** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

** **

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended April 3, 2010**

 

**OR**

** **

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For the transition periodfrom             to             **

 

**CommissionFile number 1-3834**

 

**CONTINENTALMATERIALS CORPORATION**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                                   | ** ** | **36-2274391**                       |
|----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) |       | (I.R.S. Employer Identification No.) |

 

| **200 South Wacker Drive, Suite 4000,  Chicago, Illinois** | ** ** | **60606**  |
|-----------------------------------------------------------------|------------|------------|
| (Address of principal executive offices)                        |       | (Zip Code) |

 

**(312) 541-7200**

(Registrant’s telephone number, includingarea code)

 

 

(Former name, former address and formerfiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes x  No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes o  No o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer,” and“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 

| Large Accelerated Filer o                |   | Accelerated Filer o         |
|-----------------------------------------------|--------|----------------------------------|
|                                          |   |                             |
| Non-Accelerated Filer o                  |   | Smaller reporting company x |
| (Do not check if a smaller reporting company) |   |                             |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 or the Exchange Act). Yes o  No x

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date:
| Common  Stock, $0.25 par value, shares outstanding at May 7, 2010 |   | 1,598,674 |
|------------------------------------------------------------------------|--------|-----------|

 

 

 

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PART I - FINANCIAL INFORMATION

 

## **Item 1.  FinancialStatements**

## ** **

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

APRIL 3, 2010 AND JANUARY 2, 2010

(Unaudited)

(000’s omitted except share data)

 
| ** **                                                                            | ** ** | **APRIL 3,** | ** ** | **JANUARY  2,** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------|------------|-----------------|------------|
| ** **                                                                            | ** ** | **2010**     | ** ** | **2010**        | ** ** |
| ***ASSETS***                                                                          | ** ** | ** **   | ** ** | ** **      | ** ** |
| Current assets:                                                                       |       |         |       |            |       |
| Cash and cash equivalents                                                             |       | $            | 910        |            | $          | 681 |   |
| Receivables, net                                                                      |       | 17,631       |       | 17,001          |       |
| Receivable for insured losses                                                         |       | 858          |       | 684             |       |
| Inventories:                                                                          |       |         |       |            |       |
| Finished goods                                                                        |       | 7,669        |       | 6,898           |       |
| Work in process                                                                       |       | 839          |       | 763             |       |
| Raw materials and supplies                                                            |       | 7,959        |       | 8,634           |       |
| Refundable income taxes                                                               |       | 1,012        |       | 1,012           |       |
| Deferred income taxes                                                                 |       | 4,020        |       | 3,116           |       |
| Prepaid expenses                                                                      |       | 1,616        |       | 1,582           |       |
| Total current assets                                                                  |       | 42,514       |       | 40,371          |       |
|                                                                                  |       |         |       |            |       |
| Property, plant and equipment, net                                                    |       | 26,022       |       | 27,092          |       |
|                                                                                  |       |         |       |            |       |
| Goodwill                                                                              |       | 7,229        |       | 7,229           |       |
| Amortizable intangible assets, net                                                    |       | 445          |       | 479             |       |
| Cash deposit for self-insured claims                                                  |       | 4,840        |       | 4,840           |       |
| Other assets                                                                          |       | 2,270        |       | 2,101           |       |
|                                                                                  |       |         |       |            |       |
|                                                                                  |       | $            | 83,320     |            | $          | 82,112 |   |
| ***LIABILITIES***                                                                     |       |         |       |            |       |
| Current liabilities:                                                                  |       |         |       |            |       |
| Current portion of long-term debt                                                     |       | $            | 1,500      |            | $          | 1,375 |   |
| Accounts payable and accrued expenses                                                 |       | 13,205       |       | 12,131          |       |
| Liability for unpaid claims covered by insurance                                      |       | 858          |       | 684             |       |
| Total current liabilities                                                             |       | 15,563       |       | 14,190          |       |
|                                                                                  |       |         |       |            |       |
| Revolving bank loan payable                                                           |       | 7,300        |       | 5,850           |       |
| Long-term debt                                                                        |       | 5,400        |       | 5,775           |       |
| Deferred income taxes                                                                 |       | 3,320        |       | 3,243           |       |
| Other long-term liabilities                                                           |       | 2,009        |       | 1,868           |       |
| ***SHAREHOLDERS’  EQUITY***                                                      |       |         |       |            |       |
| Common shares, $0.25 par value; authorized  3,000,000 shares; issued 2,574,264 shares |       | 643          |       | 643             |       |
| Capital in excess of par value                                                        |       | 1,830        |       | 1,830           |       |
| Retained earnings                                                                     |       | 63,870       |       | 65,328          |       |
| Treasury shares, 975,590, at cost                                                     |       | (16,615      | )          | (16,615         | )          |
|                                                                                  |       | 49,728       |       | 51,186          |       |
|                                                                                  |       |         |       |            |       |
|                                                                                  |       | $            | 83,320     |            | $          | 82,112 |   |

 

See notes to condensedconsolidated financial statements.

