdomestic subsidiaries and none of our foreign subsidiaries. Interest on thenotes is payable semi-annually in cash.

The notes are secured by a second-priority lienon substantially all Indalex Holding Corp.’s and the guarantors’ assets to theextent that such assets secure the borrowings under our revolving creditfacility and a second-priority pledge of 100% of Indalex Holding Corp.’sand its domestic subsidiaries’ capital stock and 65% of the capital stock ofour foreign subsidiaries directly owned by Indalex Holding Corp. or anydomestic subsidiary, in each case, subject to certain limitations, including thelimitation that the capital stock will constitute collateral securing the notesonly to the extent that such capital stock can secure the notes without Rule 3-16of Regulation S-X under the Securities Act requiring us to file separatefinancial statements with the SEC or any other governmental agency (the “collateralcutback provision”).

The collateral under the security documents includesthe capital stock of the following companies: Indalex Holding Corp., IndalexInc., Indalex Limited, Dolton Aluminum Company, Inc. and Caradon LebanonInc. In accordance with the collateral cutback provision, the collateralsecuring the notes and the related guarantees includes shares of capital stockonly to the extent that the applicable value of such capital stock, determinedon an entity-by-entity basis, is less than 20% of the principal amount of thenotes outstanding. The applicable value of the capital stock of any entity isdeemed to be the greatest of its par value, book value or market value. Thebook value and market value of the capital stock of each of Indalex HoldingCorp. and Indalex Inc. exceeded 20% of the principal amount of the notes as of December 31,2006. As a result, the pledge of the capital stock of these entities withrespect to the notes is limited to capital stock of each such entity with anapplicable value of less than 20% of the principal amount of the notes, or$54.0 million.

The capital stock of the following companies does notconstitute collateral under the security documents: Indalex UK Limited, IndalexHoldings (B.C.) Ltd., 6326765 Canada Inc., Novar Inc. and Asia Aluminum GroupLtd.

As of December 31,2006, the book value of each company whose capital stock constitutes collateralunder the security documents is as follows:

·                    IndalexHolding Corp. - $89.4 million.

·                    IndalexInc. - $94.9 million.

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·                    IndalexLimited - $35.9 million, of which 65%, or $23.3 million, constitutes collateralunder the terms of the security documents.

·                    DoltonAluminum Company, Inc. - $0 million.

·                    CaradonLebanon Inc. - $0 million.

In the case of  Indalex Holding Corp. and Indalex Inc., theapplicable value capital stock that constitutes collateral under the securitydocuments is limited to less than $54.0 million under the collateral cutbackprovision.

The Company determined the book value of each companywhose capital stock constitutes collateral under the security documents basedon the book value of the equity securities of each such company as carried onthe Company’s balance sheet as of December 31, 2006 prepared in accordancewith U.S. GAAP.

Management estimated that the market value of thecapital stock of Indalex Limited as of December 31, 2006 was$77 million, of which 65%, or $50 million, constitutes collateralunder the terms of the security documents. The market value of the capitalstock of each of Dolton Aluminum Company, Inc. and Caradon Lebanon Inc. iszero because there are no assets held by these entities.

The portion of the capital stock of  Indalex Holding Corp. and the subsidiariesconstituting collateral securing the notes and the related guarantees maydecrease or increase as the applicable value of such capital stock changes. Aslong as the applicable value of the capital stock of each of  Indalex Holding Corp. and Indalex Inc. exceeds20% of the principal amount of the notes, the value of the capital stock ofeach of those entities securing the notes and related guarantees will notchange. If the applicable value of the capital stock of any of  Indalex Holding Corp. or Indalex Inc. fallsbelow 20% of the principal amount of the notes, 100% of the capital stock ofthat entity will secure the notes and related guarantees. As long as theapplicable value of 65% of the capital stock of Indalex Limited is less than20% of the principal amount of the notes, 65% of the capital stock of IndalexLimited will secure the notes and the related guarantees. If the applicablevalue of 65% of the capital stock of Indalex Limited exceeds 20% of theaggregate principal amount of the notes, the value of the capital stock ofIndalex Limited securing the notes and the related guarantees will be limitedto less than 20% of the aggregate principal amount of the notes. As long as theapplicable value of the capital stock of each of Dolton Aluminum Company, Inc.and Caradon Lebanon Inc. is less than 20% of the principal amount of the notes,100% of the capital stock of each of those entities will secure the notes andrelated guarantees. If the applicable value of the capital stock of eitherDolton Aluminum Company, Inc. or Caradon Lebanon Inc. exceeds 20% of theaggregate principal amount of the notes, the value of the capital stock of thatentity securing the notes and related guarantees will be limited to less than20% of the aggregate principal amount of the notes.

As of December 31,2006, the book value of capital stock, as a percentage of the principal amountof the notes, of each entity whose capital stock constitutes collateralexceeding 10% of the principal amount of the notes was as follows:

·                    Indalex Holding Corp. - ratio of (i) book value of the Company’sinvestment in  Indalex Holding Corp. ($89.4 million)to (ii) principal amount of notes ($270.0 million) equals 33.1%.

·                    IndalexInc. - ratio of (i) book value of  Indalex Holding Corp.’s investment in IndalexInc. ($94.9 million) to (ii) principal amount of notes ($270.0million) equals 35.1%.

The indenture governingthe notes, among other things, limits  Indalex Holding Corp.’s ability and theability of its restricted subsidiaries to: incur additional indebtedness; paydividends on or make distributions in respect of capital stock or make certainother restricted payments or investments; enter into agreements that restrictdistributions from restricted subsidiaries; sell or otherwise dispose ofassets, including capital stock of restricted subsidiaries; enter intotransactions with affiliates; create or incur liens; 

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enterinto sale/leaseback transactions; and merge, consolidate or sell substantiallyall of our assets. These covenants are subject to important exceptions andqualifications.

*Other*

***Industrial revenuebonds***   In November 1998, the HertfordCounty Industrial Facilities and Pollution Control Financing Authority issuedIndustrial Development Revenue Bonds in the amount of $6 million andloaned the proceeds to Indalex to fund an expansion of Indalex’s Ahoskie, NorthCarolina, billet casting facility. The bonds were tax-exempt withinterest at a variable rate, which repriced every seven days, and were securedby an irrevocable letter of credit in the amount of $6.1 million betweenIndalex and the bond-paying agent. As of December 31, 2004 and 2003,the interest rate on the bonds was approximately 1.8% and 1.4%, respectively.Interest was payable monthly and amounted to $0.1 million per year for2003, 2004 and 2005. The bonds were scheduled to mature on November 1,2013. However, due to the inactivity at the facility, Indalex was not incompliance with the original terms of the bonds, and the bonds were classifiedas a current liability as of December 31, 2004 and 2003. The bonds wererepaid on November 1, 2005.

***Indebtedness with affiliates***   Indalexhad notes payable to Novar plc and other affiliated companies totaling$141.7 million and $271.0 million at December 31, 2004 and 2003,respectively. Interest was payable quarterly based on the three-monthU.S. dollar LIBOR rate at the beginning of the quarter, plus 2.0% in 2004, 2003and 2002. Principal was due upon expiration of the commitment periods, whichwere through September 30, 2009. The following table summarizes the notespayable to Novar plc and other affiliated companies as of December 31,2004:

| ** **                         | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2004**              | ** ** |
| ** **                         | ** ** | **(000’s)**      | ** ** |
| Novar USA  Holdings Inc.           |       |                  | $          | 74,331 |   |   |
| Novar plc                          |       |                  | 24,867     |   |   |
| Security Printing                  |       |                  | 14,671     |   |   |
| Novar Holdco                       |       |                  | 14,259     |   |   |
| Novar Inc.                         |       |                  | 4,490      |   |   |
| Novar Controls                     |       |                  | 4,063      |   |   |
| Novar Marketing  Inc.              |       |                  | 1,964      |   |   |
| Novar Link                         |       |                  | 3,080      |   |   |
| Total notes payable to  affiliates |       |                  | $          | 141,725 |   |   |

 

As of December 31, 2005, there were no notespayable to Novar plc or any of its affiliates outstanding. Any notespayable outstanding on the closing date were cancelled in connection with theclosing of the Honeywell Acquisition.

***Off-balancesheet arrangements***   At December 31, 2005and at December 31, 2006, we did not have any relationships withunconsolidated entities (other than AAG) or financial partnerships, such asentities often referred to as structured finance or special purpose entities,which would have been established for the purpose of facilitating off-balancesheet arrangements or other contractually narrow or limited purposes.

Pursuant to the AAGshareholders agreement, we agreed in certain limited circumstances upon therequest of AAG’s lenders to provide guarantees of certain borrowings of AAGthat were outstanding on June 8, 2001, the date we entered into the AAGshareholders agreement, in proportion to our approximately 25% equity ownershipin AAG in the event that any of such borrowings are cancelled by a lender orare required by a lender to be restructured or renewed. We have not guaranteedor been asked to guarantee any borrowings of AAG under this provision since theexecution of the AAG shareholders 

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agreementon June 8, 2001. The aggregate U.S. dollar equivalent (based onexchange rates at December 31, 2005) of the borrowings we potentiallycould have been required to guarantee at the time we entered into the AAGshareholders agreement was our approximately 25% share of approximately$71.6 million, or approximately $17.9 million. Based on theinformation we have received from AAG to date, we believe that the borrowingshave been cancelled, repaid, restructured or refinanced. Based on ourinterpretation of the AAG shareholders agreement, we believe that our potentialobligation to guarantee any item of the specified borrowings applies only tothe first such cancellation, restructuring or renewal thereof and is thereafterextinguished. As a result, based on the information we have received from AAGto date, we do not believe we could be required to guarantee any amountsoutstanding as of the date hereof. We received a communication from thecontroller of the majority shareholder of AAG that suggests that the majorityshareholder may disagree with our interpretation of the AAG shareholdersagreement and may believe that our obligation to guarantee the specifiedborrowings is not extinguished upon the first cancellation, restructuring orrenewal thereof. Based on this interpretation of the AAG shareholders agreementby the majority shareholder and based on information we have received from AAGto date, we believe the maximum U.S. dollar equivalent (based on exchangerates at December 31, 2005) of the borrowings we potentially could berequired to guarantee at this time is our approximately 25% share ofapproximately $88.3 million, or approximately $22.1 million. While webelieve that we have correctly interpreted the AAG shareholders agreement, theAAG shareholders agreement and our interpretation thereof are not free fromdoubt and, accordingly, we cannot assure you that the majority shareholder willnot challenge our interpretation of the AAG shareholders agreement. If we wererequired to guarantee indebtedness of AAG and AAG were to default on suchindebtedness, it could have a material negative impact on our liquidityposition.

***Capital Expenditures***

We made $24.3 million in capital expenditures in 2006.Our spending was for dies, quality and efficiency projects and replacementprojects, and included $2.7 million in expenditures related to theaddition of the powder coat line in Gainesville, Georgia as well as $1.6 millionfor a material handling system in our Burlington, North Carolina plant, and $1.3 millionfor an efficiency project in our Toronto, Ontario casting facility.

We made $29.0 million in capital expenditures in2005 calendar year. Our spending supported a number of growth and cost savingsinitiatives, such as a powder coat line, a shipping expansion/line improvementin Vancouver and a packing line upgrade in Connersville, Indiana. The remainingspending was for dies, quality projects and replacement projects.

We believe that fundsgenerated from operations and anticipated borrowing capacity under ourrevolving credit facility will be adequate to fund debt service requirements,capital expenditures and working capital requirements. Our ability to continueto fund these items may be affected by general economic, financial,competitive, legislative and regulatory factors outside of our control.

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***Contractual Obligations Summary***

The following tablereflects our contractual obligations and commitments as of December 31,2006.

**ContractualObligations and Commitments by Fiscal Year**

| ** **                | ** ** | **Total**               | ** ** | **Less than  1 Year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **More than  5 Years** | ** ** |
|---------------------------|------------|-------------------------|------------|---------------------------------|------------|--------------------|------------|--------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **(in thousands)** | ** ** |
| Letters of credit         |       |                    | $          | 10.4                            |       |               |       | $                  | —     |                             |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | 10.4 |   |   |
| Revolving credit facility |       |                    | 55.7       |                            |       |               | —     |               |       |                             | —     |   |   |   | 55.7 |   |   |   | — |   |   |
| Operating leases          |       |                    | 6.2        |                            |       |               | 2.2        |               |       |                             | 2.9        |   |   |   | 1.0 |   |   |   | 0.1 |   |   |
| Capital leases            |       |                    | 6.7        |                            |       |               | 1.6        |               |       |                             | 3.5        |   |   |   | 1.6 |   |   |   | — |   |   |
| Purchase  obligations     |       |                    | 450.6      |                            |       |               | 343.4      |               |       |                             | 107.2      |   |   |   | — |   |   |   | — |   |   |
| Long-term  debt           |       |                    | 270.0      |                            |       |               | —     |               |       |                             | —     |   |   |   | — |   |   |   | 270.0 |   |   |
| Fixed interest  payments  |       |                    | 232.4      |                            |       |               | 31.1       |               |       |                             | 62.1       |   |   |   | 62.1 |   |   |   | 77.1 |   |   |
| Total                     |       |                    | $          | 1,032.0                         |       |               |       | $                  | 378.3      |                             |       |   | $ | 175.7 |   |   |   | $ | 120.4 |   |   |   | $ | 357.6 |   |   |

 

The table above does not reflect variable rate interestpayments on our revolving credit facility. Based on the weighted averageinterest rate of 7.4% and outstanding borrowings of $55.7 million as of December 31,2006, our annual variable interest rate payments would be $4.1 million.

The table above does notreflect any potential guarantees of indebtedness of AAG. See “Risk Factors—Wemay be required to guarantee certain indebtedness of AAG.”

**Critical AccountingPolicies and Estimates**

The preparation of financial statements in conformitywith GAAP requires the appropriate application of certain accounting policies,many of which require us to make estimates and assumptions about future eventsand their impact on amounts reported in the financial statements and relatednotes. Since future events and the impact of those events cannot be determinedwith certainty, the actual results will inevitably differ from our estimates.These differences could be material to the financial statements.

We believe our application of accounting policies, andthe estimates inherently required therein, are reasonable. These accountingpolicies and estimates are constantly reevaluated, and adjustments are madewhen facts and circumstances dictate a change. Historically, our application ofaccounting policies has been appropriate, and actual results have not differedmaterially from those determined using necessary estimates.

The following criticalaccounting policies affect our more significant judgments and estimates used inthe preparation of our financial statements.

***Derivative Financial Instruments***

Derivative financial instruments are used to hedgeexisting aluminum inventory and anticipated purchases of aluminum and naturalgas and are, therefore, held for purposes other than trading. These instrumentsmay involve elements of credit and market risk in excess of the amountsrecognized in the financial statements. We monitor our positions and the creditquality of counterparties, consisting primarily of major financialinstitutions, and do not anticipate nonperformance by any counterparty.

To manage foreign currency exposure, we enter intoforeign currency forward contracts. The contracts are reported in the combinedfinancial statements at fair value using a mark to market valuation.

We account for financial instruments in accordancewith SFAS No. 133, Accounting for Derivative Instruments and HedgingActivities, as amended by SFAS No. 138, Accounting for Certain DerivativeInstruments and Certain Hedging Activities.

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SFAS No. 133 requires that an entity recognizeall derivatives as either assets or liabilities measured at fair value. Inaccordance with our risk management policy, derivatives are limited to futures,forwards, swaps and options, which are used to mitigate commodity pricefluctuations specifically related to aluminum and natural gas. These hedgingrelationships do not qualify for hedge accounting as defined by SFAS No. 133.Therefore, the derivatives are marked to market through the income statement.

As of December 31, 2006, we had 211****contracts to purchase 43.8 million poundsof aluminum at prices per pound between $0.77 and $1.34. These purchasecontracts are scheduled to mature between January 2007 and January 2009,and the notional amount was $50.4 million. As of December 31, 2006 we had10 contracts to purchase 3.5 million pounds of the Midwest premium portionof aluminum at a price per pound of $0.07. The purchase contracts are scheduledto mature between January 2007 and June 2007 and the notional amountwas $4.2 million. As of December 31, 2006, we had 78 contracts to sell41.8 million pounds of aluminum at prices between $1.09 and $1.28. Thesesales contracts are scheduled to mature between January 2007****and April 2007, and the notionalamount was $53.1 million.

We sell productsmanufactured in Canada to U.S. customers, which gives rise to a foreignexchange rate risk. The purpose of our foreign currency hedging activity is toprotect us from the risk that the eventual U.S. dollar net cash outflowsresulting from foreign purchases or net cash inflows denominated in foreigncurrency will be adversely affected by the changes in exchange rates. Thesehedging relationships do not qualify for hedge accounting as defined by SFAS No. 133.Therefore, the derivatives are marked to market through the income statement.As of December 31, 2006, we had no foreign currency hedges.

***Allowance for Doubtful Accounts***

The allowance for doubtfulaccounts is determined by management based on the Company’s historical losses,specific customer circumstances, and general economic conditions. Periodically,management reviews accounts receivable and adjusts the allowance based oncurrent circumstances and charges off uncollectible receivables when allattempts to collect have failed.

***Pension Obligations***

We maintain various defined benefit pension planswhich provide retirement benefits for certain employees including varioussupplemental executive retirement plans. The assets of the plans are investedprimarily in bond-based funds, debt and equity securities, and short-termcash investments.

Pension costs are calculated using the accrued benefitmodel of actuarial valuation with projected earnings where appropriate. Foraccounting purposes, the pension plan is actuarially valued annually, with themeasurement date being the last day of the fiscal year and adjustmentsresulting from these valuations are reflected in earnings over the expectedaverage remaining service life of the relevant employee group.

The pension plans are valued using the projected unitcredit method of actuarial valuation. Funding requirements are adjusted toreflect the results of plan actuarial valuations, which are done annually. Forfunding purposes, surpluses are offset against annual contributions untilexhausted, while deficits are funded over periods prescribed by law.

In connection with the purchase of Indalex by Novarplc, we acquired the unfunded defined benefit plans, which provide health careand life insurance benefits upon retirement for substantially all salariedemployees of Indalex. The extent of benefits provided is dependent upon theretiree’s years of service, compensation, age and retirement date.

The Medicare Prescription Drug, Improvement andModernization Act of 2003 was reflected as of January 1, 2004 assumingthat Indalex, Inc. will continue to provide a prescription drug benefit toparticipants who retired prior to January 1, 2000 that is at leastactuarially equivalent to Medicare Part D and that Indalex, Inc. willreceive the federal subsidy. The prescription drug benefit for all otherretirees is assumed to not meet the actuarial equivalence test (equivalent toMedicare part D) and therefore no 

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subsidy savings isreflected. As a result of reflecting the effects of Medicare reform as of January 1,2004, the accumulated pension benefit obligation at January 1, 2004decreased by $0.8 million from $9.7 million to $8.9 million. Thenet periodic postretirement benefit cost decreased by $0.1 million from$0.9 million to $0.8 million.

We contributed $11.0 million to pension and otherpost-retirement benefit plans during 2006.

Our investment committee reviews our benefitobligations no less than annually with the objective of maintaining a fullyfunded status for both the accumulated benefit obligation and the projectedbenefit obligation. The performance goal set for the plans’ assets is toachieve a long-term rate of return no less than 8.0%.

For measurement purposes,an 11.0% annual rate of increase in the per capita cost of covered health carebenefits was assumed for 2004 and 2005. The medical inflation rate is assumedto decline to 9% for 2006 and an ultimate rate of 5.0% in 2013.

***Environmental Remediation***

We accrue for costs associated with environmentalremediation obligations when such costs are probable and reasonably estimable.Costs of future expenditures for environmental remediation obligations are notdiscounted to their present value.

We are subject to a wide variety of environmentallaws, which continue to be adopted and amended. While the ultimate extent ofour liability for pending or potential fines, penalties, remedial costs, claimsand litigation relating to environmental laws and health and safety matters andfuture capital expenditures that may be associated with environmental lawscannot be determined at this time, management, with the assistance of outsideenvironmental consultants, periodically assesses our environmentalcontingencies. As of December 31, 2006, we have established reserves inthe amount of $1.7 million for anticipated cleanup costs at certain ownedand operated properties, formerly owned and operated properties and offsitewaste disposal locations. We are not a party to any judicial or administrativeproceedings relating to environmental issues.

***Accounting for the Impairment of Long-LivedAssets***

We account for impairmentof long-lived assets in accordance with SFAS No. 144, *Accounting for the Impairment or Disposal of LongLived Assets.*This statement addresses financial accounting andreporting for the impairment or disposal of long-lived assets. At leastannually, we evaluate whether events and circumstances have occurred thatindicate the remaining estimated useful lives of our long-lived assetsmay warrant revision or that the remaining balance of such assets may not berecoverable. We use an estimate of the related undiscounted cash flows over theremaining life of the asset to measure whether the asset is recoverable. If thesum of the future cash flows is less than the carrying amount of the relatedasset, an impairment loss is recognized equal to the excess of the carryingamount of the asset over its fair value.

***Restructurings***

From time to time throughthe evaluation of our business operations, we execute certain restructuringplans. These plans could include actions such as closing facilities,consolidating shared services, scaling back fixed administrative and plantoverhead. We account for these items by considering the net book value of theassets impacted, the payroll, severance and benefit costs and costs associatedwith holding the facility.

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***Other Reserves***

We are involved in variouslegal proceedings, claims and litigation arising in the ordinary course ofbusiness. While any litigation contains an element of uncertainty, managementpresently believes that the outcome of each such proceeding or claim which ispending or known to be threatened, or all of them combined, will not have amaterial adverse effect on our combined financial position or on our combinedresults of operations or cash flows in a given year.

**Recent AccountingPronouncements**

***Recent AccountingPronouncements******—******In*** June 2006,the FASB issued FASB Interpretation (FIN) No. 48 Accounting forUncertainty in Income Taxes-an interpretation of FASB Statement 109.FIN 48 establishes a single model to address accounting for uncertainty intax positions. FIN 48 clarifies the accounting for income taxes byprescribing a minimum recognition threshold a tax position is required to meetbefore being recognized in the financial statements. FIN 48 also providesguidance on derecognition, measurement, classification, interest and penalties,accounting in interim periods, disclosure and transition. FIN 48 iseffective for fiscal years beginning after December 15, 2006. Indalex willadopt FIN 48 as of January 1, 2007 as required.

In September 2006, the FASB issued SFASNo. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157establishes a common definition for fair value to be applied to US GAAPrequiring use of fair value, establishes a framework for measuring fair value,and expands disclosure about such fair value measurements. SFAS No. 157 iseffective for fiscal years beginning after November 15, 2007. The Companyis currently assessing the impact of SFAS No. 157 on its consolidatedfinancial position and results of operations.

In February, 2007, the FASB issued SFAS No. 159The Fair Value Option for Financial Assets and Financial Liabilities (SFASNo. 159). SFAS No. 159 permits entities to choose to measure manyfinancial assets and financial liabilities at fair value. Unrealized gains andlosses on items for which the fair value option has been elected are reportedin earnings. SFAS No. 159 is effective for fiscal years beginning afterNovember 15, 2007. The Company is currently assessing the impact of SFASNo. 159 on its consolidated financial position and results of operations.

In September 2006,the FASB issued FASB Staff Position (FSP) AUG AIR-1 Accounting forPlanned Major Maintenance Activities (FSP AUG AIR-1). FSP AUG AIR-1amends the guidance on the accounting for planned major maintenance activities;specifically it precludes the use of the previously acceptable accrue inadvance method. FSP AUG AIR-1 is effective for fiscal years beginningafter December 15, 2006. The implementation of this standard will not havea material impact on our consolidated financial position or results ofoperations.

**ITEM7A.    QUANTITATIVE AND QUALITATIVEDISCLOSURE OF MARKET RISKS**

Market risk represents the risk of changes in thevalue of a financial instrument, derivative or non-derivative, caused byfluctuations in interest rates, foreign exchange rates and commodity prices.Changes in these factors could cause fluctuations in the results of ouroperations and cash flows. In the ordinary course of business, we are, or willbe, exposed to commodity (i.e., aluminum), interest rate, and foreign currencyrisks. These risks primarily relate to purchases and sales of aluminum, changesin interest rates on long-term debt and changes in foreign currencyexchange rates.

***Commodity pricerisk***   Aluminum is a commodity and, as such,is valued based upon a variety of market driven factors. Although the rawmaterial cost of aluminum is largely passed through to our customers (basedupon London Metal Exchange established rates), different selling methods cancreate short-term price risk on the aluminum component of sales. We hedgeour exposure to protect margins 

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from the volatility of theunderlying aluminum price. We continuously monitor our position and the creditquality of counterparties, consisting primarily of major financialinstitutions, and do not anticipate nonperformance by any counterparty. At December 31,2006, we had net financial instruments for 2.0 million pounds of aluminumbillet at prices between $0.77 and $1.34. These financial instruments arescheduled to mature between January 2007and January 2009.

The effect of a reduction of 10% in base aluminumprices on our aluminum forward contracts outstanding at December 31, 2006would be to decrease our income from operations over the period ended December 31,2006 by approximately $0.3 million. The effect of a 10% increase in basealuminum prices on our aluminum forward contracts outstanding at December 31,2006 would be to increase our income from operations over the period ended December 31,2006 by approximately $0.3 million. These results reflect a 10% reductionor increase from the three-month LME aluminum price of $2,800 permetric ton on December 29, 2006.

To mitigate our exposure to the volatility in pricesof natural gas markets, we commit to purchase natural gas for up to36 months going forward. A third party does the hedging on our behalf. Asof December 31, 2006, we had commitments to purchase $27.5 million worthof natural gas.

***Interest rate risk***   Ourobligations under our revolving credit facility have a floating interest rate,and thus will expose us to changes in short-term interest rates. As of December 31,2006, our total debt was $328.6 million,of which $55.7 million was variable rate debt and $272.9 million was fixed rate debt. Our total pro forma cashinterest expense for the fiscal year ended December 31, 2005 and 2006would have been $36.7 millionand $38.8 million, respectively. A 0.125% variance in the actual cash interestrate on our revolving credit facility would cause a corresponding increase ordecrease in our annual interest expense of $0.1 million and, assuming an effective tax rate of 35%, inour annual net income of $0.1 million.

***Foreign exchange risk***   Weconsider the U.S. dollar to be the reporting currency for all of our entities.We have operations in Canada and approximately 11% of our net sales in 2006were made in Canadian dollars. We incur currency transaction risk whenever weenter into either a purchase or sale transaction using a currency other thanthe local currency of the transacting entity. The U.S. dollar to Canadiandollar exchange rate may vary from the time we invoice the shipment and thetime we are paid, which could result in a realized currency loss in our resultsof operations if we have not hedged our exposure to currency fluctuationscorrectly. In addition, we may set prices for our Canadian business in U.S.dollars and if these prices are not adjusted for changes in the relative valuesof the currencies, we could experience reduced operating margins. The U.S.dollar value of our sales in Canada varies with currency exchange ratefluctuations between the U.S. dollar and the Canadian dollar. The results ofthe operations and the financial position of our Canadian subsidiaries arereported in Canadian dollars and then translated into U.S. dollars at theapplicable exchange rates for inclusion in our combined financial statements.We report our results in U.S. dollars and our financial results are impacted bycurrency fluctuations between the U.S. dollar and the Canadian dollar.Changes in currency exchange rates could have an adverse effect on our reportedresults of operations. Upon consummation of the Transactions, we will have Canadian-dollarborrowings under our revolving credit facility. To the extent the U.S. Dollardeclines against the Canadian dollar, our interest expense for our Canadiandollar-denominated indebtedness will increase for financial reportingpurposes.

**ITEM 8.**                CONSOLIDATEDAND COMBINED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to FinancialInformation on page F-1.

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**ITEM 9.**                CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On March 31, 2005,Indalex was acquired by Honeywell International (“Honeywell”) in connectionwith Honeywell’s acquisition of Indalex’s parent, Novar plc. Indalex wassubsequently notified by Deloitte & Touche LLP (“Deloitte”) that itwould be necessary for Deloitte to withdraw as Indalex’s independent auditorsdue to independence matters resulting from the Company’s ownership byHoneywell.

**ITEM9A.**            CONTROLS ANDPROCEDURES

Under the supervision andwith the participation of our Chief Executive Officer and our Chief FinancialOfficer, we have carried out an evaluation of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based onthat evaluation, our Chief Executive Officer and our Chief Financial Officerconcluded that our disclosure controls and procedures were effective as of theend of the period covered by this report to ensure that information we arerequired to disclose in reports that are filed or submitted under the ExchangeAct is recorded, processed, summarized and reported within the time periodsspecified in the rules and forms specified by the Securities and ExchangeCommission. There were no changes in our internal control over financialreporting (as defined in Rules 13a-15(f) and 15d-15(f) ofthe Exchange Act) that occurred during the period covered in this report thathave materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

**ITEM9B.**           OTHER INFORMATION

None.

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**PART III**

**ITEM 10.**             DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

**Directors, Executive Officers and Key Employees**

Thedirectors of Holdings, the executive officers and key employees of Holdings andIndalex Holding Corp. and their positions and ages as of December 31, 2006were as follows:

| Name                 | ** ** | ** ** | ** ** | **Age**                                                                                | ** ** | **Position** |
|----------------------|------------|------------|------------|----------------------------------------------------------------------------------------|------------|--------------|
| Timothy R.J. Stubbs  |       | 39         |       | President, Chief  Executive Officer and Director                                       |
| Michael Alger        |       | 49         |       | Executive Vice President,  Secretary, Treasurer, Chief  Financial Officer and Director |
| Jerry W. Nies        |       | 38         |       | Vice President and General  Manager, Mill Finish and  Specialty Products               |
| Dale Tabinowski      |       | 58         |       | Senior Vice President,  Human Resources                                                |
| Joseph Valvo         |       | 53         |       | Senior Vice President of  Sales, National Accounts                                     |
| Keith Burlingame     |       | 49         |       | Senior Vice President of  Sales                                                        |
| Ronald L. Kline      |       | 43         |       | Vice President and  General Manager, West Operations                                   |
| James Piperato       |       | 47         |       | Vice President and  General Manager, East Operations                                   |
| Clarence E. Terry    |       | 60         |       | Director                                                                               |
| F. Dixon McElwee Jr. |       | 60         |       | Director                                                                               |
| M. Steven Liff       |       | 36         |       | Director                                                                               |

 

***Timothy R.J. Stubbs*** hasserved as our President and Chief Executive Officer since February 2004and as a Director since February 2006. Mr. Stubbs joined Indalex in February 2000and has 15 years experience in the aluminum extrusion industry. During histenure at Indalex, Mr. Stubbs has held several positions within Indalexincluding Eastern Region President, Senior Vice President of Sales andMarketing and Chief Operations Officer. Before joining Indalex, Mr. Stubbsheld multiple positions at Sapa AB. Mr. Stubbs currently sits on the boardof the Aluminum Association, which promotes the benefits of aluminum over othermetals.

***Michael Alger*** has servedas our Chief Financial Officer since April 2000, and as our Executive VicePresident since June 2002, and as our Secretary and Treasurer and aDirector since February 2006. Mr. Alger has over six years ofaluminum extrusion experience. Mr. Alger is responsible for all of ourfinance, IT and procurement activities. Prior to joining Indalex, Mr. Algerserved as Vice President of Finance for Favorite Brands International Inc. andhas held numerous other financial positions throughout his career.

***Jerry W. Nies*** has servedas Vice President and General Manager, Mill Finish and Specialty Products sinceOctober 2006, has been with Indalex for over 6 years, and has over 12years of experience in the aluminum extrusion industry. Mr. Nies is responsiblefor all of our customer service, international, planning, logistics,engineering and technical service activities. Prior to his current position, Mr. Niesserved as Vice President of Operations and General Manager from 2005 to February 2006,where he was responsible for all of our manufacturing operations in the UnitedStates and Canada, and prior to that as Vice President of Operations andGeneral Manager, Transportation and Distribution, where he was responsible fora group of five extrusion plants and one casting operation. Mr. Nies hasheld numerous operations and sales positions throughout his career.

***Dale Tabinowski*** hasserved as our Senior Vice President, Human Resources, since December 1,2006. Before joining Indalex, Mr. Tabinowski served as Vice President,Human Resources, for the Worldwide Heating and Cooling business unit of LennoxInternational, a provider of climate control solutions, from April 2002through early 2006. Prior to Lennox International, Mr. Tabinowski servedas  Vice President, Human Resources forSunbeam Corporation, a designer, manufacturer and marketer of branded consumerproducts, from 1994 through 2002.

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***Joseph Valvo*** has servedas our Senior Vice President of Sales, National Accounts since February 2006and has been with Indalex since August 1996 and Mr. Valvo has over 29years of extrusion industry experience. Mr. Valvo is responsible for ourNational Accounts Sales team, which accounts for approximately 25% of oursales. Prior to his current position, Mr. Valvo served as Vice Presidentof Sales, National Accounts from March 2004 to February 2006 andprior to that, as Director of Sales—East Business Unit from December 1999to February 2004. Mr. Valvo has held numerous positions in sales andoperations throughout his career.

***Keith Burlingame*** hasserved as Senior Vice President of Sales since February 2006, and has over10 years of aluminum extrusion industry experience. Mr. Burlingame isresponsible for our regional sales organization, which accounts forapproximately 70% of our shipment volume and our direct segment, which focuseson sales to smaller manufacturers and accounts for approximately 10% of ourshipment volume. Prior to his current position, Mr. Burlingame served asVice President of Sales, Regional Accounts from October 2004 to February 2006and prior to October 2004, as Vice President of Sales, South Region. Mr. Burlingameoriginally joined Indalex in 1996, rejoined Indalex in August 2001 afterspending 18 months at Albex Aluminum and has held numerous sales andmarketing positions throughout his career.

***Ronald L. Kline*** hasserved as our Vice President and General Manager of our Western Operationssince August of 2006, and has responsibility for five extrusion plants andone casthouse. Mr. Kline has 16 years of experience in the extrusionand metals industry, serving in various operations and financial roles bothdomestically and in Europe with Alcoa. Prior to joining Indalex, Mr. Klinewas employed by Alcoa, a producer of primary aluminum, fabricated aluminum andalumina, from January 1998 to July 2006 and served as a Director ofLogistics from March 1998 to January 2002, a Director of Finance/ITfrom February 2002 to April 2004 and a plant manager from April 2004to July 2006.

***James Piperato*** has servedas our Vice President and General Manager, East Operations since February 2006,with responsibility for five extrusion plants. Prior to his current position, Mr. Piperatoserved as Director of Operations from January 2003 to February 2006and prior to January 2003, as Director of Logistics. Mr. Piperatojoined Indalex in May of 2002. Mr. Piperato held the position ofDirector of Finance with Alcoa Engineered Products from October 1999 untilMay 2002. Mr. Piperato has over 13 years of aluminum extrusionexperience.

***Clarence E. Terry*** hasserved as a Director since February 2006. Since September 1999, Mr. Terryhas served as Managing Director of Sun Capital, and he has more than31 years of operating experience. Prior to joining Sun Capital, Mr. Terryserved as Vice President at Rain Bird Sprinkler Manufacturing, Inc., amanufacturer of irrigation products. Mr. Terry has served as ChiefExecutive Officer on an interim basis for several of Sun Capital’s portfoliocompanies. Mr. Terry is also a director of Loud Technologies, Inc.,SAN Holdings, Inc. and a number of private companies.

***F. Dixon McElwee Jr.*** hasserved as a Director since June 2006. Since May 2006, Mr. McElwee has served as Vice President ofSun Capital. Prior to joining Sun Capital, Mr. McElwee served as ChiefFinancial Officer of Frozen Foods Express Industries, a transport carrier ofperishable goods, from August 1998to December 2005.

***M. Steven Liff*** has servedas a Director since February 2006. Since February, 2005, Mr. Liffhas served as a Managing Director of Sun Capital, and is currently the head ofSun Capital’s Los Angeles office. Prior to joining Sun Capital in March 2000,Mr. Liff spent six years at Bank of America, focusing on marketing,underwriting and closing new leveraged transactions.

**Board of Directors**

The board is currentlycomposed of five directors, none of whom is likely to qualify as an independentdirector based on the definition of independent director set forth in Rule 4200(a)(15)of the Nasdaq Marketplace rules. Because affiliates of Sun Capital own 100% ofthe voting common stock of Holdings, we would be a “controlled company” withinthe meaning of Rule 4250(c)(5) of the Nasdaq Marketplace 

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rules,which would qualify us as a private company, for exemptions from certaincorporate governance rules of The Nasdaq Stock Market LLC, includingthe requirement that the board of directors be composed of a majority ofindependent directors.

**Compensation Committee Interlocks and InsiderParticipation**

Because our stock is notpublicly traded, we do not have a compensation committee. Our board iscurrently composed of five directors, all of whom are officers of Holdings, andall of whom participated in deliberations of the board concerning executiveofficer compensation during 2006. For a description of the transactions betweenus and our directors, and entities affiliated with such directors, see thesections entitled “Compensation of Executive Officers” and “CertainRelationships and Related Transactions.” None of our executive officers has served as a member of the board ofdirectors or compensation committee of another entity that had one or more ofits executive officers serving as a member of our board of directors.

**Code of Ethics**

We have adopted a code ofethics applicable to directors, officers and employees. Information regardingour code of ethics is attached as Exhibit 14 to this annual report onForm 10-K. You can also request a copy by contacting us at 75 Tri-StateInternational, Suite 450, Lincolnshire, IL 60069 or (telephone)847-810-3000.

**Audit Committee**

Because our stock is notpublicly traded, we do not have an audit committee. Because we do not have anaudit committee, the entire Board of Directors acts as the audit committee.Since we do not have an audit committee, we do not have an audit committeefinancial expert.

**ITEM 11.**             EXECUTIVECOMPENSATION

**Compensation Discussion and Analysis**

***Overview***

On February 2, 2006, IndalexHolding Corp. acquired all of the outstanding capital stock of Indalex Inc. andIndalex Limited, subsidiaries of Honeywell International Inc. Indalex HoldingCorp. is a holding company that is a wholly-owned direct subsidiary ofHoldings, which is beneficially owned by affiliates of Sun Capital, certainother investors and members of our management team. Our current executiveofficers, Messrs. Stubbs, Alger, and Tabinowski, are responsible formatters of company policy and are our “Named Executive Officers”.

Affiliates of Sun Capitalacquired a controlling interest in Holdings in the Holdings Acquisition. Inconnection with the Holdings Acquisition, affiliates of Sun Capital negotiatedcompensation arrangements with our chief executive officer and chief financialofficer, and the compensation paid to these executive officers reflects thenegotiations between these executive officers and affiliates of Sun Capital. Afterthe Holdings Acquisition, we have recruited additional executive officers toIndalex. The overall amounts and mix of compensation paid to these officersprimarily reflect negotiations with them in connection with their recruitment.

Our board of directorsconsists of three non-employee directors who are employed by affiliates of SunCapital and two employee directors, Mr. Stubbs, our chief executiveofficer, and Mr. Alger, our chief financial officer. Clarence E. Terry,one of our directors who is employed by affiliates of Sun Capital, isresponsible for the oversight, implementation and administration of all of ourexecutive compensation plans and programs. Mr. Terry determines all of thecomponents of compensation of our chief executive officer, and, in consultationwith our chief executive officer, determines the compensation of the remainingexecutive officers. Our board does not have a compensation committee. To date, we have not engaged in thebenchmarking of executive compensation but we may do so in the future.

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***CompensationPolicies and Practices***

Theprimary objectives of our executive compensation program are to:

·       Attractand retain the best possible executive talent,

·       Achieveaccountability for performance by linking annual cash and long term incentiveawards to achievement of measurable performance objectives, and

·       Alignexecutives’ incentives with stockholder value creation.

Our executive compensationprograms are designed to encourage our executive officers to operate thebusiness in a manner that enhances stockholder value. An objective of ourcompensation program is to align interests of our executive officers with ourstockholders’ short and long term interests by providing a significant portionof our executive officers’ compensation through equity-based awards. Inaddition, a substantial portion of our executive’s overall compensation is tiedto our financial performance, specifically operating earnings and EBITDA. Ourcompensation philosophy provides for a direct relationship between compensationand the achievement of our goals and seeks to include management in upsiderewards. Prior to determining any compensation package or award, Mr. Terrytakes into account the impact of accounting and tax treatments of eachparticular compensation package or award, including the accounting and taxtreatment of stock options.

Wehave sought to achieve an overall compensation program that providesfoundational elements such as base salary and benefits that are generallycompetitive with the median of the marketplace, as well as an opportunity forvariable incentive compensation that is significantly above market when shortand long term performance goals are met. Our executive compensation consists ofthe following components:

·       Basesalary;

·       Annualcash bonus incentive(s); and

·       Long-termincentive award(s)—stock option grant(s).

***Base Salary.***   Basesalary is established based on the experience, skills, knowledge andresponsibilities required of the executive officers in their roles. Whenestablishing the 2006 base salaries of the executive officers, a number offactors were considered, including the years of service of the individual, individual’sduties and responsibilities, the ability to replace the individual, the basesalary at the individual’s prior employment, and market data on similarpositions with competitive companies as information becomes available to usinformally through recruitment/search consultants in connection with our recenthiring efforts, and through our directors’ experience with Sun Capital’saffiliated portfolio companies. We seek to maintain base salaries that arecompetitive with the marketplace, to allow us to attract and retain executivetalent.

Salaries for executiveofficers are reviewed on an annual basis, at the time of a promotion or otherchange in level of responsibilities, as well as when competitive circumstancesmay require review. Increases in salary are based on evaluation of factors suchas the individual’s level of responsibility, performance and level ofcompensation compared to comparable companies owned and managed by Sun Capitalaffiliates. On April 1, 2006, we raised the base salary for our chiefexecutive officer by $75,000 to $400,000 to make his base salary competitivewith salaries for chief executive officers of companies of comparable size toIndalex.

***Annual Cash Bonus Incentive.*****  **Theobjective of the annual cash bonus incentive is to reward executive officersfor our performance, as measured by operating earnings or EBITDA. The targetsunder the bonus plans were established based on our budgeted operating earningsor EBITDA for 2006.

Annual target cash bonusesare determined initially as a percentage of each executive officer’s basesalary for the fiscal year, and the payment of target cash bonuses depends uponthe achievement of certain pre-determined performance targets and, in somecases, individual performance. The target cash bonus is established based on anindividual’s level of responsibility. For 2006, the cash bonus payable to Mr. Stubbsin connection with the achievement of a pre-determined target was establishedat 75% of his base salary 

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for 2006.For 2006, the cash bonus payable to Mr. Alger in connection with theachievement of a pre-determined target was established at 60% of his basesalary for 2006. For 2006, the target cash bonus for Mr. Ulik wasestablished at 45% of his base salary for 2006, with 75% of his cash bonuspayable in connection with the achievement of a pre-determined target and 25%of his cash bonus to be determined on a discretionary basis. For 2006, thetarget cash bonus for Mr. Tabinowski was established at 45% of his basesalary for 2006, with 75% of his cash bonus payable in connection with theachievement of a pre-determined target and 25% of his cash bonus to bedetermined on a discretionary basis. The cash bonus payouts for Messrs. Ulikand Tabinowski for 2006 were pro-rated based on the portion of the year duringwhich they were employed by us. Depending on our performance relative to theapplicable predetermined target, the actual cash bonus for our executiveofficers may be less than or greater than the target cash bonus. All cashbonuses will be limited to a pre-determined maximum, as described below.

***Long Term Incentive Awards.*****  **All of ourexecutive officers have received equity compensation awards in the form ofnon-qualified stock options. We grant long term incentive awards in the form ofstock options because it is a common method for privately-held companies toprovide equity incentives to executive officers. The options are 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. In connection with the HoldingsAcquisition, the board adopted a stockoption plan on February 2, 2006. The board amended and restated the stockoption plan on May 19, 2006. Stock options granted by us have an exerciseprice equal to the fair market value of our common stock on the date of grant. Wegranted options to Messrs. Stubbs and Alger in connection with and as areward for the successful completion of the Holdings Acquisition. These stockoptions have an exercise price equal to the fair market value of our commonstock on the date of the Holdings Acquisition, as determined by the purchaseprice paid per share of Holdings common stock in that transaction. We haveagreed to grant options to Mr. Tabinowski in connection with the start of hisemployment with Indalex. These stock options will have an exercise price equalto the fair market value of our common stock on the date of their hire, asdetermined in good faith by representatives of our board of directors. Futuregrants of stock options will be at the discretion of our board of directors. Becauseall of the options are non-qualified stock options, we will be entitled to atax deduction in the year in which the non-qualified stock option is exercisedin an amount equal to the amount by which the fair market value of the sharesunderlying the option on the date of exercise exceeds the option exerciseprice.

***Special Bonus for Option Holders.***   On July 18, 2006 we paida dividend of $1.52 per share to our stockholders. In connection with thedividend, we made an arrangement with our option holders to set aside a specialbonus consisting of the dividend the holder would have received had his or heroptions been exercised in full immediately prior to the time the dividend waspaid. The option holders become entitled to the special bonus only as theirrelated options vest, and the special bonus is payable only upon exercise ofthe related options or a change of control. This award is intended to aligninterests of our executive officers with our stockholders’ short-term andlong-term interests by providing them an opportunity to receive the benefit ofthis dividend upon the exercise of their options.

***Payments in connection with Holdings Acquisition.***   In connection with theHoldings Acquisition, Messrs. Stubbs and Alger received divestitureincentive payments from Honeywell of $382,536 and $318,780, respectively. Thebonus was paid on February 10, 2006,****shortlyafter the completion of the Holdings Acquisition, and was based upon, amongother criteria, the final purchase price received by Honeywell.

***Other Programs.***   Wealso provide our Named Executive Officers with life and medical insurance, 401(k) matchingand a car allowance program.

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**SummaryCompensation Table**

Thefollowing table summarizes the total compensation earned in 2006 by our NamedExecutive Officers.

| 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  Compen-  sation (3)  ($)** | ** ** | **Total  ($)** | ** ** |
|-------------------------------------------------------|------------|----------|------------|-----------------|------------|----------------|------------|------------------------|------------|-------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|
| Timothy R.J. Stubbs                                   |       |     | 2006       |            |       | $              | 394,829    |                   | $          | 382,536                 | (1)(2)     |                                               | —     |                                                                                             |       |                                          | $          | 553            |       |   |   | $ | 552,000 |   |   |   | $ | 30,205 |   |   |   | $ | 34,864 |   |   | $ | 1,394,987 |   |
| President and Chief Executive Officer                 |       |     |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                          |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Michael E. Alger                                      |       |     | 2006       |            |       | 293,906        |       | 318,780                | (1)(2)     |                    | —     |                                               |       |                                                                                             | 262        |                                          |       |           | 331,200    |   |   |   | 4 |   |   |   | 27,069 |   |   | 971,221 |   |
| Executive  Vice President and Chief Financial Officer |       |     |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                          |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Charles E. Ulik(4)                                    |       |     | 2006       |            |       | 61,250         |       | —                 |       |                    | —     |                                               |       |                                                                                             | —     |                                          |       |           | 32,695     |   |   |   | — |   |   |   | 3,077 |   |   | 97,022 |   |
| Chief Operating Officer                               |       |     |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                          |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Dale R. Tabinowski                                    |       |     | 2006       |            |       | 15,750         |       | —                 |       |                    | —     |                                               |       |                                                                                             | —     |                                          |       |           | 10,622     |   |   |   | — |   |   |   | 3,785 |   |   | 30,157 |   |
| Senior  Vice President, Human Resources               |       |     |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                          |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                       |            |          |            |                 |            |                |            |                        |            |                         |            |                                                    |            |                                                                                                  |            |                                               |            |                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)             Represents divestiture incentive payments fromHoneywell on behalf of Indalex in connection with the Holdings Acquisition.

(2)             In connection with a dividend we paid to ourstockholders on July 18, 2006, we made an arrangement with our optionholders to set aside a special bonus consisting of the dividend the holderwould have received had his or her options been exercised in full immediatelyprior to the time the dividend was paid. As a result of this arrangement,$11,552 was set aside for Mr. Stubbs and $5,472 was set aside for Mr. Alger,representing the dividend per share equal to $1.52 multiplied by the number ofcurrently vested options held by each of them. These amounts are payable onlyupon exercise of the related options or a change of control.

(3)             The dollar value of the amounts shown in this columnfor 2006 includes the following:

| ** **          | ** ** | **Car  Allowance** | ** ** | **Matching  Contributions  Under 401(k)  Savings Plan** | ** ** | **Supplemental  401(k)  Matching  Contributions (a)** | ** ** | **Life  Insurance  Premiums** | ** ** | **Signing  Bonus** | ** ** |
|---------------------|------------|--------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------|------------|-------------------------------|------------|--------------------|------------|
| Timothy R.J. Stubbs |       |               | $          | 12,000                                                            |       |                                                       |       | $                             | 9,900      |               |       |   | $ | 9,724 |   |   |   | $ | 3,240 |   |   |   | — |   |   |
| Michael E. Alger    |       |               | 10,200     |                                                              |       |                                                       | 9,900      |                          |       |               | 4,563      |   |   |   | 2,406 |   |   |   | — |   |   |
| Charles E. Ulik     |       |               | 2,746      |                                                              |       |                                                       | —     |                          |       |               | —     |   |   |   | 331 |   |   |   | — |   |   |
| Dale R. Tabinowski  |       |               | 785        |                                                              |       |                                                       | —     |                          |       |               | —     |   |   |   | — |   |   |   | 3,000 |   |   |

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(a)             Messrs. Stubbs and Alger are participants in the IndalexUSA Benefit Equalization Plan (the “Benefit Equalization Plan”) which providesmatching contributions which cannot be contributed to the Indalex plc 401(k) SavingsPlan due to limitations imposed by Section 401(a)(17) and Section 415of the Internal Revenue Code of 1986, as amended. The Benefit EqualizationPlan, as amended and restated as of January 1, 2001, is non-qualified andunfunded for tax purposes and for purposes of Title I of ERISA. The rights ofparticipants and their beneficiaries are solely those of a general unsecuredcreditor of the Company

(4)    As ofFebruary 22, 2007 Mr. Ulik is no longer employed by us.

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**Grants ofPlan-Based Awards**

Thefollowing table summarizes information regarding our 2006 bonus plans andawards granted under our 2006 stock option plan during 2006:

|                                         | ** ** | ** **          | ** ** | ** **   | ** ** | **Estimated Future Payouts Under  Non-Equity Incentive Plan** | ** ** | **All Other  Option  Awards:  Number of  Securities  Underlying** | ** ** | **Exercise or  Base Price of  Option** | ** ** | **Grant Date  Fair Value of  Stock and** | ** ** |
|-----------------------------------------|------------|---------------------|------------|--------------|------------|----------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                              | ** ** | ** **          | ** ** | **Approval** | ** ** | **Threshold**                                                                          | ** ** | **Target**                                                                  | ** ** | **Maximum**                                           | ** ** | **Options**                                                  | ** ** | **Awards** | ** ** | **Option** | ** ** |
| **Name**                                | ** ** | **Grant Date** | ** ** | **Date(1)**  | ** ** | **($)**                                                                                | ** ** | **($)**                                                                     | ** ** | **($)**                                               | ** ** | **(#)**                                                      | ** ** | **($/Sh)** | ** ** | **Awards** | ** ** |
| Timothy R.J. Stubbs                |       |                | 5/31/06    |         |       |                                                                                   | 2/02/06    |                                                                        |       |                                                  | —     |                                                         |       | — |   |   | — |   |   |   | 38,000 | (2) |   |   | $ | 111.25 |   |   |   | $ | 1,522 |   |   |
| President and Chief                     |       |                |       |         |       |                                                                                   |       |                                                                        |       |                                                  |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Executive Officer                       |       |                | 4/04/06    |         |       |                                                                                   | 4/04/06    |                                                                        |       |                                                  | —     |                                                         |       | $ | 300,000 |   |   | $ | 600,000 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Michael E. Alger                   |       |                | 5/31/06    |         |       |                                                                                   | 2/02/06    |                                                                        |       |                                                  | —     |                                                         |       | — |   |   | — |   |   |   | 18,000 | (2) |   |   | 111.25 |   |   |   | 721 |   |   |
| Executive  Vice                         |       |                |       |         |       |                                                                                   |       |                                                                        |       |                                                  |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| President  and Chief                    |       |                | 4/04/06    |         |       |                                                                                   | 4/04/06    |                                                                        |       |                                                  | —     |                                                         |       | 180,000 |   |   | 360,000 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Financial  Officer                      |       |                |       |         |       |                                                                                   |       |                                                                        |       |                                                  |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Charles E. Ulik(3)                 |       |                | 9/13/06    |         |       |                                                                                   | 9/11/06    |                                                                        |       |                                                  | —     |                                                         |       | 110,250 |   |   | 147,000 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Chief Operating Officer                 |       |                |       |         |       |                                                                                   |       |                                                                        |       |                                                  |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dale R. Tabinowski                 |       |                | 11/27/06   |         |       |                                                                                   | 9/11/06    |                                                                        |       |                                                  | —     |                                                         |       | 87,750 |   |   | 117,000 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Senior  Vice President, Human Resources |       |                |       |         |       |                                                                                   |       |                                                                        |       |                                                  |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                         |            |                     |            |              |            |                                                                                        |            |                                                                             |            |                                                       |            |                                                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)    Thedifference between the date these awards were approved and their grant date isdue to a lapse of time between the approval date and the time that awarddocuments to evidence these awards were finalized and executed.

(2)    Inconnection with a dividend we paid to our stockholders on July 18, 2006,we made an arrangement with our option holders to set aside a special bonusconsisting of the dividend the holder would have received had his or heroptions been exercised in full immediately prior to the time the dividend waspaid. As a result of this arrangement, $11,552 was set aside for Mr. Stubbsand $5,472 was set aside for Mr. Alger, representing the dividend pershare equal to $1.52 multiplied by the number of currently vested options heldby each of them. These amounts are payable only upon exercise of the relatedoptions or a change of control.

(3)    As of February 22, 2007 Mr. Ulik is no longer employedby us.

**2006 Bonus Plan forMessrs. Stubbs and Alger**

The 2006 bonus plan for Mr. Stubbs provides for abase salary of $400,000 and a target cash bonus of $300,000. The 2006 bonusplan for Mr. Alger provides for a base salary of $297,000 and a targetcash bonus of $180,000. In 2006, the cash bonuses for Messrs. Stubbs andAlger are based entirely on the amount by which EBITDA exceeds certainpre-determined levels for such year. They will earn no bonus if EBITDA is belowa pre-determined threshold, 100% of their target cash bonuses if EBITDA meetsthe target and up to 200% of their target cash bonuses if EBITDA meets orexceeds a pre-determined maximum. The bonuses are pro rated between thresholdand target and between target and maximum and cannot exceed 200% of the targetcash bonus. The actual cash bonus paid to Messrs. Stubbs and Alger in 2007in respect of 2006 was 184% of their target cash bonuses.

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**2006 Bonus Plan forMessrs. Ulik and Tabinowski**

On September 13, 2006, Mr. Ulik entered intoa letter agreement with us providing for a base salary of $245,000 and amaximum cash bonus of $147,000. On November 27, 2006, Mr. Tabinowskientered into a letter agreement with us providing for a base salary of $195,000and a maximum cash bonus of $117,000. The amount of the cash bonuses for Messrs. Ulikand Tabinowski will be determined in accordance with the 2006 Company BonusProgram. The full-year target cash bonuses for Messrs. Ulik and Tabinowskiunder the 2006 Company Bonus Program were established at $110,250 and $87,750,respectively, and were pro-rated based on the portion of the year during whichthey were employed by us.

Under the 2006 Company BonusProgram, seventy-five percent (75%) of the cash bonuses for Messrs. Ulikand Tabinowski are based on our operating earnings for 2006 and twenty-fivepercent (25%) of their cash bonuses are discretionary. The portion of the cashbonuses based on operating earnings (75%) is based on the amount by whichoperating earnings exceeds certain pre-determined levels for 2006. They willearn none of this portion of their cash bonuses if operating earnings is belowa pre-determined threshold, 100% of this portion of their target cash bonusesif operating earnings meets the target and up to 133% of this portion of theirtarget cash bonuses if operating earnings meets or exceeds a pre-determinedmaximum. The bonuses are pro rated between threshold and target and betweentarget and maximum and cannot exceed 133% of the target cash bonus. The portionof the cash bonuses that is discretionary (25%) is directly related toindividual performance. The cash bonuses for Messrs. Ulik and Tabinowskicannot exceed 133% of the target. The actual cash bonus paid to Messrs. Ulikand Tabinowski in 2007 in respect of 2006 was 116% of their target cashbonuses, pro-rated based on the portion of the year during which they wereemployed by us.

**Option Grants for Mr.Tabinowski**

Mr. Tabinowski’sletter agreement provides that Mr. Tabinowski is eligible to receive astock option to purchase up to 2,000 shares of common stock under the 2006stock option plan. We expect to issue these options in the first half of 2007.

**2006 Stock OptionPlan**

In connection withthe Holdings Acquisition, we adopted a stock option plan, which provides forthe grant to our directors, officers, key employees and consultants of optionsto purchase non-voting shares of our common stock. A committee composed of twoor more non-employee directors administers the stock option plan. The committeehas broad powers under the stock option plan, including exclusive authority todetermine:

·       whowill receive awards;

·       thetype, size and terms of awards; and

·       vestingcriteria, if any, of the awards.