 

2

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CONTINENTALMATERIALS CORPORATION

CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

FORTHE THREE MONTHS ENDED APRIL 3, 2010 AND APRIL 4, 2009

(Unaudited)

(000’somitted except per-share amounts)

 
| ** **                                                                  | ** ** | **APRIL 3,  2010** | ** ** | **APRIL 4,  2009** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
|                                                                        |       |               |       |               |       |
| Net sales                                                                   |       | $                  | 23,973     |               | $          | 32,279 |   |
|                                                                        |       |               |       |               |       |
| Costs and expenses:                                                         |       |               |       |               |       |
| Cost of sales (exclusive of depreciation,  depletion and amortization)      |       | 19,749             |       | 25,748             |       |
| Depreciation, depletion and amortization                                    |       | 1,104              |       | 1,119              |       |
| Selling and administrative                                                  |       | 5,230              |       | 5,440              |       |
|                                                                        |       |               |       |               |       |
| Gain on disposition of property and equipment                               |       | 70                 |       | 57                 |       |
|                                                                        |       | 26,013             |       | 32,250             |       |
|                                                                        |       |               |       |               |       |
| Operating (loss) income                                                     |       | (2,040             | )          | 29                 |       |
|                                                                        |       |               |       |               |       |
| Interest expense, net                                                       |       | (280               | )          | (153               | )          |
| Other income, net                                                           |       | 11                 |       | 12                 |       |
|                                                                        |       |               |       |               |       |
| Loss from continuing operations before income  taxes                        |       | (2,309             | )          | (112               | )          |
|                                                                        |       |               |       |               |       |
| Benefit from income taxes                                                   |       | 868                |       | 33                 |       |
|                                                                        |       |               |       |               |       |
| Net loss from continuing operations                                         |       | (1,441             | )          | (79                | )          |
|                                                                        |       |               |       |               |       |
| Loss from discontinued operation net of income tax  benefit of $10 and $132 |       | (17                | )          | (411               | )          |
|                                                                        |       |               |       |               |       |
| Net loss                                                                    |       | (1,458             | )          | (490               | )          |
|                                                                        |       |               |       |               |       |
| Retained earnings, beginning of period                                      |       | 65,328             |       | 66,770             |       |
| ** **                                                                  | ** ** | ** **         | ** ** | ** **         | ** ** |
| Retained earnings, end of period                                            |       | $                  | 63,870     |               | $          | 66,280 |   |
|                                                                        |       |               |       |               |       |
| Net (loss) per basic and diluted share:                                     |       |               |       |               |       |
| Continuing operations                                                       |       | $                  | (.90       | )                  | $          | (.05 | ) |
| Discontinued operation                                                      |       | (.01               | )          | (.26               | )          |
| Basic and diluted loss per share                                            |       | $                  | (.91       | )                  | $          | (.31 | ) |
|                                                                        |       |               |       |               |       |
| Average shares outstanding                                                  |       | 1,599              |       | 1,599              |       |

 

See notes to condensedconsolidated financial statements.

 

3

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CONTINENTALMATERIALS CORPORATION

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

FORTHE THREE MONTHS ENDED APRIL 3, 2010 AND APRIL 4, 2009

(Unaudited)

(000’somitted)

 
| ** **                                                 | ** ** | **APRIL 3,  2010** | ** ** | **APRIL 4,  2009** | ** ** |
|------------------------------------------------------------|------------|--------------------|------------|-------------------------|------------|
|                                                       |       |               |       |                    |       |
| Net cash used in operating activities                      |       | $                  | (1,023     | )                       | $          | (889 | ) |
|                                                       |       |               |       |                    |       |
| Investing activities:                                      |       |               |       |                    |       |
| Capital expenditures                                       |       | (41                | )          | (879                    | )          |
| Proceeds from sale of property and equipment               |       | 93                 |       | 57                      |       |
| Net cash provided by (used in) investing  activities       |       | 52                 |       | (822                    | )          |
|                                                       |       |               |       |                    |       |
| Financing activities:                                      |       |               |       |                    |       |
| Borrowings under revolving credit facility                 |       | 1,450              |       | 2,300                   |       |
| Repayment of long term debt                                |       | (250               | )          | (414                    | )          |
| Net cash provided by financing activities                  |       | 1,200              |       | 1,886                   |       |
|                                                       |       |               |       |                    |       |
| Net increase in cash and cash equivalents                  |       | 229                |       | 175                     |       |
| Cash and cash equivalents:                                 |       |               |       |                    |       |
| Beginning of period                                        |       | 681                |       | 1,097                   |       |
|                                                       |       |               |       |                    |       |
| End of period                                              |       | $                  | 910        |                    | $          | 1,272 |   |
|                                                       |       |               |       |                    |       |
| Supplemental disclosures of cash flow items:               |       |               |       |                    |       |
| Cash paid (received) during the three months for:          |       |               |       |                    |       |
| Interest, net                                              |       | $                  | 219        |                    | $          | 177 |   |
| Income taxes paid (refunded)                               |       | 2                  |       | (414                    | )          |
|                                                       |       |               |       |                    |       |
| Supplemental disclosures of noncash investing  activities: |       |               |       |                    |       |
| Capital expenditures purchased on account                  |       | $                  | —     |                    | $          | 60 |   |

 

See notes to condensedconsolidated financial statements.

 

4

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CONTINENTALMATERIALS CORPORATION

SECURITIESAND EXCHANGE COMMISSION FORM 10-Q

NOTESTO THE QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUARTERENDED APRIL 3, 2010

(Unaudited)

 

1.               Basis of Presentation:

 

The unaudited interimcondensed consolidated financial statements included herein are preparedpursuant to the Securities and Exchange Commission rules and regulationsfor reporting on Form 10-Q. Accordingly, certain information and footnotedisclosures normally accompanying the annual consolidated financial statementshave been omitted. The condensed consolidated balance sheet of the Company asof January 2, 2010 has been derived from the audited consolidated balancesheet of the Company as of that date. The interim condensed consolidatedfinancial statements and notes should be read in conjunction with theconsolidated financial statements and notes thereto included in the Company’slatest annual report on Form 10-K. In the opinion of management, thecondensed consolidated financial statements include all adjustments (none ofwhich were other than normal recurring adjustments) necessary for a fairstatement of the results for the interim periods. On July 17, 2009, theCompany completed the sale of all of the outstanding capital stock of RockyMountain Ready Mix (RMRM), a Colorado corporation to Campbells C-MentContracting, Inc., a Colorado corporation. RMRM operated a ready mixconcrete business in the Denver metropolitan area and had been included in theConstruction, Aggregates and Construction Supplies (CACS) reporting segment.The operations of RMRM have been classified as discontinued operations for theperiod ended April 4, 2009.  Certainprior year’s amounts have been reclassified to conform to the currentpresentation.

 

2.               Income taxes are accounted for under theasset and liability method that requires deferred income taxes to reflect thefuture tax consequences attributable to differences between the tax andfinancial reporting bases of assets and liabilities. Deferred tax assets andliabilities recognized are based on the tax rates in effect in the year inwhich differences are expected to reverse. Deferred tax assets are reduced by avaluation allowance when, based on available positive and negative evidence, itis “more likely than not” (greater than a 50% likelihood) that some or all ofthe net deferred tax assets will not be realized.

 

Ourincome tax returns are subject to audit by the Internal Revenue Service (IRS)and state tax authorities. The amounts recorded for income taxes reflect ourtax positions based on research and interpretations of complex laws andregulations. We accrue liabilities related to uncertain tax positions taken orexpected to be taken in our tax returns. The Company has established avaluation reserve related to the carry forward of all charitable contributionsdeductions arising from prior years and the portion of contributions in 2010that the Company believes it will be unable to utilize prior to the expiration oftheir carry forward periods. At January 2, 2010, the Company alsoestablished a valuation reserve of $1,721,000 related to the carry forward ofthe long-term capital loss related to the sale of the stock of RMRM due to theuncertainty that the Company will be able to generate offsetable long-termcapital gains prior to the expiration of the carry forward period. For Federalpurposes, net operating losses can be carried forward for a period of 20 yearswhile alternative minimum tax credits can be carried forward indefinitely. ForState purposes, net operating losses can be carried forward for periods rangingfrom 5 to 20 years for the states that the Company is required to file in.

 

TheInternal Revenue Service has completed examinations for periods through 2007.Various state income tax returns also remain subject to examination.

 

3.               In April 2009, the FASB extended thenew accounting standards requiring disclosures about fair value of financialinstruments to interim as well as annual financial statements. The new interimdisclosure requirement became effective for the Company on April 1, 2009,resulting in the disclosure of the fair value attributable to the Company’sdebt instruments within this interim report. The Company has concluded that thecarrying amount of the debt at April 3, 2010 approximates its fair value,thus the Company’s adoption of this statement had no impact on its consolidatedfinancial position, results of operations or cash flows.

 

4.               Operatingresults for the first three months of 2010 are not necessarily indicative of performance forthe entire year due to the seasonality of most of our products. Historically,sales of the Evaporative Cooling segment are higher in the first and secondquarters, sales of the CACS segment are higher in the second and third quartersand sales of the Heating and Cooling segment are higher in the third and fourthquarters. The sales of the Door segment are more evenly spread throughout theyear. The economic recession that began in the latter part of 2008 has had asignificant detrimental effect on the construction industry in general and onour construction related businesses in particular in 2009 and 2010 and isexpected to continue to do so for the remainder of 2010.

 

5

----

 

5.               There is nodifference in the calculation of basic and diluted earnings per share (EPS) forthe three months ended April 3, 2010 and April 4, 2009 as the Companydoes not have any dilutive instruments.

 

6.               The Company operates primarily in twoindustry groups, HVAC and Construction Products. Within each of these twoindustry groups, the Company has identified two reportable segments: theHeating and Cooling segment and the Evaporative Cooling segment in the HVACindustry group and the Concrete, Aggregates and Construction Supplies segmentand the Door segment in the Construction Products industry group.

 

TheHeating and Cooling segment produces and sells gas-fired wall furnaces, consoleheaters and fan coils from the Company’s wholly-owned subsidiary, WilliamsFurnace Co. of Colton, California (WFC). The Evaporative Cooling segmentproduces and sells evaporative coolers from the Company’s wholly-ownedsubsidiary, Phoenix Manufacturing, Inc. of Phoenix, Arizona (PMI). Salesof these two segments are nationwide, but are concentrated in the southwesternUnited States. Concrete, Aggregates and Construction Supplies are offered fromnumerous locations along the Southern Front Range of Colorado operated by theCompany’s wholly-owned subsidiaries collectively referred to as Transit MixConcrete Co. (TMC). RMRM of Denver, formerly included in this segment, was soldon July 17, 2009 and has been reclassified as discontinued operation (seeNote 9). Doors are fabricated and sold along with the related hardware fromColorado Springs and Pueblo through the Company’s wholly-owned subsidiary,McKinney Door and Hardware, Inc. of Pueblo, Colorado (MDHI). Sales ofthese two segments are highly concentrated in the Front Range area in Coloradoalthough door sales are also made throughout the United States.