Options awarded under the stock option plan will beexercisable for shares of our non-voting common stock. The total number ofshares of non-voting common stock as to which options may be granted may notexceed 100,000 shares.

If we undergo a dividend, recapitalization, or aspin-off, split-up, combination or exchange of shares or other change in sharesof our non-voting common stock, the committee shall appropriately adjust theaggregate number and kind of shares subject to the stock option plan and theaggregate number and kind of shares subject to each outstanding option and theexercise price thereof. If we undergo a merger, consolidation, or sale of allor substantially all of our assets, the committee may cause options awardedunder the stock option plan to become immediately exercisable. 70,000 stockoptions were outstanding as of December 31, 2006.

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Of the options granted to Messrs. Stubbsand Alger, 20% of the shares subject to the option vested on the grant date,with the remaining shares vesting 20% incrementally, commencing on the secondanniversary of the grant date with full vesting occurring on the fifthanniversary of the grant date. The options granted to other officers vest in20% increments on each anniversary date of the grant date, commencing on thefirst anniversary of the grant date with full vesting occurring on the fifthanniversary of the grant date. The exercise of options is specifically limitedand may not occur until the earlier of the end of the option term, a change ofcontrol of Holdings, the termination of the executive officer’s employmentwithout cause, or the termination of the executive officer’s employment due todeath or disability.

**Outstanding EquityAwards at Fiscal Year-End**

Thefollowing table summarizes the outstanding equity awards held by our NamedExecutive Officers:

| ** **                                                 | ** ** | **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** | ** ** |
| Timothy R.J.  Stubbs                                  |       |                   | —     |   |   |   | 38,000 |   |   |   | — |   |   | $ | 111.25 |   | May 31, 2016 |   |
| President and  Chief Executive Officer                     |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Michael E. Alger                                      |       |                   | —     |   |   |   | 18,000 |   |   |   | — |   |   | 111.25 |   | May 31, 2016 |   |
| Executive Vice  President and Chief Financial Officer |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dale R. Tabinowski                                    |       |                   | —     |   |   |   | — |   |   |   | — |   |   | — |   | — |   |
| Senior Vice President, Human Resources                     |       |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                            |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Pension Benefits**

Thefollowing table summarizes pension benefits for each of our Named ExecutiveOfficers:

| **Name**                                | ** ** | ** **                                | ** ** | **Plan Name** | ** ** | **Number of  Years  Credited  Service  (#)** | ** ** | **Present  Value of  Accumulated  Benefit  ($)** | ** ** | **Payments  During Last  Fiscal Year  ($)** | ** ** |
|-----------------------------------------|------------|-------------------------------------------|------------|--------------------|------------|---------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| Timothy R.J.  Stubbs               |       | Indalex  USA Pension Plan                 |       |               | 6          |                                              |       |                                                  | $          | 9,100                                                 |       |   |   | — |   |   |
| President and  Chief                    |       |                                      |       |               |       |                                              |       |                                                  |       |                                                  |       |   |   |   |   |
| Executive Officer                       |       | Indalex  USA Supplemental Retirement Plan |       |               | 6          |                                              |       |                                                  | 77,600     |                                                  |       |   | $ | 25,800 |   |   |
|                                    |       | Canadian Registered Pension Plan          |       |               | 6          |                                              |       |                                                  | 19,000     |                                                  |       |   | — |   |   |
|                                    |       | Canadian Supplemental Pension Plan        |       |               | 6          |                                              |       |                                                  | 34,000     |                                                  |       |   | 4,400 |   |   |
| Michael E. Alger                   |       | Indalex USA Pension Plan                  |       |               | 3          |                                              |       |                                                  | 48,700     |                                                  |       |   | — |   |   |
| Executive Vice                          |       |                                      |       |               |       |                                              |       |                                                  |       |                                                  |       |   |   |   |   |
| President and Chief  Financial Officer  |       | Indalex  USA Supplemental Retirement Plan |       |               | 3          |                                              |       |                                                  | 18,200     |                                                  |       |   | — |   |   |
| Charles E. Ulik                    |       | —                                    |       |               | —     |                                              |       |                                                  | —     |                                                  |       |   | — |   |   |
| Chief Operating Officer                 |       |                                      |       |               |       |                                              |       |                                                  |       |                                                  |       |   |   |   |   |
| Dale R. Tabinowski                 |       | —                                    |       |               | —     |                                              |       |                                                  | —     |                                                  |       |   | — |   |   |
| Senior Vice  President, Human Resources |       |                                      |       |               |       |                                              |       |                                                  |       |                                                  |       |   |   |   |   |
|                                         |            |                                           |            |                    |            |                                                   |            |                                                       |            |                                                       |            |  |  |  |  |  |  |  |  |

 

The present valuecalculations presented in the table above assume benefits commence once theNamed Executive Officer is eligible for unreduced early retirement at age 62.The assumptions used in the calculations are as follows: discount rate = 5.84%(an estimate of the December 31, 2006 rate); mortality table = RP2000Combined Table Projected to 2006; and retirement age = Age 62; Canadianbenefits converted to U.S. dollars as CDN $1 = US $0.8582.

**Non-QualifiedDeferred Compensation**

Thefollowing table summarizes the benefits to our Named Executive Officers underthe Benefit Equalization Plan:

| **Name**                                              | ** ** | ** ** | ** ** | **Executive  Contributions  in Last FY  ($)** | ** ** | **Registrant  Contributions  in Last FY  ($)** | ** ** | **Aggregate  Earnings in  Last FY  ($)** | ** ** | **Aggregate  Withdrawals/  Distributions  ($)** | ** ** | **Aggregate  Balance  at Last  FYE  ($)** | ** ** |
|-------------------------------------------------------|------------|------------|------------|---------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------|------------|
| Timothy R.J.  Stubbs                                  |       |       | —     |                                                    |       |                                                     | $          | 9,724                                              |       |                                            |       | $                                              | 2,038      |   |   |   | — |   |   |   | $ | 45,732 |   |   |
| President and  Chief Executive Officer                |       |       |       |                                                    |       |                                                     |       |                                               |       |                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| Michael E. Alger                                      |       |       | —     |                                                    |       |                                                     | 4,563      |                                               |       |                                            | 1,687      |                                           |       |   | — |   |   |   | 35,195 |   |   |
| Executive Vice  President and Chief Financial Officer |       |       |       |                                                    |       |                                                     |       |                                               |       |                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| Charles E. Ulik                                       |       |       | —     |                                                    |       |                                                     | —     |                                               |       |                                            | —     |                                           |       |   | — |   |   |   | — |   |   |
| Chief Operating  Officer                              |       |       |       |                                                    |       |                                                     |       |                                               |       |                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| Dale R. Tabinowski                                    |       |       | —     |                                                    |       |                                                     | —     |                                               |       |                                            | —     |                                           |       |   | — |   |   |   | — |   |   |
| Senior Vice President, Human Resources                |       |       |       |                                                    |       |                                                     |       |                                               |       |                                            |       |                                           |       |   |   |   |   |   |   |   |   |

 

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**Termination andChange in Control Arrangements**

Assumingeach executive officer’s employment was terminated under each of thecircumstances set forth below, or a change in control occurred, on December 31,2006, the estimated values of payments and benefits to each named executiveofficer are set forth in the following table:

| **Name**                                              | ** ** | ** **    | ** ** | **Benefit** | ** ** | **Termination   without  Cause Prior  to a Change  in Control** | ** ** | **Termination  without  Cause  Following a  Change in  Control** | ** ** | **Voluntary  Termination** | ** ** | **Death or  Disability** | ** ** | **Change in  Control** | ** ** |
|-------------------------------------------------------|------------|---------------|------------|-------------|------------|------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------------|------------|-----------------------------|------------|
| Timothy R.J. Stubbs                                   |       | Cash          |       |        |       |                                                                                     |       |                                                                       |       |                       |       |                          |       |                        |       |   |   |   |   |   |   |
| President and Chief  Executive Officer                |       | Severance     |       |        | $          | 394,829                                                                                  |       |                                                                       |       | $                          | 394,829    |                          |       |                        | $          | 394,829 |   |   |   | — |   |   | — |   |
|                                                  |       | Special Bonus |       |        |       |                                                                                     |       |                                                                       |       |                       |       |                          |       |                        |       |   |   |   |   |   |   |
|                                                  |       | for  Option   |       |        |       |                                                                                     |       |                                                                       |       |                       |       |                          |       |                        |       |   |   |   |   |   |   |
|                                                  |       | Holders       |       |        | —     |                                                                                     |       |                                                                       | —     |                       |       |                          | —     |                        |       |   | — |   |   | $ | 11,552 |   |
|                                                  |       | Value of      |       |        |       |                                                                                     |       |                                                                       | 271,700    |                       |       |                          |       |                        |       |   |   |   |   | 271,700 |   |
|                                                  |       | Equity        |       |        |       |                                                                                     |       |                                                                       | or         |                       |       |                          |       |                        |       |   |   |   |   | or |   |
|                                                  |       | Awards        |       |        | 271,700    |                                                                                     |       |                                                                       | 1,358,500  | (1)                        |       |                          | —     |                        |       |   | 271,700 |   |   | 1,358,500 | (1) |
| Michael E. Alger                                      |       | Cash          |       |        |       |                                                                                     |       |                                                                       |       |                       |       |                          |       |                        |       |   |   |   |   |   |   |
| Executive Vice  President and Chief Financial Officer |       | Severance     |       |        | 293,906    |                                                                                     |       |                                                                       | 293,906    |                       |       |                          | 293,906    |                        |       |   | — |   |   | — |   |
|                                                  |       | Special Bonus |       |        |       |                                                                                     |       |                                                                       |       |                       |       |                          |       |                        |       |   |   |   |   |   |   |
|                                                  |       | for  Option   |       |        |       |                                                                                     |       |                                                                       |       |                       |       |                          |       |                        |       |   |   |   |   |   |   |
|                                                  |       | Holders       |       |        | —     |                                                                                     |       |                                                                       | —     |                       |       |                          | —     |                        |       |   | — |   |   | 5,472 |   |
|                                                  |       | Value of      |       |        |       |                                                                                     |       |                                                                       | 128,700    |                       |       |                          |       |                        |       |   |   |   |   | 128,700 |   |
|                                                  |       | Equity        |       |        |       |                                                                                     |       |                                                                       | or         |                       |       |                          |       |                        |       |   |   |   |   | or |   |
|                                                  |       | Awards        |       |        | 128,700    |                                                                                     |       |                                                                       | 643,500    | (1)                        |       |                          | —     |                        |       |   | 128,700 |   |   | 643,500 | (1) |
| Charles E. Ulik                                       |       | Cash          |       |        |       |                                                                                     |       |                                                                       |       |                       |       |                          |       |                        |       |   |   |   |   |   |   |
| Chief Operating Officer                          |       | Severance     |       |        | 122,500    |                                                                                     |       |                                                                       | 122,500    |                       |       |                          | —     |                        |       |   | — |   |   | — |   |
| Dale R. Tabinowski                                    |       | Cash          |       |        |       |                                                                                     |       |                                                                       |       |                       |       |                          |       |                        |       |   |   |   |   |   |   |
| Senior Vice President  Human Resources                |       | Severance     |       |        | 97,500     |                                                                                     |       |                                                                       | 97,500     |                       |       |                          | —     |                        |       |   | — |   |   | — |   |
|                                                       |            |               |            |             |            |                                                                                          |            |                                                                            |            |                            |            |                               |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          The option grantagreements for Messrs. Stubbs and Alger provide that if the considerationfor a change in control transaction consists primarily of cash, 100% of thetotal number of shares subject to the option shall vest immediately prior tothe consummation of a change in control. If the transaction consideration doesnot consist primarily of cash, only the vested portion of the option shallbecome exercisable upon a change in control.

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**TimothyR.J. Stubbs.****  **On May 31,2006, Mr. Stubbs entered into a letter agreement with us. The agreementprovides that if Mr. Stubbs resigns or if Mr. Stubbs’ employment isterminated by us without cause, he is entitled to receive his base salary for aperiod of twelve months following his resignation or termination of employmentwithout cause. The letter agreement provides that Mr. Stubbs is entitledto receive the severance payment as long as certain conditions are met,including that Mr. Stubbs sign a general release of Indalex and that Mr. Stubbshas not breached any of the terms or provisions of his stock option grantagreement dated May 31, 2006. Mr. Stubbs’ stock option grantagreement provides that Mr. Stubbs will not compete with us during theterm of his employment and for a twelve-month period thereafter. The stockoption grant agreement also contains certain non-solicitation andnon-disparagement agreements. The letter agreement also provides that Indalexshall have the option, by delivering written notice to Mr. Stubbs withinnine months after Mr. Stubbs ceases to be an employee, to extend theseverance period for an additional twelve-month period, during which Mr. Stubbswill continue to receive the severance payments, and automatically extend thenon-competition period prescribed in the option grant agreement for theadditional twelve-month period.

Upon a change in control,the vested portion of Mr. Stubbs’ option shall become exercisable, but ifthe consideration for a change in control transaction consists primarily ofcash, 100% of the total numberof shares subject to the option shall vest immediately prior to and becomeexercisable upon the consummation of a change in control. If Mr. Stubbs’ employment isterminated by us other than for cause, then the vested portion of Mr. Stubbs’option may be exercised after the date of termination but on or before the 15thday of the third calendar month following the date of termination. If Mr. Stubbs’employment terminates due to death or disability, the vested portion of Mr. Stubbs’option may be exercised after the date of termination but on or before thelater of (a) December 31 of that year or (B) the 15th day of thethird calendar month after the date of termination (unless Mr. Stubbs is a“specified employee” as defined in Section 409A(a)(2)(B)(i) of theInternal Revenue Code, in which case the option shall be exercisable on thedate that is six months after the date of termination). In addition, upon asale of Holdings prior to the time his options are fully vested, Mr. Stubbswill be entitled to receive any portion of a special bonus attributable tounvested options as described under “Special Bonus for Option Holders” above.

**MichaelE. Alger.****  **On May 31,2006, Mr. Alger entered into a letter agreement with us. The letteragreement provides that if Mr. Alger resigns or if Mr. Alger’semployment is terminated by us without cause, he is entitled to receive hisbase salary for a period of twelve months following his resignation ortermination of employment without cause. The letter agreement provides that Mr. Algeris entitled to receive the severance payment as long as certain conditions aremet, including that Mr. Alger sign a general release of Indalex and that Mr. Algerhas not breached any of the terms or provisions of his stock option grantagreement dated May 31, 2006. Mr. Alger’s stock option grantagreement provides that Mr. Alger will not compete with us during the termof his employment and for a twelve-month period thereafter. The stock optiongrant agreement also contains certain non-solicitation and non-disparagementagreements.

Upon a change in control,the vested portion of Mr. Alger’s option shall become exercisable, but ifthe consideration for a change in control transaction consists primarily ofcash, 100% of the total numberof shares subject to the option shall vest immediately prior to and becomeexercisable upon the consummation of a change in control. If Mr. Alger’s employment isterminated by us other than for cause, then the vested portion of Mr. Alger’soption may be exercised after the date of termination but on or before the 15thday of the third calendar month following the date of termination. If Mr. Alger’semployment terminates due to death or disability, the vested portion of Mr. Alger’soption may be exercised after the date of termination but on or before thelater of (a) December 31 of that year or (B) the 15th day of thethird calendar month after the date of termination (unless Mr. Alger is a “specifiedemployee” as defined in Section 409A(a)(2)(B)(i) of the InternalRevenue Code, in which case the option 

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shallbe exercisable on the date that is six months after the date of termination).In addition, upon a sale of Holdings prior to the time his options are fullyvested, Mr. Alger will be entitled to receive any portion of a specialbonus attributable to unvested options as described under “Special Bonus forOption Holders” above.

**CharlesE. Ulik.****  **The letteragreement, dated September 13, 2006, between Mr. Ulik and  us provides that Mr. Ulik is entitled toa lump sum equivalent to his base salary for six months if we terminate himwithout cause within the first six months of his employment and a lump sumequivalent to his base salary for a period of twelve months if we terminate himwithout cause thereafter. In addition, the letter agreement provides that Mr. Ulikwill not compete with us or provide services to any of our competitors duringthe term of his employment and for a period of six months thereafter. Theletter agreement also contains certain non-solicitation agreements.Mr. Ulik was paid $136,635 pursuant to this agreement in connection withhis termination on February 20, 2007.

**Dale R. Tabinowski.****  **The letter agreement, dated November 27,2006, between Mr. Tabinowski and us provides that Mr. Tabinowski isentitled to a lump sum equivalent to his base salary for six months if weterminate him without cause within the first six months of his employment and alump sum equivalent to his base salary for a period of twelve months if weterminate him without cause thereafter. In addition, the letter agreementprovides that Mr. Tabinowski will not compete with us or provide servicesto any of our competitors during the term of his employment and for a period ofsix months thereafter. The letter agreement also contains certainnon-solicitation agreements.

**Compensation ofDirectors**

None of our directors receive fees for services asdirectors. In the future, we may compensate directors who are neither ouremployees nor affiliates of Sun Capital Partners. All of our directors arereimbursed for out-of-pocket expenses incurred in connection withattending all board and other committee meetings.

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**ITEM12.**         SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

As of March 1,2007, Holdings had 904,061 shares of voting common stock and 95,963 shares ofnon-voting common stock outstanding and a total of non-voting commonstock option currently exercisable or exercisable by our executive officers asa group within 60 days of March 1, 2007. The following table sets forthcertain information regarding the beneficial ownership of common stock ofHoldings as of March 1, 2007 by:

·       eachperson who is the beneficial owner of more than 5% of its outstanding votingcommon stock;

·       eachmember of the board of directors of Holdings and our Named Executive Officers;and

·       eachof our directors and executive officers as a group.

To ourknowledge, each such stockholder has sole voting and investment power as to thecommon stock shown unless otherwise noted. Beneficial ownership of the commonstock listed in the table has been determined in accordance with the applicablerules and regulations promulgated under the Securities Exchange Act of1934 (the “Exchange Act”).

| ** **                                                           | ** ** | **Indalex Holdings Finance, Inc.**                              | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                                                           | ** ** | **Number of  Shares of  Voting  Common  Stock  Beneficially  Owned** | ** ** | **Number of  Shares of  Non-Voting  Common  Stock  Beneficially  Owned** | ** ** | **Total  Number of  Shares of  Common  Stock  Beneficially  Owned** | ** ** | **Percent of  Voting  Common  Stock  Beneficially  Owned** | ** ** | **Percent of  All  Common  Stock  Beneficially  Owned** | ** ** |
| **Principal Stockholders:**                                          | ** ** |                                                                           | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Sun Indalex, LLC(1)                                                  |       |                                                                           | 904,061    | ** ** |   |   | — | ** ** |   |   | 904,061 | ** ** |   |   | 100.0 | % |   |   | 90.4 | % |   |
| Indalex Co-Investment, LLC(2)                                        |       |                                                                           | —     | ** ** |   |   | 89,976 | ** ** |   |   | 89,976 | ** ** |   |   | — |   |   |   | 9.0 |   |   |
| **Directors and Named Executive  Officers:**                         | ** ** |                                                                           | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Timothy R.J. Stubbs                                                  |       |                                                                           | —     | ** ** |   |   | 898 | ** ** |   |   | 898 | ** ** |   |   | — |   |   |   | * |   |   |
| Michael Alger                                                        |       |                                                                           | —     | ** ** |   |   | 674 | ** ** |   |   | 674 | ** ** |   |   | — |   |   |   | * |   |   |
| Dale R. Tabinowski                                                   |       |                                                                           | —     | ** ** |   |   | — | ** ** |   |   | — | ** ** |   |   | — |   |   |   | — |   |   |
| Clarence E. Terry                                                    |       |                                                                           | —     | ** ** |   |   | — | ** ** |   |   | — | ** ** |   |   | — |   |   |   | — |   |   |
| F. Dixon McElwee Jr.                                                 |       |                                                                           | —     | ** ** |   |   | — | ** ** |   |   | — | ** ** |   |   | — |   |   |   | — |   |   |
| M. Steven Liff                                                       |       |                                                                           | —     | ** ** |   |   | — | ** ** |   |   | — | ** ** |   |   | — |   |   |   | — |   |   |
| All Directors and  Executive Officers as a group (6 persons)(1) |       |                                                                           | —     | ** ** |   |   | 1,572 | ** ** |   |   | 1,572 | ** ** |   |   | — |   |   |   | * |   |   |

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*                     Denotes less than one percent.

(1)             Includes 904,061 shares which may bedeemed beneficially owned within the meaning of Rule 13d-3 of theExchange Act by Marc J. Leder and Rodger R. Krouse and also by Sun Indalex,LLC, a Delaware limited liability company (“Sun Indalex”), Sun Capital PartnersIV, LP, a Delaware limited partnership (“Fund IV”), Sun Capital Partners III,LP, a Delaware limited partnership (“Fund III”), Sun Capital Partners III QP,LP, a Delaware limited partnership (“Fund III QP”), Sun Capital Advisors IV,LP, a Delaware limited partnership (“Advisors IV”), Sun Capital Advisors III,LP, a Delaware limited partnership (“Advisors III”), Sun Capital Partners IV,LLC, a Delaware limited liability company (“Partners IV”) and Sun CapitalPartners III, LLC, a Delaware limited liability company (“Partners III”).Messrs. Leder and Krouse may each be deemed to control Sun Indalex, FundIV, Advisors IV and Partners IV,as Messrs. Leder and Krouse each own 50% of the membership interests inPartners IV, which in turn is the general partner of Advisors IV, which in turnis the general partner of Fund IV, which in turn owns 50% of the membershipinterests of Sun Indalex. Messrs. Leder and Krouse may also each bedeemed to control Sun Indalex, Fund III, Fund III QP, Advisors III and PartnersIII, as Messrs. Leder and Krouse each own 50% of the membership interestsin Partners III, which in turn is the general partner of Advisors III, which inturn is the general partner of Fund III and Fund III QP, which in turn own,collectively, 50% of the membership interests of Sun Indalex. Fund IV, FundIII, Fund III QP, Advisors IV, Advisors III, Partners IV, Partners III, SunIndalex and Messrs. Leder and Krouse have shared voting and investmentpower over these shares. Except as to such shared voting power, Fund IV, FundIII, Fund III QP, Advisors IV, Advisors III, Partners IV, Partners III,Sun Indalex and Messrs. Leder and Krouse disclaim beneficial ownership ofthese shares. The address of Sun Indalex, LLC and Messrs. Leder and Krouseis 5200 Town Center Circle, Suite 470, Boca Raton, FL 33486.

(2)             The address of Indalex Co-Investment, LLCis c/o Goldman Sachs Distressed Opportunities Fund III, L.P. c/oCorporation Service Company, 2711 Centerville Road, Wilmington, Delaware 19808.

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**Equity Compensation Plan Information**

| ** **                                                  | ** ** | **Number of  securities to be  issued upon  exercise of  outstanding  options, warrants  and rights  (a)** | ** ** | **Weighted-  average exercise  price of  outstanding  options, warrants  and rights  (b)** | ** ** | **Number of  securities  remaining  available for  future issuance  under equity  compensation  plans (excluding  securities reflected  in column (a))  (c)** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Plan  Category**                                          | ** ** |                                                                                                                                          | ** ** | ** **                                                                                                     |       |                                                                                                                                                                                                  | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Equity  compensation plans approved by security holders     |       |                                                                                                                                          | —     |                                                                                                           |       |                                                                                                                                                                                                  | —     |   |   |   | — |   |   |
| Equity  compensation plans not approved by security holders |       |                                                                                                                                          | 70,000     |                                                                                                           |       |                                                                                                                                                                                                  | $          | 111.25 |   |   |   | 30,000 |   |   |
| Total                                                       |       |                                                                                                                                          | 70,000     |                                                                                                           |       |                                                                                                                                                                                                  |       |   |   |   | 30,000 |   |   |
|                                                             |            |                                                                                                                                               |            |                                                                                                                |            |                                                                                                                                                                                                       |            |  |  |  |  |  |  |  |

 

**ITEM 13.**         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

**Relationship withNovar plc and Honeywell International, Inc.**

Prior to the Transactions, Indalex Inc. was awholly-owned subsidiary of Honeywell International, Inc. and IndalexLimited was a wholly-owned subsidiary of Novar Overseas Holdings, B.V. OnMarch 31, 2005, Honeywell International, Inc. acquired Novar plc, or “Novar,”our former parent company. When we were a subsidiary of Novar, we receivedfinancing support and technical and administrative advice and services fromNovar. We made payments to Honeywell and Novar of $2.9 million,$2.8 million and $1.1 million during the years ended December 31,2003, 2004 and 2005, respectively. For more information regarding ourtransactions with Novar, see our audited combined financial statementsappearing elsewhere in this report.

In connection with theHoldings Acquisition, we entered into a stock purchase agreement, registrationagreement, management services agreement and stockholders’ agreement, all asfurther described below.

**Payments inConnection with Honeywell Acquisition**

Inconnection with the Honeywell Acquisition, Messrs. Stubbs, Alger and Niesexercised their options to purchase common stock of Novar plc and received cashupon exercise of such options. The following table sets forth the payments madeto Messrs. Stubbs, Alger and Nies in connection with the shares of commonstock of Novar plc received upon exercise of options.

| ** **          | ** ** | **Cash received for  shares acquired upon  options exercise** | ** ** |
|---------------------|------------|----------------------------------------------------------------------------------------|------------|
| Timothy R.J. Stubbs |       |                                                                                   | $          | 523,719 |   |   |
| Michael Alger       |       |                                                                                   | 520,699    |   |   |
| Jerry W. Nies       |       |                                                                                   | 50,319     |   |   |

 

**Payments inConnection with the Holdings Acquisition**

Inconnection with the Holdings Acquisition of Indalex by affiliates of SunCapital, Messrs. Stubbs, Alger and Singleton received a divestitureincentive payment from Honeywell. The bonus was paid shortly after thecompletion of the Holdings Acquisition and was based upon, amongst othercriteria, the final 

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purchase price received by Honeywell. The followingtable sets forth the payments received related to the Holdings Acquisition.

| ** **                     | ** ** | **Cash received upon  Completion of the  Holdings Acquisition** | ** ** |
|--------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| Timothy R.J.  Stubbs           |       |                                                                                     | $          | 382,536 |   |   |
| Michael Alger                  |       |                                                                                     | 318,780    |   |   |
| James Daniel Singleton  Jr.(1) |       |                                                                                     | 45,120     |   |   |

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(1)          Asof January 4, 2006, Mr. Singleton is no longer employed by Indalex.

**Stock PurchaseAgreement**

On February 2, 2006, Indalex Holding Corp.acquired all of the outstanding capital stock of Indalex Inc. and IndalexLimited, subsidiaries of Honeywell International Inc., for a totalpurchase price of approximately $419.1 million in cash($425.0 million less a $5.9 million post-closing workingcapital adjustment) (the “Holdings Acquisition”). Indalex Holding Corp. is aholding company that is a wholly-owned direct subsidiary of Holdings,which is beneficially owned by affiliates of Sun Capital Partners, Inc.,or the “equity sponsor,” and certain other investors and members of ourmanagement team, whom we collectively refer to as the “equity investors.”Pursuant to a letter agreement dated December 21, 2005 among the partiesto the stock purchase agreement, it was agreed that the shares of Indalex Inc.would be distributed to Honeywell prior to the agreed-upon dissolution ofNovar USA Holdings Inc. and that, upon such distribution, Honeywell wouldbe substituted for Novar USA Holdings Inc. for all purposes under thestock purchase agreement. The distribution of the shares of Indalex Inc.to Honeywell and the subsequent dissolution of Novar USA Holdings Inc.were effected prior to the closing of the Holdings Acquisition. The Issuer is aholding company beneficially owned by affiliates of Sun Capital Partners, Inc.,certain other investors and certain members of our management team.

The stock purchaseagreement contains customary indemnification provisions. Honeywell’sindemnification obligations for breaches of representations and warranties are,subject to exceptions as specified in the stock purchase agreement, triggeredif the aggregate losses associated with such breaches exceed$4.25 million, and Honeywell will be liable only to the extent the lossesexceed $2.5 million up to a limit of $100 million. Ourindemnification obligations for breaches of representations and warranties are,subject to exceptions as specified in the stock purchase agreement, capped at$100 million. The representations and warranties in the stock purchaseagreement generally survive for 18 months following the closing date,subject to exceptions as specified in the stock purchase agreement.

**RegistrationAgreement**

Holdings, the managementinvestors and the other stockholders of Holdings, including SunIndalex, LLC, entered into a registration agreement in connection with theconsummation of the Holdings Acquisition. Pursuant to the registration agreement,Sun Indalex, LLC, the management investors and the other investors will havepiggyback registration rights, under certain circumstances, in the eventHoldings registers any of its securities under the Securities Act. Furthermore,Sun Indalex, LLC has the right, under certain circumstances, to requestregistration under the Securities Act of all or any portion of its securitiesin Holdings. The management investors and the other investors may, subject tocertain exceptions, participate in any such registration requested by SunIndalex, LLC.

**Management ServicesAgreement**

We entered into a management services agreement withSun Capital Partners Management III, LP, which we refer to as “Sun Management,”in connection with the consummation of the Holdings 

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Acquisition. Pursuant tothe management services agreement, Sun Management will provide financial andmanagement consulting services in exchange for an annual fee, payable inquarterly installments, equal to the greater of (a) $1 million and (b) 2%of our EBITDA (as defined in the management services agreement) for a givenfiscal year. We will also reimburse Sun Management for all reasonableout-of-pocket fees and expenses it incurs in performing financial andmanagement consulting services under the management services agreement. Duringthe period from February 2, 2006 through December 31, 2006, weincurred expenses of $1.6 million in management fees payable to SunManagement.

In addition to an annual fee, Sun Management willreceive a management consulting fee equal to 1% of the consideration paid to orby us in connection with certain corporate transactions, including, withoutlimitation, any refinancings, restructurings, equity or debt offerings,acquisitions, mergers, consolidations, business combinations, and sales anddivestitures involving us.

In connection with theHoldings Acquisition, affiliates of Sun Capital Partners, Inc. received$5.5 million in acquisition fees, including a fee of $5.1 million forservices associated with evaluation, negotiation, financing, and structuring ofthe acquisition of Indalex Holdings Finance. The remaining $0.4 millionwas a closing fee related to the $15 million of notes purchased by SunCapital Securities Offshore fund, LTD.

**Stockholders’Agreement**

Holdings, the managementinvestors and the other stockholders of Holdings, including SunIndalex, LLC, entered into a stockholders’ agreement in connection withthe consummation of the Holdings Acquisition. The stockholders’ agreementincludes the following terms:

·       transferrestrictions, subject to customary exceptions for transfers permitted by theregistration agreement, transfers to other stockholders of Holdings, transfersto affiliates and, in the case of individual stockholders, transfers to afamily member of a stockholder or a trust for the sole benefit of a stockholderor a stockholder’s family member, which transfers we will collectively refer toherein as “exempt transfers”;

·       rightsof first refusal in favor of Holdings and, if not exercised by Holdings, SunIndalex, LLC;

·       “tagalong” rights in the event of a transfer by Sun Indalex, LLC of shares ofcommon stock of Holdings, subject to exceptions for exempt transfers and one ormore transfers by Sun Indalex, LLC involving in the aggregate less than 10% ofthe shares of common stock of Holdings owned by Sun Indalex, LLC as of the dateof the Holdings Acquisition;

·       “dragalong” rights in the event Sun Indalex, LLC or the board of directors ofHoldings approves a sale of Holdings;

·       preemptiverights with respect to an offering of securities by Holdings, subject tocustomary exceptions; and

·       avoting proxy granted to Sun Indalex, LLC by all stockholders of Holdings inrespect of all matters in which Holdings stockholders are entitled to vote.

**Purchase of Notesby Sun Capital Securities Offshore Fund, Ltd.**

Sun Capital SecuritiesOffshore Fund, Ltd., an affiliate of Sun Capital, purchased$15.0 million of notes in the offering of the notes at a price equal tothe price set forth on the cover. In connection with the Transactions, we paida closing fee to Sun Capital Securities Offshore Fund, Ltd. in the amount of$375,000. On July 18, 2006, Sun Capital Securities Offshore Fund, Ltd.sold the $15.0 million of notes to unaffiliated purchasers.

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**Policies andProcedures for Related Party Transactions**

As a private company, ourboard of directors generally reviews our related party transactions, althoughwe have not historically had formal policies and procedures regarding thereview and approval of related party transactions.

**ITEM 14.**         PRINCIPALACCOUNTING FEES AND SERVICES

Thefollowing table presents fees for services provided by Crowe Chizek and CompanyLLC for fiscal year 2006. All Audit-Related Fees, Tax Fees and Other Fees shownbelow were pre-approved by the Board of Directors in accordance with itsestablished procedures.

| **(In thousands)** | ** ** | **2006** | ** ** |
|-------------------------|------------|----------|------------|
| Audit Fees(a)           |       | $        | 793.6      |   |
| Audit-Related  Fees(b)  |       | 4.8      |       |
| Tax Fees(c)             |       | 211.6    |       |
| All Other Fees          |       | 597.4    |       |
| Total                   |       | $        | 1,607.4    |   |

 

The followingtable presents fees for services provided by Crowe Chizek and Company LLC forfiscal year 2005. All Audit-Related Fees, Tax Fees and Other Fees shown belowwere pre-approved by the Board of Directors in accordance with its establishedprocedures.

| **(In thousands)** | ** ** | **2005** | ** ** |
|-------------------------|------------|----------|------------|
| Audit Fees(a)           |       | $        | 735.3      |   |
| Audit-Related  Fees(b)  |       | —   |       |
| Tax Fees(c)             |       | —   |       |
| All Other Fees(d)       |       | 881.2    |       |
| Total                   |       | $        | 1,616.5    |   |

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(a)           Feesfor professional services provided for the audit of the Company’s annualfinancial statements.

(b)          Feesfor professional services which principally include services in connection withinternal control matters and audits of employee benefit plans.

(c)           Feesfor professional services for tax related advice and compliance.

(d)          Allother fees include fees for professional services for accounting consultationson matters addressed during the audit or interim reviews, offering memorandumsand registration statements including comfort letters and consent.

During 2004, Indalex was awholly owned consolidated subsidiary of Novar plc, and audit, audit-related andtax fees charged to Novar plc included services provided by Deloitte &Touche LLP to Indalex. Allocation of those fees to Indalex is not meaningfuland therefore has not been presented.

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**PART IV**

**ITEM 15.**         EXHIBITSAND FINANCIAL STATEMENT SCHEDULES

(a)(1)       FinancialStatements:

(a)(2)       FinancialStatement Schedules:

**SCHEDULE I—VALUATION AND QUALIFYINGACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004**

Allowance for doubtful accounts:

| Balance December  31, 2003        |   | $      | 4,097  |   |
|-----------------------------------|--------|--------|--------|--------|
| Provisions charged to income      |   | 2,695  |   |
| Deductions from reserves          |   | (1,309 | )      |
| Ending Balance  December 31, 2004 |   | 5,483  |   |
| Provisions charged to income      |   | 829    |   |
| Deductions from reserves          |   | (435   | )      |
| Ending Balance  March 31, 2005    |   | 5,877  |   |
| Provisions charged to  income     |   | 294    |   |
| Deductions from reserves          |   | (1,931 | )      |
| Ending Balance  December 31, 2005 |   | 4,240  |   |
| Provisions charged to income      |   | 215    |   |
| Deductions from reserves          |   | — |   |
| Ending Balance  February 1, 2006  |   | 4,455  |   |
| Provisions charged to income      |   | 466    |   |
| Deductions from reserves          |   | (459   | )      |
| Ending Balance December  31, 2006 |   | $      | 4,462  |   |

 

Deductions from reserves include uncollectibleaccounts written off, recoveries, and translation adjustments.

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(a)(3)       Exhibits

**EXHIBITINDEX**
| EXHIBIT   NO. | ** ** | ** ** | **DESCRIPTION** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** |
|---------------|------------|------------|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|          | 2.1        |       |            | Stock Purchase Agreement, dated September 16,  2005, among Indalex Holding Corp., Novar USA Holdings Inc., Novar  Overseas Holdings B.V. and Honeywell International Inc. (incorporated by  reference to the Company’s Registration Statement on Form S-4,  Registration No. 333-138178, filed on October 24, 2006).                                                                                                                                                                       |       |
|          | 3.1        |       |            | Amended and Restated Certificate of Incorporation of  Indalex Holdings Finance, Inc. (the “Company”) (incorporated by  reference to the Company’s Registration Statement on Form S-4,  Registration No. 333-138178, filed on October 24, 2006).                                                                                                                                                                                                                                            |       |
|          | 3.2        |       |            | By-laws of Indalex Holdings Finance, Inc.  (incorporated by reference to the Company’s Registration Statement on Form S-4,  Registration No. 333-138178, filed on October 24, 2006).                                                                                                                                                                                                                                                                                                                 |       |
|          | 4.1        |       |            | Indenture, dated as of February 2, 2006, among  Indalex Holding Corp., the note guarantors named therein and U.S. Bank  National Association, as trustee (incorporated by reference to the Company’s  Registration Statement on Form S-4, Registration No. 333-138178,  filed on October 24, 2006).                                                                                                                                                                                                  |       |
|          | 4.2        |       |            | Registration  Rights Agreement, dated February 2, 2006, among Indalex Holding Corp.,  the note guarantors named therein and J.P. Morgan Securities Inc.,  on behalf of itself and as representative of Harris Nesbitt Corp., Credit  Suisse Securities (USA) LLC, Piper Jaffray & Co. and Morgan  Joseph & Co. Inc. (incorporated by reference to the Company’s  Registration Statement on Form S-4, Registration No. 333-138178,  filed on October 24, 2006). |       |
|          | 4.3        |       |            | Form of Senior  Note (attached as exhibit to Exhibit 4.1) (incorporated by reference to  the Company’s Registration Statement on Form S-4, Registration No. 333-138178,  filed on October 24, 2006).                                                                                                                                                                                                                                                                                                 |       |
|          | 4.4        |       |            | Security  Agreement, dated February 2, 2006, among Indalex Holdings Finance, Inc.,  Indalex Holding Corp., the Subsidiary Parties defined therein and  U.S. Bank National Association (incorporated by reference to Amendment  No. 1 to the Company’s Registration Statement on Form S-4,  Registration No. 333-138178, filed on December 15, 2006).                                                                                                                                  |       |
|          | 4.5        |       |            | Intercreditor  Agreement, dated February 2, 2006, among JPMorgan Chase Bank, N.A.,  U.S. Bank National Association, Indalex Holdings Finance, Inc., and  each Subsidiary listed on Schedule I attached thereto (incorporated by  reference to Amendment No. 1 to the Company’s Registration Statement on  Form S-4, Registration No. 333-138178, filed on  December 15, 2006).                                                                                                   |       |
|          | 10.1       |       |            | Credit Agreement,  dated as of February 2, 2006, among Indalex Holdings Finance, Inc.,  Indalex Holding Corp., 6461948 CANADA INC., the other subsidiaries of  Indalex Holding Corp. party thereto, the lenders party thereto and JPMorgan  Chase Bank, N.A., as administrative agent (incorporated by reference to the  Company’s Registration Statement on Form S-4, Registration No. 333-138178,  filed on October 24, 2006).                                                           |       |
|          | 10.2       |       |            | Management  Services Agreement, dated as of February 2, 2006, by and among Indalex  Holding Corp., Indalex Limited and Sun Capital Partners Management III,  LP (incorporated by reference to the Company’s Registration Statement on Form S-4,  Registration No. 333-138178, filed on October 24, 2006).                                                                                                                                                                                       |       |

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|        | 10.3  |   |   | Stockholders  Agreement, dated as of February 2, 2006, by and among Sun Indalex, LLC,  each person whose name appears on the signature page thereto under the  heading “Minority Stockholders” or who otherwise becomes a party thereto and  Indalex Holdings Finance, Inc (incorporated by reference to the  Company’s Registration Statement on Form S-4, Registration No. 333-138178,  filed on October 24, 2006). |   |
|--------|-------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | 10.4  |   |   | Registration  Agreement, dated as of February 2, 2006, by and among Indalex Holdings  Finance, Inc., Sun Indalex, LLC and each person whose name appears on the  signature pages attached thereto or who otherwise becomes a party thereto  (incorporated by reference to the Company’s Registration Statement on Form S-4,  Registration No. 333-138178, filed on October 24, 2006).                                                     |   |
|   | 10.5  |   |   | Securities  Purchase Agreement, dated as of February 2, 2006, by and between Indalex  Holdings Finance, Inc. and Sun Indalex, LLC (incorporated by reference  to the Company’s Registration Statement on Form S-4, Registration  No. 333-138178, filed on October 24, 2006).                                                                                                                                                         |   |
|   | 10.6  |   |   | Securities  Purchase Agreement, dated as of February 2, 2006, by and among Indalex  Holdings Finance, Inc. and each person whose name appears on the  signature page thereto under the heading “Purchasers” (incorporated by  reference to the Company’s Registration Statement on Form S-4,  Registration No. 333-138178, filed on October 24, 2006).                                                                |   |
|   | 10.7  |   |   | Securities  Purchase Agreement, dated as of May 8, 2006, by and among Indalex  Holdings Finance, Inc., Indalex Co-Investment, LLC and each person whose  name appears on the signature page thereto under the heading “Sellers”  (incorporated by reference to the Company’s Registration Statement on Form S-4,  Registration No. 333-138178, filed on October 24, 2006).                                            |   |
|   | 10.8  |   |   | Indalex Holdings  Finance, Inc. 2006 Stock Option Plan (incorporated by reference to the  Company’s Registration Statement on Form S-4, Registration No. 333-138178,  filed on October 24, 2006).                                                                                                                                                                                                                                         |   |
|   | 10.9  |   |   | Form of Stock  Option Grant Agreement for Timothy R.J. Stubbs and Michael E. Alger  (incorporated by reference to the Company’s Registration Statement on Form S-4,  Registration No. 333-138178, filed on October 24, 2006).                                                                                                                                                                                                        |   |
|   | 10.10 |   |   | Form of Stock  Option Grant Agreement for other employees (incorporated by reference to the  Company’s Registration Statement on Form S-4, Registration No. 333-138178,  filed on October 24, 2006).                                                                                                                                                                                                                                           |   |
|   | 10.11 |   |   | Indalex Holdings  Finance, Inc. 2006 Employee Stock Purchase Plan (incorporated by  reference to the Company’s Registration Statement on Form S-4,  Registration No. 333-138178, filed on October 24, 2006).                                                                                                                                                                                                                              |   |
|   | 10.12 |   |   | Letter Agreement,  dated May 31, 2006, between Timothy Stubbs and Indalex Holdings  Finance, Inc (incorporated by reference to the Company’s Registration  Statement on Form S-4, Registration No. 333-138178,  filed on October 24, 2006).                                                                                                                                                                                          |   |
|   | 10.13 |   |   | Letter Agreement,  dated May 31, 2006, between Michael Alger and Indalex Holdings  Finance, Inc (incorporated by reference to the Company’s Registration  Statement on Form S-4, Registration No. 333-138178,  filed on October 24, 2006).                                                                                                                                                                                           |   |

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|        | 10.14 |   |   | Termination  Agreement, dated July 12, 2005, between Jerry Nies and Indalex Inc.  (incorporated by reference to the Company’s Registration Statement on Form S-4,  Registration No. 333-138178, filed on October 24, 2006).                                                                                                                                                                                                                                             |   |
|--------|-------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | 10.15 |   |   | Letter Agreement,  dated September 11, 2006, between Charles Ulik and Indalex Holding Corp  (incorporated by reference to the Company’s Registration Statement on Form S-4,  Registration No. 333-138178, filed on October 24, 2006).                                                                                                                                                                                                                                   |   |
|   | 10.16 |   |   | Letter Agreement,  dated May 8, 2006, among Sun Indalex, LLC, Indalex Co-Investment, LLC and  Indalex Holdings Finance, Inc (incorporated by reference to the Company’s  Registration Statement on Form S-4, Registration No. 333-138178,  filed on October 24, 2006).                                                                                                                                                                                                  |   |
|   | 10.17 |   |   | Shareholders  Agreement, dated June 8, 2001, between Global Applied Technologies  Holdings Limited (now known as Asia Aluminum Holdings Limited), Indalex UK  Limited, Indalex, Inc., and China Aluminum Group Holdings (BVI) Limited (now  known as Asia Aluminum Group Limited) (English Translation) (incorporated by  reference to Amendment No. 1 to the Company’s Registration Statement on  Form S-4, Registration No. 333-138178, filed on  December 15, 2006). |   |
|   | 10.18 |   |   | Stock Purchase  Agreement, dated April 25, 2001, between Indalex UK Limited, Global  Applied Technologies Holdings Limited (now known as Asia Aluminum Holdings  Limited) and Indalex, Inc. (English Translation) (incorporated by reference  to Amendment No. 1 to the Company’s Registration Statement on Form S-4,  Registration No. 333-138178, filed on December 15, 2006).                                                                                        |   |
|   | 10.19 |   |   | Supply Agreement,  dated April 29, 2004, between Indalex, Inc. and Asia Aluminum Group  Limited (incorporated by reference to Amendment No. 1 to the Company’s  Registration Statement on Form S-4, Registration No. 333-138178,  filed on December 15, 2006).                                                                                                                                                                                                     |   |
|   | 10.20 |   |   | Letter Agreement,  dated September 11, 2006, between Dale Tabinowski and Indalex  Holding Corp (incorporated by reference to Amendment No. 2 to the  Company’s Registration Statement on Form S-4, Registration No. 333-138178,  filed on January 17, 2007).                                                                                                                                                                                                       |   |
|   | 10.21 |   |   | 2006 Company  Bonus Program (incorporated by reference to Amendment No. 2 to the  Company’s Registration Statement on Form S-4, Registration No. 333-138178,  filed on January 17, 2007).                                                                                                                                                                                                                                                                               |   |
|   | 10.22 |   |   | 2006 Bonus Plan  for Timothy R.J. Stubbs and Michael E. Alger (incorporated by  reference Amendment No. 2 to the Company’s Registration Statement on  Form S-4, Registration No. 333-138178, filed on January 17,  2007).                                                                                                                                                                                                                                     |   |
|   | 12.1  |   |   | Computation of  ratio of earnings to fixed charges.                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
|   | 14.1  |   |   | Code of Ethics.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|   | 21.1  |   |   | Subsidiaries of  Indalex Holdings Finance, Inc. (incorporated by reference to the  Company’s Registration Statement on Form S-4, Registration No. 333-138178,  filed on October 24, 2006).                                                                                                                                                                                                                                                                              |   |
|   | 31.1  |   |   | Certification of  Chief Executive Officer Pursuant to Rules 13a-14(a) and Rule 15d-14(a)  of the Securities Exchange Act, as amended.                                                                                                                                                                                                                                                                                                                                                  |   |
|   | 31.2  |   |   | Certification of  Chief Financial Officer Pursuant to Rules 13a-14(a) and Rule 15d-14(a)  of the Securities Exchange Act, as amended.                                                                                                                                                                                                                                                                                                                                                  |   |

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|        | 32.1 |   |   | Certification of  Chief Executive Officer 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 Chief Financial Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to section 906 of the  Sarbanes-Oxley Act of 2002. |   |
|   | 99.1 |   |   | Unaudited Pro Forma Condensed Combined Financial  Data.                                                                                                   |   |

 

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**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized, in the City of Lincolnshire, Stateof Illinois, on April 2, 2007.
|        | **INDALEX HOLDINGS  FINANCE, INC.** |
|--------|------------------------------------------|
|   | By:                                      | /s/ TIMOTHY R.J.  STUBBS |
|   | Name:                                    | Timothy R.J. Stubbs |
|   | Title:                                   | *President and Chief Executive Officer* |

 

* * * * *

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed by the following persons in the capacities and on the datesindicated on April 2, 2007.

|                                    | **Signature** | ** **                                                                         | ** ** | ** ** | **Title** | ** ** |
|------------------------------------|---------------|------------------------------------------------------------------------------------|------------|------------|-----------|------------|
| /s/ TIMOTHY R.J. STUBBS       |          | President, Chief Executive Officer                                                 |
| Timothy R.J. Stubbs           |          | (principal  executive officer) and Director                                        |
| /s/ MICHAEL E. ALGER          |          | Executive Vice President, Secretary, Treasurer,                                    |
| Michael E. Alger              |          | Chief  Financial Officer (principal financial and accounting officer) and Director |
| /s/ CLARENCE E. TERRY         |          | Director                                                                           |
| Clarence E. Terry             |          |                                                                               |
| /s/ F. DIXON MCELWEE JR. |          | Director                                                                           |
| F. Dixon McElwee Jr.     |          |                                                                               |
|                               |          | Director                                                                           |
| M. Steven Liff                |          |                                                                               |

 

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**Indexto Financial Statements**
| **Indalex Audited Consolidated and Combined Financial Statements**                                                                                                                                                                                                                                                                        |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Report of Crowe Chizek and Company LLC, independent  registered public accounting firm                                                                                                                                                                                                                                                    |   | F-2    |   |
| Audited consolidated  and combined balance sheets as of December 31, 2006, and 2005                                                                                                                                                                                                                                                  |   | F-4    |   |
| Audited consolidated and combined statements of income  for the periods January 1, 2006 to February 1, 2006,  February 2, 2006 to December 31, 2006, January 1, 2005 to  March 31, 2005 and April 1, 2005 to December 31, 2005 and for  the year ended December 31, 2004                     |   | F-5    |   |
| Audited consolidated and combined statements of cash  flows for the periods January 1, 2006 to February 1, 2006,  February 2, 2006 to December 31, 2006, January 1, 2005 to  March 31, 2005 and April 1, 2005 to December 31, 2005 and for  the year ended December 31, 2004                 |   | F-6    |   |
| Audited consolidated  and combined statements of stockholders’ equity for the periods  January 1, 2006 to February 1, 2006, February 2, 2006 to  December 31, 2006, January 1, 2005 to March 31, 2005 and  April 1, 2005 to December 31, 2005 and for the year ended  December 31, 2004 |   | F-7    |   |
| Notes to consolidated and combined financial  statements                                                                                                                                                                                                                                                                                  |   | F-10   |   |
| **Asia  Aluminum Group Audited Financial Statements**                                                                                                                                                                                                                                                                                     |   |   |   |
| Consolidated income statements for the years ended  June 30, 2006, 2005 and 2004                                                                                                                                                                                                                                                     |   | F-63   |   |
| Consolidated balance sheets as of June 30, 2006  and 2005                                                                                                                                                                                                                                                                            |   | F-64   |   |
| Consolidated statements of changes in equity for the  years ended June 30, 2006, 2005 and 2004                                                                                                                                                                                                                                       |   | F-65   |   |
| Consolidated cash flow statements for the years ended  June 30, 2006, 2005 and 2004                                                                                                                                                                                                                                                  |   | F-67   |   |
| Notes to financial statements                                                                                                                                                                                                                                                                                                             |   | F-69   |   |

 

F-1

----

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**Stockholdersand Board of Directors ofIndalex Holdings Finance, Inc.Lincolnshire, Illinois**

We have audited theaccompanying consolidated and combined balance sheets of Indalex HoldingsFinance, Inc. (Successor), and prior to February 2, 2006, aCombination of Indirect Wholly Owned Subsidiaries of Honeywell International, Inc.(Predecessor 2), and prior to April 1, 2005, a Combination ofIndirect Wholly Owned Subsidiaries of Novar plc (Predecessor 1),collectively referred to as “Indalex” or “the Company,” as of December 31,2006 and 2005 and the related consolidated and combined statements of income,stockholders’ equity, and cash flows for the periods from January 1, 2006to February 1, 2006 (Predecessor 2), from February 2, 2006 toDecember 31, 2006 (Successor), from January 1, 2005 to March 31,2005 (Predecessor 1), from April 1, 2005 to December 31, 2005(Predecessor 2), and for the year ended December 31, 2004(Predecessor 1). In connection with our audits of the consolidated andcombined financial statements, we also audited the consolidated and combinedfinancial statement schedule listed in Item 15. These consolidated andcombined financial statements and the consolidated and combined financialstatement schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these consolidated and combinedfinancial statements and the consolidated and combined financial statementschedule based on our audits.

We did not audit the financialstatements of Asia Aluminum Group (“AAG”) in which Indalex has an investmentthat is accounted for by the equity method. The accompanying financialstatements of Indalex include its investment in the net assets of AAG totalingapproximately $96,950,000 and $94,380,000 as of December 31, 2006 and2005, respectively, and its equity method income from AAG totalingapproximately $643,000, $11,841,000, $1,557,000, $9,380,000 and $14,807,000 forthe periods from January 1, 2006 to February 1, 2006 (Predecessor 2),from February 2, 2006 to December 31, 2006 (Successor), from January 1,2005 to March 31, 2005 (Predecessor 1), from April 1, 2005 toDecember 31, 2005 (Predecessor 2), and for the year ended December 31,2004 (Predecessor 1), respectively. The financial statements of AAG foreach of the fiscal years ended June 30, 2006, 2005 and 2004, prepared onthe basis of accounting principles generally accepted in Hong Kong, wereaudited by other auditors whose report has been furnished to us, and our auditreport, insofar as it relates to the amounts included for AAG, is based on thereports of such other auditors and the procedures we considered necessary inthe circumstances with respect to the inclusion of Indalex’s equity investmentand equity method income in the accompanying financial statements, taking intoconsideration differences between accounting principles generally accepted inHong Kong and those generally accepted in the United States of America and thedifferences in the fiscal year.

We conducted our audits inaccordance with the standards of the Public Company Oversight Board (UnitedStates). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits and the report of the other auditors provide areasonable basis for our opinion.

In our opinion, based upon ouraudits and the report of other auditors, the financial statements referred toabove present fairly, in all material respects, the financial position ofIndalex Holdings Finance, Inc. as of December 31, 2006 and 2005, andthe results of its operations and its cash flows for the periods from January 1,2006 to February 1, 2006 (Predecessor 2), from February 2, 2006to December 31, 2006 (Successor), from January 1, 2005 to March 31,2005 (Predecessor 1), from April 1, 2005 to December 31, 2005(Predecessor 2), and for the year ended December 31, 2004(Predecessor 1) in 

F-2

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conformitywith U.S. generally accepted accounting principles. Also, in our opinion, therelated financial statement schedule, when considered in relation to the basicconsolidated and combined financial statements taken as a whole, presentsfairly, in all material respects, the information set forth therein.

As discussed in Notes 2 and 22 to the consolidated and combinedfinancial statements, effective January 1, 2006, the Company adopted thefair value method of accounting for stock-based compensation as required byStatement of Financial Accounting Standards No. 123(R), *Share-Based Payment*.