 

Inaddition to the above reporting segments, an “Unallocated Corporate”classification is used to report the unallocated expenses of the corporateoffice which provides treasury, insurance and tax services as well as strategicbusiness planning and general management services and an “Other” classificationis used to report a real estate operation. Expenses related to the corporateinformation technology group are allocated to all locations, including thecorporate office.

 

TheCompany evaluates the performance of its segments and allocates resources tothem based on a number of criteria including operating income, return oninvestment and other strategic objectives. Operating income is determined bydeducting operating expenses from all revenues. In computing operating income,none of the following has been added or deducted: unallocated corporateexpenses, interest, other income or loss or income taxes.

 

Thefollowing table presents information about reported segments for the threemonths ended April 3, 2010 and April 4, 2009 along with the itemsnecessary to reconcile the segment information to the totals reported in thefinancial statements (amounts in thousands):

 
| ** **                                | ** ** | **Construction  Products**                        | ** ** | **HVAC  Products** | ** ** | ** **                           | ** ** | ** **                | ** ** | ** **               | ** ** |
|-------------------------------------------|------------|---------------------------------------------------|------------|--------------------|------------|--------------------------------------|------------|---------------------------|------------|--------------------------|------------|
| ** **                                | ** ** | **Concrete,**                                     | ** ** | ** **         | ** ** | ** **                           | ** ** | ** **                | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Quarter ended  April 3, 2010**     | ** ** | **Aggregates &  Construction  Supplies** | ** ** | **Doors**          | ** ** | **Combined  Construction  Products** | ** ** | **Heating  and  Cooling** | ** ** | **Evaporative  Cooling** | ** ** | **Combined  HVAC  Products** | ** ** | **Unallocated  Corporate** | ** ** | **Other** | ** ** | **Total** | ** ** |
|                                      |       |                                              |       |               |       |                                 |       |                      |       |                     |       |   |   |   |   |   |   |   |   |
| Revenues  from external customers         |       | $                                                 | 6,728      |               | $          | 3,628                                |       | $                         | 10,356     |                     | $          | 9,152 |   | $ | 4,376 |   | $ | 13,528 |   | $ | 3 |   | $ | 86 |   | $ | 23,973 |   |
| Depreciation,  depletion and amortization |       | 841                                               |       | 34                 |       | 875                                  |       | 98                        |       | 115                      |       | 213 |   | 16 |   | — |   | 1,104 |   |
| Operating  income (loss)                  |       | (1,614                                            | )          | 344                |       | (1,270                               | )          | (302                      | )          | 150                      |       | (152 | ) | (645 | ) | 27 |   | (2,040 | ) |
| Segment  assets                           |       | 38,658                                            |       | 6,016              |       | 44,674                               |       | 15,367                    |       | 14,948                   |       | 30,315 |   | 8,268 |   | 63 |   | 83,320 |   |
| Capital  expenditures                     |       | 5                                                 |       | —             |       | 5                                    |       | 31                        |       | 5                        |       | 36 |   | — |   | — |   | 41 |   |
|                                           |            |                                                   |            |                    |            |                                      |            |                           |            |                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                | ** ** | **Construction  Products**                        | ** ** | **HVAC  Products** | ** ** | ** **                           | ** ** | ** **                | ** ** | ** **               | ** ** |
|-------------------------------------------|------------|---------------------------------------------------|------------|--------------------|------------|--------------------------------------|------------|---------------------------|------------|--------------------------|------------|
| ** **                                | ** ** | **Concrete,**                                     | ** ** | ** **         | ** ** | ** **                           | ** ** | ** **                | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Quarter ended  April 4, 2009**     | ** ** | **Aggregates &  Construction  Supplies** | ** ** | **Doors**          | ** ** | **Combined  Construction  Products** | ** ** | **Heating  and  Cooling** | ** ** | **Evaporative  Cooling** | ** ** | **Combined  HVAC  Products** | ** ** | **Unallocated  Corporate** | ** ** | **Other** | ** ** | **Total** | ** ** |
|                                      |       |                                              |       |               |       |                                 |       |                      |       |                     |       |   |   |   |   |   |   |   |   |
| Revenues  from external customers         |       | $                                                 | 10,257     |               | $          | 4,723                                |       | $                         | 14,980     |                     | $          | 9,898 |   | $ | 7,309 |   | $ | 17,207 |   | $ | 6 |   | $ | 86 |   | $ | 32,279 |   |
| Depreciation,  depletion and amortization |       | 838                                               |       | 42                 |       | 880                                  |       | 95                        |       | 125                      |       | 220 |   | 19 |   | — |   | 1,119 |   |
| Operating  income (loss)                  |       | (1,312                                            | )          | 610                |       | (702                                 | )          | 437                       |       | 1,035                    |       | 1,472 |   | (768 | ) | 27 |   | 29 |   |
| Segment  assets (a)                       |       | 36,007                                            |       | 6,509              |       | 42,516                               |       | 17,101                    |       | 13,141                   |       | 30,242 |   | 9,291 |   | 63 |   | 82,112 |   |
| Capital  expenditures (b)                 |       | 688                                               |       | —             |       | 688                                  |       | —                    |       | 57                       |       | 57 |   | 29 |   | — |   | 774 |   |
|                                           |            |                                                   |            |                    |            |                                      |            |                           |            |                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(a)          Segmentassets are as of January 2, 2010.

(b)         Capitalexpenditures are presented on the accrual basis of accounting.

 

6

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There are no differences in the basis ofsegmentation or in the basis of measurement of segment profit or loss from thelast annual report.

 

7.     Identifiable amortizable intangibleassets as of April 3, 2010 includes non-compete agreements, a restrictiveland covenant and customer relations. Collectively, these assets were carriedat $445,000, net of $565,000 accumulated amortization. The pre-tax amortizationexpense for intangible assets during the quarter ended April 3, 2010 was$34,000 compared to $73,000 for the quarter ended April 4, 2009.

 

Basedupon the intangible assets recorded on the balance sheet at April 3, 2010and January 2, 2010, amortization expense for the next five years isestimated to be as follows: 2010 – $137,000; 2011 – $101,000; 2012 – $65,000;2013 – $59,000 and 2014 – $52,000.

 

8.     At the end of the period ended January 2,2010, the Company was not in compliance with the minimum adjusted EBITDA andfixed charge coverage covenants of the Credit Agreement. As a result, effectiveJanuary 1, 2010 the default rate provision of the Credit Agreementincreased the interest rate on all outstanding revolving and long-term debt by2%. Non-compliance with the financial covenants in the Credit Agreementconstitutes an event of default under the agreement. Upon the occurrence of anevent of default, the lenders may, among other things, terminate their lendingcommitments, in whole or in part, declare all or any part of the Company’sborrowings to be due and payable, and/or require the Company to collateralizewith cash any or all letters of credit provided by the lender. A waiver of theevent of default relating to compliance with the minimum adjusted EBITDA andfixed charge coverage covenants was granted and a second amendment to theCredit Agreement was entered into on April 15, 2010. The second amendmentprovides for the following:

 

·      The covenants regarding the fixed charge coverage andthe maximum leverage ratio have been eliminated for the duration of the amendedCredit Agreement.

·      The Company must maintain a minimum tangible net worthof $32,000,000 beginning with the end of the second quarter of 2010. At April 3,2010, the minimum tangible net worth, as defined, was $36,360,000.

·      Annual capital expenditures may not exceed $3,500,000beginning with the end of the second quarter of 2010.

·      The maximum credit available under the revolvingcredit facility will remain at $15,000,000 until October 1, 2010 when itwill then be reduced to $13,500,000.

·      The maturity date of the credit facility is August 1,2011.

·      The interest rate for the remaining term of theamended Credit Agreement will be 4.0% over LIBOR but with a LIBOR floor of 2.0%(the Company’s effective LIBOR borrowing rate will be 6.0%). The margin on the “base”or prime rate option will be the base plus 1.75% with a base rate floor of 4%(the Company’s effective borrowing rate will be 5.75%).

·      The interest rate swap transaction will remain ineffect.

 

TheCredit Agreement as amended on April 15, 2010 requires the Company tomaintain certain financial covenants as disclosed in the table below (amountsin thousands):

 
| **Financial Covenant**                                | ** ** | **Date Required**                                    | ** ** | **Required  Amount** | ** ** |
|-------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------|------------|
| Minimum tangible net worth                            |       | Beginning with the end of the second quarter of 2010 |       | $32,000              |       |
| Minimum adjusted quarterly EBITDA                     |       | Quarter ended July 3, 2010                      |       | 2,100                |       |
|                                                  |       | Quarter ended October 2, 2010                   |       | 2,000                |       |
|                                                  |       | Quarter ended January 1, 2011                   |       | 500                  |       |
|                                                  |       | Quarter ended April 2, 2011                     |       | (600                 | )          |
|                                                  |       | Quarter ended July 2, 2011                      |       | 2,100                |       |
| Maximum capital expenditures (rolling twelve  months) |       | Beginning with the end of the second quarter of 2010 |       | < $3,500          |       |

 

Definitions under theCredit Agreement as amended are as follows:

 

·      Tangible net worth is defined as net worth plussubordinated debt minus intangible assets (goodwill, intellectual property,prepaid expenses and deferred charges) minus all obligations owed to theCompany or any of its subsidiaries by any affiliate or any or its subsidiariesand minus all loans owed by its officers, stockholders, subsidiaries oremployees (Note: there are no loans owed by any of the referenced parties at January 2,2010 or as of the date of this filing).

·      Adjusted EBITDA is defined as net income plusinterest, income taxes, depreciation, depletion and amortization plus othernon-cash charges approved by the lender.

 

7

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

 

9.     On July 17, 2009, the Companycompleted the sale of all of the outstanding capital stock of RMRM, a Coloradocorporation to Campbells C-Ment Contracting, Inc. (Buyer), a Coloradocorporation. RMRM operated a ready mix concrete business in the Denvermetropolitan area and had been included in the CACS reporting segment.