As discussed in Notes 2 and 18 to the consolidated andcombined financial statements, effective December 31, 2006, the Companyadopted Statement of Financial Accounting Standards No. 158, *Employers’ Accounting for Defined Benefit Pension and OtherPost-Retirement Plans.*

|                | /s/ Crowe Chizek and Company LLC |
|---------------------|----------------------------------|
| Oak Brook, Illinois |                             |
| March 29, 2007 |                             |

 

 

F-3

----

**INDALEX HOLDINGS FINANCE, INC.CONSOLIDATED AND COMBINED BALANCE SHEETSDecember 31, 2006 and December 31, 2005 (Dollars in thousands)**

| ** **                                                                                                | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                | ** ** | **(Successor)**             | ** ** | **(Predecessor 2)**    | ** ** |
| **ASSETS**                                                                                                |       |                        |       |                        |       |   |   |   |   |
| Current Assets:                                                                                           |       |                        |       |                        |       |   |   |   |   |
| Cash and cash equivalents                                                                                 |       |                        | $          | 11,157                      |       |   |   | $ | 9,366 |   |   |
| Accounts receivable, less  allowance of $4,462 in 2006 and $4,240 in 2005                                 |       |                        | 103,924    |                        |       |   | 113,798 |   |   |
| Receivable from  affiliates                                                                               |       |                        | —     |                        |       |   | 3,109 |   |   |
| Receivable from suppliers                                                                                 |       |                        | 8,980      |                        |       |   | 7,873 |   |   |
| Refundable income taxes                                                                                   |       |                        | —     |                        |       |   | 243 |   |   |
| Inventories                                                                                               |       |                        | 67,182     |                        |       |   | 58,350 |   |   |
| Prepaid expenses and  other current assets                                                                |       |                        | 10,765     |                        |       |   | 17,543 |   |   |
| Deferred income tax                                                                                       |       |                        | —     |                        |       |   | 347 |   |   |
| Total current assets                                                                                      |       |                        | 202,008    |                        |       |   | 210,629 |   |   |
| Notes receivable  from affiliates                                                                         |       |                        | —     |                        |       |   | 4,279 |   |   |
| Investment in AAG                                                                                         |       |                        | 96,950     |                        |       |   | 94,380 |   |   |
| Property, plant,  and equipment, net                                                                      |       |                        | 199,638    |                        |       |   | 219,357 |   |   |
| Goodwill.                                                                                                 |       |                        | 3,537      |                        |       |   | 14,626 |   |   |
| Other intangibles,  net                                                                                   |       |                        | 78,264     |                        |       |   | 74,718 |   |   |
| Deferred financing  costs                                                                                 |       |                        | 14,594     |                        |       |   | — |   |   |
| Other assets                                                                                              |       |                        | 2,692      |                        |       |   | 403 |   |   |
| Total assets                                                                                              |       |                        | $          | 597,683                     |       |   |   | $ | 618,392 |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                             |       |                        |       |                        |       |   |   |   |   |
| Current Liabilities:                                                                                      |       |                        |       |                        |       |   |   |   |   |
| Accounts payable                                                                                          |       |                        | $          | 66,780                      |       |   |   | $ | 65,763 |   |   |
| Payable to affiliates                                                                                     |       |                        | —     |                        |       |   | 429 |   |   |
| Income taxes payable                                                                                      |       |                        | 2,648      |                        |       |   | — |   |   |
| Deferred income taxes                                                                                     |       |                        | 2,456      |                        |       |   | — |   |   |
| Accrued expenses and  other current liabilities                                                           |       |                        | 38,478     |                        |       |   | 45,372 |   |   |
| Accrued interest                                                                                          |       |                        | 13,806     |                        |       |   | — |   |   |
| Capital lease obligation                                                                                  |       |                        | 1,243      |                        |       |   | 726 |   |   |
| Checks issued in excess  of bank balance                                                                  |       |                        | —     |                        |       |   | 1,716 |   |   |
| Revolver borrowings.                                                                                      |       |                        | 55,717     |                        |       |   | — |   |   |
| Total current liabilities                                                                                 |       |                        | 181,128    |                        |       |   | 114,006 |   |   |
| Other liabilities                                                                                         |       |                        | 30,667     |                        |       |   | 53,940 |   |   |
| Capital lease  obligation                                                                                 |       |                        | 4,674      |                        |       |   | 3,143 |   |   |
| Long-term debt                                                                                            |       |                        | 266,957    |                        |       |   | — |   |   |
| Deferred income  taxes                                                                                    |       |                        | 24,859     |                        |       |   | 24,197 |   |   |
| Total liabilities                                                                                         |       |                        | 508,285    |                        |       |   | 195,286 |   |   |
| Commitments and  contingencies (Note 20)                                                                  |       |                        |       |                        |       |   |   |   |   |
| Stockholders’ equity:                                                                                |       |                        |       |                        |       |   |   |   |   |
| Common stock ($.001 par  value per share). Authorized shares 2,900,000.   Issued and oustanding 1,000,114 |       |                        | 1          |                        |       |   | 391 |   |   |
| Additional paid-in  capital.                                                                              |       |                        | 110,665    |                        |       |   | 411,515 |   |   |
| Treasury stock, 90 shares  at $111.11 per share                                                           |       |                        | (10        | )                           |       |   | — |   |   |
| Accumulated retained  earnings (deficit)                                                                  |       |                        | (23,898    | )                           |       |   | 9,712 |   |   |
| Accumulated other  comprehensive income                                                                   |       |                        | 2,640      |                        |       |   | 1,488 |   |   |
| Total stockholders’  equity                                                                          |       |                        | 89,398     |                        |       |   | 423,106 |   |   |
| Total liabilities and stockholders’ equity                                                           |       |                        | $597,683   |                        |       |   | $ | 618,392 |   |   |

 

See accompanying notes to consolidated and combined financial statements.

F-4

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**INDALEX HOLDINGS FINANCE, INC.CONSOLIDATED AND COMBINED STATEMENTS OF INCOMEYears ended December 31, 2006,December 31, 2005 and December 31, 2004(Dollars in thousands)**

| ** **                                                                                                                                                                                                                                                                                              | ** ** | **Years ended**            | ** ** | **Year ended**             | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                              | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** | ** ** | ** ** |
| ** **                                                                                                                                                                                                                                                                                              | ** ** | **January 1-**             | ** ** | **February 2-**            | ** ** | **January 1-** | ** ** | **April 1-** | ** ** | ** ** | ** ** |
| ** **                                                                                                                                                                                                                                                                                              | ** ** | **February 1**             | ** ** | **December 31**            | ** ** | **March 31** | ** ** | **December 31** | ** ** | **Dec 31, 2004** | ** ** |
| ** **                                                                                                                                                                                                                                                                                              | ** ** | **(Predecessor 2)**        | ** ** | **(Successor)**                 | ** ** | **(Predecessor 1)** | ** ** | **(Predecessor 2)** | ** ** | **(Predecessor 1)** | ** ** |
| **Net  sales**                                                                                                                                                                                                                                                                                          |       |                            | $          | 100,019                         |       |   |   | $ | 1,142,842 |   |   |   | $ | 239,849 |   |   |   | $ | 781,521 |   |   |   | $ | 932,696 |   |   |
| **Costs  and expenses:**                                                                                                                                                                                                                                                                                |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                                                                                                                                                                                                                                                                                           |       |                            | 95,127     |                            |       |   | 1,058,677 |   |   |   | 221,542 |   |   |   | 727,799 |   |   |   | 854,386 |   |   |
| Selling, general, andadministrative                                                                                                                                                                                                                                                                     |       |                            | 5,548      |                            |       |   | 54,966 |   |   |   | 15,593 |   |   |   | 35,933 |   |   |   | 52,619 |   |   |
| Management fees to affiliates                                                                                                                                                                                                                                                                           |       |                            | 125        |                            |       |   | 1,634 |   |   |   | 700 |   |   |   | 1,131 |   |   |   | 2,771 |   |   |
| Amortization of intangible assets                                                                                                                                                                                                                                                                       |       |                            | 920        |                            |       |   | 10,736 |   |   |   | — |   |   |   | 8,282 |   |   |   | — |   |   |
| Other (income) expense                                                                                                                                                                                                                                                                                  |       |                            | 195        |                            |       |   | 1,016 |   |   |   | 993 |   |   |   | (825 | ) |   |   | 2,298 |   |   |
| Restructuring charges                                                                                                                                                                                                                                                                                   |       |                            | —     |                            |       |   | 1,772 |   |   |   | 694 |   |   |   | (222 | ) |   |   | 6,086 |   |   |
| Impairment of long-lived assets                                                                                                                                                                                                                                                                         |       |                            | —     |                            |       |   | 7,248 |   |   |   | 381 |   |   |   | 636 |   |   |   | 2,728 |   |   |
| (Gain) loss on disposal of assets                                                                                                                                                                                                                                                                       |       |                            | —     |                            |       |   | 255 |   |   |   | (274 | ) |   |   | (146 | ) |   |   | (675 | ) |   |
| Mark-to-market on derivatives                                                                                                                                                                                                                                                                           |       |                            | (3,619     | )                               |       |   | 7,560 |   |   |   | 285 |   |   |   | (1,200 | ) |   |   | (3,638 | ) |   |
| Total costs and expenses                                                                                                                                                                                                                                                                                |       |                            | 98,296     |                            |       |   | 1,143,864 |   |   |   | 239,914 |   |   |   | 771,388 |   |   |   | 916,575 |   |   |
| **Income (loss) from operations.**                                                                                                                                                                                                                                                                      |       |                            | 1,723      |                            |       |   | (1,022 | ) |   |   | (65 | ) |   |   | 10,133 |   |   |   | 16,121 |   |   |
| Other income (expense):                                                                                                                                                                                                                                                                                 |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest to affiliates, net                                                                                                                                                                                                                                                                             |       |                            | —     |                            |       |   | — |   |   |   | (1,208 | ) |   |   | (3,712 | ) |   |   | (8,637 | ) |   |
| External interest expense                                                                                                                                                                                                                                                                               |       |                            | (24        | )                               |       |   | (35,745 | ) |   |   | — |   |   |   | (333 | ) |   |   | (132 | ) |   |
| Deferred financing costs                                                                                                                                                                                                                                                                                |       |                            | —     |                            |       |   | (2,220 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Interest income                                                                                                                                                                                                                                                                                         |       |                            | —     |                            |       |   | — |   |   |   | — |   |   |   | 144 |   |   |   | 182 |   |   |
| Income from equity method investment in AAG                                                                                                                                                                                                                                                             |       |                            | 643        |                            |       |   | 11,841 |   |   |   | 1,557 |   |   |   | 9,380 |   |   |   | 14,807 |   |   |
| Affiliated acquisition fees                                                                                                                                                                                                                                                                             |       |                            | —     |                            |       |   | (5,475 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Dividend income from affiliates                                                                                                                                                                                                                                                                         |       |                            | —     |                            |       |   | — |   |   |   | 9,077 |   |   |   | — |   |   |   | 15,102 |   |   |
| Income (loss)  before income taxes                                                                                                                                                                                                                                                                      |       |                            | 2,342      |                            |       |   | (32,621 | ) |   |   | 9,361 |   |   |   | 15,612 |   |   |   | 37,443 |   |   |
| Income tax  provision (benefit)                                                                                                                                                                                                                                                                         |       |                            | 703        |                            |       |   | (8,723 | ) |   |   | 9 |   |   |   | 1,912 |   |   |   | (5,808 | ) |   |
| Income (loss) from  continuing operations                                                                                                                                                                                                                                                               |       |                            | 1,639      |                            |       |   | (23,898 | ) |   |   | 9,352 |   |   |   | 13,700 |   |   |   | 43,251 |   |   |
| Discontinued  operations, net of tax provision (benefit) of $—, $—, ($27), $—, and $339 for  January 1 to February 1, 2006, February 2 to December 31,  2006, January 1 to March 31, 2005, April 1 to December 31,  2005, and 2004, respectively |       |                            | —     |                            |       |   | — |   |   |   | (50 | ) |   |   | — |   |   |   | 1,126 |   |   |
| **Net  income (loss)**                                                                                                                                                                                                                                                                                  |       |                            | $          | 1,639                           |       |   |   | $ | (23,898 | ) |   |   | $ | 9,302 |   |   |   | $ | 13,700 |   |   |   | $ | 44,377 |   |   |

 

See accompanying notes to consolidated and combined financial statements.

F-5

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**INDALEXHOLDINGS FINANCE, INC.CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWSYears ended December 31, 2006, December 31, 2005 and December 31,2004(Dollars in thousands)**

| ** **                                                                          | ** ** | **Years ended**            | ** ** | **Year ended**             | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                                                          | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** | ** ** | ** ** |
| ** **                                                                          | ** ** | **January 1-**             | ** ** | **February 2-**            | ** ** | **January 1-** | ** ** | **April 1-** | ** ** | **December 31,** | ** ** |
| ** **                                                                          | ** ** | **February 1**             | ** ** | **December 31**            | ** ** | **March 31** | ** ** | **December 31** | ** ** | **2004** | ** ** |
| ** **                                                                          | ** ** | **(Predecessor 2)**        | ** ** | **(Successor)**                 | ** ** | **(Predecessor 1)** | ** ** | **(Predecessor 2)** | ** ** | **(Predecessor 1)** | ** ** |
| **Cash flows from operating  activities**                                           |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                   |       |                            | $          | 1,639                           |       |   |   | $ | (23,898 | ) |   |   | $ | 9,302 |   |   |   | $ | 13,700 |   |   |   | $ | 44,377 |   |   |
| Adjustments to reconcile  net income (loss) to net cash from operating activities:  |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                                                        |       |                            | 2,821      |                            |       |   | 32,327 |   |   |   | 7,953 |   |   |   | 24,943 |   |   |   | 32,689 |   |   |
| Amortization of intangible assets                                                   |       |                            | 920        |                            |       |   | 10,736 |   |   |   | — |   |   |   | 8,282 |   |   |   | — |   |   |
| Amortization of deferred financing costs                                            |       |                            | —     |                            |       |   | 2,220 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Amortization of bond discount                                                       |       |                            | —     |                            |       |   | 394 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| (Gain) loss on disposal of assets                                                   |       |                            | —     |                            |       |   | 255 |   |   |   | (274 | ) |   |   | (146 | ) |   |   | (675 | ) |   |
| Impairment of long-lived assets                                                     |       |                            | —     |                            |       |   | 7,248 |   |   |   | 381 |   |   |   | 636 |   |   |   | 2,728 |   |   |
| Dividend from affiliate                                                             |       |                            | —     |                            |       |   | — |   |   |   | (9,077 | ) |   |   | — |   |   |   | — |   |   |
| Other                                                                               |       |                            | 743        |                            |       |   | 21 |   |   |   | 245 |   |   |   | — |   |   |   | 30 |   |   |
| Income from equity method investment in AAG                                         |       |                            | (643       | )                               |       |   | (11,841 | ) |   |   | (1,557 | ) |   |   | (9,380 | ) |   |   | (14,807 | ) |   |
| Dividends from equity method investment in AAG                                      |       |                            | —     |                            |       |   | 4,891 |   |   |   | 4,602 |   |   |   | — |   |   |   | — |   |   |
| Stock-based compensation                                                            |       |                            | —     |                            |       |   | 938 |   |   |   | 1,244 |   |   |   | — |   |   |   | 2,229 |   |   |
| Executive compensation                                                              |       |                            | —     |                            |       |   | — |   |   |   | 311 |   |   |   | — |   |   |   | — |   |   |
| Management fees to affiliates                                                       |       |                            | 125        |                            |       |   | — |   |   |   | 700 |   |   |   | — |   |   |   | — |   |   |
| Deferred income taxes                                                               |       |                            | 988        |                            |       |   | (11,329 | ) |   |   | (218 | ) |   |   | (6,201 | ) |   |   | (1,723 | ) |   |
| Changes in  operating assets and liabilities, net of the effect of the acquisition: |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts receivable                                                                 |       |                            | (12,255    | )                               |       |   | 18,492 |   |   |   | (25,297 | ) |   |   | 21,076 |   |   |   | (30,624 | ) |   |
| Receivable from affiliates                                                          |       |                            | 1,854      |                            |       |   | — |   |   |   | (183 | ) |   |   | (2,338 | ) |   |   | 143 |   |   |
| Inventories                                                                         |       |                            | (2,652     | )                               |       |   | 3,001 |   |   |   | (14,704 | ) |   |   | 29,397 |   |   |   | (8,008 | ) |   |
| Prepaids and other assets                                                           |       |                            | (3,684     | )                               |       |   | 7,000 |   |   |   | 2,138 |   |   |   | (6,086 | ) |   |   | 2,255 |   |   |
| Income taxes payable/refundable                                                     |       |                            | (292       | )                               |       |   | 2,383 |   |   |   | (10,154 | ) |   |   | 3,876 |   |   |   | (1,177 | ) |   |
| Checks issued in excess of bank balance                                             |       |                            | (242       | )                               |       |   | (1,260 | ) |   |   | — |   |   |   | 1,716 |   |   |   | — |   |   |
| Accounts payable                                                                    |       |                            | (6,586     | )                               |       |   | 8,059 |   |   |   | 2,422 |   |   |   | (8,268 | ) |   |   | 16,493 |   |   |
| Accrued expenses and other liabilities                                              |       |                            | 19,798     |                            |       |   | (18,349 | ) |   |   | 1,433 |   |   |   | (12,914 | ) |   |   | 3,942 |   |   |
| Payable to affiliates                                                               |       |                            | 812        |                            |       |   | — |   |   |   | (465 | ) |   |   | (261 | ) |   |   | 617 |   |   |
| Net cash from discontinued operations                                               |       |                            | —     |                            |       |   | — |   |   |   | — |   |   |   | — |   |   |   | (1,126 | ) |   |
| Net cash from operating activities                                                  |       |                            | 3,346      |                            |       |   | 31,288 |   |   |   | (31,198 | ) |   |   | 58,032 |   |   |   | 47,363 |   |   |
| **Cash flows from investing  activities**                                           |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                                                |       |                            | (3,006     | )                               |       |   | (21,277 | ) |   |   | (8,770 | ) |   |   | (20,228 | ) |   |   | (33,275 | ) |   |
| Proceeds from sales of property, plant and equipment                                |       |                            | —     |                            |       |   | 2,244 |   |   |   | 738 |   |   |   | 2,039 |   |   |   | 165 |   |   |
| Proceeds from sale of business                                                      |       |                            | —     |                            |       |   | 4,548 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Cash paid for acquisition                                                           |       |                            | —     |                            |       |   | (418,256 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Payment of acquisition transaction cost                                             |       |                            | —     |                            |       |   | (1,735 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Redemption of investment in affiliates                                              |       |                            | —     |                            |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 32,872 |   |   |
| Proceeds from sales of discontinued operations                                      |       |                            | —     |                            |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 1,111 |   |   |
| Net cash from investing activities                                                  |       |                            | (3,006     | )                               |       |   | (434,476 | ) |   |   | (8,032 | ) |   |   | (18,189 | ) |   |   | 873 |   |   |
| **Cash flows from financing  activities**                                           |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends and distributions                                                         |       |                            | (6,809     | )                               |       |   | (1,522 | ) |   |   | — |   |   |   | (25,759 | ) |   |   | (8,000 | ) |   |
| Payments on capital lease obligation                                                |       |                            | (58        | )                               |       |   | (1,033 | ) |   |   | — |   |   |   | (58 | ) |   |   | — |   |   |
| Revolver payments, net.                                                             |       |                            | —     |                            |       |   | (13,122 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Debt payments                                                                       |       |                            | —     |                            |       |   | — |   |   |   | — |   |   |   | (6,000 | ) |   |   | — |   |   |
| Repurchases of common stock                                                         |       |                            | —     |                            |       |   | (10 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Net (payments to) collections from affiliates on  notes                             |       |                            | (1,620     | )                               |       |   | — |   |   |   | 30,596 |   |   |   | (14,663 | ) |   |   | (139,916 | ) |   |
| Revolver borrowings, acquisition.                                                   |       |                            | —     |                            |       |   | 68,839 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Borrowings on long-term debt, acquisition.                                          |       |                            | —     |                            |       |   | 266,563 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Capital contributions                                                               |       |                            | —     |                            |       |   | 111,250 |   |   |   | — |   |   |   | — |   |   |   | 151,500 |   |   |
| Capital redemptions                                                                 |       |                            | —     |                            |       |   | — |   |   |   | — |   |   |   | — |   |   |   | (40,612 | ) |   |
| Debt issuance costs                                                                 |       |                            | —     |                            |       |   | (16,814 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Net cash from financing activities                                                  |       |                            | (8,487     | )                               |       |   | 414,151 |   |   |   | 30,596 |   |   |   | (46,480 | ) |   |   | (37,028 | ) |   |
| Effect of changes in foreign exchange rates on cash                                 |       |                            | (27        | )                               |       |   | 194 |   |   |   | 2,887 |   |   |   | (1,772 | ) |   |   | (6,236 | ) |   |
| **Net change in cash and cash equivalents**                                         |       |                            | (8,174     | )                               |       |   | 11,157 |   |   |   | (5,747 | ) |   |   | (8,409 | ) |   |   | 4,972 |   |   |
| Cash  and cash equivalents                                                          |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning of period                                                                 |       |                            | 9,366      |                            |       |   | — |   |   |   | 23,522 |   |   |   | 17,775 |   |   |   | 18,550 |   |   |
| End of period                                                                       |       |                            | $          | 1,192                           |       |   |   | $ | 11,157 |   |   |   | $ | 17,775 |   |   |   | $ | 9,366 |   |   |   | $ | 23,522 |   |   |
| Supplemental cash flow  information:                                                |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash paid for interest                                                              |       |                            | $          | 18                              |       |   |   | $ | 21,939 |   |   |   | $ | 1,191 |   |   |   | $ | 2,901 |   |   |   | $ | 9,009 |   |   |
| Cash paid for income taxes (refunds received)                                       |       |                            | —     |                            |       |   | (62 | ) |   |   | 10,401 |   |   |   | 4,888 |   |   |   | (3,631 | ) |   |
| Transfer of business to affiliate                                                   |       |                            | —     |                            |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 34,559 |   |   |
| Supplemental disclosure  of non cash investing and financing activities:            |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property and equipment acquired under a capital lease                               |       |                            | $          | —                          |       |   |   | $ | 3,198 |   |   |   | $ | — |   |   |   | $ | 3,724 |   |   |   | $ | — |   |   |
| Redemption of investment in preferred shares                                        |       |                            | —     |                            |       |   | — |   |   |   | 161,214 |   |   |   | — |   |   |   | — |   |   |
| Settlement of affiliate loan                                                        |       |                            | —     |                            |       |   | — |   |   |   | 30,423 |   |   |   | — |   |   |   | — |   |   |
| Settlement dividend to affiliate                                                    |       |                            | —     |                            |       |   | — |   |   |   | 139,868 |   |   |   | — |   |   |   | — |   |   |
| Supplemental disclosure  of acquisition of a business:                              |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair value of assets acquired                                                       |       |                            | $          | —                          |       |   |   | $ | 627,568 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Fair value of liabilities assumed                                                   |       |                            | —     |                            |       |   | 209,312 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Cash paid for  acquisition                                                          |       |                            | $          | —                          |       |   |   | $ | 418,256 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |

 

See accompanying notes to consolidated and combined financial statements.

F-6

----

**INDALEX HOLDINGS FINANCE, INC.CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITYYears ended December 31, 2006,December 31, 2005 and December 31, 2004(Dollars in thousands)**

| ** **                                                                                           | ** ** | ** ** | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | **Accumulated**   | ** ** | ** ** | ** ** | ** **        | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|-----------------|------------|------------------|------------|-------------------|------------|------------|------------|-------------------|------------|
| ** **                                                                                           | ** ** | ** ** | ** ** | ** **     | ** ** | **Accumulated** | ** ** | ** **       | ** ** | **Other**         | ** ** | ** ** | ** ** | **Other**         | ** ** |
| ** **                                                                                           | ** ** | ** ** | ** ** | **Additional** | ** ** | **Retained**    | ** ** | **Unearned**     | ** ** | **Comprehensive** | ** ** | ** ** | ** ** | **Comprehensive** | ** ** |
| ** **                                                                                           | ** ** | **Common** | ** ** | **Paid-in**    | ** ** | **Earnings**    | ** ** | **Deferred**     | ** ** | **Income**        | ** ** | ** ** | ** ** | **Income**        | ** ** |
| ** **                                                                                           | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **(Deficit)**   | ** ** | **Compensation** | ** ** | **(Loss)**        | ** ** | **Total**  | ** ** | **(Loss)**        | ** ** |
| **Predecessor 1 balance, December 31, 2003**                                               |       | $          | 41,003     |           |       | $               | 380,116    |             |       |              | $          | 10,232     |       |              |       | $ | (589 | ) |   |   | $ | 8,361 |   |   | $ | 439,123 |   |   |   |   |   |
| Dividends paid                                                                                       |       | —     |       |           | —     |            |       |             | (8,000     | )                 |       |       | —     |              |       |   | — |   |   | (8,000 | ) |   |   |   |   |
| Transfer of business affiliate                                                                       |       | —     |       |           | —     |            |       |             | (34,559    | )                 |       |       | —     |              |       |   | — |   |   | (34,559 | ) |   |   |   |   |
| Capital contributions                                                                                |       | —     |       |           | 151,500    |            |       |             | —     |              |       |       | —     |              |       |   | — |   |   | 151,500 |   |   |   |   |   |
| Capital redemption                                                                                   |       | (40,612    | )          |           | —     |            |       |             | —     |              |       |       | —     |              |       |   | — |   |   | (40,612 | ) |   |   |   |   |
| Net income                                                                                           |       | —     |       |           | —     |            |       |             | 44,377     |              |       |       | —     |              |       |   | — |   |   | 44,377 |   |   | 44,377 |   |   |
| Stock-based compensation                                                                             |       | —     |       |           | 2,830      |            |       |             | —     |              |       |       | (655       | )                 |       |   | — |   |   | 2,175 |   |   |   |   |   |
| Translation adjustment                                                                               |       | —     |       |           | —     |            |       |             | —     |              |       |       | —     |              |       |   | 8,684 |   |   | 8,684 |   |   | 8,684 |   |   |
| Minimum liability adjustment related to defined  benefit plan (net of tax benefit of $472) |       | —     |       |           | —     |            |       |             | —     |              |       |       | —     |              |       |   | (836 | ) |   | (836 | ) |   | (836 | ) |   |
| Total comprehensive income                                                                           |       |       |       |           |       |            |       |             |       |              |       |       |       |              |       |   |   |   |   |   |   |   | $ | 52,225 |   |   |
| **Predecessor  1 balance, December 31, 2004**                                              |       | $          | 391        |           |       | $               | 534,446    |             |       |              | $          | 12,050     |       |              |       | $ | (1,244 | ) |   |   | $ | 16,209 |   |   | $ | 561,852 |   |   |   |   |   |
|                                                                                                      |            |            |            |                |            |                 |            |                  |            |                   |            |            |            |                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

See accompanying notes to consolidated and combined financial statements.

F-7

----

**INDALEX HOLDINGS FINANCE, INC. CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

 

| ** **                                                                                                | ** ** | ** ** | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | **Accumulated**   | ** ** | ** ** | ** ** | ** **        | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|-----------------|------------|------------------|------------|-------------------|------------|------------|------------|-------------------|------------|
| ** **                                                                                                | ** ** | ** ** | ** ** | ** **     | ** ** | **Accumulated** | ** ** | ** **       | ** ** | **Other**         | ** ** | ** ** | ** ** | **Other**         | ** ** |
| ** **                                                                                                | ** ** | ** ** | ** ** | **Additional** | ** ** | **Retained**    | ** ** | **Unearned**     | ** ** | **Comprehensive** | ** ** | ** ** | ** ** | **Comprehensive** | ** ** |
| ** **                                                                                                | ** ** | **Common** | ** ** | **Paid-in**    | ** ** | **Earnings**    | ** ** | **Deferred**     | ** ** | **Income**        | ** ** | ** ** | ** ** | **Income**        | ** ** |
| ** **                                                                                                | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **(Deficit)**   | ** ** | **Compensation** | ** ** | **(Loss)**        | ** ** | **Total**  | ** ** | **(Loss)**        | ** ** |
| **Predecessor 1 balance, January 1, 2005**                                                 |       |       | $          | 391            |       |            | $          | 534,446          |       |              | $          | 12,050     |       |              |       | $ | (1,244 | ) |   |   | $ | 16,209 |   |   | $ | 561,852 |   |   |   |   |   |
| Dividends and distributions                                                                               |       |       | —     |           |       | (118,516        | )          |             | (21,352    | )                 |       |       | —     |              |       |   | — |   |   | (139,868 | ) |   |   |   |   |
| Net income                                                                                                |       |       | —     |           |       | —          |       |             | 9,302      |              |       |       | —     |              |       |   | — |   |   | 9,302 |   |   | $ | 9,302 |   |   |
| Stock-based compensation                                                                                  |       |       | —     |           |       | —          |       |             | —     |              |       |       | 1,244      |              |       |   | — |   |   | 1,244 |   |   |   |   |   |
| Executive compensation                                                                                    |       |       | —     |           |       | 311             |       |             | —     |              |       |       | —     |              |       |   | — |   |   | 311 |   |   |   |   |   |
| Management fees to affiliates                                                                             |       |       | —     |           |       | 700             |       |             | —     |              |       |       | —     |              |       |   | — |   |   | 700 |   |   |   |   |   |
| Translation adjustment                                                                                    |       |       | —     |           |       | —          |       |             | —     |              |       |       | —     |              |       |   | (2,040 | ) |   | (2,040 | ) |   | (2,040 | ) |   |
| Total comprehensive income                                                                                |       |       |       |           |       |            |       |             |       |              |       |       |       |              |       |   |   |   |   |   |   |   | $ | 7,262 |   |   |
| **Predecessor 1 Balance March 31, 2005**                                                   |       |       | $          | 391            |       |            | $          | 416,941          |       |              | $          | —     |       |              |       | $ | — |   |   |   | $ | 14,169 |   |   | $ | 431,501 |   |   |   |   |   |
| **Predecessor 2 balance, April 1, 2005**                                                   |       |       | $          | 391            |       |            | $          | 433,286          |       |              | $          | —     |       |              |       | $ | — |   |   |   | $ | — |   |   | $ | 433,677 |   |   |   |   |   |
| Dividends and distributions                                                                               |       |       | —     |           |       | (21,771         | )          |             | (3,988     | )                 |       |       | —     |              |       |   | — |   |   | (25,759 | ) |   |   |   |   |
| Net income                                                                                                |       |       | —     |           |       | —          |       |             | 13,700     |              |       |       | —     |              |       |   | — |   |   | 13,700 |   |   | $ | 13,700 |   |   |
| Translation adjustment                                                                                    |       |       | —     |           |       | —          |       |             | —     |              |       |       | —     |              |       |   | 2,110 |   |   | 2,110 |   |   | 2,110 |   |   |
| Minimum liability adjustment related to defined  benefit plan (net of tax benefit of $335) |       |       | —     |           |       | —          |       |             | —     |              |       |       | —     |              |       |   | (622 | ) |   | (622 | ) |   | (622 | ) |   |
| Total comprehensive income                                                                                |       |       |       |           |       |            |       |             |       |              |       |       |       |              |       |   |   |   |   |   |   |   | $ | 15,188 |   |   |
| **Predecessor  2 balance, December 31, 2005**                                                   |       |       | $          | 391            |       |            | $          | 411,515          |       |              | $          | 9,712      |       |              |       | $ | — |   |   |   | $ | 1,488 |   |   | $ | 423,106 |   |   |   |   |   |

 

See accompanying notes to consolidated and combined financial statements.

F-8

----

**INDALEX HOLDINGS FINANCE, INC. CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**
|                                                                                                                                                                             | ** ** | ** ** | ** ** | ** **     | ** ** | ** **      | ** ** | ** **   | ** ** | **Accumulated**   | ** ** | ** ** | ** ** | ** **        | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|-----------------|------------|--------------|------------|-------------------|------------|------------|------------|-------------------|------------|
| ** **                                                                                                                                                                  | ** ** | ** ** | ** ** | ** **     | ** ** | **Accumulated** | ** ** | ** **   | ** ** | **Other**         | ** ** | ** ** | ** ** | **Other**         | ** ** |
| ** **                                                                                                                                                                  | ** ** | ** ** | ** ** | **Additional** | ** ** | **Retained**    | ** ** | ** **   | ** ** | **Comprehensive** | ** ** | ** ** | ** ** | **Comprehensive** | ** ** |
| ** **                                                                                                                                                                  | ** ** | **Common** | ** ** | **Paid-in**    | ** ** | **Earnings**    | ** ** | **Treasury** | ** ** | **Income**        | ** ** | ** ** | ** ** | **Income**        | ** ** |
| ** **                                                                                                                                                                  | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **(Deficit)**   | ** ** | **Stock**    | ** ** | **(Loss)**        | ** ** | **Total**  | ** ** | **(Loss)**        | ** ** |
| **Predecessor 2 balance, January 1, 2006**                                                                                                                             |       |       | $          | 391            |       |            |       | $            | 411,515    |              |       |       | $          | 9,712             |       |   |   | $ | — |   |   |   | $ | 1,488 |   |   | $ | 423,106 |   |   |   |   |   |
| Dividends and distributions                                                                                                                                                 |       |       | —     |           |       |            | (12,708    | )            |       |              | —     |       |       |              | —     |   |   |   | — |   |   | (12,708 | ) |   |   |   |   |
| Divestiture incentive payment                                                                                                                                               |       |       | —     |           |       |            | 743        |         |       |              | —     |       |       |              |       |   |   |   | — |   |   | 743 |   |   |   |   |   |
| Net income                                                                                                                                                                  |       |       | —     |           |       |            | —     |         |       |              | 1,639      |       |       |              | —     |   |   |   | — |   |   | 1,639 |   |   | $ | 1,639 |   |   |
| Management fees to affiliates                                                                                                                                               |       |       | —     |           |       |            | 125        |         |       |              | —     |       |       |              | —     |   |   |   | — |   |   | 125 |   |   |   |   |   |
| Translation adjustment                                                                                                                                                      |       |       | —     |           |       |            | —     |         |       |              | —     |       |       |              | —     |   |   |   | (141 | ) |   | (141 | ) |   | (141 | ) |   |
| Total comprehensive income                                                                                                                                                  |       |       |       |           |       |            |       |         |       |              |       |       |       |              |       |   |   |   |   |   |   |   |   |   | $ | 1,498 |   |   |
| **Predecessor 2 Balance, February 1, 2006**                                                                                                                            |       |       | $          | 391            |       |            |       | $            | 399,675    |              |       |       | $          | 11,351            |       |   |   | $ | — |   |   |   | $ | 1,347 |   |   | $ | 412,764 |   |   |   |   |   |
| **Successor balance, February 2, 2006**                                                                                                                           |       |       | $          | —         |       |            |       | $            | —     |              |       |       | $          | —            |       |   |   | $ | — |   |   |   | $ | — |   |   | $ | — |   |   |   |   |   |
| Dividends and distributions                                                                                                                                                 |       |       | —     |           |       |            | (1,522     | )            |       |              | —     |       |       |              | —     |   |   |   | — |   |   | (1,522 | ) |   |   |   |   |
| Capital contributions                                                                                                                                                       |       |       | 1          |           |       |            | 111,249    |         |       |              | —     |       |       |              | —     |   |   |   | — |   |   | 111,250 |   |   |   |   |   |
| Net loss                                                                                                                                                                    |       |       | —     |           |       |            | —     |         |       |              | (23,898    | )          |       |              | —     |   |   |   | — |   |   | (23,898 | ) |   | $ | (23,898 | ) |   |
| Stock-based compensation                                                                                                                                                    |       |       | —     |           |       |            | 938        |         |       |              | —     |       |       |              | —     |   |   |   | — |   |   | 938 |   |   |   |   |   |
| Repurchase of common stock                                                                                                                                                  |       |       | —     |           |       |            | —     |         |       |              | —     |       |       |              | (10        | ) |   |   | — |   |   | (10 | ) |   |   |   |   |
| Translation adjustment                                                                                                                                                      |       |       | —     |           |       |            | —     |         |       |              | —     |       |       |              | —     |   |   |   | (66 | ) |   | (66 | ) |   | (66 | ) |   |
| Adjustment to accrued benefit liability and  cumulative adjustment for the adoption of SFAS No. 158 related to  defined benefit plan (net of tax of $1,831)  |       |       | —     |           |       |            | —     |         |       |              | —     |       |       |              | —     |   |   |   | 2,706 |   |   | 2,706 |   |   | (353 | ) |   |
| Total comprehensive loss                                                                                                                                                    |       |       |       |           |       |            |       |         |       |              |       |       |       |              |       |   |   |   |   |   |   |   |   |   | $ | (24,317 | ) |   |
| **Successor  balance, December 31, 2006**                                                                                                                              |       |       | $          | 1              |       |            |       | $            | 110,665    |              |       |       | $          | (23,898           | )          |   |   | $ | (10 | ) |   |   | $ | 2,640 |   |   | $ | 89,398 |   |   |   |   |   |

 

See accompanying notes to consolidated and combined financial statements.

F-9

----

**INDALEX HOLDINGS FINANCE, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Years ended December 31, 2006,December 31, 2005 and December 31, 2004(Dollars in thousands)**

**NOTE 1—GENERAL**

On February 2, 2006,Indalex Holding Corp. acquired (the “Indalex Holdings acquisition”), IndalexInc. and Indalex Limited, wholly owned subsidiaries of Honeywell International, Inc.(“Honeywell”). Indalex Holding Corp. is a holding company that is awholly-owned direct subsidiary of Indalex Holdings Finance, Inc.,(together with its predecessors, the “Company”) which is beneficially owned byaffiliates of Sun Capital Partners, Inc., certain other investors andmembers of the Company’s management team. Honeywell had previously acquired(the “Honeywell acquisition”) the former parent company, Novar plc (“Novar”),on March 31, 2005. Both the Indalex Holdings and the Honeywellacquisitions were accounted for under purchase accounting. The financialstatements presented prior to the Honeywell acquisition are referred to as “Predecessor 1”,and the statements following the Honeywell acquisition and prior to the IndalexHoldings acquisition are referred to as “Predecessor 2.” The financialstatements presented after the Indalex Holdings acquisition are referred to asthe “Successor Company.” Results prepared for each of these periods are notcomparable.

**NOTE 2—SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

The accompanying consolidated and combined financialstatements are prepared in accordance with accounting principles generallyaccepted in the United States of America and reflect the policies set outbelow.

*Useof Estimates:***  **Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe combined financial statements, and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from thoseestimates. Significantestimates include the allowance for doubtful accounts, accounts related toincome taxes, liabilities related to pension and other post-retirementbenefits, and the valuation of intangible assets.

*RevenueRecognition:***  **TheCompany recognizes net sales when the revenue is realized or realizable, andhas been earned, in accordance with the SEC’s Staff Accounting Bulletin (SAB) No. 104,Revenue Recognition in Financial Statements.

The Company recognizes product revenue, net of tradediscounts and allowances, in the reporting period in which the products areshipped and the title and risk of ownership pass to the customer.

The Company records tolling revenue when the revenue isrealized or realizable, and has been earned. Tolling refers to the process bywhich certain customers provide metal to the Company for conversion toextrusions. The Company does not take title to the metal and, after theshipment of the extrusion to the customer, the Company charges them for thevalue-added conversion cost and records these amounts in net sales.

Shipping and handling amounts the Company bills to itscustomers are included in net sales and the related shipping and handling coststhe Company incurs are included in cost of sales.

F-10

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

Revenues related tolong-term design contracts for discontinued operations (see Note 24) arerecognized on a percentage-of-completion basis. Full provision is made forestimated losses on contracts as soon as they are identified.

*CashEquivalents:*   For purposes of reporting cashflows, the Company considers all interest-bearing securities having maturitiesof three months or less at the date of purchase to be cash equivalents.

*AccountsReceivable:***  **Receivablesinclude trade receivables, notes receivable, and other miscellaneousreceivables from suppliers. The Company generally does not charge interest onits trade receivables.

*Allowancefor Doubtful Accounts:***  **The allowance for doubtful accounts is determined bymanagement based on the Company’s historical losses, specific customercircumstances, and general economic conditions. Periodically, managementreviews accounts receivable and adjusts the allowance based on currentcircumstances and charges off uncollectible receivables when all attempts tocollect have failed.

Allowances of $4,462 and $4,240 have been provided at December 31,2006 and December 31, 2005, respectively.

*Inventories:***  **Inventories are valued at the lower of cost or market.Cost includes labor, materials, and production overhead. The cost of domesticinventory is determined predominantly using the last-in, first-out (“LIFO”)method. The cost of inventory in foreign operations is costed using thefirst-in, first out method.

*Investmentsin Affiliates:*   Investments in affiliates consistedof nonvoting, cumulative preferred shares of other indirect wholly ownedsubsidiaries of Novar plc and were accounted for at cost. The investments werewith affiliated subsidiaries so there was no traded market value for the stock.At least annually, the Company evaluated whether events and circumstances hadoccurred that indicated whether the remaining balance of the investments maynot be recoverable.

*Investmentin AAG:***  **Investmentin AAG consists of Indalex Limited’s investment in AAG, which is accounted forusing the equity method of accounting.

F-11

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

*Property,Plant, and Equipment:***  **Additionsto property, plant, and equipment, including expenditures which improve orprolong the useful lives of such assets, are valued at cost. Expenditures forimprovements and betterments are capitalized, and repairs and maintenance arecharged to expense as incurred. Property, plant, and equipment obtained throughacquisitions are stated at their fair values at the date of acquisition.Depreciation is computed principally on a straight-line basis for financialreporting purposes. The estimated useful lives for computing depreciation areas follows:

| Building                 |   | 20 - 40 years           |   |
|--------------------------|--------|-------------------------|--------|
| Leasehold  improvements  |   | 1 - 15 years            |   |
| Machinery and  equipment |   | 2 - 15 years            |   |
| Furniture and  fixtures  |   | 3 - 10 years            |   |
| Vehicles                 |   | 3 -   5 years |   |

 

Leasehold improvements are amortized on astraight-line basis over the estimated useful life of the improvement orremaining life of the lease, whichever is shorter.

Computer software is capitalized and included inmachinery and equipment for the Company projects that have a significantlong-term benefit. In accordance with Statement of Position 98-1, *Accounting for the Costs of Computer Software Developed for InternalUse*, the Company expenses costs incurred in the preliminary projectstage and thereafter capitalizes costs incurred in developing or obtaininginternal use software. Certain costs, such as maintenance and training, areexpensed as incurred. Generally, a three-year life is used for depreciation.

The Company capitalizes the costs for tools and diesand depreciates the costs over two years.

*Accountingfor the Impairment of Long-Lived Assets:***  **The Company accounts for impairment of long-livedassets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets*. This Statement addresses financial accounting andreporting for the impairment or disposal of long-lived assets. At leastannually, the Company evaluates whether events and circumstances have occurredthat indicate whether the remaining estimated useful lives of its long-livedassets may warrant revision or whether the remaining balance of such assets maynot be recoverable.

*Goodwill:****  ***In accordancewith SFAS No. 142, *Goodwill and OtherIntangible Assets*, goodwill is reviewed for impairment on an annualbasis or more frequently if events or circumstances indicate that the carryingvalue may not be recoverable. Management believes that goodwill is not impairedat December 31, 2006.

*FinancialInstruments:***  **Derivative financial instrumentsare used to hedge existing inventory (metals) and anticipated purchases ofaluminum and gas and are, therefore, held for purposes other than trading. Theseinstruments may involve elements of credit and market risk in excess of theamounts recognized in the financial statements. The Company monitors itspositions and the credit quality of counterparties, 

F-12

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

consistingprimarily of major financial institutions, and does not anticipatenonperformance by any counterparty.

To manage foreign currencyexposure, the Company enters into foreign currency forward contracts. Thecontracts are reported in the consolidated and combined financial statements atfair value using a mark to market valuation.

The Company accounts for financial instruments inaccordance with SFAS No. 133, Accounting for Derivative Instrumentsand Hedging Activities, as amended by SFAS No. 138, Accounting forDerivative Instruments and Hedging Activities. The derivatives are marked tomarket through the income statement.

*Stock-Based Compensation:***  **Effective January 1,2006 the Company adopted SFAS No. 123(R) (“SFAS 123(R)”). SFAS 123(R) requires theCompany torecord compensation expense for all share-based awards. The Company did nothave share-based awards at the time SFAS 123(R) was adopted. Accordingly,the Company has recorded stock-based employee compensation cost using thecalculated value method starting in 2006. The Company determined that it is notpracticable for it to reasonably estimate its expected volatility. The Companyreviewed the Dow Jones Industrial Metals Small Cap Index as the appropriateindustry sector index. The Company obtained the historical daily closing returnvalues of selected indices for the period equal to the expected term ending onthe grant date and calculated the annualized historical volatility of thosevalues. The indices were weighted evenly.

Under the Predecessor 1 company (Novar), the Companyhad stock-based employee compensation plans. The Company accounted forstock-based compensation by applying APB Opinion No. 25, *Accounting for Stock Issued to Employees,*asallowed under SFAS No. 123, *Accountingfor Stock-Based Compensation,*under which compensation expense isrecorded to the extent that the market price of the underlying stock (Novarstock) exceeds the exercise price at the measurement date using theintrinsic-value method.

The fair value of options on their grant date wasmeasured using the Black-Scholes option-pricing model. Key assumptions used toapply this pricing model are as follows:

| ** **                                 | ** ** | **2006** | ** ** | **2004** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| Risk-free  interest rate                   |       | 4.98     | %          | 3.9      | %          |
| Expected life of  option grants (in years) |       | 6.42     |       | 10       |       |
| Expected  volatility of underlying stock   |       | 26.3     | %          | 36.3     | %          |
| Dividend yields                            |       | 0.0      | %          | 4.8      | %          |

 

See Note 22 for more informationon stock-based compensation.

All options existing atMarch 31, 2005 were liquidated with the sale of Novar to Honeywell. Under the Predecessor 2 company, nostock-based compensation plans exist at December 31, 2005.

*EnvironmentalRemediation Costs:***  **The Company accrues for costsassociated with environmental remediation obligations when such costs areprobable and reasonably estimable. Costs of future expenditures forenvironmental remediation obligations are not discounted to their presentvalue.

F-13

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

***NOTE2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)***

*FairValue of Financial Instruments:***  **Thecarrying values of cash, accounts receivable and payable, and accrued expensesapproximate fair value because of the short-term maturities of these assets andliabilities. The carrying value of intercompany debt and other debtapproximates fair value because of the variable rate nature of the debt.

*Concentrationof Credit Risk:*   The Company maintains cash balances atseveral financial institutions in excess of the insurance limits provided bythe Federal Deposit Insurance Corporation.

*ForeignCurrency Translation:***  **Assets and liabilities of foreignentities in the Company’s combined financial statements are translated to U.S.dollars at exchange rates in effect as of the balance sheet dates. Revenues andexpenses are translated at the average exchange rates prevailing during thereporting period. Adjustments from translating foreign currency assets andliabilities into U.S. dollars are included as a component of accumulated othercomprehensive income. Transaction gains and losses that arise from exchangerate fluctuations are included in the results of operations, as incurred.

*IncomeTaxes:***  **The Company (excluding Indalex Limited andsubsidiaries) was included in the combined federal income tax return of NovarUSA Inc. through March 31, 2005. FromApril 1, 2005 to February 1, 2006, the Company is included in thefederal income tax return of Honeywell. Subsequent to February 1, 2006,the Company is included in the federal income tax return of Indalex HoldingsFinance, Inc. The respective state corporate income tax returns ofeach subsidiary are filed on a separate or combined entity basis as applicable.Current federal income taxes payable or recoverable is generally determined asif each subsidiary were filing a separate return and loss companies arecompensated for the benefit derived from the losses utilized. Indalex Limitedand each of its subsidiaries file separate income tax returns. Indalex UKLimited files separate income tax returns in the United Kingdom.

Deferred income taxes are provided for temporarydifferences between the tax and book bases of assets and liabilities.

*ComprehensiveIncome**(Loss)*:****  **UnderSFAS No. 130, *Reporting ComprehensiveIncome,*comprehensive income (loss) for the Company consists of netincome (loss), minimum pension liability adjustments, and cumulativetranslation adjustments.

***Recent Accounting Pronouncements:*****  *****In*** June 2006,the FASB issued FASB Interpretation (FIN) No. 48 Accounting forUncertainty in Income Taxes-an interpretation of FASB Statement 109.FIN 48 establishes a single model to address accounting for uncertainty intax positions. FIN 48 clarifies the accounting for income taxes byprescribing a minimum recognition threshold a tax position is required to meetbefore being recognized in the financial statements. FIN 48 also providesguidance on derecognition, measurement, classification, interest and penalties,accounting in interim periods, disclosure and transition. FIN 48 iseffective for fiscal years beginning after December 15, 2006. The Companyis evaluating the expected impact of adopting this standard.

In September 2006, the FASB issued SFASNo. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157establishes a common definition for fair value to be applied to US GAAPrequiring use of fair value, establishes a framework for measuring fair value,and expands disclosure about such fair value 

F-14

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

measurements. SFASNo. 157 is effective for fiscal years beginning after November 15,2007. The Company is currently assessing the impact of SFAS No. 157 on itsconsolidated financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158,Employers’ Accounting for Defined Benefit Pension and Other PostretirementPlans (SFAS No. 158). SFAS No. 158 requires that employers recognize on aprospective basis the funded status of their defined benefit pension and otherpostretirement benefit plans on their consolidated balance sheet and recognizeas a component of other comprehensive income (loss), net of tax, the gains orlosses and prior service costs or credits that arise during the period but arenot recognized as components of net periodic benefit cost.  Additional minimum pension liabilities andrelated intangible assets are also derecognized upon adoption of the newstandard.  The Company adopted SFAS No.158 as of December 31, 2006.  Theadjustments in our balance sheet to recognize the funded status of our pensionand other postretirement plans resulted in a decrease in non-current pensionliabilities of $5,129, an increase in non-current deferred income taxliabilities of $2,070 and an increase in stockholders’ equity of $3,059.  See Note 18 - Employee Benefit Plans foradditional information.

In February, 2007, the FASB issued SFAS No. 159The Fair Value Option for Financial Assets and Financial Liabilities (SFASNo. 159). SFAS No. 159 permits entities to choose to measure manyfinancial assets and financial liabilities at fair value. Unrealized gains andlosses on items for which the fair value option has been elected are reportedin earnings. SFAS No. 159 is effective for fiscal years beginning afterNovember 15, 2007. The Company is currently assessing the impact of SFASNo. 159 on its consolidated financial position and results of operations.

In September 2006, the FASB issued FASB StaffPosition (FSP) AUG AIR-1 Accounting for Planned Major MaintenanceActivities (FSP AUG AIR-1). FSP AUG AIR-1 amends the guidance onthe accounting for planned major maintenance activities; specifically itprecludes the use of the previously acceptable accrue in advance method. FSPAUG AIR-1 is effective for fiscal years beginning after December 15,2006. The implementation of this standard will not have a material impact on theCompany’s consolidated financial position or results of operations.

In September 2006, the SEC staff issued StaffAccounting Bulletin (SAB) 108 Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements (SAB 108). SAB 108 requires that public companies utilize adual-approach to assessing the quantitative effects of financial misstatements.This dual approach includes both an income statement focused assessment and abalance sheet focused assessment. The guidance in SAB 108 must be applied toannual financial statements for fiscal years ending after November 15,2006. The adoption of SAB 108 did not have a material effect on the Company’sconsolidated financial position or results of operations.

In November 2004, the FASB issued SFASNo. 151, *Inventory Costs—An Amendment ofARB No. 43, Chapter 4*. This statement clarifies that theabnormal amounts of idle facility expense, freight, handling costs, and wastedmaterials (spoilage) should be recognized as current-period charges. Inaddition, this Statement requires that allocation of fixed production overheadsto the costs of conversion be based on the normal capacity of the productionfacilities. The standard is effective for inventory costs incurred during 

F-15

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

the fiscal years beginningafter June 15, 2005. The adoption of SFAS No. 151 had no impact onthe Company’s combined financial position or results of operations.

In December 2004, the FASB issued FSP 109-2,*Accounting and Disclosure Guidance for the ForeignEarnings Repatriation Provision within the American Jobs Creation Act of 2004*.This FSP, which became effective upon issuance, allows an enterprise additionaltime beyond the financial reporting period of enactment of the American JobsCreation Act of 2004 to evaluate the effect of this act on its plan forreinvestment or repatriation of foreign earnings for purposes of applying SFASNo. 109. The adoption of FSP 109-2 had no impact on the Company’scombined financial position, results of operations or cash flows.

In December 2004, the FASB issued SFASNo. 153, *Exchanges of Nonmonetary Assets,*which was effective for fiscal periods beginning after June 15, 2005. Thestatement eliminates the exception from fair value measurement for nonmonetaryexchanges of similar productive assets in APB 29 and replaces it with anexception for exchanges that do not have commercial substance. The Company hascompleted its evaluation of SFAS No. 153 and has determined that thestatement does not have a material effect on the Company’s combined results ofoperations or combined financial position. The Company adopted the provisions of SFAS No. 153 as ofJanuary 1, 2006.

In May 2005, the FASB issued SFAS No. 154, *Accounting Changes and Error Corrections, a replacement of APB OpinionNo. 20 and FASB Statement No. 3*. This Statement requiresretrospective application to prior periods’ financial statements of changes inaccounting principle, unless it is impracticable to determine either theperiod-specific effects or the cumulative effect of the change. This Statementapplies to all voluntary changes in accounting principle or changes required byan accounting pronouncement in the unusual instance that the pronouncement doesnot include specific transition provisions. This Statement is effective for accountingchanges and corrections of errors made in fiscal years beginning afterDecember 15, 2005. The adoption of SFAS No. 154 had no impact oncombined financial position or results of operations.

F-16

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 3—THE INDALEXHOLDINGS ACQUISITION**

On February 2,2006, Indalex Inc. and Indalex Limited were acquired by Indalex HoldingsFinance, Inc. through its wholly-owned, Indalex Holding Corp. for a purchaseprice of $418,256, net of acquired cash. The table below summarizes theallocation of purchase price based on estimates of the fair values of theassets acquired and liabilities assumed at the date of acquisition.

| **ASSETS**                                     | ** ** | ** **     | ** ** |
|------------------------------------------------|------------|----------------|------------|
| Accounts receivable, net                       |       | $              | 125,872    |   |
| Receivable from suppliers                      |       | 8,986          |       |
| Inventories                                    |       | 71,860         |       |
| Prepaid expenses and other current assets      |       | 20,032         |       |
| Investment in AAG                              |       | 90,000         |       |
| Property, plant, and equipment, net            |       | 217,806        |       |
| Goodwill                                       |       | 3,537          |       |
| Other intangibles                              |       | 89,000         |       |
| Other assets                                   |       | 475            |       |
| Total assets                                   |       | 627,568        |       |
| **LIABILITIES**                                | ** ** | ** **     | ** ** |
| Accounts payable                               |       | 59,064         |       |
| Accrued expenses and other current liabilities |       | 67,461         |       |
| Pension and other post-retirement benefits     |       | 37,162         |       |
| Other liabilities                              |       | 4,788          |       |
| Capital lease obligation                       |       | 3,796          |       |
| Deferred income taxes                          |       | 37,041         |       |
| Total liabilities                              |       |   209,312 |       |
| **NET ASSETS ACQUIRED**                        |       | $              | 418,256    |   |

 

Of the $89,000 acquired intangibles, $17,000 wasassigned to a trade name, which is being amortized using a declining balancemethod over a 15-year life. The remaining $72,000 of acquired intangibleassets relates to customer relationships that are being amortized using adeclining balance method and a seven year life. The other intangibles have aweighted average useful life of 10.7 years. Goodwill acquired of $3,537 isnot being amortized and is not deductible for tax purposes.

In connection with the IndalexHoldings acquisition certain executives of the Company received divestitureincentive payments totaling $743 that were paid by Honeywell. The payments wereaccounted for as compensation expense in selling, general and administrativeexpense, and as an increase to additional paid-in capital.

F-17

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 4—HONEYWELLACQUISITION**

On March 31,2005 (“the closing date”), the Company was acquired by Honeywell International, Inc.as part of Honeywell’s acquisition of Novar for a purchase price of $433,677net of acquired cash. The table below summarizes the allocation of purchaseprice based on the estimated fair values of the assets acquired and liabilitiesassumed at the date of acquisition.

| **ASSETS**                                      |   |    |    |
|-------------------------------------------------|--------|---------|---------|
| Cash and cash  equivalents                      |   | $       | 17,775  |   |
| Accounts receivable, net                        |   | 132,281 |    |
| Trade receivable from  affiliates               |   | 569     |    |
| Inventories                                     |   | 86,988  |    |
| Prepaid expenses and  other current assets      |   | 18,805  |    |
| Deferred income tax                             |   | 2,627   |    |
| Note receivable from  affiliate                 |   | 6,528   |    |
| Investment in AAG                               |   | 85,000  |    |
| Property, plant, and  equipment, net            |   | 222,831 |    |
| Goodwill                                        |   | 14,626  |    |
| Other intangibles                               |   | 83,000  |    |
| Other assets                                    |   | 652     |    |
| Total assets                                    |   | 671,682 |    |
| **LIABILITIES**                                 |   |    |    |
| Accounts payable                                |   | 72,607  |    |
| Trade payable to  affiliates                    |   | 622     |    |
| Income taxes payable                            |   | 4,791   |    |
| Accrued expenses and  other current liabilities |   | 50,699  |    |
| Short-term debt                                 |   | 6,000   |    |
| Pension and other  post-retirement benefits     |   | 56,007  |    |
| Other liabilities                               |   | 4,791   |    |
| Note payable to  affiliates                     |   | 13,028  |    |
| Deferred income taxes                           |   | 29,460  |    |
| Total liabilities                               |   | 238,005 |    |
| NET ASSETS ACQUIRED                             |   | $       | 433,677 |   |

 

**Of the $83,000 acquiredintangibles, $13,000 were assigned to a trade name, which was being amortizedusing a declining balance method over a 15-year life. The remaining$70,000 of acquired intangible assets related to customer relationships that werebeing amortized using a declining balance method and a seven-year life. Theother intangibles had a weighted average useful life of 10.7 years.**

Honeywell International, Inc. purchased Novarwith the intent of disposing of the Company as soon as practical.

F-18

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE4—HONEYWELL ACQUISITION (Continued)**

The following tablesummarizes the Company’s financial results assuming the Honeywell Acquisitionoccurred at the beginning of the respective period.

| ** **                  | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------|------------|---------------------------------------------|------------|
| ** **                  | ** ** | **2005**                                    | ** ** | **2004** | ** ** |
| ** **                  | ** ** | **Amounts in millions**           | ** ** |
| ** **                  | ** ** | **(unaudited)**                             | ** ** |
| Revenues                    |       | $                                           | 1,021.4    |   | $ | 932.7 |   |
| Operating income            |       | 13.6                                        |       | 8.5 |   |
| Income before  income taxes |       | 19.4                                        |       | 18.2 |   |
| Net income                  |       | 16.1                                        |       | 16.9 |   |
|                             |            |                                             |            |  |  |  |  |

 

**NOTE 5—INVESTMENT INPREFERRED SHARES OF AFFILIATES**

On March 24, 2005 just prior to the sale of Novarplc to Honeywell International, Indalex Limited exercised its put optionincluded in the shareholders agreement to sell its investment in preferred sharesof Novar affiliates. The redemption value of the preferred shares was set atthe book value of $161,214, plus dividends earned through the date ofredemption of $9,077. The dividends were declared by Novar plc based on therates in the shareholder agreement. The dividend was reflected in the statementof operations as dividend income for the period January 1, 2005 through March 31,2005.