 

RMRM’srevenue of $1,821,000 and net loss of $411,000 for the fiscal three monthsended April 4, 2009 are reported as discontinued operations.

 

10.   The Company is involved in litigationmatters related to its continuing business, principally product liabilitymatters related to the gas-fired heating products in the Heating and Coolingsegment. In the Company’s opinion, none of these proceedings, when concluded,will have a material adverse effect on the Company’s consolidated results ofoperations or financial condition as the Company has established adequateaccruals for known occurrences which represent management’s best estimate ofthe future liability related to these claims up to the associated deductible.

 

**Item 2.****       ****Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

Company Overview

 

SeeNote 6 for an overview of the Company.

 

Liquidity and Capital Resources

 

Asnoted above, various factors affect the sales of the Company’s products.Historically, the Company has experienced operating losses during the firstquarter except when construction activity is strong along the Southern FrontRange of Colorado and the weather is mild. Operating results typically improvein the second and third quarters reflecting more favorable weather conditionsin Colorado and the seasonal sales of the Evaporative Cooling segment. However;the Company expects construction activity along the Southern Front Range willremain weak for the balance of 2010.

 

Fourthquarter results can vary based on weather conditions in Colorado as well as inthe principal markets for the Company’s heating equipment. The Companytypically experiences operating cash flow deficits during the first half of theyear reflecting operating results, the use of sales dating programs (extendedpayment terms) related to the Evaporative Cooling segment and payments of theprior year’s accrued incentive bonuses and Company profit-sharingcontributions, if any. As a result, the Company’s borrowings against itsrevolving credit facility tend to peak during the second quarter and thendecline over the remainder of the year. This trend has continued thus far in2010.

 

Asexpected, the Company’s cash flow from operations during the first quarter wasnegative due to the seasonality of sales, production schedules, the salesdating programs related to the evaporative cooler product line and the overallcurrent economic and financial market’s effect on construction. Operations forthe first three months of 2010 used $1,023,000 of cash compared to $889,000during the first three months of 2009. The increased use of cash was primarilythe result of the increase in the net loss during the first quarter of 2010partially offset by changes in working capital items, most notably a largerincrease in accounts receivable during the first quarter of 2009 compared tothe 2010 quarter reflecting the higher level of sales during the first quarterof 2009.

 

Asmore fully discussed in Note 8 above, on April 15, 2010, the Companyamended its Credit Agreement whereby the bank lender granted a waiver of thecovenant defaults for the period ended January 2, 2010 and modified thecovenants effective January 3, 2010. The Company was in compliance withthe modified loan covenants as of the quarter ended April 3, 2010. Theamendment established August 1, 2011 as the maturity date of the creditfacility and accordingly, the outstanding revolving credit balances at April 3,2010 and January 2, 2010 were classified as long-term obligations.

 

Capitalexpenditures were $41,000 for the first quarter of 2010. Scheduled debtrepayments were made during the first quarter of both 2010 and 2009. Asexpected, the Company borrowed against its revolving credit facility during thefirst quarter of 2010. The highest amount of Company borrowings outstandingunder the revolving credit agreement during the first quarter of 2010 was$7,300,000 and the average amount outstanding during the first quarter was$5,483,000.

 

8

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

 

Results of Operations - Comparison of Quarter Ended April 3, 2010to Quarter Ended April 4, 2009

 

(Inthe ensuing discussions of the results of operations the term gross profitmeans the amount determined by deducting cost of sales before depreciation,depletion and amortization from sales. The gross profit ratio is gross profitdivided by sales.)

 

Consolidatedsales in the first quarter of 2010 were $23,973,000 or $8,306,000 (25.7%) lessthan sales from continuing operations in the first quarter of 2009. Sales atall of the Company’s business segments were down compared to the prior yearwith the most significant reductions in the Concrete, Aggregates andConstruction Supplies segment and the Evaporative Cooling segment. Theconsolidated gross profit ratio declined from 20.2% in the first quarter of2009 to 17.6% in the current year quarter. This reduction is due principally tothe reduced sales volume in the same two segments mentioned above. Consolidatedselling and administrative expenses were $210,000 lower in the 2010 quartercompared to the prior year primarily as a result of a reduction in sellingexpenses that vary with sales in the Evaporative Cooling segment. Consolidatedselling and administrative expenses, as a percentage of consolidated sales,increased from 16.9% to 21.8%. This higher percentage reflects the fixed natureof most of these expenses combined with the reduced sales.  The operating loss for the first quarter of2010 was $2,040,000 compared to a $29,000 operating profit from continuingoperations in the first quarter of 2009. Historically, the Company hasexperienced operating losses during the first quarter except when theconstruction activity is strong and the weather is mild along the SouthernFront Range in Colorado.

 

Interestexpense increased to $280,000 in the first quarter of 2010 from $153,000 in thefirst quarter of 2009. The average interest rate in the first quarter of 2010was approximately 7.25% compared to approximately 3.5% in the first quarter of2009. As discussed more completely in Note 8, the Company entered into a secondamendment to its Credit Agreement in April of 2010. Average outstandingindebtedness was approximately $5,300,000 lower in 2010 compared to 2009 due principallyto reduced working capital and receipt of proceeds from the sale of RMRM in July 2009.

 

Adiscussion of operations by segment follows.

 

**Construction Products**

 

Thetable below presents a summary of operating information for the two reportablesegments within the Construction Products industry group for the quarters endedApril 3, 2010 and April 4, 2009 (dollar amounts in thousands):

 
| ** **                                    | ** ** | **Concrete,  Aggregates and  Construction  Supplies** | ** ** | **Doors** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------------|------------|-----------|------------|
| Quarter ended April 3, 2010              |       |                                                  |       |      |       |
| Revenues from external customers              |       | $                                                     | 6,728      |      | $          | 3,628 |   |
| Gross profit                                  |       | 201                                                   |       | 954       |       |
| Gross profit as a percent of sales            |       | 3.0                                                   | %          | 26.3      | %          |
| Segment operating (loss) income               |       | (1,614                                                | )          | 344       |       |
| Operating (loss) income as a percent of sales |       | (24.0                                                 | )%         | 9.5       | %          |
| Segment assets as of April 3, 2010       |       | $                                                     | 38,658     |      | $          | 6,016 |   |
| Return on assets                              |       | (4.2                                                  | )%         | 5.7       | %          |
|                                          |       |                                                  |       |      |       |
| Quarter ended April 4, 2009              |       |                                                  |       |      |       |
| Revenues from external customers              |       | $                                                     | 10,257     |      | $          | 4,723 |   |
| Gross profit                                  |       | 589                                                   |       | 1,207     |       |
| Gross profit as a percent of sales            |       | 5.7                                                   | %          | 25.6      | %          |
| Segment operating (loss) income               |       | (1,312                                                | )          | 610       |       |
| Operating (loss) income as a percent of sales |       | (12.8                                                 | )%         | 12.9      | %          |
| Segment assets as of April 4, 2009       |       | $                                                     | 45,802     |      | $          | 6,904 |   |
| Return on assets                              |       | (2.9                                                  | )%         | 8.8       | %          |

 

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Concrete,Aggregates and Construction Supplies Segment

 

Salesin the Concrete, Aggregates and Construction Supplies segment for the firstquarter of 2010 decreased 34.4% compared to the prior year quarter. In thefirst half of 2009 the Company was servicing two large commercial jobs inPueblo, Colorado. Those jobs were completed during 2009 and there were no jobsof comparable size in the first quarter of 2010. Otherwise, demand forconstruction materials in southern Colorado remained weak. Concrete yardagedeclined 29.5% from the prior year for these same reasons. The average price ofready-mixed concrete declined by 8.2% as a result of a change in product mixand lower cement costs. The gross profit per cubic yard of concrete wasapproximately $3.00 lower in 2010 as a result of the lower unit volume andhigher fuel prices. Sales of aggregates (sand, crushed limestone and gravel)were 11.3% lower in 2010 compared to 2009. The Pikeview Quarry remains closed although the Company believes that itwill be able to reopen the quarry pending approval of its mining andreclamation plan by the Colorado Division of Reclamation, Mining and Safety.The Company estimates that operations will resume in the latter part of 2010 orin 2011. The combined gross profit from all aggregate operations in the first quarterof 2010 was a modest loss of less than $30,000 compared to a loss of slightlyover $300,000 in 2009. The Company has been able to reduce the ongoing expensesof the Pikeview Quarry since the December 2008 landslide. Constructionsupplies sales declined in the 2010 first quarter by $527,000 (51%) compared tothe 2009 quarter due to the low level of construction activity in southernColorado. The gross profit from construction supplies was a loss of $133,000compared to a profit of $100,000 in the first quarter of 2009 due to the lowervolume.

 

DoorSegment

 

Salesduring the first quarter of 2010 in the Door segment decreased $1,095,000 or23.2% from the comparable 2009 quarter as a result of the weaker constructionmarkets. Sales in the first quarter of 2009 benefitted from a large backlogcarried forward from the prior year. The sales backlog at the end of the firstquarter of 2010 was approximately $2,450,000 compared to a year-ago backlog of$3,100,000. The gross profit ratio in 2010 improved slightly in spite of thelower level of business due to product mix factors.

 

**HVACProducts**

 

Thetable below presents a summary of operating information for the two reportablesegments within the HVAC products industry group for the quarters ended April 3,2010 and April 4, 2009 (dollar amounts in thousands):

 
| ** **                                    | ** ** | **Heating and  Cooling** | ** ** | **Evaporative  Cooling** | ** ** |
|-----------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Quarter ended April 3, 2010              |       |                     |       |                     |       |
| Revenues from external customers              |       | $                        | 9,152      |                     | $          | 4,376 |   |
| Gross profit                                  |       | 2,135                    |       | 904                      |       |
| Gross profit as a percent of sales            |       | 23.3                     | %          | 20.7                     | %          |
| Segment operating (loss) income               |       | (302                     | )          | 150                      |       |
| Operating (loss) income as a percent of sales |       | (3.3                     | )%         | 3.4                      | %          |
| Segment assets as of April 3, 2010       |       | $                        | 15,367     |                     | $          | 14,948 |   |
| Return on assets                              |       | (2.0                     | )%         | 1.0                      | %          |
|                                          |       |                     |       |                     |       |
| Quarter ended April 4, 2009              |       |                     |       |                     |       |
| Revenues from external customers              |       | $                        | 9,898      |                     | $          | 7,309 |   |
| Gross profit                                  |       | 2,682                    |       | 2,020                    |       |
| Gross profit as a percent of sales            |       | 27.1                     | %          | 27.6                     | %          |
| Segment operating income                      |       | 437                      |       | 1,035                    |       |
| Operating income as a percent of sales        |       | 4.4                      | %          | 14.2                     | %          |
| Segment assets as of April 4, 2009       |       | $                        | 20,253     |                     | $          | 21,691 |   |
| Return on assets                              |       | 2.2                      | %          | 1.4                      | %          |