Simultaneously with thistransaction, Indalex Limited settled an outstanding loan with Novar plc of$30,423. Also, simultaneously with this transaction, Novar plc caused IndalexLimited to declare a non-cashdividend of $139,868 to Novar plc. The dividend to Novar plc represented thedifference between (a) the redemption value of the preferred shares andthe related interim dividend payable by Novar plc to Indalex Limited and (b) theintercompany loan owed by Indalex Limited to Novar plc. The dividend owed to Novar plc was accounted for asa reduction to retained earnings. All the transactions were net settled and notsettled in cash so they are reported in the statement of cash flow as non-cashactivities for the period January 1, 2005 through March 31, 2005.

**NOTE 6—EQUITY METHODINVESTMENT**

Indalex UK Limited holds a 25% interest in AsiaAluminum Group (“AAG”), which is accounted for using the equity method ofaccounting. AAG manufactures and sells aluminum and stainless steel productsand provides design and test services for aluminum products. The principalbusiness transactions between AAG and the Company include the sale of finishedaluminum products where the Company uses AAG as a contract manufacturer. TheCompany purchases finished extruded aluminum products from AAG for resale tocustomers when it is more economical than manufacturing the product directly orwhen there are capacity constraints. Approximately 4%, 6%, 2%, 3%, and 2% ofthe Company’s net sales were sourced from AAG for the periods January 1,2006 to February 1, 2006; February 2, 2006 to December 31, 2006;January 1, 2005 to March 31, 2005; April 1, 2005 to December 31,2005; and the year ended December 31, 2004, respectively. The Company’sinvestment in AAG at December 31, 2006 was $96,950. The carrying 

F-19

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE6—EQUITY METHOD INVESTMENT (Continued)**

value of the Company’s investmentin AAG exceeds the amount of underlying equity in net assets by $12,878****andrepresents goodwill that is not amortized.

Summarizedfinancial data for AAG’s operations as of February 1, 2006, December 31,2006, March 31, 2005, December 31, 2005, and December 31, 2004and for the periods ended is as follows:

| ** **                | ** ** | **Year ended**             | ** ** | **Year ended**             | ** ** | **Year ended**        | ** ** |
|---------------------------|------------|---------------------------------|------------|---------------------------------|------------|----------------------------|------------|
| ** **                | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** | ** **                 | ** ** |
| ** **                | ** ** | **Jan 1-Feb 1**       | ** ** | **Feb 2-Dec 31**      | ** ** | **Jan 1-Mar 31** | ** ** | **Apr 1-Dec 31** | ** ** | **Dec 31, 2004** | ** ** |
| ** **                | ** ** | **Predecessor 2**          | ** ** | **Successor**                   | ** ** | **Predecessor 1**     | ** ** | **Predecessor 2** | ** ** | **Predecessor 1** | ** ** |
| Sales                     |       |                            | $          | 27,840                          |       |                       | $597,347   |   |   | $ | 85,100 |   |   |   | $ | 380,407 |   |   |   | $ | 417,428 |   |   |
| Gross profit              |       |                            | 6,067      |                            |       | 112,288                    |       |   | 18,042 |   |   |   | 82,262 |   |   |   | 112,273 |   |   |
| Net income                |       |                            | 2,573      |                            |       | 44,095                     |       |   | 6,228 |   |   |   | 37,507 |   |   |   | 59,017 |   |   |
| Current assets.           |       |                            | 427,003    |                            |       | 447,773                    |       |   | 484,194 |   |   |   | 449,111 |   |   |   | 474,047 |   |   |
| Current  liabilities.     |       |                            | 350,990    |                            |       | 492,116                    |       |   | 380,663 |   |   |   | 370,779 |   |   |   | 348,059 |   |   |
| Non-current  liabilities. |       |                            | 42,964     |                            |       | 43,954                     |       |   | 18,949 |   |   |   | 41,107 |   |   |   | 7,653 |   |   |
| Total assets.             |       |                            | 695,343    |                            |       | 872,221                    |       |   | 656,216 |   |   |   | 710,875 |   |   |   | 625,773 |   |   |
| Stockholders’ equity |       |                            | 301,390    |                            |       | 336,151                    |       |   | 251,694 |   |   |   | 298,989 |   |   |   | 264,796 |   |   |
| Retained earnings         |       |                            | 218,160    |                            |       | 255,891                    |       |   | 171,434 |   |   |   | 215,587 |   |   |   | 165,785 |   |   |

 

Pursuant to the AAGshareholders agreement, the Company agreed in certain limited circumstancesupon the request of AAG’s lenders to provide guarantees of certain borrowingsof AAG that were outstanding on June 8, 2001, the date the Company enteredinto the AAG shareholders agreement, in proportion to its approximately 25%equity ownership in AAG in the event that any of such borrowings are cancelledby a lender or are required by a lender to be restructured or renewed. TheCompany has not guaranteed or been asked to guarantee any borrowings of AAGunder this provision since the execution of the AAG shareholders agreement onJune 8, 2001. The aggregate U.S. dollar equivalent (based on exchangerates at December 31, 2006) of the borrowings the Company potentiallycould have been required to guarantee at the time it entered into the AAGshareholders agreement was its approximately 25% share of approximately$71.6 million, or approximately $17.9 million. Based on theinformation the Company has received from AAG to date, the Company believesthat the borrowings have been cancelled, repaid, restructured or refinanced.Based on the Company’s interpretation of the AAG shareholders agreement, theCompany believes that its potential obligation to guarantee any item of thespecified borrowings applies only to the first such cancellation, restructuringor renewal thereof and is thereafter extinguished. As a result, based on theinformation the Company has received from AAG to date, the Company does notbelieve it could be required to guarantee any amounts outstanding as of thedate hereof.

F-20

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 7—INTANGIBLEASSETS**

As part of the IndalexHolding acquisition, identifiable intangible assets were recorded. Theidentifiable intangible assets are being amortized on a declining balancemethod. The useful lives range from seven to fifteen years. The table belowsummarizes the identified intangible assets and annual amortization expense.

| ** **        | ** ** | **December 31, 2006** | ** ** |
|-------------------|------------|---------------------------------|------------|
| ** **        | ** ** | **Gross**                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **        | ** ** | **Carrying**                    | ** ** | **Accumulated** | ** ** | **Net Carrying** | ** ** |
| ** **        | ** ** | **Amount**                      | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
| Customer lists    |       | $                               | 72,000     |   |   | ($8,682 | ) |   |   | $ | 63,318 |   |   |
| Indalex trademark |       | $                               | 17,000     |   |   | (2,054 | ) |   |   | 14,946 |   |   |
| Total             |       | $                               | 89,000     |   |   | ($10,736 | ) |   |   | $ | 78,264 |   |   |

 

Future amortizationexpense is as follows:

| 2007 |   | $ | 9,891 |   |
|------|--------|---|-------|--------|
| 2008 |   | $ | 8,440 |   |
| 2009 |   | $ | 7,649 |   |
| 2010 |   | $ | 7,175 |   |
| 2011 |   | $ | 6,748 |   |

 

**NOTE 8—RESTRUCTURINGCHARGES**

In September 2006, the Company initiated anoverhead restructuring program. As of December 31, 2006, the Companyrecorded expense of $1,772 inseverance and related costs, of which $1,374was unpaid as of December 31, 2006. The program resulted in thetermination of 32 people.

On March 14, 2005, the Company announced theclosure of its aluminum extrusion facility located in Fostoria, Ohio. TheFostoria closure, which involved 53 employees, occurred on July 31, 2005. Forthe period January 1, 2005 to March 31, 2005, the Company recordedrestructuring expense of $694,comprised of $525 for severance costs for hourly and salaried employees,including associated benefits and outplacement. Additional exit costs of $169were recorded for lease obligations and other exit costs. As ofDecember 31, 2005, the Company had paid out all but $74. All amounts werepaid as of December 31, 2006. As a result of the closure, the Companyrecorded asset impairments of $381 forthe period January 1, 2005 to March 31, 2005 and $366 for the periodFebruary 2, 2006 to December 31, 2006.

As part of the acquisition by Honeywell and includedin the related purchase accounting, the Company initiated an overhead reductionprogram that resulted in the termination of 75 employees at a cost of$2,054. The program was accounting for as a part of purchase accounting. Thesecosts related to severance costs and other eligible associated expenses. As of December 31,2006 and December 31, 2005, the Company had a remaining liability of $8and $1,125, respectively.

F-21

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 8—RESTRUCTURING CHARGES (Continued)**

In 2004 the Company implemented an overhead reductionprogram that resulted in the termination of 58 employees at a cost of $4,591.These costs related to severance costs and other eligible associated expenses.As of December 31, 2006 and December 31, 2005 the Company had a remaining liability of $130 and $298, respectively, related to 2004 restructuring programs.

In June 2004, the Company announced the closureof its aluminum extrusion facility located in Berlin, Connecticut. The closurewas completed on September 30, 2004. Berlin’s closure resulted in thetermination of 99 employees at cost of $1,290. These costs included severancecosts for hourly and salaried employees including associated benefits and outplacementservices. Additional costs related to this closure included $45 of leaseobligations and $45 of other eligible associated expenses. As ofDecember 31, 2006, all but $17of these charges had been paid. Additionally, an impairment charge of $1,372was recorded against the property, plant and equipment during the year endedDecember 31, 2004. This impairment charge reflected the write-down to fairvalue of the machinery and equipment at the facility.

The following tablesummarizes the status of the Company’s total restructuring costs.

| ** **                           | ** ** | **Severance** | ** ** | **Asset**       | ** ** | **Exit**  | ** ** | ** ** | ** ** |
|--------------------------------------|------------|---------------|------------|-----------------|------------|-----------|------------|------------|------------|
| ** **                           | ** ** | **Costs**     | ** ** | **Impairments** | ** ** | **Costs** | ** ** | **Total**  | ** ** |
| Balance at  December 31, 2003   |       |          | $          | 645             |       |      |       | $          | —     |   |   | $ | 319 |   | $ | 964 |   |
| 2004 charges                         |       |          | 5,996      |            |       |      | 1,372      |       |       | 90 |   | 7,458 |   |
| 2004 usage                           |       |          | (5,363     | )               |       |      | (1,372     | )          |       | (384 | ) | (7,119 | ) |
| Balance at  December 31, 2004   |       |          | 1,278      |            |       |      | —     |       |       | 25 |   | 1,303 |   |
| January 1-March 31, 2005 charges     |       |          | 525        |            |       |      | 381        |       |       | 169 |   | 1,075 |   |
| January 1-March 31, 2005 usage       |       |          | (741       | )               |       |      | (381       | )          |       | (1 | ) | (1,123 | ) |
| Balance at March  31, 2005           |       |          | 1,062      |            |       |      | —     |       |       | 193 |   | 1,255 |   |
| April 1-December 31, 2005 charges    |       |          | (250       | )               |       |      | —     |       |       | 28 |   | (222 | ) |
| April 1-December 31, 2005 usage      |       |          | (1,424     | )               |       |      |       |       |       | (166 | ) | (1,590 | ) |
| Purchase Accounting reserve          |       |          | 2,054      |            |       |      | —     |       |       | — |   | 2,054 |   |
| Balance at  December 31, 2005        |       |          | 1,442      |            |       |      | —     |       |       | 55 |   | 1,497 |   |
| January 1-February 1, 2006 charges   |       |          | —     |            |       |      | —     |       |       | — |   | — |   |
| January 1-February 1, 2006 usage     |       |          | (156       | )               |       |      | —     |       |       | (15 | ) | (171 | ) |
| Balance at  February 1, 2006         |       |          | 1,286      |            |       |      | —     |       |       | 40 |   | 1,326 |   |
| February 2-December 31, 2006 charges |       |          | 1,772      |            |       |      | 3,812      |       |       | — |   | 5,584 |   |
| February 2-December 31, 2006 usage   |       |          | (1,529     | )               |       |      | (3,812     | )          |       | (40 | ) | (5,381 | ) |
| Balance at  December 31, 2006   |       |          | $          | 1,529           |       |      |       | $          | —     |   |   | $ | — |   | $ | 1,529 |   |

 

**NOTE 9—DERIVATIVEINSTRUMENTS**

SFAS No. 133 requires that an entity recognizeall derivatives as either assets or liabilities measured at fair value. Inaccordance with the Company’s risk management policy, derivatives are limitedto futures, forwards, swaps, and options, which are used to mitigate commodityprice fluctuations specifically related to aluminum and gas. These hedgingrelationships do not qualify for hedge accounting as defined by SFAS No. 133.Therefore, the derivatives are marked to market through the income statement.As of 

F-22

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE9—DERIVATIVE INSTRUMENTS (Continued)**

December 31, 2006,the Company had 211 contracts to purchase 43.8 million pounds of aluminum atprices per pound between $0.77 and $1.34 (actual). These purchase contracts arescheduled to mature between January 2007 and January 2009, and thenotional amount was $50,366. As of December 31, 2006, the Company also had10 contracts to purchase 3.5 million pounds of the Midwest premium portion ofaluminum, at a price per pound of $.07 (actual). These purchase contracts arescheduled to mature between January 2007 and June 2007, and thenotional amount was $4,200. As of December 31, 2006, the Company had 78contracts to sell 41.8 million pounds of aluminum at prices between $1.09 and$1.28 (actual). These sales contracts are scheduled to mature between January 2007and April 2007, and the notional amount was $53,146. As of December 31,2006, the unrealized gains related to these derivatives are recorded withinother current assets in the amount of $3,449. The income statement reflects a gainof $3,619 for the period January 1, 2006 to February 1, 2006 and aloss of $7,560 for the period February 2, 2006 to December 31, 2006.

As of December 31, 2005, the unrealized gainsrelated to these derivatives are recorded within other current assets in theamount of $7,390. The income statement reflects a loss of $285 for the period January 1,2005 to March 31, 2005 and a gain of $1,200 for the period April 1,2005 to December 31, 2005.

As of December 31, 2004, the unrealized gainsrelated to these derivatives are recorded within other current assets in theamount of $6,475. The income statement reflects a gain of $3,638 for the yearended December 31, 2004.

The Company purchasesinventory in foreign currencies from international suppliers, giving rise toforeign exchange rate risk. The purpose of the Company’s foreign currencyhedging activity is to protect the Company from the risk that the eventual U.S.Dollar net cash outflows resulting from foreign purchases or net cash inflowsdenominated in foreign currency, will be adversely affected by the changes inexchange rates. These hedging relationships do not qualify for hedge accountingas defined by SFAS No. 133. Therefore, the derivatives are marked tomarket through the income statement.

**NOTE 10—AFFILIATETRANSACTIONS**

For the period January 1, 2006 through February 1,2006, net cash generated under the Honeywell cash sweep arrangement in theUnited States of $5,899 was remitted as a return of capital. Cash generated of$6,809 was remitted to Honeywell as a dividend. The Company was not chargedmanagement fees by Honeywell during this period. The Company recorded expenseof $125 in the statement of income as an estimate for the services provided byHoneywell during this period. The management fees for this period are reflectedas an increase to additional paid-in-capital in the statement of stockholders’equity.

During the period February 2, 2006 toDecember 31, 2006, the Company incurred management fees of $1,634 to SunCapital Partners, Inc. for acquisition costs, debt financing support,operational management and corporate governance. Sun Capital Partners chargesits fees to affiliates proportionately based on a percentage of EBITDA.Management believes these fees are reasonably representative of the costsincurred to provide this support. 

F-23

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE10—AFFILIATE TRANSACTIONS (Continued)**

On July 18, 2006, the Company paid a dividend tostockholders of $1,522.

At December 31, 2005 the Company had a netreceivable from Honeywell affiliates of $2,680. The balance results fromintercompany transactions occurring in the normal course of operations. TheCompany had a note receivable from Novar of $4,279. Both receivables weresettled in January 2006.

For the period April 1, 2005 through December 31,2005 net cash generated under the Honeywell cash sweep arrangement in theUnited States of $11,791 was remitted as a return of capital. Cash generated inCanada of $13,968 was remitted to Honeywell as a dividend. The Company alsopaid management fees to Honeywell totaling $1,131 for services provided on itsbehalf in the areas of tax and treasury which management believes were representativeof the cost to provide those services. Honeywell proportionately allocates itssupport costs to its subsidiaries. The Company incurred costs directly for allother functions.

For the period January 1, 2005 through March 31,2005 the Company was not charged management fees by Novar. The Company recordedexpense of $700 in the statement of income as an estimate for the servicesprovided by Novar during this period. The management fees for this period arereflected as an increase to additional paid-in-capital in thestatement of stockholders’ equity.

The Company received dividend income from affiliatedcompanies totaling $9,077 for the period January 1, 2005 to March 31,2005 and $15,102 during the year ended December 31, 2004. 

The Company paidmanagement fees to affiliated companies totaling $2,771 during the year endedDecember 31, 2004. The fees to affiliated companies represented costsincurred on behalf of the Company by Novar, its parent company, related to riskmanagement, treasury, tax and legal services. Novar proportionately allocatedcosts to their subsidiaries based on services provided and the Company was oneof the larger divisions of Novar. Management believes that these feesreasonably represent the services provided and costs incurred to do business.

**NOTE 11—INVENTORIES**

Inventoriesconsisted of the following:

| ** **           | ** ** | **Dec 31, 2006** | ** ** | **Dec 31, 2005** | ** ** |
|----------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **           | ** ** | **Successor**              | ** ** | **Predecessor 2**     | ** ** |
| Raw materials        |       |                       | $          | 37,883                     |       |   |   | $ | 34,763 |   |   |
| Work in process      |       |                       | 4,251      |                       |       |   | 1,923 |   |   |
| Finished goods       |       |                       | 31,001     |                       |       |   | 22,401 |   |   |
|                 |       |                       | 73,135     |                       |       |   | 59,087 |   |   |
| Less LIFO  allowance |       |                       | (5,953     | )                          |       |   | (737 | ) |   |
| Total inventories    |       |                       | $          | 67,182                     |       |   |   | $ | 58,350 |   |   |

 

F-24

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE11—INVENTORIES (Continued)**

Had the FIFO basis been used to cost all inventories,the amounts by which inventories are stated would have increased by $5,953 and$737 at December 31, 2006 and December 31, 2005, respectively.Inventory stated on the LIFO basis amounted to $35,922 at December 31,2006 and $33,852 at December 31, 2005.

During 2004, Indalex Inc.’sinventory quantities were reduced. This reduction resulted in a liquidation ofLIFO inventory quantities carried at lower costs prevailing in prior years ascompared with the cost of 2004 purchases, the effect of which decreased cost ofsales by approximately $1,000 and increased net income by approximately $600.

**NOTE 12—PROPERTY,PLANT AND EQUIPMENT**

Netproperty, plant, and equipment consists of the following:

| ** **                                | ** ** | **Dec 31, 2006** | ** ** | **Dec 31, 2005** | ** ** |
|-------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                | ** ** | **Successor**              | ** ** | **Predecessor 2**     | ** ** |
| Land, buildings  and improvements         |       |                       | $          | 93,129                     |       |   |   | $ | 105,909 |   |   |
| Machinery and  equipment                  |       |                       | 121,774    |                       |       |   | 125,281 |   |   |
| Office equipment,  furniture and vehicles |       |                       | 5,336      |                       |       |   | 6,463 |   |   |
| Construction in  progress                 |       |                       | 3,788      |                       |       |   | 6,543 |   |   |
|                                      |       |                       | 224,027    |                       |       |   | 244,196 |   |   |
| Accumulated  depreciation                 |       |                       | (24,539    | )                          |       |   | (24,943 | ) |   |
| Net property, plant and equipment         |       |                       | 199,488    |                       |       |   | 219,253 |   |   |
| Assets held for  sale                     | ** ** | ** **                 | 150        |                       |       |   | 104 |   |   |
| Total property,  plant and equipment      |       |                       | $          | 199,638                    |       |   |   | $ | 219,357 |   |   |

 

**NOTE 13—ACCRUEDEXPENSES AND OTHER CURRENT LIABILITIES**

Accruedexpenses and other current liabilities consists of the following:

| ** **                                            | ** ** | **Dec 31, 2006** | ** ** | **Dec 31, 2005** | ** ** |
|-------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                            | ** ** | **Successor**              | ** ** | **Predecessor 2**     | ** ** |
| Payroll and  related benefits                         |       |                       | $          | 18,052                     |       |   |   | $ | 17,559 |   |   |
| Accrued accounts  payable                             |       |                       | 14,678     |                       |       |   | 23,091 |   |   |
| Property and  other taxes                             |       |                       | 1,040      |                       |       |   | 1,398 |   |   |
| Environmental                                         |       |                       | 105        |                       |       |   | 168 |   |   |
| Restructuring                                         | ** ** | ** **                 | 1,529      |                       |       |   | 1,497 |   |   |
| Other                                                 | ** ** | ** **                 | 3,074      |                       |       |   | 1,659 |   |   |
| Total accrued  expenses and other current liabilities |       |                       | $          | 38,478                     |       |   |   | $ | 45,372 |   |   |

 

F-25

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 14—OTHERLIABILITIES**

Otherliabilities were comprised of the following:

| ** **                      | ** ** | **Dec 31, 2006** | ** ** | **Dec 31, 2005** | ** ** |
|---------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                      | ** ** | **Successor**              | ** ** | **Predecessor 2**     | ** ** |
| Pension                         |       |                       | $          | 18,345                     |       |   |   | $ | 41,750 |   |   |
| Environmental                   |       |                       | 1,565      |                       |       |   | 1,587 |   |   |
| Post-retirement  benefits       |       |                       | 4,362      |                       |       |   | 6,610 |   |   |
| Other  post-retirement benefits |       |                       | 547        |                       |       |   | 762 |   |   |
| Other                           |       |                       | 5,848      |                       |       |   | 3,231 |   |   |
| Total                           |       |                       | $          | 30,667                     |       |   |   | $ | 53,940 |   |   |

 

 

**NOTE 15—DEBT**

The Company hassignificant debt service obligations. A revolving credit facility consists of afirst-priority secured five-year asset-based revolving credit facilityproviding for borrowings up to $200.0 million. In addition, to fund thepurchase from Honeywell, the Company issued $270.0 million of 111¤2%notes on February 2, 2006, which mature in 2014. The bonds were recordednet of a discount of $3,437 which is amortized over the term of the bonds. Thediscount is $3,043 at December 31, 2006. Interest expense was $35,745 inthe period February 2, 2006 to December 31, 2006.

*Revolving CreditFacility*

The revolving credit facility provides an aggregateprincipal amount of up to $200.0 million, all of which is available in theform of loans denominated in U.S. dollars to Indalex Holding Corp. and up to$80.0 million of which is available as a revolving credit sub-facility inthe form of loans denominated in Canadian dollars and loans denominated in U.S.dollars to Indalex Limited or bankers’ acceptances denominated in Canadiandollars, subject in each case to the borrowing base limitations describedbelow. Up to an aggregate of $30.0 million will be available to IndalexHolding Corp., Indalex Limited and subsidiaries of Indalex Holding Corp., tothe extent that Indalex Holding Corp. or Indalex Limited is a co-applicant,for the issuance of letters of credit. As of December 31, 2006, borrowingsunder the revolving credit facility bore interest at a weighted average rate of7.4%.

The aggregate amount of loans permitted to be made toIndalex Holding Corp. under the revolving credit facility may not exceed aborrowing base comprised of the eligible accounts receivable, inventory,machinery and equipment and real property of Indalex Holding Corp. and itswholly owned domestic subsidiaries, subject to an aggregate total cap, whentaken together with loans made to Indalex Limited, of $200.0 million.

The aggregateamount of loans permitted to be made to Indalex Limited under the Canadianrevolving credit sub-facility may not exceed a borrowing base comprised of theeligible accounts receivable, inventory, machinery and equipment and realproperty of Indalex Limited and its wholly owned Canadian 

F-26

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 15—DEBT (Continued)**

subsidiaries, subject toan aggregate sub-cap of $80.0 million and further subject to an aggregatetotal cap, when taken together with loans made to Indalex Holding Corp., of$200.0 million.

The Company’s obligations under the revolving creditfacility are guaranteed on a first-priority secured basis by Holdings andeach domestic subsidiary of Indalex Holding Corp. The obligations of IndalexLimited under the Canadian revolving credit sub-facility will be guaranteed ona first-priority secured basis by Holdings, Indalex Holding Corp., eachdomestic subsidiary of Indalex Holding Corp. and certain foreign subsidiariesof Indalex Holding Corp., other than Indalex Limited.

Indalex Holding Corp.’s obligations under the U.S.portion of the revolving credit facility and the guarantees thereof are securedby a first-priority lien on all of the tangible and intangible assets ofHoldings, Indalex Holding Corp. and each domestic subsidiary of Indalex HoldingCorp., as well as 100% of the capital stock of Indalex Holding Corp. and theCompany’s domestic subsidiaries and 65% of the capital stock of the foreignsubsidiaries directly owned by the Company or any of the Company’s domesticsubsidiaries. The obligations of Indalex Limited under the Canadian revolvingcredit sub-facility and the guarantees thereof are secured by a first-prioritylien on all of the tangible and intangible assets of Holdings, Indalex HoldingCorp., Indalex Limited, each domestic subsidiary of Indalex Holding Corp. andcertain foreign subsidiaries of Indalex Holding Corp., as well as 100% of thecapital stock of Indalex Holding Corp. and its domestic subsidiaries and 100%of the capital stock of the Company’s foreign subsidiaries, including IndalexLimited.

Indalex Holding Corp. andIndalex Limited may, at their option, increase the aggregate commitments underthe revolving credit facility by an additional $40.0 million, subject tothe satisfaction of certain conditions precedent.

*11*1¤2% Notes

Indalex Holding Corp. issued the 111¤2%Notes on February 2, 2006. The 111¤2%Notes will mature in 2014 and are guaranteed on a second-priority secured basisby each of the Company’s domestic subsidiaries that incur indebtedness, andeach of the Company’s foreign subsidiaries that enter into a guarantee of anyof the Company’s  senior indebtedness(other than indebtedness incurred by another foreign subsidiary). On theclosing date, the 111¤2%Notes were guaranteed by each of the Company’s domestic subsidiaries and noneof the Company’s foreign subsidiaries. Interest on the 111¤2% Notes ispayable semi-annually in cash.

The 111¤2% Notes aresecured by a second-priority lien on substantially all of Indalex HoldingCorp.’s and the guarantors’ assets to the extent that such assets secure theborrowings under the Company’s revolving credit facility and a second-prioritypledge of 100% of Indalex Holding Corp.’s and its domestic subsidiaries’capital stock and 65% of the capital stock of the Company’s foreignsubsidiaries directly owned by Indalex Holding Corp. or any domestic subsidiary(in each case, subject to certain limitations.)

The indenture governing the 111¤2%Notes, among other things, limits Indalex Holding Corp.’s ability and theability of its restricted subsidiaries to: incur additional indebtedness; paydividends on or make distributions in respect of capital stock or make certainother restricted payments or investments; enter 

F-27

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 15—DEBT (Continued)**

into agreements that restrict distributions fromrestricted subsidiaries; sell or otherwise dispose of assets, including capitalstock of restricted subsidiaries; enter into transactions with affiliates;create or incur liens; enter into sale/leaseback transactions; and merge,consolidate or sell substantially all of the Company’s  assets. These covenants are subject toimportant exceptions and qualifications.

**Optional Redemption**

Except as set forth below, the Company will not beentitled to redeem the Notes at its option prior to February 1, 2010.

On and after February 1,2010, the Company will be entitled at its option to redeem all or a portion ofthe Notes upon not less than 30 or more than 60 days’ notice, at theredemption prices (expressed as a percentage of principal amount on theredemption date), plus accrued and unpaid interest and additional interestthereon, if any, to the redemption date (subject to the right of Holders ofrecord on the relevant record date to receive interest due on the relevantinterest payment date), if redeemed during the 12-month period commencingon February 1 of the years set forth below:

| **Period**          | ** ** | ** ** | ** ** | **Redemption Price** | ** ** |
|---------------------|------------|------------|------------|---------------------------|------------|
| 2010                |       |       | 108.625    | %                         |       |
| 2011                |       |       | 102.875    | %                         |       |
| 2012 and thereafter |       |       | 100.000    | %                         |       |

 

Prior to February 1, 2009, the Company will beentitled at its option on one or more occasions to redeem Notes (which includesAdditional Notes, if any) in an aggregate principal amount not to exceed 35% ofthe aggregate principal amount of the Notes (which includes Additional Notes,if any) originally issued at a redemption price (expressed as a percentage ofprincipal amount) of 1111¤2%,plus accrued and unpaid interest and additional interest thereon, if any, tothe redemption date, with the net cash proceeds from one or more EquityOfferings; *provided*, *however*, that

(1)         at least 65% of suchaggregate principal amount of Notes (which includes Additional Notes, if any)remains outstanding immediately after the occurrence of each such redemption(other than Notes held, directly or indirectly, by the Company or itsAffiliates); and

(2)         each such redemptionoccurs within 90 days after the date of the related Equity Offering.

Prior to February 1,2010, the Company will be entitled on one or more occasions to redeem all or aportion of the Notes (which includes Additional Notes, if any) upon not lessthan 30 nor more than 60 days’ notice at a redemption price equal to thesum of:

(1)         100% of the principalamount thereof, plus accrued and unpaid interest and additional interestthereon, if any, to the redemption date (subject to the right of Holders ofrecord on the relevant record date to receive interest due on the relevantinterest payment date); plus

(2)         the Make-WholeAmount, if any.

F-28

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 15—DEBT (Continued)**

The term “Make-Whole Amount” shall mean, inconnection with any optional redemption of any Note, the greater of (1) 1.0%of the principal amount of such Note and (2) the excess, if any, of (A) theaggregate present value as of the date of such redemption of the redemptionprice of such Note on February 1, 2010 (as set forth in the table above)and the amount of interest (exclusive of interest accrued to the redemptiondate) that would have been payable in respect of such Note through February 1,2010 if such redemption had not been made, determined by discounting, on asemiannual basis, such redemption price and interest at the Treasury Rate(determined on the business day preceding the date of such redemption) plus0.5%, from the respective dates on which such redemption price and interestwould have been payable if such redemption had not been made, over (B) theprincipal amount of the Note being redeemed.

“Treasury Rate” means, in connection with thecalculation of any Make-Whole Amount with respect to any Note, the yieldto maturity at the time of computation of United States Treasury securitieswith a constant maturity, as compiled by and published in the most recentStatistical Release that has become publicly available at least two BusinessDays prior to the redemption date, equal to the period from the redemption dateto February 1, 2010. If no maturity exactly corresponds to such period,yields for the published maturities occurring prior to and after such maturitymost closely corresponding to such maturity shall be calculated pursuant to theimmediately preceding sentence and the Treasury Rate shall be interpolated orextrapolated from such yields on a straight-line basis, rounding in eachof such relevant periods to the nearest month.

“Statistical Release”means the statistical release “H.15(519)” or any successor publication which ispublished weekly by the Federal Reserve System and which establishes yields onactively traded U.S. government securities adjusted to constant maturities or,if such statistical release is not published at the time of any determination,then such other reasonably comparable index which shall be designated by theTrustee.

**Selection andNotice of Redemption**

If the Company is redeeming less than all the Notes atany time, the Trustee will select the Notes to be redeemed on a *pro rata* basis to the extent practicable.

The Company will redeem Notes of $1,000 or less inwhole and not in part. The Company will cause notices of redemption to bemailed by first-class mail at least 30 but not more than 60 daysbefore the redemption date to each Holder of Notes to be redeemed at itsregistered address.

If any Note is to beredeemed in part only, the notice of redemption that relates to that Note willstate the portion of the principal amount thereof to be redeemed. The Companywill issue a new Note in a principal amount equal to the unredeemed portion ofthe original Note in the name of the Holder upon cancellation of the originalNote. Notes called for redemption become due on the date fixed for redemption.On and after the redemption date, interest ceases to accrue on Notes orportions of them called for redemption.

F-29

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 15—DEBT (Continued)**

**MandatoryRedemption; Offers to Purchase; Open Market Purchases**

The Company is notrequired to make any mandatory redemption or sinking fund payments with respectto the Notes. However, under certain circumstances, the Company may be requiredto offer to purchase Notes as described under the captions “—Change of Control”,“—Excess Cash Flow Offer” and “—Certain Covenants—Limitation on Sales of Assetsand Subsidiary Stock”. The Company may at any time and from time to timepurchase Notes in the open market or otherwise.

**RegistrationDefault**

The Company was in aregistration default that began on October 31, 2006 and ended onFebruary 14, 2007, the date on which the Company’s exchange offer wascompleted. As a result of the registration default, holders are entitled toadditional interest, payable on regularly scheduled interest payment dates, onthe Company’s notes accrued from October 31, 2006 through but notincluding the date on which the exchange offer was completed.

**NOTE 16—DEBT ISSUE COSTS**

As part of thetransactions associated with the Indalex Holdings acquisition, the Companyincurred $4.2 million and $12.6 million in debt issue costs for theRevolving Credit Facility and the 111¤2% Notes,respectively. These costs are being amortized using the straight-line methodover the life of the debt (5 years and 8 years, respectively).

**NOTE 17—DISPOSALS ANDASSETS HELD FOR SALE**

On November 19, 2006, the Company sold its DrawnTube and extrusion facilities located in Winton, North Carolina to Spectube USA.The aggregate purchase price was $4,548, comprised of cash proceeds (net oftransaction costs) of $3,373, and a promissory note of $1,175, payable over 3years at an interest rate of 8% per annum. The Company also entered into a rawmaterial supply agreement with Spectube. As a result of the sale the Company recordedan impairment charge of $2,676. 

In June 2006, the Company idled the six-inchpress at its Connersville, Indiana facility to consolidate operations in Niles,Ohio. As a result of idling the press the Company recorded an impairment of$487 on long-lived assets during the period February 2, 2006 toDecember 31, 2006.

In March 2005, the Company announced the closure ofits extrusion plant in Fostoria, Ohio. As a result of the closure the Companyrecorded an impairment of $381 on long-lived assets during the periodJanuary 1, 2005 to March 31, 2005. During the period February 2,2006 through December 31, 2006, the Company recorded an additional impairmenton long-lived assets of $366. The remaining assets of $150 are classified asassets held for sale as of December 31, 2006.

OnDecember 14, 2004, the Company sold a cast house in Ahoskie, NorthCarolina, for a $740 mortgage note receivable. The mortgage note receivable bearsinterest at 7%, is due December 31, 2007, and is collateralized by theAhoskie land, building, and equipment. In connection with the sale, the Companyentered into a five-year supply agreement with the buyer to purchase castings.Due to 

F-30

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 17—DISPOSALS AND ASSETS HELD FORSALE (Continued)**

insufficient initialinvestment on the part of the buyer, this transaction was not recorded as asale. Rather, an impairment loss of $1,356 was recorded on property, plant andequipment during the year ended December 31, 2004, and the Companyretained the property, plant and equipment in its combined financialstatements. The buyer ceased operations, and the Company recorded additionalimpairments on long-lived assets of $636 and $104 for the periods April 1,2005 to December 31, 2005 and February 2, 2006 to December 31,2006, respectively. The book value for the mortgage note receivable and property,plant and equipment is zero as of December 31, 2006.

In June 2004, the Company announced the closureof its aluminum extrusion facility located in Berlin, Connecticut. As a resultof the closure the Company recorded an impairment on long-lived assets of$1,372 during the year ended December 31, 2004. The plant closure wascompleted on September 30, 2004. The facility and equipment were disposedin 2005, generating proceeds of $2,580 and a gain of $292.

On June 25, 2004, theCompany entered into an asset exchange agreement with Ohio Valley AluminumCompany LLC (“OVACO”), a billet supplier, to swap facilities. The Companyexchanged its Niles, Ohio cast house plus $3,000 cash consideration for anextrusion facility in Connersville, Indiana. This exchange gave each partyanother facility for their main process (extrusion for the Company). Productionin the new plant began on June 28, 2004. The transaction was accounted foras an exchange where the assets received were recorded at fair value on thedate of acquisition. The fair market value of the acquired Connersvillefacility on the date of the transaction was $9,134 and the book value of Nilesassets given up were $3,615. The Company recorded a gain of $1,225 inconnection with this transaction.

**NOTE 18—EMPLOYEEBENEFIT PLANS**

*Pensionand Post-Retirement Benefits:*   The Company maintainsdefined benefit pension plans which provide retirement benefits for certainemployees. The assets of the plans are invested primarily in equity andbond-based funds, debt and equity securities, and short-term cash investments.Pension costs are calculated using the accrued benefit model of actuarialvaluation with projected earnings where appropriate. The Company also maintainsfor select employees a defined benefit plan that provides healthcare and lifeinsurance benefits upon retirement. The plan is unfunded.

In connection with the Indalex Holdings acquisition,the accrued pension was adjusted to exclude unamortized pension assets andliabilities at the acquisition date. In addition, part of the pension liabilitywas retained by Honeywell. Also related to the Indalex Holdings acquisition,the Company executed a wind-up of part of its Canadian pension plan. The net impact of the Indalex Holdingsacquisition is a $10.0 million reduction to the pension liability.

As discussed in Note2-Summary of Significant Accounting Policies, the Company adopted SFAS No. 158as of December 31, 2006. SFAS No. 158 requires that employers recognize on aprospective basis the funded status of their defined benefit pension and otherpostretirement benefit plans on their consolidated balance sheet and recognizeas a component of other comprehensive income (loss), net of tax, the gains orlosses and prior service costs or credits that arise during the period but arenot recognized as components of net periodic benefit cost. Additional minimumpension liabilities and related intangible assets are also 

F-31

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE18—EMPLOYEE BENEFIT PLANS (Continued)**

derecognized upon adoption of the new standard. Theimpact of adopting SFAS No. 158 resulted in an adjustment to the pensionliability as shown in the table below:

| **As of December 31, 2006**         | ** ** | ** ** | ** ** | **Pension  Liability  Adjustment** | ** ** | **SFAS No. 158  Adjustment** | ** ** | **Pension  Liability  &  SFAS No. 158  Adjustments** | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------------------------------|------------|----------------------------------------|------------|-------------------------------------------------------------------------|------------|
| (Increase) decrease to pension liabilities              |       |       | $          | (592                               | )          |                                   |       | $                                                                       | 5,014      |   |   |   | $ | 4,422 |   |   |
| Decrease to post-retirement  liabilities                |       |       | —     |                               |       |                                   | 115        |                                                                    |       |   | 115 |   |   |
| Increase (decrease)  in deferred income tax liabilities |       |       | 239        |                               |       |                                   | (2,070     | )                                                                       |       |   | (1,831 | ) |   |
| Accumulated other  comprehensive income (loss)          |       |       | $          | (353                               | )          |                                   |       | $                                                                       | 3,059      |   |   |   | $ | 2,706 |   |   |

 

The following tablessummarize the balance sheet impact, including the benefit obligations, assets,and funded status associated with the Company’s pension and post-retirementplans. The Company uses a December 31 measurement date.

| ** **                                         | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|----------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                         | ** ** | **Pension**                     | ** ** | **Post-Retirement**             | ** ** | **Pension** | ** ** | **Post-Retirement** | ** ** |
| ** **                                         | ** ** | **Benefits**                    | ** ** | **Benefits**                    | ** ** | **Benefits** | ** ** | **Benefits** | ** ** |
| ** **                                         | ** ** | **Successor**                   | ** ** | **Predecessor 2**          | ** ** |
| Change in projected  benefit obligation            |       |                            |       |                            |       |   |   |   |   |   |   |   |   |
| Benefit obligation at March 31, 2005          |       |                            |       |                            |       |   |   | $ | 161,056 |   |   | $ | 9,744 |   |   |
| Benefit obligation at February 1, 2006        |       | $                               | 139,530    |                            |       | $ | 5,081 |   |   |   |   |   |   |   |   |
| Service cost (including expenses)                  |       | 956                             |       |                            | 54         |   |   | 836 |   |   | 81 |   |   |
| Interest cost                                      |       | 6,760                           |       |                            | 244        |   |   | 6,766 |   |   | 403 |   |   |
| Plan participants’ contributions              |       | —                          |       |                            | 27         |   |   | — |   |   | 122 |   |   |
| Amendments/curtailments                            |       | —                          |       |                            | —     |   |   | — |   |   | (4,599 | ) |   |
| Obligation being settled                           |       | (9,001                          | )          |                            | —     |   |   | — |   |   | — |   |   |
| Actuarial (gain)/loss                              |       | (2,544                          | )          |                            | (101       | ) |   | 6,318 |   |   | 149 |   |   |
| Benefits paid                                      |       | (5,268                          | )          |                            | (452       | ) |   | (5,314 | ) |   | (619 | ) |   |
| Impact of currency exchange                        |       | (665                            | )          |                            | —     |   |   | — |   |   | — |   |   |
| Projected benefit obligation at end of year        |       | $                               | 129,768    |                            |       | $ | 4,853 |   |   | $ | 169,662 |   |   | $ | 5,281 |   |   |
| Change in plan assets                              |       |                            |       |                            |       |   |   |   |   |   |   |   |   |
| Fair value of plan assets at March 31, 2005   |       |                            |       |                            |       |   |   | $ | 115,203 |   |   | $ | — |   |   |
| Fair value of plan assets at February 1, 2006 |       | $                               | 107,583    |                            |       | $ | — |   |   |   |   |   |   |   |   |
| Actual return on plan assets                       |       | 8,764                           |       |                            | —     |   |   | 10,724 |   |   | — |   |   |
| Employer contribution                              |       | 10,565                          |       |                            | 425        |   |   | 7,454 |   |   | 497 |   |   |
| Plan participants’ contributions              |       | —                          |       |                            | 27         |   |   | — |   |   | 122 |   |   |
| Benefits paid                                      |       | (5,268                          | )          |                            | (452       | ) |   | (5,314 | ) |   | (619 | ) |   |
| Expenses paid                                      |       | (607                            | )          |                            | —     |   |   | (875 | ) |   | — |   |   |
| Settlement payments                                |       | (9,265                          | )          |                            | —     |   |   | — |   |   | — |   |   |
| Impact of currency exchange                        |       | (348                            | )          |                            | —     |   |   | — |   |   | — |   |   |
| Fair value of  plan assets at end of year          |       | $                               | 111,424    |                            |       | $ | — |   |   | $ | 127,192 |   |   | $ | — |   |   |

 

F-32

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE18—EMPLOYEE BENEFIT PLANS (Continued)**

 

| ** **                                                             | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                                             | ** ** | **Pension**                     | ** ** | **Post-Retirement**             | ** ** | **Pension** | ** ** | **Post-Retirement** | ** ** |
| ** **                                                             | ** ** | **Benefits**                    | ** ** | **Benefits**                    | ** ** | **Benefits** | ** ** | **Benefits** | ** ** |
| ** **                                                             | ** ** | **Successor**                   | ** ** | **Predecessor 2**          | ** ** |
| Funded status                                                          |       | $                               | (18,345    | )                               |       | $ | (4,853 | ) |   | $ | (42,470 | ) |   | $ | (5,281 | ) |   |
| Unrecognized  actuarial loss                                           |       | —                          |       |                            | —     |   |   | 1,642 |   |   | 149 |   |   |
| Unrecognized  prior service cost                                       |       | —                          |       |                            | —     |   |   | — |   |   | (1,478 | ) |   |
| Net amount recognized                                                  |       | $                               | (18,345    | )                               |       | $ | (4,853 | ) |   | $ | (40,828 | ) |   | $ | (6,610 | ) |   |
| Amounts  recognized in the statement of financial position consist of: |       |                            |       |                            |       |   |   |   |   |   |   |   |   |
| Other long-term  liabilities                                           |       | $                               | (18,345    | )                               |       | $ | (4,362 | ) |   | $ | (41,750 | ) |   | $ | (6,119 | ) |   |
| Accrued expenses  and other current liabilities                        |       | —                          |       |                            | (491       | ) |   | — |   |   | (491 | ) |   |
| Accumulated other  comprehensive income                                |       | —                          |       |                            | —     |   |   | 922 |   |   | — |   |   |
| Net amount  recognized                                                 |       | $                               | (18,345    | )                               |       | $ | (4,853 | ) |   | $ | (40,828 | ) |   | $ | (6,610 | ) |   |

 

| ** **                                                                       | ** ** | **December 31, 2006** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                       | ** ** | **Pension Benefits**       | ** ** | **Post-Retirement Benefits** | ** ** |
| Amounts recognized in  accumulated other comprehensive income (loss) consist of: |       |                            |       |   |   |   |   |   |   |
| Actuarial gain                                                                   |       |                            | $          | 4,422 |   |   |   | $ | 115 |   |   |
| Net amount recognized,  before tax effect                                        |       |                            | $          | 4,422 |   |   |   | $  | 115 |   |   |

 

The accumulated benefit obligation for the definedbenefit pension plans was $129,481 and $165,736 at December 31, 2006 and December 31,2005, respectively.

F-33

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE18—EMPLOYEE BENEFIT PLANS (Continued)**

Net periodic pension costsfor the plans include the following components:

| ** **                             | ** ** | **Year ended**             | ** ** | **Year ended**             | ** ** | **Year ended**        | ** ** |
|----------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|----------------------------|------------|
| ** **                             | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** | ** **                 | ** ** |
| ** **                             | ** ** | **Jan 1-Feb 1**       | ** ** | **Feb 2-Dec 31**      | ** ** | **Jan 1-Mar 31** | ** ** | **Apr 1-Dec 31** | ** ** | **Dec 31, 2004** | ** ** |
| ** **                             | ** ** | **Predecessor 2**          | ** ** | **Successor**                   | ** ** | **Predecessor 1**     | ** ** | **Predecessor 2** | ** ** | **Predecessor 1** | ** ** |
| Service cost                           |       |                            | $          | 101                             |       |                       |       | $ | 956 |   |   |   | $ | 288 |   |   |   | $ | 836 |   |   |   | $ | 1,183 |   |   |
| Interest cost                          |       |                            | 776        |                            |       |                       | 6,760      |   |   |   | 1,954 |   |   |   | 6,766 |   |   |   | 7,113 |   |   |
| Expected return  on assets             |       |                            | (671       | )                               |       |                       | (6,270     | ) |   |   | (1,492 | ) |   |   | (5,160 | ) |   |   | (6,223 | ) |   |
| Amortization of  prior service cost    |       |                            | —     |                            |       |                       | —     |   |   |   | 31 |   |   |   | — |   |   |   | 117 |   |   |
| Amortization of  transition obligation |       |                            | —     |                            |       |                       | —     |   |   |   | (122 | ) |   |   | — |   |   |   | (509 | ) |   |
| Recognized  actuarial loss             |       |                            | 5          |                            |       |                       | —     |   |   |   | 820 |   |   |   | — |   |   |   | 2,450 |   |   |
| Settlement gain                        |       |                            | —     |                            |       |                       | (11        | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Curtailment  (income) expense          |       |                            | —     |                            |       |                       | —     |   |   |   | — |   |   |   | (13 | ) |   |   | 85 |   |   |
| Net periodic  benefit cost             |       |                            | $          | 211                             |       |                       |       | $ | 1,435 |   |   |   | $ | 1,479 |   |   |   | $ | 2,429 |   |   |   | $ | 4,216 |   |   |

 

Net periodicpost-retirement benefit cost (income) for the plans include the followingcomponents:

| ** **                          | ** ** | **Year ended**             | ** ** | **Year ended**             | ** ** | **Year ended**        | ** ** |
|-------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|----------------------------|------------|
| ** **                          | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** | ** **                 | ** ** |
| ** **                          | ** ** | **Jan 1-Feb 1**       | ** ** | **Feb 2-Dec 31**      | ** ** | **Jan 1-Mar 31** | ** ** | **Apr 1-Dec 31** | ** ** | **Dec 31, 2004** | ** ** |
| ** **                          | ** ** | **Predecessor 2**          | ** ** | **Successor**                   | ** ** | **Predecessor 1**     | ** ** | **Predecessor 2** | ** ** | **Predecessor 1** | ** ** |
| Service cost                        |       |                            | $          | 5                               |       |                       |       | $ | 54 |   |   |   | $ | 24 |   |   |   | $ | 81 |   |   |   | $ | 78 |   |   |
| Interest cost                       |       |                            | 23         |                            |       |                       | 244        |   |   |   | 141 |   |   |   | 403 |   |   |   | 515 |   |   |
| Recognized  actuarial loss          |       |                            | —     |                            |       |                       | —     |   |   |   | 63 |   |   |   | — |   |   |   | 206 |   |   |
| Amortization of  prior service cost |       |                            | (10        | )                               |       |                       | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Curtailment  income                 |       |                            | —     |                            |       |                       | —     |   |   |   | — |   |   |   | (3,121 | ) |   |   | — |   |   |
| Net periodic  benefit cost (income) |       |                            | $          | 18                              |       |                       |       | $ | 298 |   |   |   | $ | 228 |   |   |   | $ | (2,637 | ) |   |   | $ | 799 |   |   |

 

During the period April 1, 2005 to December 31,2005 the Company approved amendments to the post-retirement plan to reduce thebenefits provided to current and future retirees. The change resulted in acurtailment gain of $3,121. The gain is included in other income.

F-34

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE18—EMPLOYEE BENEFIT PLANS (Continued)**

Actuarial assumptions usedin determining the benefit obligation and net periodic benefit cost for thebenefit plans are presented in the following table:

| ** **                                                    | ** ** | **Jan 1-Feb 1,  2006** | ** ** | **Feb 2-Dec 31,  2006** | ** ** | **Jan 1-Mar 31,  2005** | ** ** | **Apr 1-Dec 31,  2005** | ** ** | **Dec 31,  2004** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|------------------------|------------|
| ** **                                                    | ** ** | **Predecessor 2**           | ** ** | **Successor**                     | ** ** | **Predecessor 1**            | ** ** | **Predecessor 2**            | ** ** | **Predecessor 1** | ** ** |
| Actuarial  assumptions used to determine benefit obligations: |       |                             |       |                              |       |                              |       |                              |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Discount rate                                                 |       |                             | 5.62       | %                                 |       |                              | 5.84       | %                                 |       |                   | 5.75       | % |   |   | 5.50 | % |   |   | 5.75 | % |   |
| Expected annual rate of compensation increase                 |       |                             | 5.00       | %                                 |       |                              | 5.00       | %                                 |       |                   | 5.00       | % |   |   | 5.00 | % |   |   | 5.00 | % |   |
| Actuarial  assumptions used to determine period benefit cost: |       |                             |       |                              |       |                              |       |                              |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Discount rate                                                 |       |                             | 5.50       | %                                 |       |                              | 5.62       | %                                 |       |                   | 6.00       | % |   |   | 5.75 | % |   |   | 5.00 | % |   |
| Expected rate of  return on plan assets                       |       |                             | 8.00       | %                                 |       |                              | 8.00       | %                                 |       |                   | 8.00       | % |   |   | 8.00 | % |   |   | 8.00 | % |   |

 

The Company used an assumption of 8.00% for long-termrate-of-return on plan assets used to determine period benefit cost during allperiods presented. In evaluating the reasonableness of this assumption, theCompany used a combination of historical returns and weighted-average expectedreturns for each asset class. The forward-looking approach is based on the mostrecent Investment Consulting Capital Markets Outlook of the Company’s actuary.The Investment Consulting Capital Markets Outlook defines the outlook forvarious market assumptions based on a 20-year timeframe. The Company’s actuaryreviews its forward-looking investment returns assumptions every three monthsand repeatedly checks to see whether assumptions are consistent with marketconditions.

Actuarial assumptions usedin determining the benefit obligation and net periodic benefit cost for thepost-retirement benefits are presented in the following table:

| ** **                                                    | ** ** | **Jan 1-Feb 1,  2006** | ** ** | **Feb 2-Dec 31,  2006** | ** ** | **Jan 1-Mar 31  2005** | ** ** | **Apr 1-Dec 31,  2005** | ** ** | **Dec 31,  2004** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|-----------------------------------|------------|----------------------------------|------------|-----------------------------------|------------|------------------------|------------|
| ** **                                                    | ** ** | **Predecessor 2**           | ** ** | **Successor**                     | ** ** | **Predecessor 1**           | ** ** | **Predecessor 2**            | ** ** | **Predecessor 1** | ** ** |
| Actuarial  assumptions used to determine benefit obligations: |       |                             |       |                              |       |                             |       |                              |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Discount rate                                                 |       |                             | 5.50       | %                                 |       |                             | 5.70       | %                                 |       |                   | 5.75       | % |   |   | 5.50 | % |   |   | 5.75 | % |   |
| Actuarial assumptions used to determine period  benefit cost: |       |                             |       |                              |       |                             |       |                              |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Discount rate                                                 |       |                             | 5.50       | %                                 |       |                             | 5.50       | %                                 |       |                   | 6.00       | % |   |   | 5.75 | % |   |   | 5.00 | % |   |

 

An 11% increase in the per capita cost of healthcarehas been assumed for 2005 and 2004, declining to 9% for 2006 and an ultimaterate of 5% in 2013. A 1% increase in the assumed healthcare trend rate 

F-35

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE18—EMPLOYEE BENEFIT PLANS (Continued)**

increases service andinterest cost by $21, and the accumulated benefit obligation by $237. A 1%decrease in the rate reduces service and interest costs by $18 and theaccumulated benefit obligation by $212.

Pensionplans with accumulated benefit obligations exceeding the fair value of planassets were as follows:

| ** **                      | ** ** | **Dec 31, 2006** | ** ** | **Dec 31, 2005** | ** ** |
|---------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                      | ** ** | **Successor**              | ** ** | **Predecessor 2**     | ** ** |
| Projected benefit  obligation   |       |                       | $          | 103,957                    |       |   |   | $ | 137,514 |   |   |
| Accumulated  benefit obligation |       |                       | 103,670    |                       |       |   | 136,702 |   |   |
| Fair value of plan  assets      |       |                       | 85,378     |                       |       |   | 97,519 |   |   |

 

The Company expects to contribute $6,126 to thepension plans during 2007.

The objective of the Company’s investment policy is tomaximize the return of invested assets while maintaining an appropriate levelof diversification to minimize risk. The Company’s policy sets forth specificcriteria used in the selection and ongoing evaluation of individual fundmanagers.

The Company’s investmentcommittee generally meets quarterly with a registered investment advisor toreview actual performance against relevant benchmarks. The weighted-averageasset allocations of invested assets held in the defined benefit plans were asfollows:

| ** **                | ** ** | **Asset Allocation**       | ** ** |
|---------------------------|------------|---------------------------------|------------|
| ** **                | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
| ** **                | ** ** | **United States**          | ** ** | **Canada** | ** ** | **United States** | ** ** | **Canada** | ** ** |
| ** **                | ** ** | **Actual**                      | ** ** | **Target** | ** ** | **Actual** | ** ** | **Target** | ** ** | **Actual** | ** ** | **Target** | ** ** | **Actual** | ** ** | **Target** | ** ** |
| ** **                | ** ** | **Successor**                   | ** ** | **Predecessor 2** | ** ** |
| Equity securities         |       | 61.5                            | %          |   | 60.0 | % |   | — | % |   | — | % |   | 73.7 | % |   | 70.0 | % |   | 22.0 | % |   | 50.0 | % |   |
| Debt securities  and cash |       | 38.5                            | %          |   | 40.0 | % |   | 100.0 | % |   | 100.0 | % |   | 26.3 | % |   | 30.0 | % |   | 78.0 | % |   | 50.0 | % |   |
| Total                     |       | 100.0                           | %          |   | 100.0 | % |   | 100.0 | % |   | 100.0 | % |   | 100.0 | % |   | 100.0 | % |   | 100.0 | % |   | 100.0 | % |   |

 

Benefitpayments over the next ten years, including amounts to be paid from Companyassets, and reflecting expected future service, as appropriate, are expected tobe paid as follows:

| ** **           | ** ** | ** ** | ** ** | **Other**           | ** ** |
|----------------------|------------|------------|------------|---------------------|------------|
| **Year Ending** | ** ** | ** ** | ** ** | **Post-Retirement** | ** ** |
| **December 31** | ** ** | ** ** | ** ** | **Pension**         | ** ** | **Benefits** | ** ** |
| 2007                 |       | $          | 18,679     |                |       | $ | 433 |   |   |
| 2008                 |       | 23,234     |       |                | 368        |   |   |
| 2009                 |       | 5,476      |       |                | 382        |   |   |
| 2010                 |       | 5,536      |       |                | 426        |   |   |
| 2011                 |       | 5,620      |       |                | 362        |   |   |
| 2012 – 2016     |       | 30,199     |       |                | 1,868      |   |   |
|                 |       | $          | 88,744     |                |       | $ | 3,839 |   |   |
|                      |            |            |            |                     |            |  |  |  |  |  |  |

 

F-36

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE18—EMPLOYEE BENEFIT PLANS (Continued)**

In 2004 the Company recognized a curtailment loss of$85 related to the closure of the facility in Berlin, Connecticut. Duringthe period from April 1, 2005 to December 31, 2005, the Companyrecognized a curtailment gain of $13 from reducing the number of participantsin the Plan. During the period from February 2,2006 to December 31, 2006, the Company recognized a net settlement gain of$11 as a result of executing a wind-up of part of its Canadian pension plan.

The Company alsoparticipates in defined contribution and multi-employer pension plans. Thecontributions were $343, $3,473, $917 and $2,736 and the expense was $268,$3,622, $940 and $2,668 for the periods from January 1, 2006 to February 1,2006, February 2, 2006 to December 31, 2006, January 1, 2005 to March 31,2005, and from April 1, 2005 to December 31, 2005, respectively.Contributions to 401(k) retirementplans were $1,881 for 2004.

**NOTE 19—INCOME TAXES**

Theincome tax provision (benefit) consists of the following components:

| ** ** | ** ** | **Years ended**            | ** ** | ** **                      | ** ** |
|------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** ** | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** | **Year ended** | ** ** |
| ** ** | ** ** | **Jan 1-Feb 1**       | ** ** | **Feb 2-Dec 31**      | ** ** | **Jan 1-Mar 31** | ** ** | **Apr 1-Dec 31** | ** ** | **December 31,2004** | ** ** |
| ** ** | ** ** | **Predecessor 2**          | ** ** | **Successor**                   | ** ** | **Predecessor 1** | ** ** | **Predecessor 2** | ** ** | **Predecessor 1** | ** ** |
| Current:   |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal    |       |                            | $          | (200                            | )          |   |   | $ | 1,648 |   |   |   | $ | (245 | ) |   |   | $ | 5,476 |   |   |   | $ | (9,776 | ) |   |
| State      |       |                            | (35        | )                               |       |   | 420 |   |   |   | (135 | ) |   |   | 310 |   |   |   | 351 |   |   |
| Foreign    |       |                            | (50        | )                               |       |   | 538 |   |   |   | 607 |   |   |   | 2,327 |   |   |   | 5,340 |   |   |
|       |       |                            | $          | (285                            | )          |   |   | 2,606 |   |   |   | 227 |   |   |   | 8,113 |   |   |   | (4,085 | ) |   |
| Deferred:  |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal    |       |                            | 986        |                            |       |   | (8,066 | ) |   |   | (434 | ) |   |   | (5,510 | ) |   |   | (1,066 | ) |   |
| State      |       |                            | 174        |                            |       |   | (73 | ) |   |   | 57 |   |   |   | 170 |   |   |   | 9 |   |   |
| Foreign    |       |                            | (172       | )                               |       |   | (3,190 | ) |   |   | 159 |   |   |   | (861 | ) |   |   | (666 | ) |   |
|       |       |                            | 988        |                            |       |   | (11,329 | ) |   |   | (218 | ) |   |   | (6,201 | ) |   |   | (1,723 | ) |   |
| Total      |       |                            | $          | 703                             |       |   |   | $ | (8,723  | ) |   |   | $ | 9 |   |   |   | $ | 1,912 |   |   |   | $ | (5,808 | ) |   |

 

F-37

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE19—INCOME TAXES (Continued)**

The amount of theprovision (benefit) for taxes differs from the amount that would result fromcalculating the provision at the Company’s basic U.S. tax rate of 35%.Reconciliation between the federal statutory rate and the Company’s effectivetax rate follows:

| ** **                                   | ** ** | **Years ended**            | ** ** | **Year ended**             | ** ** |
|----------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                   | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** | **December 31,** | ** ** |
| ** **                                   | ** ** | **Jan 1-Feb 1**       | ** ** | **Feb 2-Dec 31**      | ** ** | **Jan 1-March 31** | ** ** | **April 1-Dec 31** | ** ** | **2004** | ** ** |
| ** **                                   | ** ** | **Predecessor 2**          | ** ** | **Successor**                   | ** ** | **Predecessor 2** | ** ** | **Predecessor 1** | ** ** | **Predecessor 1** | ** ** |
| Tax at statutory  rate                       |       |                            | $          | 820                             |       |   |   | (11,417 | ) |   |   | $ | 3,273 |   |   |   | $ | 5,464 |   |   |   | $ | 13,105 |   |   |
| State income  taxes, net of federal benefits |       |                            | 139        |                            |       |   | 420 |   |   |   | (78 | ) |   |   | 480 |   |   |   | 234 |   |   |
| Dividends not  subject to tax                |       |                            | —     |                            |       |   | — |   |   |   | (3,177 | ) |   |   | — |   |   |   | (5,182 | ) |   |
| Equity earnings  not subject to tax          |       |                            | (219       | )                               |       |   | (2,432 | ) |   |   | (545 | ) |   |   | (3,283 | ) |   |   | (5,286 | ) |   |
| Foreign rate  differences                    |       |                            | (22        | )                               |       |   | 279 |   |   |   | 109 |   |   |   | 205 |   |   |   | (914 | ) |   |
| Transaction costs  not deductible            |       |                            | —     |                            |       |   | 1,171 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Foreign tax  credits not used                |       |                            | —     |                            |       |   | 1,648 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Valuation  allowance                         |       |                            | —     |                            |       |   | 1,800 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Tax reserve  reversal                        |       |                            | —     |                            |       |   | — |   |   |   | — |   |   |   | — |   |   |   | (6,805 | ) |   |
| Other, net                                   |       |                            | (15        | )                               |       |   | (192 | ) |   |   | 427 |   |   |   | (954 | ) |   |   | (960 | ) |   |
| Tax at effective  tax rate                   |       |                            | $          | 703                             |       |   |   | $ | (8,723 | ) |   |   | $ | 9 |   |   |   | $ | 1,912 |   |   |   | $ | (5,808 | ) |   |
|                                              |            |                                 |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

A valuation allowance was established for foreignoperating losses, foreign tax credits and transaction costs for which theCompany does not expect to see a benefit.

F-38

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 19—INCOME TAXES(Continued)**

The tax effects oftemporary differences that give rise to significant portions of the deferredtax assets and liabilities at December 31, 2006 and 2005 are presentedbelow:

| ** **                                               | ** ** | **Dec 31, 2006** | ** ** | **Dec 31, 2005** | ** ** |
|----------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                               | ** ** | **Successor**              | ** ** | **Predecessor 2**     | ** ** |
| Deferred tax assets:                                     |       |                       |       |                       |       |   |   |   |   |
| Accrued expenses                                         |       |                       | $          | 7,490       |       |   |   | $ | 8,090 |   |   |
| Equity investment                                        |       |                       | 2,732      |                       |       |   | 4,859 |   |   |
| Goodwill amortized for tax                               |       |                       | 14,750     |                       |       |   | 15,686 |   |   |
| Pension and post-retirement                              |       |                       | 9,147      |                       |       |   | 22,394 |   |   |
| Federal and foreign operating losses                     |       |                       | 1,800      |                       |       |   | — |   |   |
| Other                                                    |       |                       | 2,101      |                       |       |   | 688 |   |   |
| Valuation allowance                                      |       |                       | (1,800     | )                          |       |   | — |   |   |
| Total deferred tax assets                                |       |                       | 36,220     |                       |       |   | 51,717 |   |   |
| Deferred tax liabilities:                                |       |                       |       |                       |       |   |   |   |   |
| Property, plant, and equipment                           |       |                       | (28,773    | )                          |       |   | (37,816 | ) |   |
| Intangible assets                                        |       |                       | (26,746    | )                          |       |   | (29,320 | ) |   |
| Inventory                                                |       |                       | (6,636     | )                          |       |   | (5,475 | ) |   |
| Hedging                                                  |       |                       | (1,380     | )                          |       |   | (2,956 | ) |   |
| Total deferred tax liabilities                           |       |                       | (63,535    | )                          |       |   | (75,567 | ) |   |
| Net deferred tax liability                               |       |                       | $          | (27,315                    | )          |   |   | $(23,850 | ) |   |
| Included in the balance sheet:                           |       |                       |       |                       |       |   |   |   |   |
| Current deferred tax assets in excess of liabilities     |       |                       | $          | —                     |       |   |   | $ | 347 |   |   |
| Current deferred tax liabilities in excess of assets     |       |                       | (2,456     | )                          |       |   | — |   |   |
| Noncurrent deferred tax liabilities in excess of  assets |       |                       | (24,859    | )                          |       |   | (24,197 | ) |   |
| Net deferred tax liability                               |       |                       | $          | (27,315                    | )          |   |   | $ | (23,850 | ) |   |

 

The Company recognized a deferred tax liability relatedto other comprehensive income of $0 and $1,831 for the periods January 1,2006 to February 1, 2006 and February 2, 2006 to December 31, 2006,respectively. The Company recognized a deferred tax benefit related to othercomprehensive income of $0, $335, and $472 for the periods January 1, 2005to March 31, 2005, April 1, 2005 to December 31, 2005, and the yearended December 31, 2004, respectively. For financial statement purposes, theprovision/benefit was included in other comprehensive income.

During 2004, the statuteof limitations for tax years 1997 to 2000 expired. As a result, the Companyreversed tax reserves no longer needed totaling $9,975. Of this amount, $3,170related to pre-acquisition matters and was reversed against goodwill while theremainder was reversed through the income tax provision.

**NOTE 20—COMMITMENTSAND CONTINGENCIES**

The Company has enteredinto several long-term contracts with metal suppliers to purchase aluminumbillet. The price of billet is based primarily on the average MidwestTransaction price plus a 

F-39

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE20—COMMITMENTS AND CONTINGENCIES (Continued)**

fixedbillet premium. The Midwest Transaction average changes monthly. The minimumpurchase commitments as of December 31, 2006 are as follows:

| **Years Ended  December 31** | ** ** | ** ** | ** ** | **Amount** | ** ** |
|----------------------------------------|------------|------------|------------|------------|------------|
| 2007                                   |       | $          | 323,272    |       |
| 2008                                   |       | 62,444     |       |
| 2009                                   |       | 31,222     |       |
| Total                                  |       | $          | 416,938    |       |

 

TheCompany has also committed to purchasing natural gas. The commitments as of December 31,2006 are as follows: 

| **Years Ended  December 31** | ** ** | ** ** | ** ** | **Amount** | ** ** |
|----------------------------------------|------------|------------|------------|------------|------------|
| 2007                                   |       | $          | 13,963     |       |
| 2008                                   |       | 9,924      |       |
| 2009                                   |       | 3,570      |       |
| Total                                  |       | $          | 27,457     |       |

 

The Company purchased $13.5 million under thisarrangement in 2006.

As of December 31, 2006, the Company hascommitted approximately $6,181 for the purchase of property and equipmentrelated to incomplete projects.

As of December 31, 2006, the Company has outstandingletters of credit commitments of $10,425 related to its general insurancecoverage. The letters of credit expire after one year but renew automaticallyfor another year unless the Company notifies the beneficiary at least ninetydays prior to the expiration date.

The Company is subject to a wide variety ofenvironmental laws, which continue to be adopted and amended. The Companyperiodically assesses its environmental contingencies on a location-by-locationbasis and adjusts the environmental reserve to reflect expected future costsassociated with environmental remediation. The Company’s environmental reservestotaled $1,670 as of December 31, 2006. Of this amount, $105 was includedin current liabilities at December 31, 2006.

The Company is involved invarious legal proceedings, claims, and litigations arising in the ordinarycourse of business. While any litigation contains an element of uncertainty,management presently believes that the outcome of each such proceeding or claimwhich is pending or known to be threatened, or all of them combined, will not havea material adverse effect on the consolidated financial position of the Companyor on the consolidated results of operations or cash flows.

**Environmentalobligations**

The Company establishedenvironmental reserves totaling $1,670 and $1,755 as of December 31, 2006and December 31, 2005 respectively. $105 and $168 was included in currentliabilities as of December 31, 

F-40

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 20—COMMITMENTS ANDCONTINGENCIES (Continued)**

2006 and December 31, 2005, respectively.Liabilities are recorded when environmental remedial efforts or damage claimpayments are probable and the range of possible costs can be reasonablyestimated. In those cases where an amount within the range is judged mostlikely to be incurred, that amount is recorded. Where no specific amount withinthe range of possible costs is considered more probable to be incurred than anyother, the lower end of the range is typically used. Such liabilities are basedon the Company’s best estimate of the undiscounted future costs required tocomplete the remedial work. The recorded liabilities and ranges are adjustedperiodically as remediation efforts progress or as additional technical orlegal information becomes available.

The Company is subject to a wide variety of environmentallaws including those governing air emissions, the generation, storage,handling, use and transportation of hazardous materials and employee health andsafety. Costs of achieving compliance with environmental regulations are notincluded in the reserves, but instead are treated as operating items andexpensed or amortized, as appropriate, based on the nature of the expenditure.

As an owner of real property and a generator of waste,the Company is subject to laws imposing responsibility for the cleanup ofcontaminated property, including its currently and formerly owned or operatedproperties. As part of its environmental management program, it is involved ininvestigatory and monitoring actions at some of these properties, but theCompany has not identified any conditions that warrant active remediationefforts.

The Company is responsible for the cleanup of aformerly owned property that a release of hazardous substances occurred. Thereis the possibility of a claim for natural resources damages at the site and itis likely that the Company will have an obligation to pay compensation for thatdamage if the claim is asserted. The amount of natural resource damages to bepaid would be determined by a formula. Based on the application of thatformula, the Company estimates the total liability ranges from $500 to $1,850. TheCompany believes that the ultimate liability will be in the lower limits of therange. Also, an additional $100 has been reserved to cover the costs of furthergroundwater monitoring at this site. The Company has recorded a reserve of $550for this location.

The Company has been identified as a potentiallyresponsible party (“PRP”) under the Comprehensive Environmental Response,Compensation, and Liability Act of 1980 or “CERCLA” with respect toapproximately 19 offsite locations to which the Company’s corporatepredecessors sent waste materials. Although the designation of an entity as aPRP is rarely withdrawn, the Company’s inquiries and evaluations have led it toconclude that it has little or no liability at most of these sites. For thosesites where the Company is judged likely to share responsibility for cleanupand other costs, the Company has reserved a total of $480 of which $450 isattributable to one location. The full range of aggregate potential liabilityat these sites is estimated to be from $265 to $1,305.

The Company has installed groundwater-monitoring wellsin one of its California facilities, and the Company performs semi-annualmonitoring of those wells. Results to date indicate that a few constituents ofmaterials used in the Company’s processes are present in groundwater slightlyabove the selected 

F-41

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE20—COMMITMENTS AND CONTINGENCIES (Continued)**

screening criteria.However, this condition is very localized (within the boundaries of theCompany’s property), and the source of those constituents has been eliminated.In conjunction with the Regional Water Quality Control Board, the Company hasagreed to continue to monitor the groundwater. Based on the results to date, noremediation is indicated. Management has established a reserve of $100 within arange of costs of $30 to $350 for this site.

The Company is not currently a party to any judicialor administrative proceedings.

The Company believes itsreserves for environmental matters are adequate, based on the informationcurrently available.

**NOTE 21—LEASINGARRANGEMENTS**

TheCompany leases property, plant, and equipment under operating leases whichexpire at various dates through 2013. At December 31, 2006, future minimumlease payments under noncancelable operating leases with terms of one year ormore are as follows:

| **Years Ended  December 31** | ** ** | ** ** | ** ** | **Amount** | ** ** |
|----------------------------------------|------------|------------|------------|------------|------------|
| 2007                                   |       |       | $          | 2,166      |       |   |
| 2008                                   |       |       | 1,787      |       |       |
| 2009                                   |       |       | 1,104      |       |       |
| 2010                                   |       |       | 702        |       |       |
| 2011                                   |       |       | 302        |       |       |
| Thereafter                             |       |       | 105        |       |       |
| Total commitments                      |       |       | $          | 6,166      |       |   |

 

Total lease expense for all operating leases wasapproximately $415, $3,593, $1,834 and $5,659 for the periods January 1,2006 to February 1, 2006, February 2, 2006 to December 31, 2006,January 1, 2005 to March 31, 2005, and April 1, 2005 to December 31,2005, respectively. Total lease expense for all operating leases, net ofsublease income, was approximately $7,771 for 2004

F-42

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE21—LEASING ARRANGEMENTS (Continued)**

In December 2005, theCompany renegotiated its lease of an extrusion press in Canada. In March 2006,the Company renegotiated its lease of an extrusion press in Elkhart, Indiana.Both leases qualify as capital leases. As of December 31, 2006, futureminimum lease payments, including the final buyout payment, are as follows:

| **Year Ended  December 31**       | ** ** | ** ** | ** ** | **Amount** | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|
| 2007                                        |       | $          | 1,616      |       |
| 2008                                        |       | 1,702      |       |
| 2009                                        |       | 1,765      |       |
| 2010                                        |       | 1,641      |       |
|                                        |       | 6,724      |       |
| Amount representing interest                |       | (807       | )          |
| Present value of net minimum lease payments |       | 5,917      |       |
| Current portion                             |       | (1,243     | )          |
| Long-term portion  capital lease obligation |       | $          | 4,674      |       |

 

At December 31, 2006,the cost of the capital leases was $6,965 and accumulated depreciation was$1,399. Amortization of capital lease obligations was $58, $1,050, $0, $58, and$0 for the periods January 1, 2006 to February 1, 2006,February 2, 2006 to December 31, 2006, January 1, 2005 toMarch 31, 2005, April 1, 2005 to December 31, 2005 and the yearended December 31, 2004, respectively.

**NOTE 22—STOCK-BASEDCOMPENSATION**

In May 2006,certain employees of the Company were granted options to purchase shares ofIndalex Holdings Finance, Inc. Stock options expire ten years from thedate of grant.

Under the Plan, options are granted with an exerciseprice equal to the market value of the Company on the date of grant. A publicmarket does not exist for the stock so the market value of the Company wasbased on its recent purchase price. The fair value of options on their grantdate was measured using the Black-Scholes option-pricing model. Key assumptionsused to apply this pricing model are as follows:

| Risk-free  interest rate                 |   | 4.98 | %      |
|------------------------------------------|--------|------|--------|
| Expected life  option grants (in years)  |   | 6.42 |   |
| Expected  volatility of underlying stock |   | 26.3 | %      |
| Expected dividend yield                  |   | 0.0  | %      |

 

F-43

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)**

**Years ended December 31, 2006, December 31, 2005 and December 31, 2004**

**(Dollars in thousands)**

**NOTE 22—STOCK-BASEDCOMPENSATION (Continued)**

The weighted average fairvalue of the options granted in 2006 was $42.54. For the periodFebruary 2, 2006 to December 31, 2006 the Company recordedcompensation expense of $938. Future stock compensation expense to be recordedby the Company related to these options is as follows:

| **Years Ended  December 31** | ** ** | ** ** | ** ** | **Amount** | ** ** |
|----------------------------------------|------------|------------|------------|------------|------------|
| 2007                                   |       |       | $          | 769        |       |   |
| 2008                                   |       |       | 556        |       |       |
| 2009                                   |       |       | 333        |       |       |
| 2010                                   |       |       | 172        |       |       |
| 2011                                   |       |       | 45         |       |       |
|                                   |       |       | $          | 1,875      |       |   |

 

Asummary of stock option activity is provided below:

| ** **                          | ** ** | **Period Ended December 31, 2006** | ** ** |
|-------------------------------------|------------|---------------------------------------------------|------------|
| ** **                          | ** ** | **Options**                                       | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  Intrinsic  Value** | ** ** | **Weighted  Average  Remaining  Term** | ** ** |
| Outstanding at  beginning of period |       |                                              | n/a        |   |   | n/a |   |   |   |   |   |   |   |   |   |
| Granted                             |       |                                              | 70,000     |   |   | $ | 111.25 |   |   |   |   |   |   |   |   |   |
| Forfeited                           |       |                                              | n/a        |   |   | n/a |   |   |   |   |   |   |   |   |   |
| Exercised                           |       |                                              | n/a        |   |   | n/a |   |   |   |   |   |   |   |   |   |
| Expired                             |       |                                              | n/a        |   |   | n/a |   |   |   |   |   |   |   |   |   |
| Outstanding at  end of period       |       |                                              | 70,000     |   |   | $ | 111.25 |   |   | $ | — |   |   |   | 9.89 |   |   |
| Exercisable at end of  period       |       |                                              | 11,200     |   |   | $ | 111.25 |   |   | $ | — |   |   |   | 9.89 |   |   |

 

**As of December 31,2006, 58,800 options with a weighted average exercise price of $111.25 are dueto expire in 2016.**

**OptionsVesting During the Period Ended December 31, 2006**

| **Grant  Date** | ** ** | **Vesting   Date** | ** ** | **Numbers of   Options Vesting   During Period** | ** ** | **Fair Value   Per Option** | ** ** | **Fair Value of   Options Vesting** | ** ** |
|-----------------|------------|-------------------------|------------|---------------------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------|------------|
| 5/19/2006       |       | 5/19/2006               |       |                                                                      | 11,200     |                                       |       |                                                    | $          | 37.47 |   |   |   | $ | 420 |   |   |
|                 |            |                         |            |                                                                           |            |                                            |            |                                                         |            |  |  |  |  |  |  |  |  |

 

Certain employees of the Company were granted optionsto purchase shares of Novar plc under the Novar plc Executive Share OptionScheme and the Novar plc 1996 Executive Share Option Scheme (the ”Plans”).Under the Plans, options were granted with exercise prices equal to the quotedmarket price of Novar plc’s stock on the date of the grant. All options existing at March 31, 2005were liquidated with 

F-44

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**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)**

**Years ended December 31, 2006, December 31, 2005 and December 31, 2004**

**(Dollars in thousands)**

**NOTE22—STOCK-BASED COMPENSATION (Continued)**

thesale of Novar to Honeywell. For the period January 1, 2005 to March 31,2005 the Company recognized stock-based compensation expense of $1,244.Additional compensation expense of $311 was recognized during this period toreflect Honeywell’s approval to compensate option holders for the dividend paidto Novar plc shareholders. Under the Predecessor 2 company, no stock-basedcompensation plans existed at December 31, 2005.

With respect to results for years prior to 2005,options granted prior to 1996 were generally exercisable after three years andexpired ten years from the date of the grant. However, options granted in 1996and since became exercisable after three years only upon attainment of certainperformance goals, generally based on earnings of Novar plc, and also expiredten years from the date of the grant. In the event that these performance goalswere not attained in the third year, then the goals were carried forward in thefollowing years until they were met or the grant expired. APB Opinion No. 25requires recognition of compensation expense for variable award plans over thevesting periods of such plans, based upon the then-current market values of theunderlying stock. As such, the Company recognized compensation expense of$2,229 in 2004 related to the Plans, which was recorded as part of selling,general and administrative expenses.

Asummary of stock option activity for the Plans is set forth below (shares inthousands): 

| ** **                        | ** ** | **March 31, 2005** | ** ** | **December 31, 2004**            | ** ** |
|-----------------------------------|------------|------------------------------|------------|--------------------------------------------|------------|
| ** **                        | ** ** | **Number  of options**  | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Number  of options** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| Outstanding at  beginning of year |       |                         | 3,592      |                                       |       |   | $ | 2.68 |   |   |   | 3,690 |   |   |   | $ | 2.52 |   |   |
| Granted                           |       |                         | —     |                                       |       |   | — |   |   |   | 1,086 |   |   |   | 2.53 |   |   |
| Exercised                         |       |                         | (3,592     | )                                          |       |   | 2.68 |   |   |   | (395 | ) |   |   | 2.88 |   |   |
| Forfeited and  expired            |       |                         | —     |                                       |       |   | — |   |   |   | (789 | ) |   |   | 2.08 |   |   |
| Outstanding at  end of year       |       |                         | —     |                                       |       |   | n/a |   |   |   | 3,592 |   |   |   | 2.68 |   |   |
| Options exercisable at  year-end  |       |                         | —     |                                       |       |   |   |   |   |   | 1,271 |   |   |   |   |   |   |

 

**NOTE23—GEOGRAPHIC DATA**

| ** **          | ** ** | **Net Sales**              | ** ** | **Long-Lived Assets**      | ** ** |
|---------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **          | ** ** | **Years ended**            | ** ** | **Years ended**            | ** ** |
| ** **          | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **          | ** ** | **Jan 1-Feb 1**       | ** ** | **Feb 2-Dec 31**      | ** ** | **Jan 1-Mar 31** | ** ** | **Apr 1-Dec 31** | ** ** | **Dec 31, 2004** | ** ** | **Dec 31, 2006** | ** ** | **Dec 31, 2005** | ** ** |
| ** **          | ** ** | **Predecessor 2**          | ** ** | **Successor**                   | ** ** | **Predecessor 1** | ** ** | **Predecessor 2** | ** ** | **Predecessor 1** | ** ** | **Successor** | ** ** | **Predecessor 2** | ** ** |
| United States       |       |                            | $          | 85,253                          |       |   |   | $ | 957,328 |   |   |   | $ | 199,689 |   |   |   | $ | 648,753 |   |   |   | $ | 768,832 |   |   |   | $ | 192,859 |   |   |   | $ | 199,116 |   |   |
| Canada              |       |                            | 14,497     |                            |       |   | 182,403 |   |   |   | 39,275 |   |   |   | 130,544 |   |   |   | 160,803 |   |   |   | 202,816 |   |   |   | 208,647 |   |   |
| Other International |       |                            | 269        |                            |       |   | 3,111 |   |   |   | 885 |   |   |   | 2,224 |   |   |   | 3,061 |   |   |   | — |   |   |   | — |   |   |
|                |       |                            | $          | 100,019                         |       |   |   | $ | 1,142,842 |   |   |   | $ | 239,849 |   |   |   | $ | 781,521 |   |   |   | $ | 932,696 |   |   |   | $ | 395,675 |   |   |   | $ | 407,763 |   |   |

 

F-45

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)**

**Years ended December 31, 2006, December 31, 2005 and December 31, 2004**

**(Dollars in thousands)**

**NOTE 24—DISCONTINUEDOPERATIONS**

During February 2004, the Company soldsubstantially all of the assets and related operational obligations of Bramptonto Breyer Industries Limited for cash proceeds of $509, a promissory note of$501, and a receivable of $147. The $147 receivable was paid in full during April 2004.The $501 promissory note was secured by a first mortgage. The promissory noteaccrued interest at a rate of 7%, and  theterms called for equal monthly payments of $6 through February 2009. Thepromissory note was paid in full during June 2004. In conjunction withthis sale, the Company recorded a loss of $634, net of a $147 tax benefit. The Company incurred additional pre-taxexpenses of $77 for the period from January 1, 2005 to March 31, 2005related to this discontinued operation.

During July 2004, the Company transferred itsownership interest in ITI to an affiliated company within the Novar plc group.This transaction was treated as a transaction between entities under common control.Accordingly, the transfer of the net assets of ITI is reflected as a dividenddistribution in the combined financial statements in the amount of $34,439.

The revenues for theseentities were $17,605 for the year ended December 31, 2004.

**NOTE 25—CONSOLIDATED ANDCOMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION**

Indalex Holding Corp. (The “Issuer”) issued $270,000of the notes on February 2, 2006. The notes are jointly and severallyguaranteed on a full and unconditional basis by Indalex Holdings Finance, Inc.,the parent company of Indalex Holding Corp., and each of the domesticsubsidiaries of Indalex Holding Corp. (the “Guarantor Companies”). IndalexHolding Corp. and the Guarantor Companies are 100% owned, directly orindirectly, by Indalex Holdings Finance, Inc. Indalex Holding Corp.’sforeign subsidiaries (the “Non-Guarantor Companies”) do not provide guarantees.

The following consolidated and combined  financial information presents the financialinformation of Indalex Holdings Finance, Inc., the Guarantor Companies andthe Non-Guarantor Companies in accordance with Rule 3-10 under theSecurities and Exchange Commission’s Regulation S-X. The financialinformation may not necessarily be indicative of results of operations orfinancial position had the Guarantor Companies or Non-Guarantor Companiesoperated as independent entities. The Guarantor Companies and Non-GuarantorCompanies include the consolidated and combined financial results of theirwholly owned subsidiaries accounted for under the equity method. All applicablecorporate expenses have been allocated among the Guarantor Companies andNon-Guarantor Companies.

F-46

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE25—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION(Continued)**

**Indalex Consolidated BalanceSheet—Guarantor and Non-GuarantorYear Ended December 31, 2006 (Successor)**

| ** **                                       | ** ** | **Parent**  | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------|------------|-------------|------------|---------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | **Company** | ** ** | **Company**   | ** ** | **Company**       | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **ASSETS**                                       |       |        |       |          |       |              |       |             |       |             |       |   |   |   |   |   |   |
| Current Assets:                                  |       |        |       |          |       |              |       |             |       |             |       |   |   |   |   |   |   |
| Cash and cash equivalents                        |       | $           | —     |          | $          | 6,777             |       |             | $          | 4,380            |       |   |   | $ | — |   |   |   | $ | 11,157 |   |   |
| Accounts receivable, net                         |       | —      |       | 66,840        |       |              | 37,084     |             |       |             | —     |   |   |   | 103,924 |   |   |
| Receivable from affiliates                       |       | —      |       | 9,994         |       |              | 3,440      |             |       |             | (13,434    | ) |   |   | — |   |   |
| Receivable from suppliers                        |       | —      |       | 8,980         |       |              | —     |             |       |             | —     |   |   |   | 8,980 |   |   |
| Inventories                                      |       | —      |       | 46,254        |       |              | 20,928     |             |       |             | —     |   |   |   | 67,182 |   |   |
| Prepaid expenses and other current assets        |       | —      |       | 8,641         |       |              | 2,124      |             |       |             | —     |   |   |   | 10,765 |   |   |
| Deferred income tax                              |       | —      |       | —        |       |              | 567        |             |       |             | (567       | ) |   |   | — |   |   |
| Total current assets                             |       | —      |       | 147,486       |       |              | 68,523     |             |       |             | (14,001    | ) |   |   | 202,008 |   |   |
| Notes receivable from affiliates                 |       | —      |       | 156,728       |       |              | —     |             |       |             | (156,728   | ) |   |   | — |   |   |
| Investment in AAG                                |       | —      |       | —        |       |              | 96,950     |             |       |             | —     |   |   |   | 96,950 |   |   |
| Investment in subsidiary                         |       | 111,250     |       | —        |       |              | —     |             |       |             | (111,250   | ) |   |   | — |   |   |
| Property, plant, and equipment, net              |       | —      |       | 130,925       |       |              | 68,713     |             |       |             | —     |   |   |   | 199,638 |   |   |
| Goodwill.                                        |       | —      |       | 2,112         |       |              | 1,425      |             |       |             | —     |   |   |   | 3,537 |   |   |
| Other intangibles, net                           |       | —      |       | 50,913        |       |              | 27,351     |             |       |             | —     |   |   |   | 78,264 |   |   |
| Deferred financing costs                         |       | —      |       | 6,584         |       |              | 8,010      |             |       |             | —     |   |   |   | 14,594 |   |   |
| Other assets                                     |       | —      |       | 2,325         |       |              | 367        |             |       |             | —     |   |   |   | 2,692 |   |   |
| Total assets                                     |       | $           | 111,250    |          | $          | 497,073           |       |             | $          | 271,339          |       |   |   | $ | (281,979 | ) |   |   | $ | 597,683 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**   |       |        |       |          |       |              |       |             |       |             |       |   |   |   |   |   |   |
| Current Liabilities:                             |       |        |       |          |       |              |       |             |       |             |       |   |   |   |   |   |   |
| Accounts payable.                                |       | $           | —     |          | $          | 41,634            |       |             | $          | 25,146           |       |   |   | $ | — |   |   |   | $ | 66,780 |   |   |
| Payable to affiliates                            |       | —      |       | 2,909         |       |              | 10,525     |             |       |             | (13,434    | ) |   |   | — |   |   |
| Income taxes payable.                            |       | —      |       | 2,130         |       |              | 518        |             |       |             | —     |   |   |   | 2,648 |   |   |
| Deferred income taxes                            |       | —      |       | 3,023         |       |              | —     |             |       |             | (567       | ) |   |   | 2,456 |   |   |
| Accrued expenses and other current liabilities   |       | —      |       | 32,293        |       |              | 6,185      |             |       |             | —     |   |   |   | 38,478 |   |   |
| Accrued interest                                 |       | —      |       | 13,617        |       |              | 189        |             |       |             | —     |   |   |   | 13,806 |   |   |
| Capital lease obligation                         |       | —      |       | 481           |       |              | 762        |             |       |             | —     |   |   |   | 1,243 |   |   |
| Checks in excess of bank balance                 |       | —      |       | —        |       |              | —     |             |       |             | —     |   |   |   | — |   |   |
| Revolver borrowings.                             |       | 10          |       | 40,090        |       |              | 15,617     |             |       |             | —     |   |   |   | 55,717 |   |   |
| Total current liabilities                        |       | 10          |       | 136,177       |       |              | 58,942     |             |       |             | (14,001    | ) |   |   | 181,128 |   |   |
| Notes payable to affiliates                      |       | —      |       | —        |       |              | 156,728    |             |       |             | (156,728   | ) |   |   | — |   |   |
| Other liabilities.                               |       | —      |       | 25,673        |       |              | 4,994      |             |       |             | —     |   |   |   | 30,667 |   |   |
| Capital lease obligation.                        |       | —      |       | 2,343         |       |              | 2,331      |             |       |             | —     |   |   |   | 4,674 |   |   |
| Long-term debt                                   |       | —      |       | 266,957       |       |              | —     |             |       |             | —     |   |   |   | 266,957 |   |   |
| Deferred income taxes                            |       | —      |       | 12,413        |       |              | 12,446     |             |       |             | —     |   |   |   | 24,859 |   |   |
| Total liabilities                                |       | 10          |       | 443,563       |       |              | 235,441    |             |       |             | (170,729   | ) |   |   | 508,285 |   |   |
| Commitments and contingencies (Note 20)     |       |        |       |          |       |              |       |             |       |             |       |   |   |   |   |   |   |
| Stockholders’  equity:                      |       |        |       |          |       |              |       |             |       |             |       |   |   |   |   |   |   |
| Common stock                                     |       | 1           |       | 1             |       |              | —     |             |       |             | (1         | ) |   |   | 1 |   |   |
| Additional paid-in capital                       |       | 111,249     |       | 78,005        |       |              | 32,660     |             |       |             | (111,249   | ) |   |   | 110,665 |   |   |
| Treasury stock                                   |       | (10         | )          | —        |       |              | —     |             |       |             | —     |   |   |   | (10 | ) |   |
| Accumulated retained earnings (deficit)          |       | —      |       | (23,821       | )          |              | (77        | )                |       |             | —     |   |   |   | (23,898 | ) |   |
| Accumulated other comprehensive income (loss)    |       | —      |       | (675          | )          |              | 3,315      |             |       |             | —     |   |   |   | 2,640 |   |   |
| Total stockholders’ equity                  |       | 111,240     |       | 53,510        |       |              | 35,898     |             |       |             | (111,250   | ) |   |   | 89,398 |   |   |
| Total liabilities  and stockholders’ equity |       | $           | 111,250    |          | $          | 497,073           |       |             | $          | 271,339          |       |   |   | $ | (281,979 | ) |   |   | $ | 597,683 |   |   |

 

F-47

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE25—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION(Continued)**

**IndalexCombined Balance Sheet—Guarantor and Non-GuarantorYear Ended December 31, 2005 (Predecessor 2)**

| ** **                                       | ** ** | **Parent  Company** | ** ** | **Guarantor  Company** | ** ** | **Non-Guarantor   Company** | ** ** | **Eliminations** | ** ** | **Combined** | ** ** |
|--------------------------------------------------|------------|---------------------|------------|------------------------|------------|----------------------------------|------------|------------------|------------|--------------|------------|
| **ASSETS**                                       |       |                |       |                   |       |                             |       |             |       |         |       |   |   |   |   |   |   |
| Current Assets:                                  |       |                |       |                   |       |                             |       |             |       |         |       |   |   |   |   |   |   |
| Cash and cash  equivalents                       |       |                | $          | —                 |       |                             | $          | —           |       |         | $          | 9,366 |   |   |   | $ | — |   |   | $ | 9,366 |   |
| Accounts  receivable, net                        |       |                | —     |                   |       | 72,336                           |       |             | 41,462     |         |       |   | — |   |   | 113,798 |   |
| Receivable from  affiliates                      |       |                | —     |                   |       | 4,082                            |       |             | 6,981      |         |       |   | (7,954 | ) |   | 3,109 |   |
| Receivable from  supplier                        |       |                | —     |                   |       | 7,873                            |       |             | —     |         |       |   | — |   |   | 7,873 |   |
| Refundable income  taxes                         |       |                | —     |                   |       | —                           |       |             | —     |         |       |   | 243 |   |   | 243 |   |
| Inventories                                      |       |                | —     |                   |       | 41,874                           |       |             | 16,476     |         |       |   | — |   |   | 58,350 |   |
| Prepaid expenses  and other current assets       |       |                | —     |                   |       | 14,344                           |       |             | 3,199      |         |       |   | — |   |   | 17,543 |   |
| Deferred income  tax                             |       |                | —     |                   |       | (245                             | )          |             | 592        |         |       |   | — |   |   | 347 |   |
| Total current  assets                            |       |                | —     |                   |       | 140,264                          |       |             | 78,076     |         |       |   | (7,711 | ) |   | 210,629 |   |
| Notes receivable  from affiliates                |       |                | —     |                   |       | —                           |       |             | 4,279      |         |       |   | — |   |   | 4,279 |   |
| Investment in AAG                                |       |                | —     |                   |       | —                           |       |             | 94,380     |         |       |   | — |   |   | 94,380 |   |
| Property, plant,  and equipment, net             |       |                | —     |                   |       | 140,977                          |       |             | 78,380     |         |       |   | — |   |   | 219,357 |   |
| Goodwill                                         |       |                | —     |                   |       | 9,507                            |       |             | 5,119      |         |       |   | — |   |   | 14,626 |   |
| Other intangibles,  net                          |       |                | —     |                   |       | 48,567                           |       |             | 26,151     |         |       |   | — |   |   | 74,718 |   |
| Other assets                                     |       |                | —     |                   |       | 65                               |       |             | 338        |         |       |   | — |   |   | 403 |   |
| Total assets                                     |       |                | $          | —                 |       |                             | $          | 339,380          |       |         | $          | 286,723 |   |   |   | $ | (7,711 | ) |   | $ | 618,392 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**    |       |                |       |                   |       |                             |       |             |       |         |       |   |   |   |   |   |   |
| Current Liabilities:                             |       |                |       |                   |       |                             |       |             |       |         |       |   |   |   |   |   |   |
| Accounts payable                                 |       |                | $          | —                 |       |                             | $          | 35,481           |       |         | $          | 30,282 |   |   |   | $ | — |   |   | $ | 65,763 |   |
| Payable to  affiliates                           |       |                | —     |                   |       | 7,353                            |       |             | 1,030      |         |       |   | (7,954 | ) |   | 429 |   |
| Income taxes  payable                            |       |                | —     |                   |       | (3,071                           | )          |             | 2,828      |         |       |   | 243 |   |   | — |   |
| Accrued expenses  and other current liabilities  |       |                | —     |                   |       | 38,953                           |       |             | 6,419      |         |       |   | — |   |   | 45,372 |   |
| Capital lease  obligation                        |       |                | —     |                   |       | —                           |       |             | 726        |         |       |   | — |   |   | 726 |   |
| Checks in excess  of bank balance                |       |                | —     |                   |       | 1,716                            |       |             | —     |         |       |   | — |   |   | 1,716 |   |
| Total current  liabilities                       |       |                | —     |                   |       | 80,432                           |       |             | 41,285     |         |       |   | (7,711 | ) |   | 114,006 |   |
| Other liabilities                                |       |                | —     |                   |       | 45,848                           |       |             | 8,092      |         |       |   | — |   |   | 53,940 |   |
| Capital lease obligation                         |       |                | —     |                   |       | —                           |       |             | 3,143      |         |       |   | — |   |   | 3,143 |   |
| Deferred income taxes                            |       |                | —     |                   |       | 8,538                            |       |             | 15,659     |         |       |   | — |   |   | 24,197 |   |
| Total liabilities                                |       |                | —     |                   |       | 134,818                          |       |             | 68,179     |         |       |   | (7,711 | ) |   | 195,286 |   |
| Commitments and  contingencies (Note 20)         |       |                |       |                   |       |                             |       |             |       |         |       |   |   |   |   |   |   |
| Stockholders’ equity:                       |       |                |       |                   |       |                             |       |             |       |         |       |   |   |   |   |   |   |
| Common stock                                     |       |                | —     |                   |       | 100                              |       |             | 291        |         |       |   | — |   |   | 391 |   |
| Additional paid-in  capital                      |       |                | —     |                   |       | 202,329                          |       |             | 209,186    |         |       |   | — |   |   | 411,515 |   |
| Accumulated  retained earnings                   |       |                | —     |                   |       | 2,183                            |       |             | 7,529      |         |       |   | — |   |   | 9,712 |   |
| Accumulated other  comprehensive income (loss)   |       |                | —     |                   |       | (50                              | )          |             | 1,538      |         |       |   | — |   |   | 1,488 |   |
| Total  stockholders’ equity                 |       |                | —     |                   |       | 204,562                          |       |             | 218,544    |         |       |   | — |   |   | 423,106 |   |
| Total liabilities  and stockholders’ equity |       |                | $          | —                 |       |                             | $          | 339,380          |       |         | $          | 286,723 |   |   |   | $ | (7,711 | ) |   | $ | 618,392 |   |

** **

F-48

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE25—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION(Continued)**

**IndalexCombined Statement of Income—Guarantor and Non-GuarantorFor the Period January 1, 2006 through February 1, 2006 (Predecessor2)**

| ** **                                       | ** ** | **Parent**  | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | ** **   | ** ** |
|--------------------------------------------------|------------|-------------|------------|---------------|------------|-------------------|------------|------------------|------------|--------------|------------|
| ** **                                       | ** ** | **Company** | ** ** | **Company**   | ** ** | **Company**       | ** ** | **Eliminations** | ** ** | **Combined** | ** ** |
| **Net  sales**                                   |       | $           | —     |          | $          | 71,591            |       | $                | 30,035     |         | $          | (1,607 | ) | $ | 100,019 |   |
| **Costs and expenses:**                          | ** ** | ** **  | ** ** | ** **    | ** ** | ** **        | ** ** | ** **       | ** ** | ** **   | ** ** |
| Cost of sales                                    |       | —      |       | 68,152        |       | 28,582            |       | (1,607           | )          | 95,127       |       |
| Selling, general, and administrative             |       | —      |       | 4,157         |       | 1,391             |       | —           |       | 5,548        |       |
| Management fees to affiliates                    |       | —      |       | 125           |       | —            |       | —           |       | 125          |       |
| Amortization of intangible assets                |       | —      |       | 598           |       | 322               |       | —           |       | 920          |       |
| Other (income) expense                           |       | —      |       | (14           | )          | 209               |       | —           |       | 195          |       |
| Mark-to-market on derivatives                    |       | —      |       | (3,619        | )          | —            |       | —           |       | (3,619       | )          |
| Total costs and expenses                         |       | —      |       | 69,399        |       | 30,504            |       | (1,607           | )          | 98,296       |       |
| **Income (loss) from operations**                |       | —      |       | 2,192         |       | (469              | )          | —           |       | 1,723        |       |
| Other income (expense):                          |       |        |       |          |       |              |       |             |       |         |       |
| External interest expense                        |       | —      |       | 1             |       | (25               | )          | —           |       | (24          | )          |
| Income from equity method investment in AAG |       | —      |       | —        |       | 643               |       | —           |       | 643          |       |
| Income before income taxes                       |       | —      |       | 2,193         |       | 149               |       | —           |       | 2,342        |       |
| Income tax provision (benefit)                   |       | —      |       | 925           |       | (222              | )          | —           |       | 703          |       |
| **Net  income**                                  |       | $           | —     |          | $          | 1,268             |       | $                | 371        |         | $          | — |   | $ | 1,639 |   |

 

F-49

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE25—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION(Continued)**

**IndalexConsolidated Statement of Income—Guarantor and Non-GuarantorFor the Period February 2, 2006 through December 31, 2006 (Successor)**

| ** **                                  | ** ** | **Parent**  | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | ** **       | ** ** |
|---------------------------------------------|------------|-------------|------------|---------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                  | ** ** | **Company** | ** ** | **Company**   | ** ** | **Company**       | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Net  sales**                              |       |        | $          | —        |       |              | $          | 812,839          |       |             | $          | 420,602 |   |   |   | $ | (90,599 | ) |   |   | $ | 1,142,842 |   |   |
| **Costs and expenses:**                     | ** ** |        |       |          | ** ** | ** **        | ** ** |             |       |             |       |   |   |   |   |   |   |   |   |
| Cost of sales                               |       |        | —     |          |       | 755,916           |       |             | 393,360    |             |       |   | (90,599 | ) |   |   | 1,058,677 |   |   |
| Selling, general, and administrative        |       |        | —     |          |       | 39,448            |       |             | 15,518     |             |       |   | — |   |   |   | 54,966 |   |   |
| Management fees to affiliates               |       |        | —     |          |       | 1,128             |       |             | 506        |             |       |   | — |   |   |   | 1,634 |   |   |
| Amortization of intangible assets           |       |        | —     |          |       | 6,937             |       |             | 3,799      |             |       |   | — |   |   |   | 10,736 |   |   |
| Other (income) expense                      |       |        | —     |          |       | 1,250             |       |             | (234       | )                |       |   | — |   |   |   | 1,016 |   |   |
| Restructuring charges                       |       |        | —     |          |       | 261               |       |             | 1,511      |             |       |   | — |   |   |   | 1,772 |   |   |
| Impairment of long-lived assets             |       |        | —     |          |       | 7,083             |       |             | 165        |             |       |   | — |   |   |   | 7,248 |   |   |
| (Gain) loss on disposal of assets           |       |        | —     |          |       | (213              | )          |             | 468        |             |       |   | — |   |   |   | 255 |   |   |
| Mark-to-market on derivatives               |       |        | —     |          |       | 7,560             |       |             | —     |             |       |   | — |   |   |   | 7,560 |   |   |
| Total costs and expenses                    |       |        | —     |          |       | 819,370           |       |             | 415,093    |             |       |   | (90,599 | ) |   |   | 1,143,864 |   |   |
| **Income (loss) from operations**           |       |        | —     |          |       | (6,531            | )          |             | 5,509      |             |       |   | — |   |   |   | (1,022 | ) |   |
| Other income (expense):                     |       |        |       |          |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Interest to affiliates, net                 |       |        | —     |          |       | 16,955            |       |             | (16,955    | )                |       |   | — |   |   |   | — |   |   |
| External interest expense                   |       |        | —     |          |       | (33,794           | )          |             | (1,951     | )                |       |   | — |   |   |   | (35,745 | ) |   |
| Deferred financing costs                    |       |        | —     |          |       | (1,047            | )          |             | (1,173     | )                |       |   | — |   |   |   | (2,220 | ) |   |
| Income from equity method investment in AAG |       |        | —     |          |       | —            |       |             | 11,841     |             |       |   | — |   |   |   | 11,841 |   |   |
| Affiliated acquisition fees                 |       |        | —     |          |       | (5,475            | )          |             | —     |             |       |   | — |   |   |   | (5,475 | ) |   |
| Loss before income taxes                    |       |        | —     |          |       | (29,892           | )          |             | (2,729     | )                |       |   | — |   |   |   | (32,621 | ) |   |
| Income tax benefit                          |       |        | —     |          |       | (6,071            | )          |             | (2,652     | )                |       |   | — |   |   |   | (8,723 | ) |   |
| **Net  income (loss)**                      |       |        | $          | —        |       |              | $          | (23,821          | )          |             | $          | (77 | ) |   |   | $ | — |   |   |   | $ | (23,898 | ) |   |

 

F-50

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 25—CONSOLIDATEDAND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)**

**Indalex Combined Statementof Cash Flows—Guarantor and Non-GuarantorFor the Period January 1, 2006 through February 1, 2006 (Predecessor2)**

| ** **                                                                 | ** ** | **Parent**  | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | ** **      | ** ** | ** **   | ** ** |
|----------------------------------------------------------------------------|------------|-------------|------------|---------------|------------|-------------------|------------|-----------------|------------|--------------|------------|
| ** **                                                                 | ** ** | **Company** | ** ** | **Company**   | ** ** | **Company**       | ** ** | **Elimination** | ** ** | **Combined** | ** ** |
| **Cash flows from operating activities**                                   | ** ** |        | ** ** | ** **    |       |              | ** ** | ** **      |       |         | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| Net income                                                                 |       |        | $          | —        | ** ** |              |       | $               | 1,268      |         |       |   | $ | 371 |   |   |   | $ | — | ** ** |   | $ | 1,639 |   |
| Adjustments to reconcile net income to net cash from  operating activities |       |        |       | ** **    |       |              |       |            |       |         |       |   |   |   |   | ** ** |   |   |   |
| Depreciation                                                               |       |        | —     | ** **    |       |              | 1,966      |            |       |         | 855        |   |   |   | — | ** ** |   | 2,821 |   |
| Amortization of  intangibles                                               |       |        | —     | ** **    |       |              | 598        |            |       |         | 322        |   |   |   | — | ** ** |   | 920 |   |
| Other                                                                      |       |        | —     | ** **    |       |              | 743        |            |       |         | —     |   |   |   | — | ** ** |   | 743 |   |
| Income from equity  method investment in AAG                          |       |        | —     | ** **    |       |              | —     |            |       |         | (643       | ) |   |   | — | ** ** |   | (643 | ) |
| Management fees to  affiliates                                             |       |        | —     | ** **    |       |              | 125        |            |       |         | —     |   |   |   | — | ** ** |   | 125 |   |
| Deferred income  taxes                                                     |       |        | —     | ** **    |       |              | 1,160      |            |       |         | (172       | ) |   |   | — | ** ** |   | 988 |   |
| Changes in operating  assets and liabilities                               |       |        |       | ** **    |       |              |       |            |       |         |       |   |   |   |   | ** ** |   |   |   |
| Accounts  receivable                                                       |       |        | —     | ** **    |       |              | (9,285     | )               |       |         | (2,970     | ) |   |   | — | ** ** |   | (12,255 | ) |
| Receivable from  affiliates                                                |       |        | —     | ** **    |       |              | 3,212      |            |       |         | (1,358     | ) |   |   | — | ** ** |   | 1,854 |   |
| Inventories                                                                |       |        | —     | ** **    |       |              | (774       | )               |       |         | (1,878     | ) |   |   | — | ** ** |   | (2,652 | ) |
| Prepaids and other  assets                                                 |       |        | —     | ** **    |       |              | (4,621     | )               |       |         | 937        |   |   |   | — | ** ** |   | (3,684 | ) |
| Income taxes  payable/refundable                                           |       |        | —     | ** **    |       |              | (238       | )               |       |         | (54        | ) |   |   | — | ** ** |   | (292 | ) |
| Checks issued in  excess of bank balance                                   |       |        | —     | ** **    |       |              | (242       | )               |       |         | —     |   |   |   | — | ** ** |   | (242 | ) |
| Accounts payable                                                           |       |        | —     | ** **    |       |              | (4,674     | )               |       |         | (1,912     | ) |   |   | — | ** ** |   | (6,586 | ) |
| Accrued expenses  and other liabilities                                    |       |        | —     | ** **    |       |              | 18,108     |            |       |         | 1,690      |   |   |   | — | ** ** |   | 19,798 |   |
| Payable to  affiliates                                                     |       |        | —     | ** **    |       |              | 770        |            |       |         | 42         |   |   |   | — | ** ** |   | 812 |   |
| Net cash from  operating activities                                        |       |        | —     | ** **    |       |              | 8,116      |            |       |         | (4,770     | ) |   |   | — | ** ** |   | 3,346 |   |
| **Cash flows from investing activities**                                   | ** ** |        | ** ** | ** **    |       |              | ** ** | ** **      |       |         | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| Capital  expenditures                                                      |       |        | —     | ** **    |       |              | (2,036     | )               |       |         | (970       | ) |   |   | — | ** ** |   | (3,006 | ) |
| Net cash from  investing activities                                        |       |        | —     | ** **    |       |              | (2,036     | )               |       |         | (970       | ) |   |   | — | ** ** |   | (3,006 | ) |
| **Cash flows from financing activities**                                   | ** ** |        | ** ** | ** **    |       |              | ** ** | ** **      |       |         | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| Dividends and  distributions                                               |       |        | —     | ** **    |       |              | —     |            |       |         | (6,809     | ) |   |   | — | ** ** |   | (6,809 | ) |
| Payments on  capital lease obligation                                      |       |        | —     | ** **    |       |              | —     |            |       |         | (58        | ) |   |   | — | ** ** |   | (58 | ) |
| Net (payments to)  collections from affiliates                             |       |        | —     | ** **    |       |              | (5,899     | )               |       |         | 4,279      |   |   |   | — | ** ** |   | (1,620 | ) |
| on notes                                                                   |       |        | —     | ** **    |       |              | —     |            |       |         | —     |   |   |   | — | ** ** |   | — |   |
| Debt issuance and  other transaction costs                                 |       |        | —     | ** **    |       |              | —     |            |       |         | —     |   |   |   | — | ** ** |   | — |   |
| Net cash from  financing activities                                        |       |        | —     | ** **    |       |              | (5,899     | )               |       |         | (2,588     | ) |   |   | — | ** ** |   | (8,487 | ) |
| Effect of changes in  foreign exchange rates on cash                  |       |        | —     | ** **    |       |              | —     |            |       |         | (27        | ) |   |   | — | ** ** |   | (27 | ) |
| **Net change in cash and cash  equivalents**                               |       |        | —     | ** **    |       |              | 181        |            |       |         | (8,355     | ) |   |   | — | ** ** |   | (8,174 | ) |
| Cash and cash equivalents                                                  |       |        |       | ** **    |       |              |       |            |       |         |       |   |   |   |   | ** ** |   |   |   |
| Beginning of  period                                                       |       |        | —     | ** **    |       |              | —     |            |       |         | 9,366      |   |   |   | — | ** ** |   | 9,366 |   |
| End of period                                                              |       |        | $          | —        | ** ** |              |       | $               | 181        |         |       |   | $ | 1,011 |   |   |   | $ | — | ** ** |   | $ | 1,192 |   |

 

F-51

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 25—CONSOLIDATED AND COMBINED GUARANTOR ANDNON-GUARANTOR FINANCIAL INFORMATION (Continued)**

**IndalexConsolidated Statement of Cash Flows—Guarantor and Non-GuarantorFor the Period February 2, 2006 through December 31, 2006 (Successor)**

| ** **                                                                          | ** ** | **Parent  Company** | ** ** | **Guarantor  Company** | ** ** | **Non-  Guarantor  Company** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|------------------------------|------------|------------------|------------|------------------|------------|
| **Cash flows from operating  activities**                                           |       |                |       |                   |       |                         |       |             |       |             |       |   |   |   |   |
| Net income (loss)                                                                   |       | $                   | —     |                   | $          | (23,821                      | )          | $                | (77        | )                |       | $ | — |   |   |   | $ | (23,898 | ) |   |
| Adjustments to reconcile  net income to net cash from operating activities:         |       |                |       |                   |       |                         |       |             |       |             |       |   |   |   |   |
| Depreciation                                                                        |       | —              |       | 22,775                 |       | 9,552                        |       |             | —     |             |       |   | 32,327 |   |   |
| Amortization of intangible assets                                                   |       | —              |       | 6,937                  |       | 3,799                        |       |             | —     |             |       |   | 10,736 |   |   |
| Amortization of deferred financing costs                                            |       | —              |       | 1,047                  |       | 1,173                        |       |             | —     |             |       |   | 2,220 |   |   |
| Amortization of bond discount                                                       |       | —              |       | 394                    |       | —                       |       |             | —     |             |       |   | 394 |   |   |
| (Gain) loss on disposal of assets                                                   |       | —              |       | (213                   | )          | 468                          |       |             | —     |             |       |   | 255 |   |   |
| Impairment of long-lived assets                                                     |       | —              |       | 7,083                  |       | 165                          |       |             | —     |             |       |   | 7,248 |   |   |
| Other                                                                               |       | —              |       | 22                     |       | (1                           | )          |             | —     |             |       |   | 21 |   |   |
| Income from equity method investment in AAG                                         |       | —              |       | —                 |       | (11,841                      | )          |             | —     |             |       |   | (11,841 | ) |   |
| Dividends from equity method investment in AAG                                      |       | —              |       | —                 |       | 4,891                        |       |             | —     |             |       |   | 4,891 |   |   |
| Stock-based compensation                                                            |       | —              |       | 938                    |       | —                       |       |             | —     |             |       |   | 938 |   |   |
| Deferred income taxes.                                                              |       | —              |       | (8,139                 | )          | (3,190                       | )          |             | —     |             |       |   | (11,329 | ) |   |
| Changes  in operating assets and liabilities, net of the effect of the acquisition: |       |                |       |                   |       |                         |       |             |       |             |       |   |   |   |   |
| Accounts receivable                                                                 |       | —              |       | 11,850                 |       | 6,642                        |       |             | —     |             |       |   | 18,492 |   |   |
| Receivable from affiliates                                                          |       | —              |       | (9,124                 | )          | 4,851                        |       |             | 4,273      |             |       |   | — |   |   |
| Inventories                                                                         |       | —              |       | 4,699                  |       | (1,698                       | )          |             | —     |             |       |   | 3,001 |   |   |
| Prepaids and other assets                                                           |       | —              |       | 6,949                  |       | 51                           |       |             | —     |             |       |   | 7,000 |   |   |
| Income taxes payable/refundable                                                     |       | —              |       | 2,129                  |       | 254                          |       |             | —     |             |       |   | 2,383 |   |   |
| Checks issued in excess of bank balance                                             |       | —              |       | (1,260                 | )          | —                       |       |             | —     |             |       |   | (1,260 | ) |   |
| Accounts payable                                                                    |       | —              |       | 10,827                 |       | (2,768                       | )          |             | —     |             |       |   | 8,059 |   |   |
| Accrued expenses and other liabilities                                              |       | —              |       | (15,851                | )          | (2,498                       | )          |             | —     |             |       |   | (18,349 | ) |   |
| Payable to affiliates                                                               |       | —              |       | (5,214                 | )          | 9,477                        |       |             | (4,263     | )                |       |   | — |   |   |
| Net cash from operating activities.                                                 |       | —              |       | 12,028                 |       | 19,250                       |       |             | 10         |             |       |   | 31,288 |   |   |
| **Cash flows from investing activities**                                            |       |                |       |                   |       |                         |       |             |       |             |       |   |   |   |   |
| Capital expenditures.                                                               |       | —              |       | (16,227                | )          | (5,050                       | )          |             | —     |             |       |   | (21,277 | ) |   |
| Proceeds from sales of property, plant and equipment.                               |       | —              |       | 237                    |       | 2,007                        |       |             | —     |             |       |   | 2,244 |   |   |
| Proceeds from sale of business                                                      |       | —              |       | 4,548                  |       | —                       |       |             | —     |             |       |   | 4,548 |   |   |
| Cash paid for acquisition                                                           |       | (111,250            | )          | (361,665               | )          | (216,741                     | )          |             | 271,400    |             |       |   | (418,256 | ) |   |
| Payment of acquisition transaction costs                                            |       | —              |       | (1,735                 | )          | —                       |       |             | —     |             |       |   | (1,735 | ) |   |
| Net cash from investing activities                                                  |       | (111,250            | )          | (374,842               | )          | (219,784                     | )          |             | 271,400    |             |       |   | (434,476 | ) |   |
| **Cash flows from financing activities**                                            |       |                |       |                   |       |                         |       |             |       |             |       |   |   |   |   |
| Dividends and distributions                                                         |       | —              |       | (1,522                 | )          | —                       |       |             | —     |             |       |   | (1,522 | ) |   |
| Payments on capital lease obligation                                                |       | —              |       | (374                   | )          | (659                         | )          |             | —     |             |       |   | (1,033 | ) |   |
| Revolver payments, net                                                              |       | 10                  |       | (749                   | )          | (12,383                      | )          |             | —     |             |       |   | (13,122 | ) |   |
| Repurchases of common stock                                                         |       | (10                 | )          | —                 |       | —                       |       |             | —     |             |       |   | (10 | ) |   |
| Revolver borrowings, acquisition                                                    |       | —              |       | 40,839                 |       | 28,000                       |       |             | —     |             |       |   | 68,839 |   |   |
| Borrowings on long-term debt, acquisition                                           |       | —              |       | 266,563                |       | 160,150                      |       |             | (160,150   | )                |       |   | 266,563 |   |   |
| Capital contributions                                                               |       | 111,250             |       | 81,648                 |       | 29,602                       |       |             | (111,250   | )                |       |   | 111,250 |   |   |
| Debt issuance costs                                                                 |       | —              |       | (16,814                | )          | —                       |       |             | —     |             |       |   | (16,814 | ) |   |
| Net cash from financing activities                                                  |       | 111,250             |       | 369,591                |       | 204,710                      |       |             | (271,400   | )                |       |   | 414,151 |   |   |
| Effect of changes in foreign exchange rates on cash                                 |       | —              |       | —                 |       | 204                          |       |             | (10        | )                |       |   | 194 |   |   |
| **Net change in cash and cash equivalents**                                         |       | —              |       | 6,777                  |       | 4,380                        |       |             | —     |             |       |   | 11,157 |   |   |
| Cash and cash  equivalents                                                          |       |                |       |                   |       |                         |       |             |       |             |       |   |   |   |   |
| Beginning of period                                                                 |       | —              |       | —                 |       | —                       |       |             | —     |             |       |   | — |   |   |
| End of period                                                                       |       | $                   | —     |                   | $          | 6,777                        |       | $                | 4,380      |             |       | $ | — |   |   |   | $ | 11,157 |   |   |

 

F-52

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 25—CONSOLIDATED ANDCOMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)**

**Indalex CombinedStatement of Income—Guarantor and Non-GuarantorPeriod January 1, 2005 to March 31, 2005 (Predecessor 1)**

| ** **                                           | ** ** | **Parent**  | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | ** **      | ** ** | ** **   | ** ** |
|------------------------------------------------------|------------|-------------|------------|---------------|------------|-------------------|------------|-----------------|------------|--------------|------------|
| ** **                                           | ** ** | **Company** | ** ** | **Company**   | ** ** | **Company**       | ** ** | **Elimination** | ** ** | **Combined** | ** ** |
| **Net  sales**                                       |       |        | $          | —        |       |              | $          | 169,924         |       |         | $          | 87,872 |   |   |   | $ | (17,947 | ) |   | $ | 239,849 |   |
| Costs and  expenses:                                 |       |        |       |          |       |              |       |            |       |         |       |   |   |   |   |   |   |
| Cost of sales                                        |       |        | —     |          |       | 157,843           |       |            | 81,646     |         |       |   | (17,947 | ) |   | 221,542 |   |
| Selling, general, and administrative                 |       |        | —     |          |       | 11,522            |       |            | 4,071      |         |       |   | — |   |   | 15,593 |   |
| Management fees to affiliates                        |       |        | —     |          |       | 550               |       |            | 150        |         |       |   | — |   |   | 700 |   |
| Other expense                                        |       |        |       |          |       | 800               |       |            | 193        |         |       |   | — |   |   | 993 |   |
| Restructuring charges                                |       |        | —     |          |       | 694               |       |            | —     |         |       |   | — |   |   | 694 |   |
| Impairment of long-lived assets                      |       |        | —     |          |       | 381               |       |            | —     |         |       |   | — |   |   | 381 |   |
| (Gain) loss on disposal of assets                    |       |        | —     |          |       | (311              | )          |            | 37         |         |       |   | — |   |   | (274 | ) |
| Mark-to-market on derivatives                        |       |        | —     |          |       | 285               |       |            | —     |         |       |   | — |   |   | 285 |   |
| Total costs and expenses                             |       |        | —     |          |       | 171,764           |       |            | 86,097     |         |       |   | (17,947 | ) |   | 239,914 |   |
| **Income (loss) from operations**                    |       |        | —     |          |       | (1,840            | )          |            | 1,775      |         |       |   | — |   |   | (65 | ) |
| Other income  (expense):                             |       |        |       |          |       |              |       |            |       |         |       |   |   |   |   |   |   |
| Interest to affiliates, net                          |       |        | —     |          |       | (1,038            | )          |            | (170       | )            |       |   | — |   |   | (1,208 | ) |
| External interest (expense) income, net              |       |        | —     |          |       | (45               | )          |            | 45         |         |       |   | — |   |   | — |   |
| Income from equity method investment in AAG     |       |        | —     |          |       | —            |       |            | 1,557      |         |       |   | — |   |   | 1,557 |   |
| Dividend income from affiliates                      |       |        | —     |          |       | —            |       |            | 9,077      |         |       |   | — |   |   | 9,077 |   |
| Income (loss) before income taxes                    |       |        | —     |          |       | (2,923            | )          |            | 12,284     |         |       |   | — |   |   | 9,361 |   |
| Income tax provision (benefit)                       |       |        |       |          |       | (757              | )          |            | 766        |         |       |   | — |   |   | 9 |   |
| Income (loss) from continuing operations             |       |        | —     |          |       | (2,166            | )          |            | 11,518     |         |       |   | — |   |   | 9,352 |   |
| Discontinued operations, net of tax   benefit of $27 |       |        | —     |          |       | —            |       |            | (50        | )            |       |   | — |   |   | (50 | ) |
| **Net income (loss)**                                |       |        | $          | —        |       |              | $          | (2,166          | )          |         | $          | 11,468 |   |   |   | $ | — |   |   | $ | 9,302 |   |

 

F-53

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE25—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION(Continued)**

**Indalex CombinedStatement of Income—Guarantor and Non-GuarantorPeriod April 1, 2005 to December 31, 2005 (Predecessor 2)**

| ** **                                  | ** ** | **Parent**  | ** **   | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | ** **      | ** **  | ** **   | ** ** |
|---------------------------------------------|------------|-------------|--------------|---------------|------------|-------------------|------------|-----------------|-------------|--------------|------------|
| ** **                                  | ** ** | **Company** | ** **   | **Company**   | ** ** | **Company**       | ** ** | **Elimination** | ** **  | **Combined** | ** ** |
| **Net  sales**                              |       |        | $            | —        |       |              | $          | 549,602         |        |         | $          | 288,167 |   |   |   | $ | (56,248 | ) |   | $ | 781,521 |   |
| Costs and expenses:                         |       |        |         |          |       |              |       |            |        |         |       |   |   |   |   |   |   |
| Cost of sales                               |       |        | —       |          |       | 514,800           |       |            | 269,247     |         |       |   | (56,248 | ) |   | 727,799 |   |
| Selling, general, and administrative        |       |        | —       |          |       | 24,791            |       |            | 11,142      |         |       |   | — |   |   | 35,933 |   |
| Management fees to affiliates               |       |        | —       |          |       | 1,131             |       |            | —      |         |       |   | — |   |   | 1,131 |   |
| Amortization of intangible assets           |       |        | —       |          |       | 5,383             |       |            | 2,899       |         |       |   | — |   |   | 8,282 |   |
| Other (income) expense                      |       |        | —       |          |       | (2,219            | )          |            |  1,394 |         |       |   | — |   |   | (825 | ) |
| Restructuring charges                       |       |        |  — |          |       | (222              | )          |            | —      |         |       |   | — |   |   | (222 | ) |
| Impairment of long-lived assets             |       |        |  — |          |       | 636               |       |            | —      |         |       |   | — |   |   | 636 |   |
| Gain on disposal of assets                  |       |        | —       |          |       | (126              | )          |            | (20         | )            |       |   | — |   |   | (146 | ) |
| Mark-to-market on derivatives               |       |        | —       |          |       | (1,200            | )          |            | —      |         |       |   | — |   |   | (1,200 | ) |
| Total costs and expenses                    |       |        | —       |          |       | 542,974           |       |            | 284,662     |         |       |   | (56,248 | ) |   | 771,388 |   |
| **Income from operations**                  |       |        | —       |          |       | 6,628             |       |            | 3,505       |         |       |   | — |   |   | 10,133 |   |
| Other income (expense):                     |       |        |         |          |       |              |       |            |        |         |       |   |   |   |   |   |   |
| Interest to affiliates, net                 |       |        | —       |          |       | (3,712            | )          |            | —      |         |       |   | — |   |   | (3,712 | ) |
| External interest expense                   |       |        | —       |          |       | (333              | )          |            | —      |         |       |   | — |   |   | (333 | ) |
| Interest income                             |       |        | —       |          |       | 46                |       |            | 98          |         |       |   | — |   |   | 144 |   |
| Income from equity method investment in AAG |       |        | —       |          |       | —            |       |            | 9,380       |         |       |   | — |   |   | 9,380 |   |
| Income before income taxes                  |       |        | —       |          |       | 2,629             |       |            | 12,983      |         |       |   | — |   |   | 15,612 |   |
| Income tax provision                        |       |        | —       |          |       | 446               |       |            | 1,466       |         |       |   | — |   |   | 1,912 |   |
| **Net income**                              |       |        | $            | —        |       |              | $          | 2,183           |        |         | $          | 11,517 |   |   |   | $ | — |   |   | $ | 13,700 |   |

 

F-54

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE 25—CONSOLIDATED ANDCOMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)**

**IndalexCombined Statement of Cash Flows—Guarantor and Non-GuarantorPeriod January 1, 2005 to March 31, 2005 (Predecessor 1)**

| ** **                                                                        | ** ** | **Parent  Company** | ** ** | **Guarantor  Company** | ** ** | **Non-Guarantor  Company** | ** ** | **Elimination** | ** ** | **Combined** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|----------------------------|------------|-----------------|------------|--------------|------------|
| **Cash flows from operating activities**                                          | ** ** | ** **          | ** ** | ** **             | ** ** | ** **                 | ** ** | ** **      | ** ** | ** **   | ** ** |
| Net income (loss)                                                                 |       | $                   | —     |                   | $          | (2,166                     | )          | $               | 11,468     |         | —     |   | $ | 9,302 |   |
| Adjustments to reconcile net income (loss) to net  cash from operating activities |       |                |       |                   |       |                       |       |            |       |         |       |
| Depreciation                                                                      |       | —              |       | 6,241                  |       | 1,712                      |       | —          |       | 7,953        |       |
| (Gain) loss on disposal  of assets                                                |       | —              |       | (311                   | )          | 37                         |       | —          |       | (274         | )          |
| Impairment of long-lived  assets                                                  |       | —              |       | —                 |       | 381                        |       | —          |       | 381          |       |
| Dividend from affiliate                                                           |       | —              |       | —                 |       | (9,077                     | )          | —          |       | (9,077       | )          |
| Other                                                                             |       | —              |       | 245                    |       | —                     |       | —          |       | 245          |       |
| Income from equity  investment in AAG                                             |       | —              |       | —                 |       | (1,557                     | )          | —          |       | (1,557       | )          |
| Dividends from investment  in AAG                                                 |       | —              |       | —                 |       | 4,602                      |       | —          |       | 4,602        |       |
| Stock-based compensation                                                          |       | —              |       | 998                    |       | 246                        |       | —          |       | 1,244        |       |
| Executive compensation                                                            |       | —              |       | 235                    |       | 76                         |       | —          |       | 311          |       |
| Management fees to  affiliates                                                    |       | —              |       | 550                    |       | 150                        |       | —          |       | 700          |       |
| Deferred income taxes                                                             |       | —              |       | (377                   | )          | 159                        |       | —          |       | (218         | )          |
| Changes in operating assets and liabilities                                       |       |                |       |                   |       |                       |       |            |       |         |       |
| Accounts receivable                                                               |       | —              |       | (16,379                | )          | (8,918                     | )          | —          |       | (25,297      | )          |
| Receivable from  affiliates                                                       |       | —              |       | (737                   | )          | 1,550                      |       | (996            | )          | (183         | )          |
| Inventories                                                                       |       | —              |       | (17,223                | )          | 2,519                      |       | —          |       | (14,704      | )          |
| Prepaids and other assets                                                         |       | —              |       | 1,257                  |       | 881                        |       | —          |       | 2,138        |       |
| Income taxes  payable/refundable                                                  |       | —              |       | (556                   | )          | (9,598                     | )          | —          |       | (10,154      | )          |
| Accounts payable                                                                  |       | —              |       | 1,526                  |       | 896                        |       | —          |       | 2,422        |       |
| Accrued expenses and  other liabilities                                           |       | —              |       | 2,849                  |       | (1,416                     | )          | —          |       | 1,433        |       |
| Payable to affiliates                                                             |       | —              |       | (1,946                 | )          | 485                        |       | 996             |       | (465         | )          |
| Net cash from operating  activities                                               |       | —              |       | (25,794                | )          | (5,404                     | )          | —          |       | (31,198      | )          |
| **Cash flows from investing activities**                                          | ** ** | ** **          | ** ** | ** **             | ** ** | ** **                 | ** ** | ** **      | ** ** | ** **   | ** ** |
| Capital expenditures                                                              |       | —              |       | (6,084                 | )          | (2,686                     | )          | —          |       | (8,770       | )          |
| Proceeds from sales of  property, plant and equipment                             |       | —              |       | 742                    |       | (4                         | )          | —          |       | 738          |       |
| Net cash from investing  activities                                               |       | —              |       | (5,342                 | )          | (2,690                     | )          | —          |       | (8,032       | )          |
| **Cash  flows from financing activities**                                         | ** ** | ** **          | ** ** | ** **             | ** ** | ** **                 | ** ** | ** **      | ** ** | ** **   | ** ** |
| Net collections from  affiliates on notes                                         |       | —              |       | 30,332                 |       | 264                        |       | —          |       | 30,596       |       |
| Debt issuance and other  transaction costs                                        |       | —              |       | —                 |       | —                     |       | —          |       | —       |       |
| Net cash from financing  activities                                               |       | —              |       | 30,332                 |       | 264                        |       | —          |       | 30,596       |       |
| Effect of changes in  foreign exchange rates on cash                              |       | —              |       | —                 |       | 2,887                      |       | —          |       | 2,887        |       |
| **Net  change in cash and cash equivalents**                                      |       | —              |       | (804                   | )          | (4,943                     | )          | —          |       | (5,747       | )          |
| Cash and cash equivalents                                                         |       |                |       |                   |       |                       |       |            |       |         |       |
| Beginning of period                                                               |       | —              |       | 6,012                  |       | 17,510                     |       | —          |       | 23,522       |       |
| End of period                                                                     |       | $                   | —     |                   | $          | 5,208                      |       | $               | 12,567     |         | $          | — |   | $ | 17,775 |   |
|                                                                                   |            |                     |            |                        |            |                            |            |                 |            |              |            |  |  |  |  |  |

** **

F-55

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued) Years ended December 31, 2006, December 31, 2005 and December 31, 2004 (Dollars in thousands)**

**NOTE25—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION(Continued)**

**Indalex Combined Statementof Cash Flows—Guarantor and Non-GuarantorPeriod April 1, 2005 to December 31, 2005 (Predecessor 2)**

| ** **                                                                 | ** ** | **Parent  Company** | ** ** | **Guarantor  Company** | ** ** | **Non-Guarantor  Company** | ** ** | **Eliminations** | ** ** | **Combined** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|----------------------------|------------|------------------|------------|--------------|------------|
| **Cash flows from operating activities**                                   | ** ** | ** **          | ** ** | ** **             | ** ** | ** **                 | ** ** | ** **       | ** ** | ** **   | ** ** |
| Net income                                                                 |       | $                   | —     |                   | $          | 2,183                      |       | $                | 11,517     |         | $          | — |   | $ | 13,700 |   |
| Adjustments to reconcile net income to net cash from  operating activities |       |                |       |                   |       |                       |       |             |       |         |       |
| Depreciation                                                               |       | —              |       | 17,752                 |       | 7,191                      |       | —           |       | 24,943       |       |
| Amortization of  intangibles                                               |       | —              |       | 5,383                  |       | 2,899                      |       | —           |       | 8,282        |       |
| Gain on disposal  of assets                                                |       | —              |       | (126                   | )          | (20                        | )          | —           |       | (146         | )          |
| Impairment of  long-lived assets                                           |       | —              |       | 636                    |       | —                     |       | —           |       | 636          |       |
| Income from equity  method investment in AAG                               |       | —              |       | —                 |       | (9,380                     | )          | —           |       | (9,380       | )          |
| Deferred income  taxes                                                     |       | —              |       | (5,340                 | )          | (861                       | )          | —           |       | (6,201       | )          |
| Changes in operating  assets and liabilities                               |       |                |       |                   |       |                       |       |             |       |         |       |
| Accounts  receivable                                                       |       | —              |       | 16,190                 |       | 4,886                      |       | —           |       | 21,076       |       |
| Receivable from  affiliates                                                |       | —              |       | (2,679                 | )          | (3,350                     | )          | 3,691            |       | (2,338       | )          |
| Inventories                                                                |       | —              |       | 31,677                 |       | (2,280                     | )          | —           |       | 29,397       |       |
| Prepaids and other  assets                                                 |       | —              |       | (7,682                 | )          | 1,596                      |       | —           |       | (6,086       | )          |
| Income taxes  payable/refundable                                           |       | —              |       | 3,855                  |       | 21                         |       | —           |       | 3,876        |       |
| Checks issued in  excess of bank balance                                   |       | —              |       | 1,716                  |       | —                     |       | —           |       | 1,716        |       |
| Accounts payable                                                           |       | —              |       | (13,001                | )          | 4,733                      |       | —           |       | (8,268       | )          |
| Accrued expenses  and other liabilities                                    |       | —              |       | (14,349                | )          | 1,435                      |       | —           |       | (12,914      | )          |
| Payable to  affiliates                                                     |       | —              |       | 3,609                  |       | (179                       | )          | (3,691           | )          | (261         | )          |
| Net cash from  operating activities                                        |       | —              |       | 39,824                 |       | 18,208                     |       | —           |       | 58,032       |       |
| **Cash flows from investing activities**                                   | ** ** | ** **          | ** ** | ** **             | ** ** | ** **                 | ** ** | ** **       | ** ** | ** **   | ** ** |
| Capital  expenditures                                                      |       | —              |       | (13,951                | )          | (6,277                     | )          | —           |       | (20,228      | )          |
| Proceeds from  sales of property, plant and equipment                      |       | —              |       | 2,020                  |       | 19                         |       | —           |       | 2,039        |       |
| Net cash from  investing activities                                        |       | —              |       | (11,931                | )          | (6,258                     | )          | —           |       | (18,189      | )          |
| **Cash flows from financing activities**                                   | ** ** | ** **          | ** ** | ** **             | ** ** | ** **                 | ** ** | ** **       | ** ** | ** **   | ** ** |
| Dividends and  distributions                                               |       | —              |       | (11,791                | )          | (13,968                    | )          | —           |       | (25,759      | )          |
| Payments on  capital lease obligation                                      |       | —              |       | —                 |       | (58                        | )          | —           |       | (58          | )          |
| Debt payments                                                              |       | —              |       | (6,000                 | )          | —                     |       | —           |       | (6,000       | )          |
| Net (payments to)  collections from affiliates on notes                    |       | —              |       | (15,308                | )          | 645                        |       | —           |       | (14,663      | )          |
| Net cash from  financing activities                                        |       | —              |       | (33,099                | )          | (13,381                    | )          | —           |       | (46,480      | )          |
| Effect of changes in  foreign exchange rates on cash                       |       | —              |       | —                 |       | (1,772                     | )          | —           |       | (1,772       | )          |
| **Net  change in cash and cash equivalents**                               |       | —              |       | (5,206                 | )          | (3,203                     | )          | —           |       | (8,409       | )          |
| Cash and cash equivalents                                                  |       |                |       |                   |       |                       |       |             |       |         |       |
| Beginning of  period                                                       |       | —              |       | $                      | 5,206      |                       | $          | 12,569           |       | —       |       | $ | 17,775 |   |
| End of period                                                              |       | $                   | —     |                   | $          | —                     |       | $                | 9,366      |         | $          | — |   | $ | 9,366 |   |

 

F-56

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)**

**Years ended December 31, 2006, December 31, 2005 and December 31, 2004**

**(Dollars in thousands)**

**NOTE25—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION(Continued)**

**Indalex CombinedStatement of Income—Guarantor and Non-GuarantorYear Ended December 31, 2004 (Predecessor 1)**

| ** **                                                                                                       | ** ** | **Parent**  | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | ** **   | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-------------|------------|---------------|------------|-------------------|------------|------------------|------------|--------------|------------|
| ** **                                                                                                       | ** ** | **Company** | ** ** | **Company**   | ** ** | **Company**       | ** ** | **Eliminations** | ** ** | **Combined** | ** ** |
| **Net  sales**                                                                                                   |       |        | $          | —        |       |              | $          | 653,365          |       |         | $          | 312,850 |   |   |   | $ | (33,519 | ) |   | $ | 932,696 |   |
| Costs and  expenses:                                                                                             |       |        |       |          |       |              |       |             |       |         |       |   |   |   |   |   |   |
| Cost of sales                                                                                                    |       |        | —     |          |       | 607,582           |       |             | 280,323    |         |       |   | (33,519 | ) |   | 854,386 |   |
| Selling, general, and administrative                                                                             |       |        | —     |          |       | 38,331            |       |             | 14,288     |         |       |   | — |   |   | 52,619 |   |
| Management fees to affiliates                                                                                    |       |        | —     |          |       | 2,175             |       |             | 596        |         |       |   | — |   |   | 2,771 |   |
| Other expense                                                                                                    |       |        | —     |          |       | 1,957             |       |             | 341        |         |       |   | — |   |   | 2,298 |   |
| Restructuring charge                                                                                             |       |        | —     |          |       | 4,830             |       |             | 1,256      |         |       |   | — |   |   | 6,086 |   |
| Impairment of long-lived assets                                                                                  |       |        | —     |          |       | 2,728             |       |             | —     |         |       |   | — |   |   | 2,728 |   |
| Gain on disposal of assets                                                                                       |       |        | —     |          |       | (673              | )          |             | (2         | )            |       |   | — |   |   | (675 | ) |
| Mark-to-market on derivatives                                                                                    |       |        | —     |          |       | (3,638            | )          |             | —     |         |       |   | — |   |   | (3,638 | ) |
| Total costs and expenses                                                                                         |       |        | —     |          |       | 653,292           |       |             | 296,802    |         |       |   | (33,519 | ) |   | 916,575 |   |
| **Income (loss) from operations**                                                                                |       |        | —     |          |       | 73                |       |             | 16,048     |         |       |   | — |   |   | 16,121 |   |
| Other income  (expense):                                                                                         |       |        |       |          |       |              |       |             |       |         |       |   |   |   |   |   |   |
| Interest to affiliates, net                                                                                      |       |        | —     |          |       | (7,251            | )          |             | (1,386     | )            |       |   | — |   |   | (8,637 | ) |
| External interest expense                                                                                        |       |        | —     |          |       | (132              | )          |             | —     |         |       |   | — |   |   | (132 | ) |
| Interest income                                                                                                  |       |        | —     |          |       | —            |       |             | 182        |         |       |   | — |   |   | 182 |   |
| Income from equity method  investment in AAG                                                           |       |        | —     |          |       | —            |       |             | 14,807     |         |       |   | — |   |   | 14,807 |   |
| Dividend income from affiliates                                                                                  |       |        | —     |          |       | —            |       |             | 15,102     |         |       |   | — |   |   | 15,102 |   |
| Income (loss) before income taxes                                                                                |       |        | —     |          |       | (7,310            | )          |             | 44,753     |         |       |   | — |   |   | 37,443 |   |
| Income tax provision (benefit)                                                                                   |       |        | —     |          |       | (10,482           | )          |             | 4,674      |         |       |   | — |   |   | (5,808 | ) |
| Income from continuing operations                                                                                |       |        | —     |          |       | 3,172             |       |             | 40,079     |         |       |   | — |   |   | 43,251 |   |
| Discontinued operations, including loss on disposal  of $634 (net of tax benefit of $147) and net of tax of $486 |       |        | —     |          |       | —            |       |             | 1,126      |         |       |   | — |   |   | 1,126 |   |
| **Net  income**                                                                                                  |       |        | $          | —        |       |              | $          | 3,172            |       |         | $          | 41,205 |   |   |   | $ | — |   |   | $ | 44,377 |   |

 

F-57

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)**

**Years ended December 31, 2006, December 31, 2005 and December 31, 2004**

**(Dollars in thousands)**

**NOTE25—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION(Continued)**

**IndalexCombined Statement of Cash Flows—Guarantor and Non-GuarantorYear Ended December 31, 2004 (Predecessor 1)**

| ** **                                                                           | ** ** | **Parent**  | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | ** **   | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------|------------|---------------|------------|-------------------|------------|------------------|------------|--------------|------------|
| ** **                                                                           | ** ** | **Company** | ** ** | **Company**   | ** ** | **Company**       | ** ** | **Eliminations** | ** ** | **Combined** | ** ** |
| **Cash flows from operating  activities**                                            |       |        |       |          |       |              |       |             |       |         |       |   |   |   |   |   |   |
| Net income                                                                           |       |        | $          | —        |       |              | $          | 3,172            |       |         | $          | 41,205 |   |   |   | $ | — |   |   | $ | 44,377 |   |
| Adjustments to reconcile  net income to net cash from operating activities |       |        |       |          |       |              |       |             |       |         |       |   |   |   |   |   |   |
| Depreciation                                                                         |       |        | —     |          |       | 25,168            |       |             | 7,521      |         |       |   | — |   |   | 32,689 |   |
| Gain on disposal  of assets                                                          |       |        | —     |          |       | (673              | )          |             | (2         | )            |       |   | — |   |   | (675 | ) |
| Impairment of  long-lived assets                                                     |       |        | —     |          |       | 2,728             |       |             | —     |         |       |   | — |   |   | 2,728 |   |
| Other                                                                                |       |        | —     |          |       | —            |       |             | 30         |         |       |   | — |   |   | 30 |   |
| Income from equity  method investment in AAG                                         |       |        | —     |          |       | —            |       |             | (14,807    | )            |       |   | — |   |   | (14,807 | ) |
| Stock-based  compensation                                                            |       |        | —     |          |       | 1,401             |       |             | 828        |         |       |   | — |   |   | 2,229 |   |
| Deferred income  taxes                                                               |       |        | —     |          |       | (1,057            | )          |             | (666       | )            |       |   | — |   |   | (1,723 | ) |
| Changes in operating  assets and liabilities                                         |       |        |       |          |       |              |       |             |       |         |       |   |   |   |   |   |   |
| Accounts  receivable                                                                 |       |        | —     |          |       | (22,787           | )          |             | (7,837     | )            |       |   | — |   |   | (30,624 | ) |
| Receivable from  affiliates                                                          |       |        | —     |          |       | 1,643             |       |             | 857        |         |       |   | (2,357 | ) |   | 143 |   |
| Inventories                                                                          |       |        | —     |          |       | (2,667            | )          |             | (5,341     | )            |       |   | — |   |   | (8,008 | ) |
| Prepaids and other  assets                                                           |       |        | —     |          |       | 316               |       |             | 1,939      |         |       |   | — |   |   | 2,255 |   |
| Income taxes  payable/refundable                                                     |       |        | —     |          |       | 2,078             |       |             | (3,255     | )            |       |   | — |   |   | (1,177 | ) |
| Accounts payable                                                                     |       |        | —     |          |       | 9,415             |       |             | 7,078      |         |       |   | — |   |   | 16,493 |   |
| Accrued expenses  and other liabilities                                              |       |        | —     |          |       | 3,140             |       |             | 802        |         |       |   | — |   |   | 3,942 |   |
| Payable to  affiliates                                                               |       |        | —     |          |       | (25               | )          |             | (1,715     | )            |       |   | 2,357 |   |   | 617 |   |
| Net cash from  discontinued operations                                               |       |        | —     |          |       | —            |       |             | (1,126     | )            |       |   | — |   |   | (1,126 | ) |
| Net cash from  operating activities                                                  |       |        | —     |          |       | 21,852            |       |             | 25,511     |         |       |   | — |   |   | 47,363 |   |
| **Cash flows from investing activities**                                             |       |        |       |          |       |              |       |             |       |         |       |   |   |   |   |   |   |
| Capital  expenditures                                                                |       |        | —     |          |       | (20,965           | )          |             | (12,310    | )            |       |   | — |   |   | (33,275 | ) |
| Proceeds from  sales of property, plant and equipment                                |       |        | —     |          |       | 160               |       |             | 5          |         |       |   | — |   |   | 165 |   |
| Redemption of  investment in affiliates                                              |       |        | —     |          |       | —            |       |             | 32,872     |         |       |   | — |   |   | 32,872 |   |
| Proceeds from  sales of discontinued operations                                      |       |        | —     |          |       | —            |       |             | 1,111      |         |       |   | — |   |   | 1,111 |   |
| Net cash from  investing activities                                                  |       |        | —     |          |       | (20,805           | )          |             | 21,678     |         |       |   | — |   |   | 873 |   |
| **Cash flows from financing activities**                                             |       |        |       |          |       |              |       |             |       |         |       |   |   |   |   |   |   |
| Capital  contributions                                                               |       |        | —     |          |       | 151,500           |       |             | —     |         |       |   | — |   |   | 151,500 |   |
| Capital redemptions                                                                  |       |        | —     |          |       | —            |       |             | (40,612    | )            |       |   | — |   |   | (40,612 | ) |
| Dividends paid                                                                       |       |        | —     |          |       | (8,000            | )          |             | —     |         |       |   | — |   |   | (8,000 | ) |
| Net (payments to)  collections from affiliates on notes                         |       |        | —     |          |       | (150,709          | )          |             | 10,793     |         |       |   | — |   |   | (139,916 | ) |
| Net cash from  financing activities                                                  |       |        | —     |          |       | (7,209            | )          |             | (29,819    | )            |       |   | — |   |   | (37,028 | ) |
| Effect of changes in  foreign exchange rates on cash                                 |       |        | —     |          |       | —            |       |             | (6,236     | )            |       |   | — |   |   | (6,236 | ) |
| **Net  change in cash and cash equivalents**                                         |       |        | —     |          |       | (6,162            | )          |             | 11,134     |         |       |   | — |   |   | 4,972 |   |
| Cash and cash equivalents                                                            |       |        |       |          |       |              |       |             |       |         |       |   |   |   |   |   |   |
| Beginning of year                                                                    |       |        | —     |          |       | $                 | 12,174     |             |       | $            | 6,376      |   |   |   | $ | — |   |   | $ | 18,550 |   |
| End of year                                                                          |       |        | $          | —        |       |              | $          | 6,012            |       |         | $          | 17,510 |   |   |   | $ | — |   |   | $ | 23,522 |   |

** **

F-58

----

**INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)**

**Years ended December 31, 2006, December 31, 2005 and December 31, 2004**

**(Dollars in thousands)**

 

**NOTE 26—SUBSEQUENT EVENT**

On January 5, 2007, the Company announced theclosure of its aluminum extrusion facility located in Watsonville, California.The facility will operate through April 2007. As a result of the closure, theCompany recorded an impairment on long-lived assets of $3,446 during the periodFebruary 2, 2006 to December 31, 2006 based on the appraised valuesof the assets expected to be disposed. The Watsonville plant has 99 full-timeemployees.

F-59

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**Audited Financial Statements**

**ASIA ALUMINUM GROUP LIMITED****(Incorporated in the British Virgin Islands with limitedliability)**

**Yearsended June 30, 2006, 2005 and 2004**

F-60

----

**ASIAALUMINUM GROUP LIMITED**

**CONTENTS**
|                                                          | ** ** | Pages                  | ** ** |
|----------------------------------------------------------|------------|------------------------|------------|
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING  FIRM |       | F-62                   |       |
| AUDITED FINANCIAL  STATEMENTS                            |       |                   |       |
| Consolidated:                                            |       |                   |       |
| Income statements                                        |       | F-63                   |       |
| Balance sheets                                           |       | F-64                   |       |
| Statements of changes in equity                          |       | F-65 - F-66  |       |
| Cash flow statements                                     |       | F-67 - F-68  |       |
| Notes to financial statements                            |       | F-69 - F-111 |       |

 

F-61

----

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and ShareholdersAsia Aluminum Group Limited(Incorporated in the British Virgin Islands with limited liability)

We have audited the accompanying consolidated balancesheets of Asia Aluminum Group Limited (the “Company”) and its subsidiaries (the“Group”) as of June 30, 2006 and 2005 and the related consolidated incomestatements, consolidated statements of changes in equity and consolidated cashflow statements for each of the years ended June 30, 2006, 2005 and 2004. Thesefinancial statements are the responsibility of the management. Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting. Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate 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 also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe consolidated financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for the opinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the consolidated financialposition of the Group as of June 30, 2006 and 2005, and the consolidatedresults of their operations and their cash flows for each of the three years inthe period ended June 30, 2006, in conformity with accounting principlesgenerally accepted in Hong Kong.

Accounting principlesgenerally accepted in Hong Kong vary in certain significant respects fromUnited States generally accepted accounting principles. Information relating tothe nature and effect of such differences is presented in note 34 to thefinancial statements.

/s/ ERNST &YOUNGErnst & YoungCertified Public Accountants

Hong KongOctober 10, 2006

F-62

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**ASIA ALUMINUM GROUP LIMITEDCONSOLIDATED INCOME STATEMENTSYears ended June 30, 2006, 2005 and 2004**

| ** **                          | ** ** | **Notes**  | ** ** | **2006**         | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|-------------------------------------|------------|------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | ** ** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| REVENUE                             |       |       | 5          |             |       | 3,907,340        |       | 3,408,800        |       | 2,938,482 |   |
| Cost of sales and services provided |       |       |       |             |       | (3,091,507       | )          | (2,621,875       | )          | (2,240,164 | ) |
| Gross profit                        |       |       |       |             |       | 815,833          |       | 786,925          |       | 698,318 |   |
| Other income and gains, net         |       |       | 5          |             |       | 30,508           |       | 56,800           |       | 65,384 |   |
| Selling and  distribution costs     |       |       |       |             |       | (102,305         | )          | (91,478          | )          | (76,755 | ) |
| Administrative  expenses            |       |       |       |             |       | (153,481         | )          | (138,400         | )          | (125,400 | ) |
| Other operating  expenses, net      |       |       |       |             |       | (5,210           | )          | (1,883           | )          | (24,040 | ) |
| Finance costs                       |       |       | 7          |             |       | (145,865         | )          | (96,407          | )          | (50,210 | ) |
| Share of losses  of associates      |       |       |       |             |       | (2,324           | )          | —           |       | — |   |
| PROFIT BEFORE TAX                   |       |       | 6          |             |       | 437,156          |       | 515,557          |       | 487,297 |   |
| Tax                                 |       |       | 8          |             |       | (161,775         | )          | (151,716         | )          | (142,277 | ) |
| PROFIT FOR THE YEAR                 |       |       |       |             |       | 275,381          |       | 363,841          |       | 345,020 |   |
| Attributable to:                    |       |       |       |             |       |             |       |             |       |   |   |
| Equity holders of the Company       |       |       | 9          |             |       | 303,665          |       | 378,369          |       | 358,874 |   |
| Minority interests                  |       |       |       |             |       | (28,284          | )          | (14,528          | )          | (13,854 | ) |
|                                |       |       |       |             |       | 275,381          |       | 363,841          |       | 345,020 |   |
| DIVIDENDS                           |       |       | 10         |             |       | 151,748          |       | —           |       | 143,549 |   |

 

F-63

----

**ASIA ALUMINUM GROUP LIMITEDCONSOLIDATED BALANCE SHEETSJune 30, 2006 and 2005**

| ** **                                                | ** ** | **Notes**  | ** ** | **2006**         | ** ** | **2005**         | ** ** |
|-----------------------------------------------------------|------------|------------|------------|------------------|------------|------------------|------------|
| ** **                                                | ** ** | ** ** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| ** **                                                | ** ** | ** ** | ** ** | ** **       | ** ** | **(Restated)**   | ** ** |
| NON-CURRENT ASSETS                                        |       |       |       |             |       |             |       |
| Property, plant and equipment                             |       | 11         |       | 2,093,183        |       | 1,415,574        |       |
| Prepaid land lease payment                                |       | 12         |       | 2,511            |       | 2,612            |       |
| Interests in associates                                   |       | 15         |       | 2,811            |       | 91               |       |
| Deposits paid                                             |       | 16         |       | 21,143           |       | 92,716           |       |
| Deferred tax assets                                       |       | 8          |       | 2,436            |       | 2,436            |       |
| Total non-current assets                                  |       |       |       | 2,122,084        |       | 1,513,429        |       |
| CURRENT ASSETS                                            |       |       |       |             |       |             |       |
| Trade receivables                                         |       | 24         |       | 564,770          |       | 555,666          |       |
| Inventories                                               |       | 17         |       | 389,390          |       | 349,693          |       |
| Prepayments, deposits  and other receivables              |       |       |       | 121,201          |       | 178,561          |       |
| Due from related companies                                |       | 18         |       | 126,138          |       | 35,159           |       |
| Due from minority equity  holders of subsidiaries         |       | 19         |       | 69               |       | 69               |       |
| Due from fellow  subsidiaries                             |       | 1          |       | 99,871           |       | 46,551           |       |
| Due from the immediate holding company                    |       | 1          |       | 22,525           |       | 33,929           |       |
| Deposits with a non-bank financial institution            |       |       |       | 3,451            |       | 13,642           |       |
| Cash and bank balances                                    |       | 20         |       | 2,735,705        |       | 2,022,528        |       |
| Pledged bank deposits                                     |       | 20, 24     |       | 28,846           |       | 38,606           |       |
| Total current assets                                      |       |       |       | 4,091,966        |       | 3,274,404        |       |
| CURRENT LIABILITIES                                       |       |       |       |             |       |             |       |
| Trade payables                                            |       |       |       | 229,482          |       | 174,840          |       |
| Accrued liabilities and  other payables                   |       |       |       | 562,233          |       | 368,567          |       |
| Derivative financial instruments                          |       | 21         |       | 28,019           |       | —           |       |
| Due to fellow  subsidiaries                               |       | 1          |       | 375,769          |       | 29,418           |       |
| Due to the immediate  holding company                     |       | 1          |       | 1,309,669        |       | 1,134,023        |       |
| Due to minority equity  holders/shareholders              |       | 22         |       | 50,942           |       | 77,528           |       |
| Trust receipt loans                                       |       | 24         |       | 465,140          |       | 278,656          |       |
| Interest-bearing bank  and other loans                    |       | 23, 24     |       | 476,123          |       | 373,117          |       |
| Finance lease payables                                    |       | 23, 25     |       | 528              |       | 398              |       |
| Tax payable                                               |       |       |       | 117,174          |       | 98,077           |       |
| Total current liabilities                                 |       |       |       | 3,615,079        |       | 2,534,624        |       |
| NET CURRENT ASSETS                                        |       |       |       | 476,887          |       | 739,780          |       |
| TOTAL ASSETS LESS  CURRENT LIABILITIES                    |       |       |       | 2,598,971        |       | 2,253,209        |       |
| NON-CURRENT LIABILITIES                                   |       |       |       |             |       |             |       |
| Finance lease payables                                    |       | 23, 25     |       | 342,990          |       | 172,691          |       |
| Net assets                                                |       |       |       | 2,255,981        |       | 2,080,518        |       |
| EQUITY                                                    |       |       |       |             |       |             |       |
| **Equity attributable to equity holders of the  Company** |       |       |       |             |       |             |       |
| Issued capital                                            |       | 26         |       | 184              |       | 184              |       |
| Share premium account                                     |       |       |       | 625,847          |       | 625,847          |       |
| Reserves                                                  |       | 27(a)      |       | 1,623,807        |       | 1,421,381        |       |
|                                                      |       |       |       | 2,249,838        |       | 2,047,412        |       |
| **Minority  interests**                                   |       |       |       | 6,143            |       | 33,106           |       |
| Total equity                                              |       |       |       | 2,255,981        |       | 2,080,518        |       |

 

F-64

----

**ASIA ALUMINUM GROUP LIMITEDCONSOLIDATED STATEMENTS OF CHANGES IN EQUITYYears ended June 30, 2006, 2005 and 2004**

| ** **                                                                                          | ** ** | **Attributable to equity holders of the Company** | ** ** | ** **       | ** ** | ** **       | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                          | ** ** | ** **                                                                      | ** ** | **Share**        | ** ** | ** **       | ** ** | **Statutory** | ** ** | **Exchange** | ** ** | **Statutory** | ** ** | ** ** | ** ** | **Proposed** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                          | ** ** | **Issued**                                                                      | ** ** | **premium**      | ** ** | **Capital**      | ** ** | **surplus** | ** ** | **fluctuation** | ** ** | **public** | ** ** | **Retained** | ** ** | **final** | ** ** | ** ** | ** ** | **Minority** | ** ** | **Total** | ** ** |
| ** **                                                                                          | ** ** | **capital**                                                                     | ** ** | **account**      | ** ** | **reserve**      | ** ** | **reserve** | ** ** | **reserve** | ** ** | **welfare fund** | ** ** | **profits** | ** ** | **dividend** | ** ** | **Total** | ** ** | **interests** | ** ** | **equity** | ** ** |
| ** **                                                                                          | ** ** | **HK$’000**                                                                | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| At July 1,  2003                                                                               |       |                                                                            | 184        |             |       | 625,847          |       |   | 74,467 |   |   | 130,217 |   |   | (5,213 | ) |   |   | 12,840 |   |   | 615,875 |   | 104,662 |   | 1,558,879 |   | 61,488 |   | 1,620,367 |   |
| Exchange realignment and  total income and expenses for the year recognised directly in equity |       |                                                                            | —     |             |       | —           |       |   | — |   |   | — |   |   | (499 | ) |   |   | — |   |   | — |   | — |   | (499 | ) | — |   | (499 | ) |
| Profit for the year                                                                                 |       |                                                                            | —     |             |       | —           |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | 358,874 |   | — |   | 358,874 |   | (13,854 | ) | 345,020 |   |
| Total income and expense for the year                                                               |       |                                                                            | —     |             |       | —           |       |   | — |   |   | — |   |   | (499 | ) |   |   | — |   |   | 358,874 |   | — |   | 358,375 |   | (13,854 | ) | 344,521 |   |
| 2003 dividend declared                                                                              |       |                                                                            | —     |             |       | —           |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   | (104,662 | ) | (104,662 | ) | — |   | (104,662 | ) |
| Proposed 2004 dividend                                                                              |       |                                                                            | —     |             |       | —           |       |   | — |   |   | — |   |   | — |   |   |   | — |   |   | (143,549 | ) | 143,549 |   | — |   | — |   | — |   |
| Transfer to statutory surplus reserve                                                          |       |                                                                            | —     |             |       | —           |       |   | — |   |   | 45,499 |   |   | — |   |   |   | — |   |   | (45,499 | ) | — |   | — |   | — |   | — |   |
| At June 30,  2004 and July 1, 2004                                                        |       |                                                                            | 184        |             |       | 625,847          |       |   | 74,467 |   |   | 175,716 |   |   | (5,712 | ) |   |   | 12,840 |   |   | 785,701 |   | 143,549 |   | 1,812,592 |   | 47,634 |   | 1,860,226 |   |

 

F-65

----

**ASIA ALUMINUM GROUP LIMITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued) Years ended June 30, 2006, 2005 and 2004**

| ** **                                                                                     | ** ** | **Attributable to equity holders of the Company** | ** ** | ** **       | ** ** | ** **       | ** ** |
|------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                     | ** ** | ** **                                                                      | ** ** | **Share**        | ** ** | ** **       | ** ** | **Statutory** | ** ** | **Exchange** | ** ** | **Statutory** | ** ** | ** ** | ** ** | **Proposed** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                     | ** ** | **Issued**                                                                      | ** ** | **premium**      | ** ** | **Capital**      | ** ** | **surplus** | ** ** | **fluctuation** | ** ** | **public** | ** ** | **Retained** | ** ** | **final** | ** ** | ** ** | ** ** | **Minority** | ** ** | **Total** | ** ** |
| ** **                                                                                     | ** ** | **capital**                                                                     | ** ** | **account**      | ** ** | **reserve**      | ** ** | **reserve** | ** ** | **reserve** | ** ** | **welfare fund** | ** ** | **profits** | ** ** | **dividend** | ** ** | **Total** | ** ** | **interests** | ** ** | **equity** | ** ** |
| ** **                                                                                     | ** ** | **HK$’000**                                                                | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** # | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| At June 30, 2004 and July 1, 2004                                                              |       |                                                                            | 184        |             |       |             | 625,847    |   |   |   | 74,467 |   |   |   | 175,716 |   |   |   | (5,712 | ) |   |   | 12,840 |   |   |   | 785,701 |   |   |   | 143,549 |   |   | 1,812,592 |   |   | 47,634 |   |   | 1,860,226 |   |
| Profit for the year                                                                            |       |                                                                            | —     |             |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 378,369 |   |   |   | — |   |   | 378,369 |   |   | (14,528 | ) |   | 363,841 |   |
| 2004 dividend declared                                                                         |       |                                                                            | —     |             |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (143,549 | ) |   | (143,549 | ) |   | — |   |   | (143,549 | ) |
| Transfer to statutory surplus reserve                                                          |       |                                                                            | —     |             |       |             | —     |   |   |   | — |   |   |   | 32,769 |   |   |   | — |   |   |   | — |   |   |   | (32,769 | ) |   |   | — |   |   | — |   |   | — |   |   | — |   |
| At June 30, 2005 and July 1, 2005                                                              |       |                                                                            | 184        |             |       |             | 625,847    |   |   |   | 74,467 |   |   |   | 208,485 |   |   |   | (5,712 | ) |   |   | 12,840 |   |   |   | 1,131,301 |   |   |   | — |   |   | 2,047,412 |   |   | 33,106 |   |   | 2,080,518 |   |
| Exchange realignment and total  income and expenses for the year recognised directly in equity |       |                                                                            | —     |             |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | 50,509 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 50,509 |   |   | 1,321 |   |   | 51,830 |   |
| Profit for the year                                                                            |       |                                                                            | —     |             |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 303,665 |   |   |   | — |   |   | 303,665 |   |   | (28,284 | ) |   | 275,381 |   |
| Total income and expense for  the year                                                         |       |                                                                            | —     |             |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | 50,509 |   |   |   | — |   |   |   | 303,665 |   |   |   | — |   |   | 354,174 |   |   | (26,963 | ) |   | 327,211 |   |
| 2005 dividend paid                                                                             |       |                                                                            | —     |             |       |             | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (151,748 | ) |   |   | — |   |   | (151,748 | ) |   | — |   |   | (151,748 | ) |
| Transfer to statutory surplus reserve                                                          |       |                                                                            | —     |             |       |             | —     |   |   |   | — |   |   |   | 41,792 |   |   |   | — |   |   |   | — |   |   |   | (41,792 | ) |   |   | — |   |   | — |   |   | — |   |   | — |   |
| At June 30, 2006                                                                               |       |                                                                            | 184        |             |       |             | 625,847    |   |   |   | 74,467 | * |   |   | 250,277 | * |   |   | 44,797 | * |   |   | 12,840 | * |   |   | 1,241,426 | * |   |   | — |   |   | 2,249,838 |   |   | 6,143 |   |   | 2,255,981 |   |

----

                # Included in the balances of retained profits atJune 30, 2006 was an amount of accumulated loss of HK$2,324,000 (2005: Nil;2004: Nil) attributable to associates.

                  * Total reserves of the Group attributable toequity holders of the Company at June 30, 2006 amounted to HK$1,623,807,000(2005: HK$1,421,381,000; 2004: HK$1,043,012,000).

F-66

----

**ASIA ALUMINUM GROUP LIMITEDCONSOLIDATED CASH FLOW STATEMENTSYears ended June 30, 2006, 2005 and 2004**

| ** **                                                                  | ** ** | **Notes**  | ** ** | **2006**         | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                  | ** ** | ** ** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| ** **                                                                  | ** ** | ** ** | ** ** | ** **       | ** ** | **(Restated)**   | ** ** | **(Restated)**   | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                       |       |       |       |             |       |             |       |             |       |   |   |
| Profit before tax                                                           |       |       |       |             |       | 437,156          |       | 515,557          |       | 487,297 |   |
| Adjustments for:                                                            |       |       |       |             |       |             |       |             |       |   |   |
| Finance costs                                                               |       |       | 7          |             |       | 145,865          |       | 96,407           |       | 50,210 |   |
| Interest income                                                             |       |       | 5          |             |       | (16,847          | )          | (17,214          | )          | (11,902 | ) |
| Share of losses of associates                                               |       |       |       |             |       | 2,324            |       | —           |       | — |   |
| Impairment/(write-back of impairment) for doubtful  debts, net              |       |       | 6          |             |       | (9,097           | )          | (1,600           | )          | 24,040 |   |
| Loss on disposal/write-off of items of property,  plant and equipment, net  |       |       | 6          |             |       | 28,641           |       | 16,040           |       | 14,092 |   |
| Fair value losses on trading of forward contracts,  net                     |       |       | 5          |             |       | 31,152           |       | —           |       | — |   |
| Depreciation of property, plant and equipment                               |       |       | 6          |             |       | 130,423          |       | 127,787          |       | 95,140 |   |
| Amortisation of a prepaid land lease payment                                |       |       | 6          |             |       | 157              |       | 154              |       | 154 |   |
| Operating profit  before working capital changes                            |       |       |       |             |       | 749,774          |       | 737,131          |       | 659,031 |   |
| Increase in trade receivables                                               |       |       |       |             |       | (7               | )          | (12,040          | )          | (118,552 | ) |
| Increase in  inventories                                                    |       |       |       |             |       | (39,697          | )          | (6,639           | )          | (53,728 | ) |
| Decrease in  prepayments, deposits and other receivables                    |       |       |       |             |       | 57,363           |       | 72,663           |       | 42,720 |   |
| Decrease/(increase)  in amounts due from related companies                  |       |       |       |             |       | (90,979          | )          | 1,023            |       | (14,350 | ) |
| Decrease in  amounts due from minority equity holders of subsidiaries       |       |       |       |             |       | —           |       | 67,841           |       | — |   |
| Increase/(decrease)  in trade payables                                      |       |       |       |             |       | 54,642           |       | (88,662          | )          | 30,758 |   |
| Increase in  accrued liabilities and other payables                         |       |       |       |             |       | 193,666          |       | 116,504          |       | 77,001 |   |
| Increase/(decrease)  in trust receipt loans                                 |       |       |       |             |       | 186,484          |       | (138,839         | )          | (101,286 | ) |
| Increase/(decrease)  in amounts due to minority equity holders/shareholders |       |       |       |             |       | (35,607          | )          | 27,457           |       | (35,480 | ) |
| Cash generated  from operations                                             |       |       |       |             |       | 1,075,639        |       | 776,439          |       | 486,114 |   |
| Interest paid                                                               |       |       | 7          |             |       | (127,375         | )          | (92,582          | )          | (50,045 | ) |
| Interest element  on finance lease rental payments                          |       |       | 7          |             |       | (18,490          | )          | (3,825           | )          | (165 | ) |
| Overseas tax paid                                                           |       |       |       |             |       | (142,678         | )          | (161,490         | )          | (121,927 | ) |
| Net cash inflow from  operating activities                                  |       |       |       |             |       | 787,096          |       | 518,542          |       | 313,977 |   |

 

F-67

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**ASIA ALUMINUM GROUPLIMITEDCONSOLIDATED CASH FLOW STATEMENTS (Continued)Years ended June 30, 2006, 2005 and 2004**

| ** **                                                                                 | ** ** | **Notes**  | ** ** | **2006**         | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                 | ** ** | ** ** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| ** **                                                                                 | ** ** | ** ** | ** ** | ** **       | ** ** | **(Restated)**   | ** ** | **(Restated)**   | ** ** |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                                      |       |       |       |             |       |             |       |             |       |   |   |
| Purchases of  items of property, plant and equipment                                       |       |       |       |             |       | (547,850         | )          | (440,730         | )          | (156,829 | ) |
| Proceeds from  disposal of items of property, plant and equipment                          |       |       |       |             |       | 2,413            |       | 9                |       | 527 |   |
| Deposits refunded/(paid)                                                                   |       |       |       |             |       | 3,442            |       | (35,040          | )          | (61,892 | ) |
| Capital injection  to an associate                                                         |       |       |       |             |       | —           |       | (4               | )          | — |   |
| Advances to an  associate                                                                  |       |       |       |             |       | (5,044           | )          | (87              | )          | — |   |
| Interest received                                                                          |       |       |       |             |       | 16,847           |       | 17,214           |       | 11,902 |   |
| Decrease in  pledged bank deposits                                                         |       |       |       |             |       | 9,760            |       | 36,723           |       | (37,665 | ) |
| Net cash outflow  from investing activities                                                |       |       |       |             |       | (520,432         | )          | (421,915         | )          | (243,957 | ) |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                                      |       |       |       |             |       |             |       |             |       |   |   |
| New bank loans                                                                             |       |       |       |             |       | 473,263          |       | 320,386          |       | 557,251 |   |
| New other loans                                                                            |       |       |       |             |       | —           |       | —           |       | 3,767 |   |
| Repayment of bank  loans                                                                   |       |       |       |             |       | (370,257         | )          | (420,715         | )          | (235,970 | ) |
| Repayment of  other loans                                                                  |       |       |       |             |       | —           |       | (3,767           | )          | (3,230 | ) |
| Capital element  of finance lease rental payments                                          |       |       |       |             |       | (773             | )          | (473             | )          | (8,641 | ) |
| Settlement for  forward contracts                                                          |       |       |       |             |       | (3,133           | )          | —           |       | — |   |
| Advances from/(repayment  to) related companies                                            |       |       |       |             |       | —           |       | (25,452          | )          | 25,452 |   |
| Advances from/(repayment  to) the immediate holding  company, net                          |       |       | 28         | (b)              |       | 82,275           |       | (141,681         | )          | 622,566 |   |
| Advances from  fellow subsidiaries                                                         |       |       |       |             |       | 266,589          |       | 86,012           |       | 5,209 |   |
| Dividends paid                                                                             |       |       |       |             |       | (37,952          | )          | (44,431          | )          | (26,176 | ) |
| Net cash inflow/(outflow)  from financing activities                                       |       |       |       |             |       | 410,012          |       | (230,121         | )          | 940,228 |   |
| NET INCREASE/(DECREASE) IN CASH AND CASH  EQUIVALENTS                                      |       |       |       |             |       | 676,676          |       | (133,494         | )          | 1,010,248 |   |
| Cash and cash equivalents at beginning of year                                             |       |       |       |             |       | 2,036,170        |       | 2,169,664        |       | 1,159,915 |   |
| Effect of foreign  exchange rate changes, net                                              |       |       |       |             |       | 26,310           |       | —           |       | (499 | ) |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                                                   |       |       |       |             |       | 2,739,156        |       | 2,036,170        |       | 2,169,664 |   |
| ANALYSIS OF BALANCES OF  CASH AND CASH  EQUIVALENTS                                        |       |       |       |             |       |             |       |             |       |   |   |
| Cash and bank  balances                                                                    |       |       |       |             |       | 2,735,705        |       | 2,022,528        |       | 1,866,556 |   |
| Deposits with a  non-bank financial institution                                            |       |       |       |             |       | 3,451            |       | 13,642           |       | 203,588 |   |
| Non-pledged time  deposits with original maturity of less than  three months when acquired |       |       |       |             |       | —           |       | —           |       | 99,520 |   |
|                                                                                       |       |       |       |             |       | 2,739,156        |       | 2,036,170        |       | 2,169,664 |   |

 

F-68

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**ASIA ALUMINUM GROUP LIMITED**

**NOTES TO FINANCIAL STATEMENTS**

**June 30, 2006, 2005 and 2004**

**1.   CORPORATE INFORMATION**

The registered office ofthe Company is located at 3rd Floor, Omar Hodge Building, Wickhams Cay I,PO Box 362, Road Town, Tortola, the British Virgin Islands.

The principal activity ofthe Company is investment holding. The principal activities of the Groupconsist of the manufacture and sale of aluminum and stainless steel productsand the provision of design and testing services for aluminum products.

The Company is asubsidiary of Asia Aluminum Holdings Limited (“AAHL”), a company incorporatedin Bermuda. The directors consider AA Investments Limited (“AAIL”), a companyincorporated in Bermuda, as the Company’s ultimate holding company as at June 30,2006.

During each of the threeyears ended June 30, 2006, the Company and its subsidiaries hadtransactions with other members of the AAIL group and these financialstatements reflect the effect of these transactions.

Except for an amount dueto the immediate holding company as at June 30, 2006 of HK$1,309,669,000 (2005: HK$1,134,023,000) which bears interestat rates of 8% - 9% (2005: 8% - 9%) per annum, the balances withgroup companies are unsecured, interest-free and have no fixed terms ofrepayment.

**2.1   BASISOF PREPARATION**

These financial statementshave been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”)(which also include Hong Kong Accounting Standards (“HKASs”) andInterpretations) issued by the Hong Kong Institute of Certified PublicAccountants, accounting principles generally accepted in Hong Kong and thedisclosure requirements of the Hong Kong Companies Ordinance. They have beenprepared under the historical cost convention, except for derivative financialinstruments, which have been measured at fair value. These financial statementsare presented in Hong Kong dollars and all values are rounded to the nearestthousand (HK$’000) except when otherwise indicated.

***Basis ofconsolidation***

The consolidated financialstatements include the financial statements of the Company and its subsidiariesfor each of the three years ended June 30, 2006. The results ofsubsidiaries are consolidated from the date of acquisition, being the date onwhich the Group obtains control, and continue to be consolidated until the datethat such control ceases. All significant intercompany transactions andbalances within the Group are eliminated on consolidation.

The acquisition ofsubsidiaries during the year has been accounted for using the purchase methodof accounting. This method involves allocating the cost of the businesscombinations to the fair value of the assets acquired, and liabilities andcontingent liabilities assumed at the date of acquisition. The cost of theacquisition is measured at the aggregate of the fair value of the assets given,equity instruments issued and liabilities incurred or assumed at the date ofexchange, plus costs directly attributable to the acquisition.

Minority interestsrepresent the interests of outside shareholders in the results and net assetsof the Company’s subsidiaries.

F-69

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.2**   IMPACTOF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

Thefollowing new and revised HKFRSs affect the Group and are adopted for the firsttime for the current year’s financial statements:

| HKAS 1                 |   | Presentation of  Financial Statements                                                      |
|-----------------------------|--------|--------------------------------------------------------------------------------------------|
| HKAS 2                 |   | Inventories                                                                                |
| HKAS 7                 |   | Cash Flow Statements                                                                       |
| HKAS 8                 |   | Accounting Policies,  Changes in Accounting Estimates and Errors                           |
| HKAS 10                |   | Events after the Balance  Sheet Date                                                       |
| HKAS 12                |   | Income Taxes                                                                               |
| HKAS 14                |   | Segment Reporting                                                                          |
| HKAS 16                |   | Property, Plant and  Equipment                                                             |
| HKAS 17                |   | Leases                                                                                     |
| HKAS 18                |   | Revenue                                                                                    |
| HKAS 19                |   | Employee Benefits                                                                          |
| HKAS 20                |   | Accounting for  Government Grants and Disclosure of Government Assistance                  |
| HKAS 21                |   | The Effects of Changes  in Foreign Exchange Rates                                          |
| HKAS 23                |   | Borrowing Costs                                                                            |
| HKAS 24                |   | Related Party  Disclosures                                                                 |
| HKAS 27                |   | Consolidated and  Separate Financial Statements                                            |
| HKAS 28                |   | Investments in  Associates                                                                 |
| HKAS 32                |   | Financial Instruments:  Disclosure and Presentation                                        |
| HKAS 36                |   | Impairment of Assets                                                                       |
| HKAS 37                |   | Provisions, Contingent  Liabilities and Contingent Assets                                  |
| HKAS 38                |   | Intangible Assets                                                                          |
| HKAS 39                |   | Financial Instruments:  Recognition and Measurement                                        |
| HKAS 39 Amendment |   | Transition and Initial  Recognition of Financial Assets and Financial Liabilities          |
| HKFRS 2                |   | Share-based Payment                                                                        |
| HKFRS 3                |   | Business Combinations                                                                      |
| HK-Int 4               |   | Leases—Determination of  the Length of Lease Term in respect of Hong Kong Land Leases |

 

The adoption of HKASs 2,7, 8, 10, 12, 14, 16, 18, 19, 20, 21, 23, 27, 28, 37, 38, HKFRS 2 and HK-Int 4has had no material impact on the accounting policies of the Group and theCompany and the methods of computation in the Group’s and the Company’sfinancial statements.

HKAS 1 has affected the presentation of minorityinterests on the face of the consolidated balance sheet, consolidated incomestatement, consolidated statement of changes in equity and other disclosures. Inaddition, in prior periods, the Group’s share of tax attributable to associateswas presented as a component of the Group’s total tax charge/(credit) in theconsolidated income statement. Upon the 

F-70

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.2**   IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTINGSTANDARDS

adoptionof HKAS 1, the Group’s share of the post-acquisition results of associatesis presented net of the Group’s share of tax attributable to associates.

HKAS 24 has expandedthe definition of related parties and affected the Group’s related partydisclosures.

Theimpact of adopting the other HKASs/HKFRSs is summarised as follows:

(a)   HKAS 17—Leases

In prior years, leaseholdland and buildings held for own use were stated at cost less accumulateddepreciation and any impairment losses.

Upon the adoption of HKAS 17,the Group’s leasehold interest in land and buildings is separated intoleasehold land and buildings. The Group’s leasehold land is classified as anoperating lease, because the title of the land is not expected to pass to theGroup by the end of the lease term, and is reclassified from property, plantand equipment to prepaid land lease payments, while buildings continue to beclassified as part of property, plant and equipment. Prepaid land premiums forland lease payments under operating leases are initially stated at cost andsubsequently amortised on the straight-line basis over the lease term. When thelease payments cannot be allocated reliably between the land and buildingselements, the entire lease payments are included in the cost of the land andbuildings as a finance lease in property, plant and equipment.

This change in accountingpolicy has had no effect on the consolidated income statement and retainedprofits. The comparative amount of HK$2,612,000 for the year ended June 30,2005 in the consolidated balance sheet has been restated to reflect thereclassification of leasehold land.

(b)   HKAS 32and HKAS 39—Financial Instruments

Derivativefinancial instruments

In prior years, the Groupentered into various derivative financial instruments to manage its commodityprice and foreign currency exposures. From July 1, 2005, derivativefinancial instruments, including forward foreign currency contracts andaluminum forward contracts are initially recognised at fair value on the dateon which a derivative contract is entered into and are subsequently re-measuredat their fair values. Since the derivative financial instruments did not meetthe criteria for hedge accounting, they are classified as financial assets orliabilities at fair value through profit or loss and changes in the fair valueof any derivative instruments are recognised immediately in the incomestatement.

This change in accountingpolicy has had no effect on the consolidated income statement and retainedprofits. In accordance with the transitional provisions of HKAS 39,comparative amounts have not been restated.

(c)   HKFRS 3—BusinessCombinations and HKAS 36—Impairment of Assets

In prior years, goodwillarising on acquisitions prior to July 1, 2001 was eliminated against theconsolidated capital reserve in the year of acquisition and was not recognisedin the consolidated income statement until disposal or impairment of theacquired business.

F-71

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.2**   IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTINGSTANDARDS

(c)   HKFRS 3—BusinessCombinations and HKAS 36—Impairment of Assets (continued)

In accordance with the transitional provision of HKFRS 3,goodwill previously eliminated against the consolidated capital reserve remainseliminated against the consolidated capital reserve and is not recognised inthe income statement when all or part of the business to which the goodwillrelates is disposed of or when a cash-generating unit to which the goodwillrelates becomes impaired.

This change in accountingpolicy has had no significant effect on the consolidated financial statements. Inaccordance with HKFRS 3, the accounting policy applied in respect ofgoodwill relating to acquisitions for which the agreement date is on or afterJanuary 1, 2005 is explained in note 2.4 in the financial statements.

**2.3   IMPACTOF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS**

TheGroup has not applied the following new and revised HKFRSs, that have beenissued but are not yet effective, in these financial statements. Unlessotherwise stated, these HKFRSs are effective for annual periods beginning on July 1,2006:

| HKAS 1 Amendment                            |   | Capital Disclosures                                             |
|-------------------------------------------------------|--------|-----------------------------------------------------------------|
| HKAS 19 Amendment                           |   | Actuarial Gains and Losses, Group Plans and  Disclosures        |
| HKAS 39 Amendment                           |   | Cash Flow Hedge Accounting of Forecast Intragroup  Transactions |
| HKAS 39 Amendment                           |   | The Fair Value Option                                           |
| HKAS 39 &  HKFRS 4 Amendments |   | Financial Guarantee Contracts                                   |
| HKFRS 7                                          |   | Financial Instruments: Disclosures                              |

 

The HKAS 1 Amendmentshall be applied for annual periods beginning on July 1, 2007. The revisedstandard will affect the disclosures about qualitative information about theGroup’s objective, policies and processes for managing capital; quantitativedata about what the Company regards as capital; and compliance with any capitalrequirements and the consequences of any non-compliance.

HKFRS 7 requires disclosuresrelating to financial instruments and incorporates many of the disclosurerequirements of HKAS 32 relating to financial instruments. This HKFRSshall be applied for annual periods beginning on July 1, 2007.

In accordance with theamendments to HKAS 39 regarding financial guarantee contracts, financialguarantee contracts are initially recognised at fair value and are subsequentlymeasured at the higher of (i) the amount determined in accordance with HKAS 37and (ii) the amount initially recognised, less, when appropriate,cumulative amortisation recognised in accordance with HKAS 18.

Except as stated above,the Group expects that the adoption of the pronouncements listed above will nothave any significant impact on the Group’s financial statements in the periodof initial application.

F-72

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.4   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

***Subsidiaries***

A subsidiary is an entity whose financial andoperating policies the Company controls, directly or indirectly, so as toobtain benefits from its activities.

The results ofsubsidiaries are included in the Company’s income statement to the extent ofdividends received and receivable. The Company’s interests in subsidiaries arestated at cost less any impairment losses.

***Joint ventures***

A joint venture is an entity set up by contractualarrangement, whereby the Group and other parties undertake an economic activity.The joint venture operates as a separate entity in which the Group and theother parties have an interest.

The joint venture agreement between the venturersstipulates the capital contributions of the joint venture parties, the durationof the joint venture entity and the basis on which the assets are to berealised upon its dissolution. The profits and losses from the joint venture’soperations and any distributions of surplus assets are shared by the venturers,either in proportion to their respective capital contributions, or inaccordance with the terms of the joint venture agreement.

A joint venture istreated as:

(a)          a subsidiary, if theGroup has unilateral control, directly or indirectly, over the joint venture;

(b)         a jointly-controlledentity, if the Group does not have unilateral control, but has joint control,directly or indirectly, over the joint venture;

(c)          an associate, if theGroup does not have unilateral or joint control, but holds, directly orindirectly, generally not less than 20% of the joint venture’s registeredcapital and is in a position to exercise significant influence over the jointventure; or

(d)         anequity investment accounted for in accordance with HKAS 39, if the Groupholds, directly or indirectly, less than 20% of the joint venture’s registeredcapital and has neither joint control of, nor is in a position to exercisesignificant influence over, the joint venture.

An associate is an entity, not being a subsidiary, inwhich the Group has a long term interest of generally not less than 20% of theequity voting rights and over which it is in a position to exercise significantinfluence.

The Group’s share of thepost-acquisition results and reserves of associates is included in theconsolidated income statement and consolidated reserves, respectively. TheGroup’s interests in associates are stated in the consolidated balance sheet atthe Group’s share of net assets under the equity method of accounting, less anyimpairment losses.

F-73

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.4**   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

***Goodwill***

Goodwill arising on the acquisition of subsidiariesrepresents the excess of the cost of the business combination over the Group’sinterest in the net fair value of the acquirees’ identifiable assets acquired,and liabilities and contingent liabilities assumed as at the date ofacquisition.

*Goodwill onacquisitions for which the agreement date is on or after January 1, 2005*

Goodwill arising on acquisition is recognised in theconsolidated balance sheet as an asset, initially measured at cost andsubsequently at cost less any accumulated impairment losses.

The carrying amount of goodwill is reviewed forimpairment annually or more frequently if events or changes in circumstancesindicate that the carrying value may be impaired.

For the purpose ofimpairment testing, goodwill acquired in a business combination is, from theacquisition date, allocated to each of the Group’s cash-generating units, orgroups of cash-generating units, that are expected to benefit from thesynergies of the combination, irrespective of whether other assets orliabilities of the Group are assigned to those units or groups of units. Eachunit or group of units to which the goodwill is so allocated:

·       representsthe lowest level within the Group at which the goodwill is monitored forinternal management purposes; and

·       isnot larger than a segment based on either the Group’s primary or the Group’ssecondary reporting format determined in accordance with HKAS 14 “SegmentReporting”.

Impairment is determined by assessing the recoverableamount of the cash-generating unit (group of cash-generating units) to whichthe goodwill relates. Where the recoverable amount of the cash-generating unit(group of cash-generating units) is less than the carrying amount, animpairment loss is recognised.

Where goodwill forms part of a cash-generating unit(group of cash-generating units) and part of the operation within that unit isdisposed of, the goodwill associated with the operation disposed of is includedin the carrying amount of the operation when determining the gain or loss ondisposal of the operation. Goodwill disposed of in this circumstance ismeasured based on the relative values of the operation disposed of and theportion of the cash-generating unit retained.

An impairment lossrecognised for goodwill is not reversed in a subsequent period.

*Goodwill previouslyeliminated against the consolidated reserves*

Prior to the adoption ofHong Kong Statement of Standard Accounting Practice (“SSAP”) 30 “BusinessCombinations” in 2001, goodwill arising on acquisition was eliminated againstthe consolidated capital reserve in the year of acquisition. On the adoption ofHKFRS 3, such goodwill remains eliminated against the consolidated capitalreserve and is not recognised in the income statement when all or part of thebusiness to which the goodwill relates is disposed of or when a cash-generatingunit to which the goodwill relates becomes impaired. The amount remaining inthe consolidated capital reserve is disclosed in note 13 to the financialstatements.

F-74

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.4**   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

***Impairment of assets***

Where an indicationof impairment exists, or when annual impairment testing for an asset isrequired (other than financial assets, inventories, deferred tax assets andgoodwill), the asset’s recoverable amount is estimated. An asset’s recoverableamount is calculated as the higher of the asset’s or cash-generating unit’svalue in use and its fair value less costs to sell, and is determined for anindividual asset, unless the asset does not generate cash inflows that arelargely independent of those from other assets or groups of assets, in whichcase, the recoverable amount is determined for the cash-generating unit towhich the asset belongs.

An impairment loss is recognised only if the carryingamount of an asset exceeds its recoverable amount. In assessing value in use,the estimated future cash flows are discounted to their present value using apre-tax discount rate that reflects current market assessments of the timevalue of money and the risks specific to the asset. An impairment loss ischarged to the income statement in the period in which it arises*.*

An assessment is made ateach reporting date as to whether there is any indication that previouslyrecognised impairment losses may no longer exist or may have decreased. If suchindication exists, the recoverable amount is estimated. A previously recognisedimpairment loss of an asset other than goodwill is reversed only if there hasbeen a change in the estimates used to determine the recoverable amount of thatasset, however not to an amount higher than the carrying amount that would havebeen determined (net of any depreciation/amortisation), had no impairment lossbeen recognised for the asset in prior years. A reversal of such impairmentloss is credited to the income statement in the period in which it arises.

***Related parties***

A party is considered to be related to the Group ifthe party:

(a)          directly or indirectlythrough one or more intermediaries, (i) controls, is controlled by, or isunder common control with, the Group; (ii) has an interest in the Groupthat gives it significant influence over the Group; or (iii) has jointcontrol over the Group;

(b)         is an associate;

(c)          is a jointly-controlledentity;

(d)         is a member of the keymanagement personnel of the Group or its holding companies;

(e)          is a close member of thefamily of any individual referred to in (a) or (d);

(f)            is an entity that iscontrolled, jointly controlled or significantly influenced by or for whichsignificant voting power in such entity resides with, directly or indirectly,any individual referred to in (d) or (e); or

(g)          isa post-employment benefit plan for the benefit of the employees of the Group,or of any entity that is a related party of the Group.

F-75

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.4**   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (Continued)

***Property, plant and equipment and depreciation***

Property, plant and equipment, other than constructionin progress, are stated at cost less accumulated depreciation and anyimpairment losses. The cost of an item of property, plant and equipmentcomprises its purchase price and any directly attributable costs of bringingthe asset to its working condition and location for its intended use. Expenditureincurred after items of property, plant and equipment have been put intooperation, such as repairs and maintenance, is normally charged to the incomestatement in the period in which it is incurred. In situations where it can beclearly demonstrated that the expenditure has resulted in an increase in thefuture economic benefits expected to be obtained from the use of an item ofproperty, plant and equipment, and where the cost of the item can be measuredreliably, the expenditure is capitalised as an additional cost of that asset oras a replacement.

Depreciationis calculated on the straight-line basis to write off the cost of each item ofproperty, plant and equipment to its residual value over its estimated usefullife. The principal annual rates used for this purpose are as follows:
| Buildings              |   | ·  5% or over lease terms, whichever is shorter |
|------------------------|--------|-----------------------------------------------------------|
| Plant and machinery    |   | ·  6.25%                                        |
| Moulds                 |   | ·  12.5% to 20%                                 |
| Furniture and fixtures |   | ·  10%                                          |
| Office equipment       |   | ·  16.67%                                       |
| Motor vehicles         |   | ·  16.67%                                       |

 

Where parts of an item of property, plant andequipment have different useful lives, the cost of that item is allocated on areasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and depreciation methodare reviewed, and adjusted if appropriate, at each balance sheet date.

An item of property, plant and equipment isderecognised upon disposal or when no future economic benefits are expectedfrom its use or disposal. Any gain or loss on disposal or retirement recognisedin the income statement in the year the asset is derecognised is the differencebetween the net sales proceeds and the carrying amount of the relevant asset.

Construction in progressrepresents the costs incurred in connection with the construction of property,plant and equipment less any impairment losses and is not depreciated. Costcomprises the direct costs incurred during the period of construction andinstallation and capitalised borrowing costs on related borrowed funds duringthe period of construction. Construction in progress is reclassified to theappropriate category of property, plant and equipment when completed and readyfor use.

***Leases***

Leases that transfer substantially all the rewards andrisks of ownership of assets to the Group, other than legal title, areaccounted for as finance leases. At the inception of a finance lease, the costof the leased asset is capitalised at the present value of the minimum leasepayments and recorded together with 

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.4**   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

***Leases (continued)***

the obligation, excludingthe interest element, to reflect the purchase and financing. Assets held undercapitalised finance leases are included in property, plant and equipment, anddepreciated over the shorter of the lease terms and the estimated useful livesof the assets. The finance costs of such leases are charged to the incomestatement so as to provide a constant periodic rate of charge over the leaseterms.

Assets acquired through hire purchase contracts of afinancing nature are accounted for as finance leases, but are depreciated overtheir estimated useful lives.

Leases where substantially all the rewards and risksof ownership of assets remain with the lessor are accounted for as operatingleases. Where the Group is the lessor, assets leased by the Group underoperating leases are included in non-current assets, and rentals receivableunder the operating leases are credited to the income statement on thestraight-line basis over the lease terms. Where the Group is the lessee, rentalspayable under the operating leases are charged to the income statement on thestraight-line basis over the lease terms.

Prepaid land leasepayments under operating leases are initially stated at cost and subsequentlyrecognised on the straight-line basis over the lease terms.

***Investments and other financial assets (applicable tothe year ended June 30, 2006)***

Financial assets in the scope of HKAS 39 areclassified as either financial assets at fair value through profit or loss andloans and receivables as appropriate. When financial assets are recognisedinitially, they are measured at fair value, plus, in the case of investmentsnot at fair value through profit or loss, directly attributable transactioncosts. The Group determines the classification of its financial assets afterinitial recognition and, where allowed and appropriate, re-evaluates thisdesignation at the balance sheet date.

All regular way purchasesand sales of financial assets are recognised on the trade date, i.e., the datethat the Group commits to purchase the asset. Regular way purchases or salesare purchases or sales of financial assets that require delivery of assetswithin the period generally established by regulation or convention in themarketplace.

*Financial assets atfair value through profit or loss*

Financial assetsclassified as held for trading are included in the category “financial assetsat fair value through profit or loss”. Financial assets are classified as heldfor trading if they are acquired for the purpose of sale in the near term. Derivativesare also classified as held for trading unless they are designated andeffective hedging instruments. Gains or losses on investments held for tradingare recognised in the income statement.

*Loans andreceivables*

Loans and receivables are non-derivative financialassets with fixed or determinable payments that are not quoted in an activemarket. Such assets are carried at amortised cost using the effective interestmethod. Gains and losses are recognised in the income statement when the loansand receivables are derecognised or impaired, as well as through theamortisation process.

F-77

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.4**   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

***Investmentsand other financial assets (applicable to the year ended June 30, 2006) (continued)***

*Fair value*

The fair value of investments that are actively tradedin organised financial markets is determined by reference to quoted market bidprices at the close of business at the balance sheet date. For investmentswhere there is no active market, fair value is determined using valuationtechniques. Such techniques include using recent arm’s length markettransactions; reference to the current market value of another instrument whichis substantially the same; a discounted cash flow analysis; and option pricingmodels.

***Impairment of financial assets (applicable to the yearended June 30, 2006)***

The Group assesses at eachbalance sheet date whether there is any objective evidence that a financialasset or a group of financial assets is impaired.

*Assets carried atamortised cost*

If there is objective evidence that an impairment losson loans and receivables carried at amortised cost has been incurred, theamount of the loss is measured as the difference between the asset’s carryingamount and the present value of estimated future cash flows (excluding futurecredit losses that have not been incurred) discounted at the financial asset’soriginal effective interest rate (i.e., the effective interest rate computed atinitial recognition). The carrying amount of the asset is reduced eitherdirectly or through the use of an allowance account. The amount of theimpairment loss is recognised in the income statement.

The Group first assesses whether objective evidence ofimpairment exists individually for financial assets that are individuallysignificant, and individually or collectively for financial assets that are notindividually significant. If it is determined that no objective evidence ofimpairment exists for an individually assessed financial asset, whethersignificant or not, the asset is included in a group of financial assets withsimilar credit risk characteristics and that group is collectively assessed forimpairment. Assets that are individually assessed for impairment and for whichan impairment loss is or continues to be recognised are not included in acollective assessment of impairment.

If, in a subsequentperiod, the amount of the impairment loss decreases and the decrease can berelated objectively to an event occurring after the impairment was recognised,the previously recognised impairment loss is reversed. Any subsequent reversalof an impairment loss is recognised in the income statement, to the extent thatthe carrying value of the asset does not exceed its amortised cost at the reversaldate.

***Derecognition of financial assets (applicable to theyear ended June 30, 2006)***

A financial asset (or, where applicable, a part of afinancial asset or part of a group of similar financial assets) is derecognisedwhere:

·       the rights toreceive cash flows from the asset have expired;

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.4**   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

***Derecognition of financial assets (applicable to theyear ended June 30, 2006) (continued)***

·       the Groupretains the rights to receive cash flows from the asset, but has assumed anobligation to pay in full without material delay to a third party under a “pass-through”arrangement; or

·       the Group hastransferred its rights to receive cash flows from the asset and either (a) hastransferred substantially all the risks and rewards of the asset, or (b) hasneither transferred nor retained substantially all the risks and rewards of theasset, but has transferred control of the asset.

Where the Group has transferred its rights to receivecash flows from an asset and has neither transferred nor retained substantiallyall the risks and rewards of the asset nor transferred control of the asset,the asset is recognised to the extent of the Group’s continuing involvement inthe asset. Continuing involvement that takes the form of a guarantee over thetransferred asset is measured at the lower of the original carrying amount ofthe asset and the maximum amount of consideration that the Group could berequired to repay.

Where continuinginvolvement takes the form of a written and/or purchased option (including acash-settled option or similar provision) on the transferred asset, the extentof the Group’s continuing involvement is the amount of the transferred assetthat the Group may repurchase, except in the case of a written put option(including a cash-settled option or similar provision) on an asset measured atfair value, where the extent of the Group’s continuing involvement is limitedto the lower of the fair value of the transferred asset and the option exerciseprice.

***Interest-bearing loans and borrowings***

All loans and borrowings are initially recognised atthe fair value of the consideration received less directly attributabletransaction costs.

After initial recognition, interest-bearing loans andborrowings are subsequently measured at amortised cost using the effectiveinterest method.

Gains and losses arerecognised in net profit or loss when the liabilities are derecognised as wellas through the amortisation process.

***Derecognition of financial liabilities (applicable tothe year ended June 30, 2006)***

A financialliability is derecognised when the obligation under the liability is dischargedor cancelled, or expires.

When an existing financialliability is replaced by another from the same lender on substantiallydifferent terms, or the terms of an existing liability are substantiallymodified, such an exchange or modification is treated as a derecognition of theoriginal liability and a recognition of a new liability, and the differencebetween the respective carrying amounts is recognised in the income statement.

***Derivative financial instruments and hedging(applicable to the year ended June 30, 2006)***

The Group uses derivative financial instruments suchas forward currency contracts to hedge its risks associated with foreigncurrency fluctuations. Such derivative financial instruments are initiallyrecognised

F-79

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.4**   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

***Derivative financial instruments and hedging(applicable to the year ended June 30, 2006) (continued)***

at fair value on the dateon which a derivative contract is entered into and are subsequently remeasuredat fair value. Derivatives are carried as assets when the fair value ispositive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair valueon derivatives that do not qualify for hedge accounting are taken directly tothe income statement for the year.

The fair value of forwardcurrency contracts is calculated by reference to current forward exchange ratesfor contracts with similar maturity profiles.

***Inventories***

Inventories are stated atthe lower of cost and net realisable value. Cost is determined on the weightedaverage basis and, in the case of work in progress and finished goods,comprises direct materials, direct labour and an appropriate proportion ofoverheads. Net realisable value is based on estimated selling prices less anyestimated costs to be incurred to completion and disposal.

***Government grants***

Government grants arerecognised at their fair value where there is reasonable assurance that thegrant will be received and all attaching conditions will be complied with. Whenthe grant relates to an expense item, it is recognised as income over theperiods necessary to match the grant on a systematic basis to the costs that itis intended to compensate. Where the grant relates to an asset, the fair valueis deducted from the carrying amount of the asset and released to the incomestatement by way of a reduced depreciation charge.

***Revenue recognition***

Revenue isrecognised when it is probable that the economic benefits will flow to theGroup and when the revenue can be measured reliably, on the following bases:

(a)          from the sale of goods,when the significant risks and rewards of ownership have been transferred tothe buyer, provided that the Group maintains neither managerial involvement tothe degree usually associated with ownership, nor effective control over thegoods sold;

(b)         service income from therendering of design and testing services, on an accrual basis when the servicesare rendered;

(c)          interest income, anaccrual basis using the effective interest method by applying the rate thatdiscounts the estimated future cash receipts through the expected life of thefinancial instrument to the net carrying amount of the financial asset;

(d)         dividend income, when theshareholder’s right to receive payment has been established; and

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.4**   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

***Revenue recognition (continued)***

(e)          netgains or losses on forward contracts, in respect of all open contracts existingat the balance sheet date by translating the contract amounts at the pricesruling at the balance sheet date, and on all closed positions on the trade datebasis.

***Dividends***

Final dividends proposed by the directors areclassified as a separate allocation of retained profits within the equitysection of the balance sheet, until they have been approved by the shareholdersin a general meeting. When these dividends have been approved by theshareholders and declared, they are recognised as a liability.

Interim dividends aresimultaneously proposed and declared, because the Company’s Bye-Laws grant thedirectors the authority to declare interim dividends. Consequently, interimdividends are recognised immediately as a liability when they are proposed anddeclared.

***Employee benefits***

*Paid leave carriedforward*

The Group provides paidannual leave to its employees under their employment contracts on a calendaryear basis. Under certain circumstances, such leave which remains untaken as atthe balance sheet date is permitted to be carried forward and utilised by therespective employees in the following year. An accrual is made at the balancesheet date for the expected future cost of such paid leave earned during theyear by the employees and carried forward.

*Long servicepayments*

Certain of theGroup’s employees have completed the required number of years of service to theGroup in order to be eligible for long service payments under the Hong KongEmployment Ordinance in the event of the termination of their employment. TheGroup is liable to make such payments in the event that such a termination ofemployment meets the circumstances specified in the Hong Kong EmploymentOrdinance.

A provision is recognisedin respect of the probable future long service payments expected to be made. Theprovision is based on the best estimate of the probable future payments whichhave been earned by the employees from their services to the Group to thebalance sheet date.

*Pension schemes*

The Group operates a defined contribution MandatoryProvident Fund retirement benefits scheme (the “MPF Scheme”) under the MandatoryProvident Fund Schemes Ordinance for those employees who are eligible toparticipate in the MPF Scheme. Contributions are made based on a percentage ofthe employees’ basic salaries and are charged to the income statement as theybecome payable in accordance with the rules of the MPF Scheme. The assetsof the MPF Scheme are held separately from those of the Group in anindependently administered fund. The Group’s employer contributions vest fullywith the

F-81

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.4**   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (Continued)

***Employee benefits (continued)***

employees when contributedinto the MPF Scheme, except for the Group’s employer voluntary contributions,which are refunded to the Group when an employee leaves employment prior to thecontributions vesting fully, in accordance with the rules of the MPFScheme.

The employees of theGroup’s subsidiaries which operate in Mainland China (the “PRC”) are requiredto participate in a central pension scheme operated by the local municipalgovernment, the assets of which are held separately from those of the Group.These PRC subsidiaries are required to contribute certain percentage of theirrespective payroll costs to the central pension scheme, which are charged tothe income statement as they become payable, in accordance with therules of the scheme. The employer contributions vest fully once they aremade.

***Income tax***

Income tax comprises current and deferred tax. Incometax is recognised in the income statement, or in equity if it relates to itemsthat are recognised in the same or a different period directly in equity.

Current tax assets and liabilities for the current andprior periods are measured at the amount expected to be recovered from or paidto the taxation authorities.

Deferred tax is provided, using the liability method,on all temporary differences at the balance sheet date between the tax bases ofassets and liabilities and their carrying amounts for financial reportingpurposes.

Deferred taxliabilities are recognised for all taxable temporary differences, except:

·       wherethe deferred tax liability arises from goodwill or the initial recognition ofan asset or liability in a transaction that is not a business combination and,at the time of the transaction, affects neither the accounting profit nortaxable profit or loss; and

·       inrespect of taxable temporary differences associated with investments insubsidiaries and associates, where the timing of the reversal of the temporarydifferences can be controlled and it is probable that the temporary differenceswill not reverse in the foreseeable future.

Deferred tax assetsare recognised for all deductible temporary differences, carryforward of unusedtax credits and unused tax losses, to the extent that it is probable thattaxable profit will be available against which the deductible temporarydifferences, and the carryforward of unused tax credits and unused tax lossescan be utilised except:

·       wherethe deferred tax asset relating to the deductible temporary differences arisesfrom the initial recognition of an asset or liability in a transaction that isnot a business combination and, at the time of the transaction, affects neitherthe accounting profit nor taxable profit or loss; and

·       inrespect of deductible temporary differences associated with investments insubsidiaries and associates, deferred tax assets are only recognised to theextent that it is probable that the temporary differences will reverse in theforeseeable future and taxable profit will be available against which thetemporary differences can be utilised.

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.4**   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (Continued)

***IncomeTax (continued)***

The carrying amount of deferred tax assets is reviewedat each balance sheet date and reduced to the extent that it is no longerprobable that sufficient taxable profit will be available to allow all or partof the deferred tax asset to be utilised. Conversely, previously unrecogniseddeferred tax assets are reassessed at each balance sheet date and arerecognised to the extent that it is probable that sufficient taxable profit willbe available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured atthe tax rates that are expected to apply to the period when the asset isrealised or the liability is settled, based on tax rates (and tax laws) thathave been enacted or substantively enacted at the balance sheet date.

Deferred tax assets anddeferred tax liabilities are offset, if a legally enforceable right exists toset off current tax assets against current tax liabilities and the deferredtaxes relate to the same taxable entity and the same taxation authority.

***Intangible assets (other than goodwill)***

The useful lives ofintangible assets are assessed to be either finite or indefinite. Intangibleassets with finite lives are amortised over the useful economic life andassessed for impairment whenever there is an indication that the intangibleasset may be impaired. The amortisation period and the amortisation method foran intangible asset with a finite useful life are reviewed at least at eachbalance sheet date.

*Research anddevelopment costs*

All research costs are charged to the income statementas incurred.

Expenditure incurred on projects to develop newproducts is capitalised and deferred only when the Group can demonstrate thetechnical feasibility of completing the intangible asset so that it will beavailable for use or sale, its intention to complete and its ability to use orsell the asset, how the asset will generate future economic benefits, theavailability of resources to complete the project and the ability to measurereliably the expenditure during the development. Product developmentexpenditure which does not meet these criteria is expensed when incurred.

Deferred development costsare stated at cost less any impairment losses and are amortised using thestraight-line basis over the commercial lives of the underlying products notexceeding five years, commencing from the date when the products are put intocommercial production.

***Borrowing costs***

Borrowing costs directlyattributable to the acquisition, construction or production of qualifyingassets, i.e., assets that necessarily take a substantial period of time to getready for their intended use or sale, are capitalised as part of the cost ofthose assets. The capitalisation of such borrowing costs ceases when the assetsare substantially ready for their intended use or sale. Investment incomeearned on the temporary investment of specific borrowings pending theirexpenditure on qualifying assets is deducted from the borrowing costscapitalised.

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.4**   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (Continued)

***Borrowingcosts (continued)***

These financial statements are presented in Hong Kongdollars, which is the Company’s functional and presentation currency. Eachentity in the Group determines its own functional currency and items includedin the financial statements of each entity are measured using that functionalcurrency. Foreign currency transactions are initially recorded using thefunctional currency rates ruling at the date of the transactions. Monetaryassets and liabilities denominated in foreign currencies are retranslated atthe functional currency rates of exchange ruling at the balance sheet date. Alldifferences are taken to the income statement. Non-monetary items that aremeasured in terms of historical cost in a foreign currency are translated usingthe exchange rates at the dates of the initial transactions. Non-monetary itemsmeasured at fair value in a foreign currency are translated using the exchangerates at the date when the fair value was determined.

The functional currencies of certain overseassubsidiaries and associates are currencies other than the Hong Kong dollar. Asat the balance sheet date, the assets and liabilities of these entities aretranslated into the presentation currency of the Company at the exchange ratesruling at the balance sheet date and, their income statements are translatedinto Hong Kong dollars at the weighted average exchange rates for the year. Theresulting exchange differences are included in the exchange fluctuation reserveaccount. On disposal of a foreign entity, thedeferred cumulative amount recognised in the exchange fluctuation reserveaccount relating to that particular foreign operation is recognised in theincome statement.

For the purpose of theconsolidated cash flow statement, the cash flows of overseas subsidiaries aretranslated into Hong Kong dollars at the exchange rates ruling at the dates ofthe cash flows. Frequently recurring cash flows of overseas subsidiaries whicharise throughout the year are translated into Hong Kong dollars at the weightedaverage exchange rates for the year.

***Provisions***

A provision is recognised when a present obligation(legal or constructive) has arisen as a result of a past event and it isprobable that a future outflow of resources will be required to settle theobligation, provided that a reliable estimate can be made of the amount of theobligation.

When the effect ofdiscounting is material, the amount recognised for a provision is the presentvalue at the balance sheet date of the future expenditures expected to berequired to settle the obligation. The increase in the discounted present valueamount arising from the passage of time is included in finance costs in theincome statement.

***Cash and cash equivalents***

For the purpose of the consolidated cash flowstatement, cash and cash equivalents comprise cash on hand and demand deposits,and short term highly liquid investments which are readily convertible intoknown amounts of cash and which are subject to an insignificant risk of changesin value, and have a short maturity of generally within three months whenacquired, less bank overdrafts which are repayable on demand and form anintegral part of the Group’s cash management.

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2.4**   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (Continued)

***Cash andcash equivalents (continued)***

For the purpose of theconsolidated balance sheet, cash and bank balances comprise cash on hand and atbanks, including term deposits, which are not restricted as to use.

**3.   SIGNIFICANTACCOUNTING ESTIMATES**

***Estimation uncertainty***

Thekey assumptions concerning the future and other key sources of estimationuncertainty at the balance sheet date, that have a significant risk of causinga material adjustment to the carrying amounts of assets and liabilities withinthe next financial year, are discussed below.

*Provision forobsolete inventories*

The management of theGroup reviews the aged analysis at each balance sheet date, and makes allowancefor obsolete and slow-moving inventory items identified that are no longersuitable for use in production and sale. The management estimates the netrealisable value for such finished goods and work in progress based primarilyon the latest invoice prices and current market conditions.

*Impairmentallowances for bad and doubtful debts*

Impairment allowances forbad and doubtful debts are made based on assessment of the recoverability oftrade receivables and other receivables. The identification of doubtful debtsrequires management judgement and estimates. Where the actual outcome orexpectation in future is different from the original estimate, such differenceswill impact the carrying value of the receivables and doubtful debtexpenses/write-back in the period in which such estimate has been changed.

**4.   RELATED PARTYTRANSACTIONS**

(a)          TheGroup had the following transactions with related parties during each of thethree years ended June 30, 2006 in addition to those disclosed elsewherein the financial statements:

| ** **                                                                                                    | ** ** | **Notes**  | ** ** | **2006**         | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                                    | ** ** | ** ** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Sales of finished  goods to a shareholder:  Indalex Aluminum Solutions Group (“IASG”)               |       |       | (i)        |             |       | 302,539          |       | 139,234          |       | 102,617 |   |
| Sales of finished goods to a company of which a  director of a non wholly-owned subsidiary is also a director |       |       | (ii)       |             |       | 8,054            |       | 10,805           |       | 14,241 |   |
| Sales of raw materials to a fellow subsidiary                                                                 |       |       | (iii)      |             |       | 20,258           |       | —           |       | — |   |
| Sales of finished  goods to fellow subsidiaries                                                               |       |       | (iii)      |             |       | 12,367           |       | —           |       | — |   |

 

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**4.   RELATED PARTYTRANSACTIONS (Continued)**

(a)          TheGroup had the following transactions with related parties during each of thethree years ended June 30, 2006 in addition to those disclosed elsewherein the financial statements: (continued)

| ** **                                                                                  | ** ** | **Notes**  | ** ** | **2006**         | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                  | ** ** | ** ** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Sales of items of  property, plant and equipment to fellow subsidiaries                     |       |       | (iii       | )                |       |             | 22,908     |             |       |   | — |   |   |   | — |   |   |
| Purchases of items of property, plant and equipment  from a fellow subsidiary               |       |       | (iii       | )                |       |             | 49,350     |             |       |   | — |   |   |   | — |   |   |
| Deposit received from a related company                                                     |       |       | (iv        | )                |       |             | —     |             |       |   | — |   |   |   | 25,424 |   |   |
| Purchases of items of property, plant and equipment from  IASG                              |       |       | (i         | )                |       |             | —     |             |       |   | — |   |   |   | 778 |   |   |
| Consultancy fee paid to a former director of the  Company                                   |       |       | (v         | )                |       |             | —     |             |       |   | — |   |   |   | 1,228 |   |   |
| Interest income  received from minority equity holders of two non wholly-owned subsidiaries |       |       | (vi        | )                |       |             | —     |             |       |   | 6,748 |   |   |   | — |   |   |

 

In addition to the foregoing, management fees in theamount of HK$16,330,000(2005: HK$16,330,000; 2004: HK$16,330,000) werepaid during the year ended June 30, 2006 by the Company and certain of itssubsidiaries, which are wholly-owned by the Company, to Asia AluminumManagement Limited, a fellow subsidiary of the Company. These management feeswere paid on a cost-recovery basis.

----

Notes:

          (i) IASG comprises companies associated with Indalex UK Limited (“Indalex”), acompany which became the minority shareholder of the Company upon theacquisition of a 26.2% equity interest in the Company on 8 June 2001. Thedirectors of the Company considerthat these transactions were made according to prices and other terms similarto those offered to unrelated customers of the Group.

      (ii) The directors of the Company consider that the sale of finished goods to a company, ofwhich a director of a non wholly-owned subsidiary is also a director, were madeaccording to prices and other terms similar to those offered to unrelatedcustomers of the Group.

  (iii) The directors of theCompany consider that these transactions were made according to prices andother terms similar to those offered to/from unrelated customers/suppliers ofthe Group.

    (iv) The deposit was received in respect of sale of finished goods to bemade. The directors of the Company consider that the sales to be made were accordingto prices and other terms similar to those offered to unrelated customers ofthe Group.

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**4.**   RELATED PARTY TRANSACTIONS (Continued)

        (v) Pursuant to a service agreement between the Group and a formerdirector of the Company on August 8, 2003, the consultancy fee was chargedat a monthly rate of HK$107,000. The directors of the Company consider that themonthly consultancy fee was based on normal commercial terms.

    (vi) The interest was received in respect of amounts due from minority equityholders of subsidiaries at a fixed rate of 7.2% per annum.

Each of Guangdong Nanhua AluminiumFactory Co., Ltd. (“Guangdong Nanhua”) and Foshan Nanhai Hongjia AluminiumMaterials and Stainless Steel Co., Ltd. (“Hongjia Aluminum”), the minorityequity holders of two subsidiaries of the Group, has granted the Groupthe right to use certain underlying parcels of land and buildings on arent-free basis. Based on the legal advice, the directors of the Companyconsider that the above arrangement is valid and legally binding under theprevailing PRC applicable law and regulations.

At June 30, 2005,cash maintained with bank accounts in the PRC under the name of associates oftwo directors held on behalf of the Group amounted to HK$71,000.

**(b)   Compensation of keymanagement personnel of the Group:**

| ** **                                           | ** ** | **2006**         | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|------------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Short term  employee benefits                        |       |             | 9,919      |             |       |             | 8,533      |   |   |   | 7,801 |   |   |
| Post-employment  benefits                            |       |             | —     |             |       |             | —     |   |   |   | — |   |   |
| Share-based  payments                                |       |             | —     |             |       |             | —     |   |   |   | — |   |   |
| Total compensation  paid to key management personnel |       |             | 9,919      |             |       |             | 8,533      |   |   |   | 7,801 |   |   |

 

Further details ofdirectors’ emoluments are included in note 6 to the financial statements.

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**5.   REVENUE, OTHER INCOMEAND GAINS, NET**

Revenue, which is also the Group’s turnover, representsthe aggregate of net invoiced amounts, after allowances for returns and tradediscounts, from the sale of goods, the provision of design and testing servicesfor aluminum products and other business.

An analysis of the Group’srevenue, other income and gains, net is as follows:

| ** **                                                      | ** ** | **2006**         | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|-----------------------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                      | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| *Revenue:*                                                      |       |             |       |             |       |             |       |
| Manufacture and  sale of aluminum extrusion products            |       | 3,775,414        |       | 3,225,784        |       | 2,493,619        |       |
| Manufacture and  sale of stainless steel products               |       | 123,153          |       | 116,978          |       | 353,057          |       |
| Manufacture and  sale of aluminum panels                        |       | 7,066            |       | 59,345           |       | 74,867           |       |
| Provision of  design and testing services for aluminum products |       | 1,707            |       | 6,693            |       | 16,939           |       |
|                                                            |       | 3,907,340        |       | 3,408,800        |       | 2,938,482        |       |
| *Other income and gains, net:*                                  |       |             |       |             |       |             |       |
| Interest income                                                 |       | 16,847           |       | 17,214           |       | 11,902           |       |
| Net gains on  trading of forward contracts:                     |       |             |       |             |       |             |       |
| Realised gains                                                  |       | —           |       | 5,543            |       | 38,849           |       |
| Unrealised gains/(losses)                                       |       | —           |       | 3,122            |       | (3,266           | )          |
| Fair value losses  on trading of forward contracts, net         |       | (31,152          | )          | —           |       | —           |       |
| Management fee  income from other AAIL group  companies         |       | 10,800           |       | 10,800           |       | 10,800           |       |
| Sales of scrap  materials                                       |       | 10,621           |       | 5,748            |       | 3,809            |       |
| Exchange gains,  net                                            |       | 14,378           |       | —           |       | —           |       |
| Sundry income                                                   |       | 9,014            |       | 14,373           |       | 3,290            |       |
|                                                            |       | 30,508           |       | 56,800           |       | 65,384           |       |
|                                                            |       | 3,937,848        |       | 3,465,600        |       | 3,003,866        |       |

 

F-88

----

**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**6.   PROFIT BEFORE TAX**

TheGroup’s profit before tax is arrived at after charging/(crediting) thefollowing:

| ** **                                                                  | ** ** | **2006**         | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|-----------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                  | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| ** **                                                                  | ** ** | ** **       | ** ** | **(Restated)**   | ** ** | **(Restated)**   | ** ** |
| Cost of  inventories sold*                                                  |       | 3,090,306        |       | 2,620,737        |       | 2,237,284        |       |
| Cost of services  provided                                                  |       | 1,201            |       | 1,138            |       | 2,880            |       |
| Depreciation of  property, plant and equipment*                             |       | 130,423          |       | 127,787          |       | 95,140           |       |
| Amortisation of a  prepaid land lease payment                               |       | 157              |       | 154              |       | 154              |       |
| Directors’ remuneration:                                               |       |             |       |             |       |             |       |
| Fee                                                                         |       | —           |       | —           |       | —           |       |
| Other emoluments                                                            |       | 4,875            |       | 3,799            |       | 5,437            |       |
| Employee benefits  expense (excluding  directors’ emoluments):         |       |             |       |             |       |             |       |
| Salaries and wages                                                          |       | 115,908          |       | 101,046          |       | 92,817           |       |
| Pension scheme contributions                                                |       | 344              |       | 369              |       | 355              |       |
|                                                                        |       | 116,252          |       | 101,415          |       | 93,172           |       |
| Auditors’ remuneration                                                 |       | 3,567            |       | 2,249            |       | 1,850            |       |
| Impairment/(write-back  of impairment) for  doubtful debts, net        |       | (9,097           | )          | (1,600           | )          | 24,040           |       |
| Minimum lease  payments under operating leases on land and buildings        |       | 9,794            |       | 9,062            |       | 10,955           |       |
| Loss on  disposal/write-off of items of property, plant and equipment, net* |       | 28,641           |       | 16,040           |       | 14,092           |       |
| Exchange losses/(gains),  net                                               |       | (14,378          | )          | (806             | )          | 230              |       |

----

                 * Out of the total depreciation charge of HK$130,423,000 (2005: HK$127,787,000; 2004: HK$95,140,000), anamount of HK$101,517,000 (2005:HK$98,215,000; 2004: HK$72,494,000)has been included in the cost of inventories sold. The cost of inventories soldalso included certain loss on disposal/write-off of items of property, plantand equipment, net of HK$14,334,000 (2005: HK$16,040,000; 2004: HK$14,092,000).

**7.   FINANCECOSTS**

| ** **                                                                             | ** ** | **2006**         | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                             | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Interest on bank  loans, overdrafts and other loans wholly repayable within five years |       | 45,273           |       |             | 38,447     |             |       |   | 39,928 |   |   |
| Interest on  finance leases                                                            |       | 18,490           |       |             | 3,825      |             |       |   | 165 |   |   |
| Interest on loans  from the immediate holding company                                  |       | 82,102           |       |             | 54,135     |             |       |   | 10,117 |   |   |
|                                                                                   |       | 145,865          |       |             | 96,407     |             |       |   | 50,210 |   |   |

 

F-89

----

**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**8.   TAX**

| ** **                     | ** ** | **2006**         | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|--------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                     | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Group:                         |       |             |       |             |       |             |       |
| Current—Hong Kong         |       | —           |       | —           |       | —           |       |
| Current—Mainland China    |       | 161,775          |       | 152,486          |       | 143,943          |       |
| Deferred tax                   |       | —           |       | (770             | )          | (1,666           | )          |
| Total tax charge  for the year |       | 161,775          |       | 151,716          |       | 142,277          |       |

 

No Hong Kong profitstax has been provided as therewere no estimated assessable profits arising from the Group’s operations inHong Kong during the year (2005: Nil; 2004: Nil). The statutory tax rate forHong Kong profits tax is 17.5% (2005: 17.5%; 2004: 17.5%). Taxeson profits assessable elsewhere have been calculated at the applicable rates of tax in the jurisdictions in which the Groupoperates, based on existing legislation, interpretations and practices inrespect thereof.

The statutory tax rate forthe Mainland China corporate income tax is 33% (2005: 33%; 2004: 33%). Under therelevant laws and regulations in the Mainland China, certain subsidiaries (the “PRCSubsidiaries”) of the Company operating in the Mainland China are exempted fromincome tax for two years from their respective first profit-making year and areeligible for a 50% reduction in income tax for the following three years. Duringeach of the three years ended June 30, 2006, provisions for income tax forthese subsidiaries have been made at the applicable reduced rate for the PRCSubsidiaries.

A reconciliation of thetax expense applicable to profit before tax using the statutory rates for thecountries in which the Company and its subsidiaries are domiciled to the taxexpense at the effective tax rates is as follows:

| ** **                                                             | ** ** | **2006**         | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                             | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Profit before tax                                                      |       | 437,156          |       | 515,557          |       | 487,297          |       |
| Tax at the Mainland China’s statutory rate of 33%                 |       | 144,261          |       | 170,134          |       | 160,808          |       |
| Lower tax rate  for Hong Kong and specific provinces in Mainland China |       | (31,514          | )          | (40,667          | )          | (32,209          | )          |
| Income not  subject to tax                                             |       | (99              | )          | (1,843           | )          | (259             | )          |
| Expenses not  deductible for tax                                       |       | 48,331           |       | 23,391           |       | 13,719           |       |
| Tax losses utilised  from previous periods                             |       | —           |       | —           |       | (1,054           | )          |
| Increase in  unutilised tax losses carried forward                     |       | 796              |       | 701              |       | 1,272            |       |
| Tax charge at the  Group’s effective rate                         |       | 161,775          |       | 151,716          |       | 142,277          |       |

 

F-90

----

**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**8.**   TAX (Continued)

Themovements of the principal components of the Group’s net deferred tax assetsare as follows:

| ** **                                                               | ** ** | ** **       | ** ** | **Impairment**   | ** ** | **Fair value** | ** ** | ** **       | ** ** |
|--------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|---------------------|------------|------------------|------------|
| ** **                                                               | ** ** | **Accelerated**  | ** ** | **for**          | ** ** | **changes of** | ** ** | ** **       | ** ** |
| ** **                                                               | ** ** | **depreciation** | ** ** | **doubtful**     | ** ** | **forward**         | ** ** | ** **       | ** ** |
| ** **                                                               | ** ** | **allowances**   | ** ** | **debts**        | ** ** | **contracts**       | ** ** | **Total**        | ** ** |
| ** **                                                               | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000**    | ** ** | **HK$’000** | ** ** |
| At July 1,  2003                                                    |       |             | —     |             |       |                | —     |             |       |   | — |   |   |   | — |   |   |
| Deferred tax  credited/(charged) to the income statement during the year |       |             | (240       | )                |       |                | 1,379      |             |       |   | 527 |   |   |   | 1,666 |   |   |
| At June 30, 2004 and  July 1, 2004                             |       |             | (240       | )                |       |                | 1,379      |             |       |   | 527 |   |   |   | 1,666 |   |   |
| Deferred tax credited/(charged) to the income statement during the  year |       |             | 101        |             |       |                | 1,787      |             |       |   | (1,118 | ) |   |   | 770 |   |   |
| At June 30, 2005 and  July 1, 2005                             |       |             | (139       | )                |       |                | 3,166      |             |       |   | (591 | ) |   |   | 2,436 |   |   |
| Deferred tax credited/(charged) to the income statement during the  year |       |             | —     |             |       |                | —     |             |       |   | — |   |   |   | — |   |   |
| At June 30, 2006                                                    |       |             | (139       | )                |       |                | 3,166      |             |       |   | (591 | ) |   |   | 2,436 |   |   |

 

The Group has unrecognisedtax losses arising in Hong Kong of HK$18,012,000 (2005: HK$18,517,000; 2004: HK$17,816,000) that are available indefinitely foroffsetting against future taxable profits of companies in which the lossesarose. Deferred tax assets have not been recognised in respect of these lossesas they have arisen in subsidiaries that have been loss-making for some time.

**9.**   PROFITATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The profit attributable to equity holders of theCompany for the year ended June 30, 2006 dealt with in the financialstatements of the Company was HK$230,076,000 (2005: loss of HK$76,605,000; 2004: profit of HK$143,812,000).

**10.**                               DIVIDENDS

| ** **                                         | ** ** | **2006**         | ** ** | **2005**         | ** ** | **2004**         | ** ** |
|----------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                         | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Interim:                                           |       |             |       |             |       |             |       |   |   |
| HK$64.28 (2005: Nil; 2004: Nil) per ordinary share |       | 151,748          |       |             | —     |             |       | — |   |
| Proposed final:                                    |       |             |       |             |       |             |       |   |   |
| Nil (2005: Nil; 2004: HK$60.80) per ordinary share |       | —           |       |             | —     |             |       | 143,549 |   |
|                                               |       | 151,748          |       |             | —     |             |       | 143,439 |   |

 

F-91

----

**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**11.   PROPERTY,PLANT AND EQUIPMENT**

| ** **                             | ** ** | ** **               | ** ** | ** **           | ** ** | **Plant,**          | ** ** | **Furniture**    | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------|------------|--------------------------|------------|----------------------|------------|---------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                             | ** ** | **Buildings**            | ** ** | **Construction**     | ** ** | **machinery**       | ** ** | **and**          | ** ** | **Office**       | ** ** | **Motor**        | ** ** | ** **       | ** ** |
| ** **                             | ** ** | **in the PRC** | ** ** | **in progress** | ** ** | **and moulds** | ** ** | **fixtures**     | ** ** | **equipment**    | ** ** | **vehicles**     | ** ** | **Total**        | ** ** |
| ** **                             | ** ** | **HK$’000**         | ** ** | **HK$’000**     | ** ** | **HK$’000**    | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| **June 30, 2006**                 |       |                     |       |                 |       |                |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost:                                  |       |                     |       |                 |       |                |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| At July 1, 2005  (restated)       |       |                     | 200,204    |                 |       |                | 498,354    |             |       |             | 1,251,726  |             |       |             | 36,174     |   |   |   | 25,077 |   |   |   | 47,320 |   |   | 2,058,855 |   |
| Additions                              |       |                     | 3,774      |                 |       |                | 745,264    |             |       |             | 80,120     |             |       |             | 373        |   |   |   | 1,174 |   |   |   | 5,828 |   |   | 836,533 |   |
| Disposals                              |       |                     | (972       | )                    |       |                | —     |             |       |             | (44,675    | )                |       |             | (271       | ) |   |   | (73 | ) |   |   | (3,924 | ) |   | (49,915 | ) |
| Write-off                              |       |                     | (5,931     | )                    |       |                | —     |             |       |             | (28,964    | )                |       |             | (1,485     | ) |   |   | — |   |   |   | — |   |   | (36,380 | ) |
| Transfer from construction in progress |       |                     | 4,285      |                 |       |                | (7,081     | )                |       |             | 2,618      |             |       |             | 178        |   |   |   | — |   |   |   | — |   |   | — |   |
| Exchange adjustments                   |       |                     | 4,295      |                 |       |                | 6,801      |             |       |             | 25,300     |             |       |             | 767        |   |   |   | 496 |   |   |   | 921 |   |   | 38,580 |   |
| At June 30, 2006                  |       |                     | 205,655    |                 |       |                | 1,243,338  |             |       |             | 1,286,125  |             |       |             | 35,736     |   |   |   | 26,674 |   |   |   | 50,145 |   |   | 2,847,673 |   |
| Accumulated  depreciation:             |       |                     |       |                 |       |                |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| At July 1, 2005  (restated)       |       |                     | 78,663     |                 |       |                | —     |             |       |             | 491,290    |             |       |             | 12,716     |   |   |   | 21,670 |   |   |   | 38,942 |   |   | 643,281 |   |
| Provided during the  year              |       |                     | 14,525     |                 |       |                | —     |             |       |             | 107,402    |             |       |             | 2,280      |   |   |   | 2,018 |   |   |   | 4,198 |   |   | 130,423 |   |
| Write-back on  disposals               |       |                     | —     |                 |       |                | —     |             |       |             | (19,621    | )                |       |             | (265       | ) |   |   | — |   |   |   | (3,235 | ) |   | (23,121 | ) |
| Write-off                              |       |                     | (3,985     | )                    |       |                | —     |             |       |             | (5,058     | )                |       |             | (169       | ) |   |   | — |   |   |   | — |   |   | (9,212 | ) |
| Exchange adjustments                   |       |                     | 1,679      |                 |       |                | —     |             |       |             | 9,969      |             |       |             | 274        |   |   |   | 428 |   |   |   | 769 |   |   | 13,119 |   |
| At June 30, 2006                  |       |                     | 90,882     |                 |       |                | —     |             |       |             | 583,982    |             |       |             | 14,836     |   |   |   | 24,116 |   |   |   | 40,674 |   |   | 754,490 |   |
| Net book value:                        |       |                     |       |                 |       |                |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| At June 30, 2006                  |       |                     | 114,773    |                 |       |                | 1,243,338  |             |       |             | 702,143    |             |       |             | 20,900     |   |   |   | 2,558 |   |   |   | 9,471 |   |   | 2,093,183 |   |
| At June 30, 2005 (restated)       |       |                     | 121,541    |                 |       |                | 498,354    |             |       |             | 760,436    |             |       |             | 23,458     |   |   |   | 3,407 |   |   |   | 8,378 |   |   | 1,415,574 |   |

 

F-92

----

**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**11.**   PROPERTY, PLANT AND EQUIPMENT (Continued)

| ** **                             | ** ** | ** **               | ** ** | ** **           | ** ** | **Plant,**          | ** ** | **Furniture**    | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------|------------|--------------------------|------------|----------------------|------------|---------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                             | ** ** | **Buildings**            | ** ** | **Construction**     | ** ** | **machinery**       | ** ** | **and**          | ** ** | **Office**       | ** ** | **Motor**        | ** ** | ** **       | ** ** |
| ** **                             | ** ** | **in the PRC** | ** ** | **in progress** | ** ** | **and moulds** | ** ** | **fixtures**     | ** ** | **equipment**    | ** ** | **vehicles**     | ** ** | **Total**        | ** ** |
| ** **                             | ** ** | **HK$’000**         | ** ** | **HK$’000**     | ** ** | **HK$’000**    | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| **June 30,  2005**                |       |                     |       |                 |       |                |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost:                                  |       |                     |       |                 |       |                |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| At July 1, 2004  (restated)       |       |                     | 186,159    |                 |       |                | 8,368      |             |       |             | 1,166,229  |             |       |             | 35,778     |   |   |   | 22,863 |   |   |   | 43,187 |   |   | 1,462,584 |   |
| Additions                              |       |                     | 10,883     |                 |       |                | 503,220    |             |       |             | 96,563     |             |       |             | 396        |   |   |   | 2,214 |   |   |   | 4,133 |   |   | 617,409 |   |
| Disposals                              |       |                     | —     |                 |       |                | —     |             |       |             | (335       | )                |       |             | —     |   |   |   | — |   |   |   | — |   |   | (335 | ) |
| Write-off                              |       |                     | —     |                 |       |                | —     |             |       |             | (20,803    | )                |       |             | —     |   |   |   | — |   |   |   | — |   |   | (20,803 | ) |
| Transfer from construction in progress |       |                     | 3,162      |                 |       |                | (13,234    | )                |       |             | 10,072     |             |       |             | —     |   |   |   | — |   |   |   | — |   |   | — |   |
| At June 30, 2005                  |       |                     | 200,204    |                 |       |                | 498,354    |             |       |             | 1,251,726  |             |       |             | 36,174     |   |   |   | 25,077 |   |   |   | 47,320 |   |   | 2,058,855 |   |
| Accumulated depreciation:              |       |                     |       |                 |       |                |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| At July 1, 2004  (restated)       |       |                     | 64,975     |                 |       |                | —     |             |       |             | 393,554    |             |       |             | 10,509     |   |   |   | 19,797 |   |   |   | 31,748 |   |   | 520,583 |   |
| Provided during the year (restated)    |       |                     | 13,688     |                 |       |                | —     |             |       |             | 102,825    |             |       |             | 2,207      |   |   |   | 1,873 |   |   |   | 7,194 |   |   | 127,787 |   |
| Write-back on  disposals               |       |                     | —     |                 |       |                | —     |             |       |             | (143       | )                |       |             | —     |   |   |   | — |   |   |   | — |   |   | (143 | ) |
| Write-off                              |       |                     | —     |                 |       |                | —     |             |       |             | (4,946     | )                |       |             | —     |   |   |   | — |   |   |   | — |   |   | (4,946 | ) |
| At June 30, 2005                  |       |                     | 78,663     |                 |       |                | —     |             |       |             | 491,290    |             |       |             | 12,716     |   |   |   | 21,670 |   |   |   | 38,942 |   |   | 643,281 |   |
| Net book value:                        |       |                     |       |                 |       |                |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| At June 30, 2005 (restated)       |       |                     | 121,541    |                 |       |                | 498,354    |             |       |             | 760,436    |             |       |             | 23,458     |   |   |   | 3,407 |   |   |   | 8,378 |   |   | 1,415,574 |   |
| At June 30,  2004 (restated)      |       |                     | 121,184    |                 |       |                | 8,368      |             |       |             | 772,675    |             |       |             | 25,269     |   |   |   | 3,066 |   |   |   | 11,439 |   |   | 942,001 |   |

 

The buildings are erectedon land situated in the PRC under operating leases which expire between theyears 2011 and 2016.

At June 30, 2006,certain items of property, plant and equipment, mainly buildings in the PRC andplant and machinery, with a total net book value of approximately HK$4,549,000 (2005: HK$4,892,000) and HK$19,064,000 (2005: HK$20,265,000), respectively, werepledged as security for certain banking facilities granted to the Group as setout in notes 23 and 24 to the financial statements.

The net book value ofassets held under finance leases included in the total amount of property, plant and equipment at June 30,2006 amounted to HK$353,715,000(2005: HK$173,208,000).

Duringthe year, certain plant and machinery and buildings in the PRC, amounting to HK$12,361,000and HK$1,946,000, respectively, were written off because of the terminationplan of aluminum panel operation.

F-93

----

**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**1**2.   PREPAID LAND LEASE PAYMENT

| ** **                                                               | ** ** | **2006**         | ** ** | **2005**         | ** ** |
|--------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                               | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| ** **                                                               | ** ** | ** **       | ** ** | **(Restated)**   | ** ** |
| Cost:                                                                    |       |             |       |             |       |   |   |   |   |
| At the beginning of the year                                             |       |             |       |             |       |   |   |   |   |
| As previously reported                                                   |       |             | —     |             |       |   | — |   |   |
| Effect of adopting HKAS 17                                               |       |             | 3,049      |             |       |   | 3,049 |   |   |
| As restated                                                              |       |             | 3,049      |             |       |   | 3,049 |   |   |
| Exchange adjustment                                                      |       |             | 65         |             |       |   | — |   |   |
| At June 30,                                                         |       |             | 3,114      |             |       |   | 3,049 |   |   |
| Amortisation:                                                            |       |             |       |             |       |   |   |   |   |
| At the beginning of the year                                             |       |             |       |             |       |   |   |   |   |
| As previously reported                                                   |       |             | —     |             |       |   | — |   |   |
| Effect of adopting HKAS 17                                               |       |             | 283        |             |       |   | 129 |   |   |
| As restated                                                              |       |             | 283        |             |       |   | 129 |   |   |
| Recognised during the year                                               |       |             | 157        |             |       |   | 154 |   |   |
| Exchange adjustment                                                      |       |             | 6          |             |       |   | — |   |   |
| At June 30,                                                         |       |             | 446        |             |       |   | 283 |   |   |
| Carrying amount at June 30,                                         |       |             | 2,668      |             |       |   | 2,766 |   |   |
| Current portion  included in prepayments, deposits and other receivables |       |             | (157       | )                |       |   | (154 | ) |   |
| Non-current  portion                                                     |       |             | 2,511      |             |       |   | 2,612 |   |   |

 

The prepaid land lease payment is held under a mediumterm lease and is situated in the PRC.

At June 30, 2006, certain item of land in the PRCwith a net book value of approximately HK$2,668,000 (2005: HK$2,766,000) waspledged as security for the Group’s bank loan amounting to HK$23,558,000 (2005:HK$23,540,000), as further detailed in note 24 to financial statements.

Pursuant to an agreement and a supplementary agreemententered into between AAHL and the local bureau of High-Tech Development Zone ofZhaoqing City, Guangdong Province, the PRC (“Zhaoqing City”) in prior years,AAHL has agreed to acquire 50 years’ land use rights to 10,300 mu(approximately 6,867,000 square metres) of land located in the High-TechDevelopment Zone at an aggregate consideration of RMB288,400,000 (approximatelyHK$271,600,000). In turn, the local bureau of Zhaoqing City has agreed torefund the whole consideration of RMB288,400,000 to AAHL or its subsidiaries ascompensation for the construction cost of basic infrastructure incurred by AAHLor its subsidiaries. During the year ended June 30, 2006, AAHL assignedthe right to acquire 1,115 mu of the land use rights to the Group.

Accordingly, as atJune 30 2006, the Group has paid consideration of RMB31,220,000(approximately HK$30,019,000), obtaining 1,115 mu of land use rights and itsrelated certificate. The local bureau of Zhaoqing City had refunded the sameamount to the Group.

F-94

----

**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**1**3.   GOODWILL

As further detailed in note2.2 to the financial statements, the Group applied the transitional provisionsof HKFRS 3 that permitted goodwill in respect of business combinations whichoccurred prior to 2001, to remain eliminated against the consolidated capitalreserve. The amount of goodwill remaining in the consolidated capital reservearising from the acquisition of subsidiaries prior to the adoption of SSAP 30in 2001, was HK$105,373,000 as at June 30, 2006 (2005: HK$105,373,000).The amount of goodwill is stated at its cost.

F-95

----

**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**1**4.   INVESTMENTS IN SUBSIDIARIES

Detailsof principal subsidiaries are as follows:

|                    | ** ** | Place of           | ** ** | **Nominal   value**   | ** ** | **Percentage**        | ** ** | ** **      |
|--------------------|------------|--------------------|------------|-----------------------|------------|-----------------------|------------|-----------------|
| ** **         | ** ** | **incorporation/** | ** ** | **of issued**         | ** ** | **of equity**         | ** ** | ** **      |
| ** **         | ** ** | **registration**   | ** ** | **ordinary   share/** | ** ** | **attributable   to** | ** ** | **Principal**   |
| **Name**           | ** ** | ** **         | ** ** | **and   operations**  | ** ** | **paid-up   capital** | ** ** | **the Company** | ** ** | **activities** |
| ** **         | ** ** | ** **         | ** ** | ** **            | ** ** | **2006**              | ** ** | **2005**        | ** ** | ** ** |
| *Directly held*    |       |               |       |                  |       |                  |       |            |   |   |
| Asia Aluminum      |       |               |       |                  |       |                  |       |            |   |   |
| Manufacturing      |       |               |       |                  |       |                  |       |            |   |   |
| Company Limited    |       | Hong Kong          |       | HK$2                  |       | 100                   |       | 100             |   | Investment |
|               |       |               |       |                  |       | (note b)              |       |            |   | holding and |
|               |       |               |       |                  |       |                  |       |            |   | trading of |
|               |       |               |       |                  |       |                  |       |            |   | aluminum and |
|                    |       |               |       |                  |       |                  |       |            |   | stainless steel |
|                    |       |               |       |                  |       |                  |       |            |   | products |
| Long Hing Profits  |       |               |       |                  |       |                  |       |            |   |   |
| Limited            |       | British Virgin     |       | US$1                  |       | 100                   |       | 100             |   | Investment |
|               |       | Islands/Hong Kong  |       |                  |       | (note b)              |       |            |   | holding and |
|               |       |               |       |                  |       |                  |       |            |   | trading of |
|               |       |               |       |                  |       |                  |       |            |   | aluminum panels |
|               |       |               |       |                  |       |                  |       |            |   | and high grade |
|               |       |               |       |                  |       |                  |       |            |   | aluminum |
|               |       |               |       |                  |       |                  |       |            |   | extrusion products |
| Pavillion Services |       |               |       |                  |       |                  |       |            |   |   |
| Limited            |       | British Virgin     |       | US$200                |       | 100                   |       | 100             |   | Trading of |
|               |       | Islands/Hong Kong  |       |                  |       | (note b)              |       |            |   | aluminum and |
|                    |       |               |       |                  |       |                  |       |            |   | stainless steel |
|                    |       |               |       |                  |       |                  |       |            |   | products |
| Huge Spot Holdings |       |               |       |                  |       |                  |       |            |   |   |
| Limited            |       | British Virgin     |       | US$1                  |       | 100                   |       | 100             |   | Investment |
|               |       | Islands/Mainland   |       |                  |       | (note b)              |       |            |   | holding |
|               |       | China              |       |                  |       |                  |       |            |   |   |
| Kar Yip Holdings   |       |               |       |                  |       |                  |       |            |   |   |
| Limited            |       | British Virgin     |       | US$1                  |       | 100                   |       | 100             |   | Investment |
|               |       | Islands/Mainland   |       |                  |       | (note b)              |       |            |   | holding |
|                    |       | China              |       |                  |       |                  |       |            |   |   |
|                    |            |                    |            |                       |            |                       |            |                 |  |  |  |  |

 

F-96

----

**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**14.**   INVESTMENTS IN SUBSIDIARIES (Continued)

Details of principalsubsidiaries are as follows:

|                       | ** ** | Place of           | ** ** | **Nominal value**   | ** ** | **Percentage**      | ** ** | ** **      |
|-----------------------|------------|--------------------|------------|---------------------|------------|---------------------|------------|-----------------|
| ** **            | ** ** | **incorporation/** | ** ** | **of issued**       | ** ** | **of equity**       | ** ** | ** **      |
| ** **            | ** ** | **registration**   | ** ** | **ordinary share/** | ** ** | **attributable to** | ** ** | **Principal**   |
| **Name**              | ** ** | ** **         | ** ** | **and operations**  | ** ** | **paid-up capital** | ** ** | **the Company** | ** ** | **activities** |
| ** **            | ** ** | ** **         | ** ** | ** **          | ** ** | **2006**            | ** ** | **2005**        | ** ** | ** ** |
| *Indirectly held*     |       |               |       |                |       |                |       |            |   |   |
| Majestic Holdings     |       |               |       |                |       |                |       |            |   |   |
| Limited               |       | Hong Kong          |       | HK$60,000,000       |       | 100                 |       | 100             |   | Investment |
|                  |       |               |       |                |       | (note b)            |       |            |   | holding and |
|                       |       |               |       |                |       |                |       |            |   | trading of |
|                       |       |               |       |                |       |                |       |            |   | aluminum |
|                       |       |               |       |                |       |                |       |            |   | products |
| Guangdong Asia        |       |               |       |                |       |                |       |            |   |   |
| Aluminium Factory     |       |               |       |                |       |                |       |            |   |   |
| Co., Ltd.             |       | Mainland           |       | US$36,290,000       |       | 100                 |       | 100             |   | Manufacture |
|                  |       | China              |       |                |       | (notes b            |       |            |   | and trading of |
|                  |       |               |       |                |       | and c)              |       |            |   | aluminum |
|                  |       |               |       |                |       |                |       |            |   | products |
| Foshan Nanhai Panasia |       |               |       |                |       |                |       |            |   |   |
| Metal Spraying Co.,   |       |               |       |                |       |                |       |            |   |   |
| Ltd.                  |       | Mainland           |       | US$2,900,000        |       | 100                 |       | 100             |   | Subcontracting |
|                  |       | China              |       |                |       | (notes b            |       |            |   | of aluminum |
|                  |       |               |       |                |       | and c)              |       |            |   | panels and |
|                       |       |               |       |                |       |                |       |            |   | high grade |
|                       |       |               |       |                |       |                |       |            |   | aluminum |
|                       |       |               |       |                |       |                |       |            |   | extrusion |
|                       |       |               |       |                |       |                |       |            |   | products |
|                       |       |               |       |                |       |                |       |            |   | processing |
| Foshan Nanhai  Xinya  |       |               |       |                |       |                |       |            |   |   |
| Aluminium &  |       |               |       |                |       |                |       |            |   |   |
| Stainless             |       |               |       |                |       |                |       |            |   |   |
| Steel Co., Ltd.       |       | Mainland           |       | US$13,390,000       |       | 100                 |       | 100             |   | Subcontracting |
|                  |       | China              |       |                |       | (notes b            |       |            |   | of aluminum |
|                  |       |               |       |                |       | and c)              |       |            |   | and stainless |
|                  |       |               |       |                |       |                |       |            |   | steel products |
|                  |       |               |       |                |       |                |       |            |   | processing |
| Foshan Nanhai Hongjia |       |               |       |                |       |                |       |            |   |   |
| Aluminum Company      |       |               |       |                |       |                |       |            |   |   |
| Limited               |       | Mainland           |       | US$13,330,000       |       | 60                  |       | 60              |   | Manufacture |
|                  |       | China              |       |                |       | (notes b            |       |            |   | and trading of |
|                  |       |               |       |                |       | and d)              |       |            |   | aluminum |
|                  |       |               |       |                |       |                |       |            |   | products |
|                       |            |                    |            |                     |            |                     |            |                 |  |  |  |  |

 

F-97

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**14.**   INVESTMENTS IN SUBSIDIARIES (Continued)

Details of principalsubsidiaries are as follows:

|                  | ** ** | Place of           | ** ** | **Nominal value**   | ** ** | **Percentage**      | ** ** | ** **      |
|------------------|------------|--------------------|------------|---------------------|------------|---------------------|------------|-----------------|
| ** **       | ** ** | **incorporation/** | ** ** | **of issued**       | ** ** | **of equity**       | ** ** | ** **      |
| ** **       | ** ** | **registration**   | ** ** | **ordinary share/** | ** ** | **attributable to** | ** ** | **Principal**   |
| **Name**         | ** ** | ** **         | ** ** | **and operations**  | ** ** | **paid-up capital** | ** ** | **the Company** | ** ** | **activities** |
| ** **       | ** ** | ** **         | ** ** | ** **          | ** ** | **2006**            | ** ** | **2005**        | ** ** | ** ** |
| Foshan Nanhua    |       |               |       |                |       |                |       |            |   |   |
| Aluminum Company |       |               |       |                |       |                |       |            |   |   |
| Limited          |       | Mainland           |       | US$17,000,000       |       | 60                  |       | 60              |   | Manufacture |
|             |       | China              |       |                |       | (notes b            |       |            |   | and trading of |
|             |       |               |       |                |       | and d)              |       |            |   | aluminum |
|             |       |               |       |                |       |                |       |            |   | products |
| Zhaoqing Asia    |       |               |       |                |       |                |       |            |   |   |
| Aluminum Factory |       |               |       |                |       |                |       |            |   |   |
| Co., Ltd.        |       | Mainland           |       | US$15,000,000       |       | 100                 |       | 100             |   | Manufacture |
|             |       | China              |       |                |       | (notes b            |       |            |   | and trading of |
|             |       |               |       |                |       | and c)              |       |            |   | aluminum |
|                  |       |               |       |                |       |                |       |            |   | products |
|                  |            |                    |            |                     |            |                     |            |                 |  |  |  |  |

 

The above table lists the subsidiaries of the Companywhich, in the opinion of the directors, principally affected the results of theyear or formed a substantial portion of the net assets of the Group. To givedetails of other subsidiaries would, in the opinion of the directors, result inparticulars of excessive length.

Notes:

(a)          An option (the “CallOption”) was granted by AAHL to Indalex, a minority shareholder of the Company,pursuant to which the minority shareholder has (i) the right in perpetuityto acquire from AAHL its entire equity interest in the Company, upon thefailure of AAHL to stop and/or remedy any material breach of the shareholders’agreement entered into between the parties; and (ii) the right to acquirefrom AAHL its entire equity interest in the Company upon the occurrence ofcertain triggering events during a period of three years commencing from 8 June 2001.These triggering events include, inter alia, AAHL ceasing to hold a 60%effective equity interest in the Company and Mr. Kwong Wui Chun, adirector of the Company, ceasing to hold a 35% effective equity interest inAAHL.

In addition to the foregoing, AAHL has also granted aput option (“Put Option”) to Indalex, under which AAHL is obliged at therequest of Indalex to purchase its entire equity interest in the Company undercertain circumstances.

Neither the Call Option nor the Put Option were exercisedduring the year ended June 30, 2006 and 2005.

(b)         The Company’s effectiveequity interests in these companies will also be fully disposed of upon theexercise of the Call Option by Indalex.

(c)          These companies are registered as whollyforeign owned enterprises under the PRC law.

F-98

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**1**4.   INVESTMENTS IN SUBSIDIARIES(Continued)

(d)         These companies were established in theMainland China with independent third parties in the prior years, in each ofwhich a 60% equity interest was held by the Group. As the Group is able toexercise unilateral control over the operational and financial policies ofthese joint venture companies, they have been accounted for as subsidiaries inaccordance with the Group’s accounting policies in the current year. Thepurpose of the establishment of these subsidiaries is to execute the investmentin assets of each of Guangdong Nanhua and Hongjia Aluminum and the Group hasfully paid its share of capital contributions in cash of approximatelyRMB150,000,000 (approximately HK$141,804,000) into these subsidiaries.

Inaddition, the Group acquired certain business databases of Guangdong Nanhua andHongjia Aluminum at an aggregate consideration of HK$73,558,000 in the prioryears. As at the balance sheet date, the unsettled consideration in respect ofHK$14,548,000 (2005: HK$14,548,000) was classified as part of “due to minorityequity holders/shareholders” under current liabilities.

**15.   IN**TERESTS IN ASSOCIATES

| ** **                                             | ** ** | **2006**         | ** ** | **2005**         | ** ** |
|--------------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Share of net  assets/(liabilities) other than goodwill |       |             | (2,320     | )                |       |   | 4 |   |   |
| Due from an  associate                                 |       |             | 5,131      |             |       |   | 87 |   |   |
|                                                   |       |             | 2,811      |             |       |   | 91 |   |   |

 

The amount due from anassociate is unsecured, interest-free and has no fixed terms of repayment. Thecarrying amount of the amount due from the associate approximates to its fairvalue.

Particulars of the associatesare as follows:

| ** **                                           | ** ** | **Place of**  | ** ** | **Nominal value**   | ** ** | **Percentage of**     | ** ** | ** **           | ** ** |
|------------------------------------------------------|------------|--------------------|------------|--------------------------|------------|----------------------------|------------|----------------------|------------|
| ** **                                           | ** ** | **incorporation/** | ** ** | **of issued**       | ** ** | **equity indirectly** | ** ** | ** **           | ** ** |
| ** **                                           | ** ** | **registration**   | ** ** | **ordinary share/** | ** ** | **attributable to**   | ** ** | **Principal**        | ** ** |
| **Name**                                             | ** ** | ** **         | ** ** | **and operations**  | ** ** | **paid-up capital**   | ** ** | **the Company** | ** ** | **activities** | ** ** |
| Phoenix Asia Dies  Company Limited                   |       | Hong Kong          |       | US$                      | 1,000      |                       |       | 40                   |       |   | Investment holding |   |
| Phoenix  (Zhaoqing) Dies Manufacturing Co. Ltd. |       | Mainland China     |       | US$                      | 1,650,000  |                       |       | 40                   |       |   | Production of dies |   |
|                                                      |            |                    |            |                          |            |                            |            |                      |            |  |  |  |  |  |

 

The following table illustrates the summarisedfinancial information of the Group’s associates extracted from their managementaccounts:

| ** **  | ** ** | **2006**         | ** ** | **2005**         | ** ** |
|-------------|------------|------------------|------------|------------------|------------|
| ** **  | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Assets      |       |             | 36,126     |             |       |   | 10 |   |   |
| Liabilities |       |             | 41,926     |             |       |   | 87 |   |   |
| Revenues    |       |             | —     |             |       |   | — |   |   |
| Loss        |       |             | 5,781      |             |       |   | — |   |   |

 

F-99

----

**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**1**6.   DEPOSITS PAID

The balance mainlyrepresented deposits paid for the purchase of aluminum extrusion presses andits associated handling systems, aluminum rolling mills and its associatedauxiliary equipment and for construction works of plant.

**1**7.   INVENTORIES

| ** **       | ** ** | **2006**         | ** ** | **2005**         | ** ** |
|------------------|------------|------------------|------------|------------------|------------|
| ** **       | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Raw materials    |       | 93,789           |       | 124,118          |       |
| Work in progress |       | 167,680          |       | 115,460          |       |
| Finished goods   |       | 127,921          |       | 110,115          |       |
|             |       | 389,390          |       | 349,693          |       |

 

As at June 30, 2006,the carrying amount of the Group’s inventories in the amount of HK$32,298,000(2005: Nil) was pledged as security for the Group’s bank loan, as furtherdetailed in note 24 to the financial statements.

**1**8.   DUE FROM RELATEDCOMPANIES

Particularsof the amounts due from related companies disclosed pursuant to Section 161Bof the Hong Kong Companies Ordinance are as follows:

| ** **                                                 | ** ** | ** **        | ** ** | **Maximum**       | ** ** | ** **                | ** ** | **Maximum**       | ** ** | ** **       | ** ** |
|------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|---------------------------|------------|-------------------|------------|------------------|------------|
| ** **                                                 | ** ** | ** **        | ** ** | **amount**        | ** ** | **At June 30,** | ** ** | **amount**        | ** ** | ** **       | ** ** |
| ** **                                                 | ** ** | **At**            | ** ** | **outstanding**   | ** ** | **and**                   | ** ** | **outstanding**   | ** ** | **At**           | ** ** |
| ** **                                                 | ** ** | **June 30,** | ** ** | **during**        | ** ** | **July 1,**          | ** ** | **during**        | ** ** | **July 1,** | ** ** |
| ** **                                                 | ** ** | **2006**          | ** ** | **the year** | ** ** | **2005**                  | ** ** | **the year** | ** ** | **2004**         | ** ** |
| ** **                                                 | ** ** | **HK$’000**  | ** ** | **HK$’000**  | ** ** | **HK$’000**          | ** ** | **HK$’000**  | ** ** | **HK$’000** | ** ** |
| IASG (note (i))                                            |       | 125,362           |       |              | 134,312    |                      |       |              | 35,159     |             |       |   | 40,491 |   |   |   | 28,823 |   |   |
| Asia Aluminum  (China) Ltd. (“AACL”) (note (ii)) |       | —            |       |              | —     |                      |       |              | —     |             |       |   | 7,359 |   |   |   | 7,359 |   |   |
| Asia Aluminum  (USA) Corp. (note (iii))                    |       | 776               |       |              | 776        |                      |       |              | —     |             |       |   | — |   |   |   | — |   |   |
|                                                       |       | 126,138           |       |              |       |                      |       |              | 35,159     |             |       |   |   |   |   |   | 36,182 |   |   |

----

Notes:

          (i) The basis of the related party relationshipwith IASG is set out in note 4 to the financial statements. The amount due fromIASG is trade in nature, unsecured, interest-free and has no fixed terms ofrepayment.

      (ii) In prior years, AACLwas the jointly-controlled entity of AAHL. During the year ended June 30,2005, AACL became a subsidiary of AAHL and accordingly, became a fellowsubsidiary of the Group.

  (iii) The amount due from Asia Aluminum (USA) Corp., of which a directoris also a director of the Company, is unsecured, interest-free and has no fixedterms of repayment.

F-100

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**18.**   DUE FROM RELATED COMPANIES (Continued)

The amounts due fromrelated companies are unsecured, interest-free and have no fixed terms ofrepayment, except for the amount due from AACL which was fully settled duringthe year ended June 30, 2005. The carrying amounts of amounts due fromrelated companies approximate to their fair values.

**1**9.   DUE FROM MINORITY EQUITYHOLDERS OF SUBSIDIARIES

The amounts due from minority equity holders ofsubsidiaries represent the accounts receivable arising from the sale of rawmaterials to the minority equity holders. The balances are unsecured, interest-freeand repayable on demand.

The carrying amounts ofamounts due from minority equity holders approximate to their fair values.

**20.   CASH AND BANK BALANCES AND PLEDGEDDEPOSITS**

| ** **                             | ** ** | **2006**         | ** ** | **2005**         | ** ** |
|----------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                             | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Cash and bank  balances                |       | 2,735,705        |       | 2,022,528        |       |
| Time deposits  with banks              |       | 28,846           |       | 38,606           |       |
|                                   |       | 2,764,551        |       | 2,061,134        |       |
| Less: Pledged  time deposits (note 24) |       | (28,846          | )          | (38,606          | )          |
|                                   |       | 2,735,705        |       | 2,022,528        |       |

 

At June 30, 2006, the cash and bank balances andtime deposits with banks of the Group denominated in Renminbi (“RMB”) amountedto approximately HK$2,682,000,000(2005: HK$2,055,000,000). TheRMB is not freely convertible into foreign currencies. Subject to MainlandChina Foreign Exchange Control Regulations and Administration of Settlement,Sale and Payment of Foreign Exchange Regulations, the Group is permitted toexchange RMB for foreign currencies through banks authorised to conduct theforeign exchange business.

Cash at banks earnsinterest at floating rates based on daily bank deposit rates. Short term timedeposits are made for varying periods of between one day and three monthsdepending on the immediate cash requirements of the Group, and earn interest atthe respective short term time deposit rates. The carrying amounts of the cashand bank balances and the pledged deposits approximate to their fair values.

**2**1.   DERIVATIVE FINANCIALINSTRUMENTS

| ** **                  | ** ** | **Liabilities**  | ** ** |
|-----------------------------|------------|------------------|------------|
| ** **                  | ** ** | **2006**         | ** ** | **2005** | ** ** |
| ** **                  | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Aluminum forward  contracts |       |             | 28,019     |   |   |   | — |   |   |
|                             |            |                  |            |  |  |  |  |  |  |

 

The carryingamounts of aluminum forward contracts are the same as their fair values.

The Group has entered into various aluminum forwardcontracts and forward foreign exchange contracts to manage the fluctuation ofaluminum price and exchange rate exposures which did not meet 

F-101

----

**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**2**1.   DERIVATIVE FINANCIALINSTRUMENTS (Continued)

the criteria for hedgeaccounting. Changes in the fair value of non-hedging aluminum forward contractsand forward foreign exchange contracts amounting to HK$31,152,000 were chargedto income statement during the year ended June 30, 2006.

The aggregate notional amount of aluminum forwardcontracts undertaken by the Group with a fair value liability of HK$28,019,000amounted to HK$423,826,000 as at June 30, 2006. The maturity of theforward contracts were in August 2006.

There were no forwardforeign exchange contracts outstanding as at June 30, 2006.

**2**2.   DUE TO MINORITY EQUITYHOLDERS/SHAREHOLDERS

The amounts due to the minority equity holders ofapproximately HK$14,548,000 (2005: HK$38,703,000) represented the amounts dueto minority equity holders/shareholders for the transfer of business databaseand purchases of items of property, plant and equipment on behalf of the twonon wholly-owned subsidiaries. The remaining balance of approximately HK$36,394,000(2005: HK$38,825,000) represented dividend payables to minority shareholdersand cash advance from minority equity holders.

The carrying amounts of amounts due to minority equityholders/shareholders approximate to their fair values.

**23.   INTEREST-BEARING BANK AND OTHERLOANS**

| ** **                        | ** ** | **Effective**     | ** ** | ** **                           | ** ** | ** **       | ** ** | ** **       | ** ** |
|-----------------------------------|------------|-------------------|------------|--------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                        | ** ** | **interest**      | ** ** | ** **                           | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                        | ** ** | **rate (%)** | ** ** | **Maturity**                         | ** ** | **2006**         | ** ** | **2005**         | ** ** |
| ** **                        | ** ** | ** **        | ** ** | ** **                           | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| **Current**                       | ** ** | ** **        | ** ** | ** **                           | ** ** | ** **       | ** ** | ** **       | ** ** |
| Finance lease  payables (note 25) |       | 10.4              |       | June 2007                       |       | 528              |       | 398              |       |
| Bank loans—secured           |       | 5.88              |       | June 2007                       |       | 476,123          |       | 373,117          |       |
|                              |       |              |       |                                 |       | 476,651          |       | 373,515          |       |
| **Non-current**                   |       |              |       |                                 |       |             |       |             |       |
| Finance lease  payables (note 25) |       | 10-11.8           |       | February 2008-  March 2009 |       | 342,990          |       | 172,691          |       |
|                              |       |              |       |                                 |       | 819,641          |       | 546,206          |       |

 

Thecarrying amounts of the Group’s borrowings are denominated in the followingcurrencies.

| ** ** | ** ** | **As at June 30, 2006** | ** ** |
|------------|------------|---------------------------------------------|------------|
| ** ** | ** ** | **HK**                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** ** | ** ** | **Dollar**                                  | ** ** | **Renminbi** | ** ** | **Total** | ** ** |
| ** ** | ** ** | **HK$’000**                            | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Bank loans |       |                                        | 48,431     |   |   |   | 427,692 |   |   | 476,123 |   |
|            |            |                                             |            |  |  |  |  |  |  |  |  |

 

F-102

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**23.**   INTEREST-BEARING BANK AND OTHER LOANS (Continued)

| ** ** | ** ** | **As at June 30, 2005** | ** ** |
|------------|------------|---------------------------------------------|------------|
| ** ** | ** ** | **HK**                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** ** | ** ** | **Dollar**                                  | ** ** | **Renminbi** | ** ** | **Total** | ** ** |
| ** ** | ** ** | **HK$’000**                            | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Bank loans |       |                                        | —     |   |   |   | 373,117 |   |   | 373,117 |   |
|            |            |                                             |            |  |  |  |  |  |  |  |  |

 

The details of assets pledged as security for theseborrowings are set out in note 24 to the financial statements.

The carrying amounts of the Group’s interest-bearingbank and other loans approximate to their fair values.

The fair value ofinterest-bearing bank and other borrowings is estimated as the present value offuture cash flows, discounted at current market interest rates for similarfinancial instruments.

**24.   BORROWINGFACILITIES**

The Group’s borrowings at June 30, 2006 weresecured by buildings in the PRC and plant and machinery of HK$4,549,000 (2005:HK$4,892,000) and HK$19,064,000 (2005: HK$20,265,000), respectively, prepaidland lease payment of HK$2,668,000 (2005: HK$2,766,000), trade receivables ofHK$25,042,000 (2005: Nil), inventories of HK$32,298,000 (2005: Nil) and bankdeposits of HK$28,846,000 (2005: HK$38,606,000).

In addition, certain ofthe Group’s bank loans are secured by certain machinery of a minorityshareholder of a non wholly-owned subsidiary, corporate guarantees granted byAAHL, a non wholly-owned subsidiary, a fellow subsidiary and a minorityshareholder of a non wholly-owned subsidiary and joint and several personalguarantees by certain directors of two non wholly-owned subsidiaries.

F-103

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**25.   FINANCE LEASEPAYABLES**

The Group leasescertain plant and machinery and motor vehicles for its business use. Theseleases are classified as finance leases and have remaining lease terms rangingfrom one to four years. The total future minimum lease payments under financeleases and their present values at the balance sheet date were as follows:

| ** **                                 | ** ** | ** **       | ** ** | **Present value** | ** ** | ** **       | ** ** | **Present value** | ** ** |
|--------------------------------------------|------------|------------------|------------|------------------------|------------|------------------|------------|------------------------|------------|
| ** **                                 | ** ** | **Minimum**      | ** ** | **of minimum**    | ** ** | **Minimum**      | ** ** | **of minimum**    | ** ** |
| ** **                                 | ** ** | **lease**        | ** ** | **lease**              | ** ** | **lease**        | ** ** | **lease**              | ** ** |
| ** **                                 | ** ** | **payments**     | ** ** | **payments**           | ** ** | **payments**     | ** ** | **payments**           | ** ** |
| ** **                                 | ** ** | **2006**         | ** ** | **2006**               | ** ** | **2005**         | ** ** | **2005**               | ** ** |
| ** **                                 | ** ** | **HK$’000** | ** ** | **HK$’000**       | ** ** | **HK$’000** | ** ** | **HK$’000**       | ** ** |
| Amounts payable:                           |       |             |       |                   |       |             |       |                   |       |   |   |   |   |   |   |   |   |
| Within one year                            |       |             | 23,026     |                   |       |             | 528        |                   |       |   | 10,572 |   |   |   | 398 |   |   |
| In the second year                         |       |             | 356,326    |                   |       |             | 342,765    |                   |       |   | 10,377 |   |   |   | 228 |   |   |
| In the third to fifth years, inclusive     |       |             | 252        |                   |       |             | 225        |                   |       |   | 178,933 |   |   |   | 172,463 |   |   |
| Total minimum finance lease payments       |       |             | 379,604    |                   |       |             | 343,518    |                   |       |   | 199,882 |   |   |   | 173,089 |   |   |
| Future finance charges                     |       |             | (36,086    | )                      |       |             |       |                   |       |   | (26,793 | ) |   |   |   |   |   |
| Total net finance lease payables           |       |             | 343,518    |                   |       |             |       |                   |       |   | 173,089 |   |   |   |   |   |   |
| Portion  classified as current liabilities |       |             | (528       | )                      |       |             |       |                   |       |   | (398 | ) |   |   |   |   |   |
| Non-current  portion                       |       |             | 342,990    |                   |       |             |       |                   |       |   | 172,691 |   |   |   |   |   |   |

 

Certain of the financeleases are secured by corporate guarantees granted by AAHL and two wholly-ownedsubsidiaries.

**26.   SHARE CAPITAL**

| ** **                                 | ** ** | **2006**         | ** ** | **2005**         | ** ** |
|--------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                 | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Authorised:                                |       |             |       |             |       |   |   |   |   |
| 5,000,000 ordinary shares of US$0.01 each  |       |             | 390        |             |       |   | 390 |   |   |
| Issued and fully paid:                     |       |             |       |             |       |   |   |   |   |
| 2,360,872  ordinary shares of US$0.01 each |       |             | 184        |             |       |   | 184 |   |   |

 

**2**7.   RESERVES

The amounts of theGroup’s reserves and the movements therein for the current and prior years arepresented in the consolidated statement of changes in equity of the financialstatements.

The statutory surplus reserve and statutory publicwelfare fund represent appropriation of profits retained by the PRCsubsidiaries of the Company. In accordance with the PRC regulations and therespective articles of association of the PRC subsidiaries, these companies arerequired to appropriate an amount equal to a minimum of 10% of their profitsafter tax each year to statutory surplus reserve. In addition, a portion of theprofit after tax as determined at the discretion of the directors of each ofthe PRC subsidiaries, is transferred to the statutory public welfare fund.

F-104

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**27.**   RESERVES (Continued)

Subject to certain restrictions set out in the PRCCompany Law and the respective articles of association of the PRC subsidiaries,the statutory surplus reserve may be distributed to shareholders in the form ofa share bonus issue and/or cash dividends.

**2**8.   NOTES TO THE CONSOLIDATEDCASH FLOW STATEMENT

Major non-cash transactions

During each of thethree years ended June 30, 2006, the following major non-cash transactionstook place:

(a)          During the year endedJune 30, 2006, the Group entered into finance lease arrangements inrespect of property, plant and equipment with a total capital value at theinception of the finance leases of HK$171,202,000(2005: HK$172,463,000; 2004:HK$994,000).

(b)         Duringthe year ended June 30, 2006, certain dividends declared by the Company toits immediate holding company of HK$104,775,000 (2005: HK$99,118,000; 2004: HK$72,264,000) wererecorded as part of “due to the immediate holding company” under currentliabilities.

(c)          During the year endedJune 30, 2006, deposits paid for the purchase of aluminum extrusionpresses and its auxiliary handling systems of HK$68,131,000 (2005:HK$4,216,000; 2004: Nil) were capitalised as construction in progress underproperty, plant and equipments upon receipt of those equipment and systems.

(d)         During the year endedJune 30, 2006, certain dividends declared by the Company to certainshareholders of HK$9,021,000 (2005: Nil; 2004: HK$6,222,000) were recorded aspart of “due to shareholders” under current liabilities.

(e)          Duringthe year ended June 30, 2006, the Group sold and purchased certainproperty, plant and equipment to and from fellow subsidiaries of the Group at aconsideration of HK$22,809,000 (2005: Nil; 2004: Nil) and HK$49,350,000 (2005:Nil; 2004: Nil), respectively. The consideration was recorded as part of “duefrom/to fellow subsidiaries” under current assets/liabilities.

**2**9.   CONTINGENT LIABILITIES

AtJune 30 2006, the Group granted a guarantee to and utilised by aminority equity holder in respect of banking facilities of HK$11,058,000 (2005: HK$10,829,000) andthe Group had no contingent liabilities not provided for in the financialstatements in respect of bills discounted with recourse (2005: HK$28,060,000).

**30.   OPERATING LEASEARRANGEMENTS**

The Group leases its manufacturing premises in the PRCunder operating lease arrangements. Leases for properties are negotiated forterms which expire between the years 2011 and 2016.

F-105

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**30.   OPERATING LEASEARRANGEMENTS (Continued)**

At June 30,2006 and 2005, the Group had total future minimum lease payments underoperating leases falling due as follows:

| ** **                               | ** ** | **2006**         | ** ** | **2005**         | ** ** |
|------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                               | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Within one year                          |       |             | 6,727      |             |       |   | 7,501 |   |   |
| In the second to fifth  years, inclusive |       |             | 27,409     |             |       |   | 31,373 |   |   |
| After five years                         |       |             | 35,818     |             |       |   | 55,602 |   |   |
|                                     |       |             | 69,954     |             |       |   | 94,476 |   |   |

 

**31.   COMMITMENTS**

In addition to theoperating lease arrangements detailed in note 30 above, the Group had the followingcommitments at June 30, 2006 and 2005.

(a)          AtJune 30, 2006 and 2005, the Group had capital commitments not provided forin the financial statements as follows:

| ** **             | ** ** | **2006**         | ** ** | **2005**         | ** ** |
|------------------------|------------|------------------|------------|------------------|------------|
| ** **             | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Contracted for  (note) |       | 626,680          |       | 752,328          |       |

----

Note:             AtJune 30, 2006, the Group was committed to make capital injections to two (2005: one) subsidiaries in the PRC of approximately HK$455,295,000 (2005: HK$272,125,000). In addition, the Group hadcontracted capital commitments in respect of the acquisition of property, plantand equipment of HK$171,385,000(2005: HK$480,203,000).

(b)         Each of the Group andanother subscriber has agreed to provide shareholders’ loan to the associate ofthe Group in proportion to their respective interests in the associate. As at June 30,2006, the Group’s outstanding committed loan amount was HK$18,622,000 (2005:HK$18,660,000).

(c)          At June 30, 2006,the Group had a commitment in respect of forward contracts for the purchase andsale of raw materials of aluminum ingots in the amount of HK$423,826,000 (2005: HK$39,874,000).

(d)         AtJune 30, 2005, the Group had a commitment inrespect of foreign exchange forwardcontracts in the amount of HK$148,418,000.

**32.   FINANCIALRISK MANAGEMENT OBJECTIVES AND POLICIES**

The Group’s principal financial instruments, otherthan derivatives, comprise trust receipt loans, bank loans, finance leases, andcash and short term deposits. The main purpose of these financial instrumentsis to raise finance for the Group’s operations. The Group has various otherfinancial assets and liabilities such as trade receivables and trade payables,which arise directly from its operations.

F-106

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**32.**   FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES(Continued)

The Group also enters into derivative transactions,including principally forward currency contracts and aluminum forward contracts.The purpose is to manage the interest rate and currency risks and price riskarising from the Group’s operations and its sources of finance.

It is, and has been, throughout the year under review,the Group’s policy that no trading in financial instruments shall beundertaken.

The main risks arisingfrom the Group’s financial instruments are price risk, interest rate risk,foreign currency risk, credit risk and liquidity risk. The board reviews andagrees policies for managing each of these risks and they are summarised below.The Group’s accounting policies in relation to derivatives are set out in note2.4 to the financial statements.

*Price risk*

The Group is exposed toprice movements of the inventory it holds and for the products it trades. TheGroup manages this exposure by entering into aluminum forward contractstransacted on through over-the-counter markets. The Group only enters intoover-the-counter transactions with high credit quality counterparties.

*Interest rate risk*

TheGroup’s current banking facilities maintained with commercial banks are mainlyat floating rates. The Group currently does not have an interest rate hedgingpolicy. However, management monitors the Group’s interest exposure and willconsider hedging significant interest rate exposure should the needarises.

*Foreign currency risk*

The Group has transactionalcurrency exposures. Such exposures arise from revenue or expenses of operatingunits in currencies other than the units’ functional currency. The Group’smonetary assets, financing and transactions are principally denominated in HK$,US$ and RMB. Considering that there is insignificant fluctuation in theexchange rate between HK$ and RMB and HK$ is currently pegged with US$, theGroup believes its exposure to exchange rate risk is minimal. The Group enteredinto forward foreign exchange contracts to hedge its exposure to foreignexchange fluctuations. The Group will constantly review the economic situationand its foreign exchange risk profile, and will consider appropriate hedgingmeasures.

Itis the Group’s policy to negotiate the terms of the hedge derivatives to matchthe terms of the hedged item to maximise hedge effectiveness.

*Credit risk*

The Group trades only withrecognised and creditworthy third parties. It is the Group’s policy that allcustomers who wish to trade on credit terms are subject to credit verificationprocedures. In addition, receivable balances are monitored on an ongoing basisand on an individual basis.

Thereis no credit risk of the Group under other financial assets such as cash andcash equivalents.

F-107

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**32.**   FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

*Liquidity risk*

TheGroup’s objective is to maintain a balance between continuity of funding andflexibility through the use of interest-bearing bank loans, trustreceipt loans and finance leases.

**33.   COMPARATIVEAMOUNTS**

As further explained in note 2.2 to the financialstatements, due to the adoption of new HKFRSs during the current year, theaccounting treatment and presentation of certain items and balances in thefinancial statements have been revised to comply with the new requirements.Accordingly, certain comparative amounts have been reclassified and restated toconform with the current year’s presentation and accounting treatment.

**34.   SUMMARY OF DIFFERENCES BETWEEN HONG KONG ANDUNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES**

The Group’s consolidated financial statements areprepared in accordance with accounting principles generally accepted in HongKong (“HK GAAP”), which differs in certain material respects from United Statesgenerally accepted accounting principles (“US GAAP”). The following tablessummarise the adjustments considered necessary to reflect profit for the yearand equity of the Group on the basis of US GAAP giving effect to materialdifferences between HK GAAP and US GAAP.

Thefollowing table summarises the effect on profit for the year of the differencesbetween HK GAAP and US GAAP.

| ** **                                        | ** ** | ** ** | ** ** | **Year ended June 30** | ** ** |
|---------------------------------------------------|------------|------------|------------|---------------------------------------|------------|
| ** **                                        | ** ** | **Notes**  | ** ** | **2006**                              | ** ** | **2005** | ** ** |
| ** **                                        | ** ** | ** ** | ** ** | **HK$’000**                      | ** ** | **HK$’000** | ** ** |
| Profit for the year as  reported under HK GAAP    |       |       |       |                                  |       | 275,381 |   | 363,841 |   |
| US GAAP adjustments:                              |       |       |       |                                  |       |   |   |   |   |
| Impairment of goodwill                            |       |       | (a)        |                                  |       | (50,312 | ) | — |   |
| Rental for rent-free  land and buildings          |       |       | (b)        |                                  |       | (9,627 | ) | (9,097 | ) |
| Capitalisation of  finance costs                  |       |       | (c)        |                                  |       | 59,041 |   | 13,405 |   |
| Depreciation for  capitalisation of finance costs |       |       | (c)        |                                  |       | (650 | ) | (625 | ) |
| Deferred tax arising  from US GAAP differences    |       |       | (e)        |                                  |       | (14,014 | ) | (3,067 | ) |
| Attributable to minority  interests               |       |       | (f)        |                                  |       | 28,284 |   | 14,528 |   |
| Profit for the year as reported under US GAAP     |       |       |       |                                  |       | 288,103 |   | 378,985 |   |

 

F-108

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**34.**   SUMMARY OFDIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTEDACCOUNTING PRINCIPLES (Continued)

Thefollowing table summarises the effect on equity of the differences between HKGAAP and US GAAP.

| ** **                                             | ** ** | ** ** | ** ** | **Year ended June 30** | ** ** |
|--------------------------------------------------------|------------|------------|------------|---------------------------------------|------------|
| ** **                                             | ** ** | **Notes**  | ** ** | **2006**                              | ** ** | **2005** | ** ** |
| ** **                                             | ** ** | ** ** | ** ** | **HK$’000**                      | ** ** | **HK$’000** | ** ** |
| Equity as reported under  HK GAAP                      |       |       |       |                                  |       | 2,255,981 |   | 2,080,518 |   |
| US GAAP adjustments:                                   |       |       |       |                                  |       |   |   |   |   |
| Reclassification of  goodwill from reserves to assets  |       |       | (a)        |                                  |       | 105,373 |   | 105,373 |   |
| Goodwill—accumulated  amortisation, under US GAAP |       |       | (a)        |                                  |       | (17,323 | ) | (17,323 | ) |
| Goodwill—impairment,  under US GAAP               |       |       | (a)        |                                  |       | (50,312 | ) | — |   |
| Rent expense for  rent-free land and buildings         |       |       | (b)        |                                  |       | (36,918 | ) | (27,291 | ) |
| Capitalisation of  finance costs                       |       |       | (c)        |                                  |       | 84,067 |   | 25,026 |   |
| Depreciation for  capitalisation of finance costs      |       |       | (c)        |                                  |       | (4,072 | ) | (3,422 | ) |
| Deferred tax arising  from US GAAP differences         |       |       | (e)        |                                  |       | (19,199 | ) | (5,185 | ) |
| Equity attributable to  minority interests             |       |       | (f)        |                                  |       | (6,143 | ) | (33,106 | ) |
| Equity as reported under US GAAP                       |       |       |       |                                  |       | 2,311,454 |   | 2,124,590 |   |

----

Notes:

(a)           Business combinationsand goodwill:

Under HK GAAP,goodwill arising on acquisition of subsidiaries represents the excess of thecost of the acquisition over the Group’s share of the fair values of theidentifiable assets and liabilities acquired as at the date of acquisition.Prior to the adoption of SSAP 30 in 2001, goodwill arising on acquisition waseliminated against consolidated capital reserve in the year of acquisition. Onthe adoption of HKFRS 3, such goodwill remains eliminated against the consolidatedcapital reserve and is not recognised in the income statement when all or partof the business to which the goodwill relates is disposed of or when acash-generating unit to which the goodwill relates becomes impaired.

Under US GAAP, asspecified in the Statement of Financial Accounting Standards (“SFAS”) No.142, “Goodwilland Other Intangible Assets”, goodwill and other intangible assets are requiredto be reflected as assets on the balance sheet and be tested for impairmentannually, or more frequently if events or changes in circumstances indicatethat it might be impaired, using the prescribed two-step process. The firststep screens for potential impairment of goodwill if the fair value of thereporting unit is less than its carrying value, while the second step measuresthe amount of goodwill impairment, if any, by comparing the implied fair valueof goodwill to its carrying value. Prior to SFAS 142, the amounts assigned togoodwill were amortised over the remaining operating period of the subsidiariesuntil June 30, 2002, the date of adoption of FAS 142, upon whichamortisation of goodwill ceased.

Goodwill acquired in abusiness combination is allocated, at acquisition, to the reporting units thatare expected to benefit from that business combination. Before recognition ofimpairment losses, the carrying amount of HK$50,312,000 and HK$37,738,000 wereallocated to the reporting unit of the aluminum panels segment and the aluminumextrusion products segment, respectively.

F-109

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**34.**   SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATESGENERALLY ACCEPTED ACCOUNTING PRINCIPLES(Continued)

During the year, agoodwill impairment loss of HK$50,312,000 was recognised in the aluminum panelssegment as a result of the termination plan of the Group’s aluminum paneloperation and the disposal of certain property, plant and equipment in thealuminum panels segment to fellow subsidiaries of the Group. The fair value ofthis reporting unit was estimated using the expected present value of futurecash flows.

Thefollowing table sets out the carrying value of goodwill as reported under USGAAP:

| ** **                                       | ** ** | **2006**         | ** ** | **2005**         | ** ** |
|--------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | **HK$’000** | ** ** | **HK$’000** | ** ** |
| Goodwill carried  as consolidated reserves under |       |             |       |             |       |
| HK GAAP reclassified as asset under US GAAP      |       | 105,373          |       | 105,373          |       |
| Goodwill amortisation  recognised under US GAAP  |       | (17,323          | )          | (17,323          | )          |
| Goodwill  impairment recognised under US GAAP    |       | (50,312          | )          | —           |       |
| Carrying value as  reported under US GAAP        |       | 37,738           |       | 88,050           |       |

 

(b)          Rent-freeuse of land and buildings from minority equityholders:

As detailed in note 4 tothe financial statements, each of Guangdong Nanhua and Hongjia Aluminum, hasgranted the Group the right to use the certain parcels of land and buildings ona rent-free basis. Under HK GAAP, no rental expense is recorded to reflect thisrent-free usage.

Under US GAAP, the rightto use of parcels of land and buildings is recorded as rental expenses at fairvalue with a corresponding increase in minority interests. The rental expensesfor the Group for the year ended June 30, 2006 was HK$9,627,000 (2005:HK$9,097,000), excluding the minority interests’ share of HK$6,418,000 (2005:HK$6,065,000) which would not affect the profit for the year attributable tothe shareholders of the Company and the equity of the Group.

(c)           Capitalisationof finance costs:

Under HK GAAP, borrowingcosts directly attributable to the acquisition, construction or production ofqualifying assets that take a substantial period of time to get ready for theirintended use or cost of those assets are capitalised. The capitalisation ofsuch borrowing costs ceases when the assets are substantially ready for theirintended use or sale.

Under US GAAP, interestcosts are capitalised as part of the historical cost of acquiring orconstructing certain assets. The amount of interest cost to be capitalised forqualifying assets is intended to be that portion of the interest cost incurredduring the assets’ acquisition periods that theoretically could have beenavoided if expenditures for the assets had not been made. Thereafter, the amountcapitalised are depreciated over the useful lives of the relevant assets. Theamount capitalised is determined by applying an interest rate to the averageamount of accumulated expenditures for the asset during the construction ordevelopment period. The interest rate for capitalisation purposes is to bebased on the rates of the Company’s outstanding borrowings. A weighted averageof the rates on other borrowings is to be applied to expenditures not coveredby the specific borrowings.

F-110

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**ASIA ALUMINUM GROUP LIMITED NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006, 2005 and 2004**

**34.**   SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATESGENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)

(d)          Financialinstruments:

For the year ended June 30,2005, under HK GAAP,  bills discountedwith recourse were disclosed as contingent liabilities. Under SFAS No. 140,“Accounting for Transfers and Servicing of Financial Assets and Extinguishmentsof Liabilities”, discounted bills with recourse represented transfers offinancial assets with continuing involvement and are accounted for as a securedborrowings. The net profit or loss effect to record such secured borrowings wasnot material to the Group. At June 30, 2005, the effect of recording thesetransactions would increase trade receivables and interest-bearing bank andother loans, secured, by HK$28,060,000.

(e)           Deferredtax:

In general, the accountingtreatment of deferred taxes under HK GAAP and US GAAP is similar. However, as aresult of the corresponding deferred tax effect of the GAAP differences relatedto the capitalisation of finance costs, there are differences in the deferredtaxes recognised under HK GAAP and US GAAP.

(f)             Minorityinterests:

Under HK GAAP, minorityinterests are presented on the face of the consolidated income statements ofthe portion of profit and loss attributable to minority interests and to equityholders of the Company and are not included in determining profit or loss forthe year. In addition, minority interests are presented as a component ofequity. Under US GAAP, minority interests are included as a component of netprofit or loss for the year and are not presented as a component of equity.

The financial statementswere approved and authorised for issue by the board of directors on October 10, 2006.

F-111

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