 

Heating and Cooling Segment

 

Salesin the Heating and Cooling segment declined $746,000 (7.5%) in the firstquarter of 2010 from the comparable 2009 quarter. The entire decline isattributable to lower fan coil sales. Furnace sales were up slightly during thefirst quarter of 2010. The lower fan coil sales reflected a slow commercialconstruction market particularly related to new hotel construction. The grossprofit ratio for this segment declined from 27.1% to 23.3% due to morecompetitive pricing in the fan coil business and increases in steel and copperprices. Selling and administrative expenses were approximately $189,000 higherin 2010 principally due an increase in legal expenses.

 

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Evaporative Cooling Segment

 

Salesin the Evaporative Cooling segment decreased $2,933,000 or 40.1%, in the firstquarter of 2010 compared to the 2009 quarter. The decrease in sales was due tocool temperatures that prevailed throughout the first quarter in the principalmarkets for evaporative coolers in sales and the loss of a national retailaccount. Production of evaporative coolers was reduced in response to thereduced demand. The gross margin ratio declined from 27.6% to 20.7% as a resultof the lower level of production coupled with certain fixed manufacturingoverhead costs. Selling and administrative costs were reduced by $221,000 butas a percentage of sales increased from 11.8% to 14.6%. Most of the reductionwas in selling expenses and was a function of the lower sales.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Thecondensed consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States which requirethe Company to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesas of April 3, 2010 and January 2, 2010 and affect the reportedamounts of revenues and expenses for the periods reported. Actual results coulddiffer from those estimates.

 

Informationwith respect to the Company’s critical accounting policies which the Companybelieves could have the most significant effect on the Company’s reportedresults and require subjective or complex judgments by management is containedin Item 7, Management’s Discussion and Analysis of Financial Condition andResults of Operations, of the Company’s Annual Report on Form 10-K for thefiscal year ended January 2, 2010.

 

OUTLOOK

 

Theconstruction markets in southern Colorado are not expected to substantiallyimprove for the balance of 2010. Housing starts in this area have modestlyincreased compared to the last two years but remain at relatively low levels.Under these conditions, pricing in the CACS segment is expected to remainsharply competitive.It is difficult to predict the timing and magnitude of the recovery ofconstruction in the markets served. While the American Recovery andReinvestment Act of 2009 (“ARRA”) has had little or no impact on our sales todate, we do expect that spending on this program will benefit southern Coloradoand should add to our sales volume in the next twelve months or longer. Bothlocal governments (Colorado Springs and Pueblo) have submitted a substantiallist of construction projects to the federal government seeking ARRA funding.The Company’s contract to provide concrete to the Fort Carson army base locatedjust south of Colorado Springs was begun in the latter part of September 2009but slowed dramatically through the winter months. The project resumed during May 2010.

 

The Door segment’s sales are also to a significant degree reliant onnew construction. The sales backlog of the Door segment has held steady for thelast few months although pricing has become more competitive here as well.

 

Sales of the Evaporative Cooling segment for the remainder of thecurrent cooling season will largely be weather dependent.

 

The sales backlog for fan coil products in the Heating and Coolingsegment has increased recently although the overall commercial constructionmarket remains slow. Furnace sales so far this year benefitted from coolweather in the principal market areas but the selling season is now ending.In-season furnace sales later this year will also be largely weather dependent.

 

RECENTLY ISSUED ACCOUNTING STANDARDS

 

SeeNote 3 for a discussion of recently issued accounting standards.

 

MATERIAL CHANGES TOCONTRACTUAL OBLIGATIONS

 

As discussed above in Note8, the Company entered into an amendment of its Credit Agreement with its banklender. Other than discussed in the preceding sentence, there were no materialchanges to contractual obligations that occurred during the quarter ended April 3,2010.

 

FORWARD-LOOKING STATEMENTS

 

Theforegoing discussion contains forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933, as amended. Such forward-looking statements arebased on the beliefs of the Company’s management as well as on assumptions madeby and information available to the Company at the time such statements weremade.  When used in this Report, wordssuch as “anticipates,” “believes,” “contemplates,” “estimates,” “expects,” “plans,”“projects,” and similar expressions are intended to identify forward-lookingstatements. Actual results could differ materially from those projected in theforward-looking statements as a result of factors including but not limited to:weather, interest rates, availability of raw materials and their related costs,national and local economic conditions, competitive forces and changes ingovernmental regulations and policies. Some of these

 

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factorsare discussed in more detail in the Company’s 2009 Annual Report on Form 10-K.Changes in accounting pronouncements could also alter projected results.Forward-looking statements speak only as of the date they were made, and theCompany undertakes no obligation to publicly update them.

 

**Item 3.****       ****Quantitative And Qualitative Disclosures AboutMarket Risk**

 

There were no material changes in themarket risks nor legal proceedings that the Company is exposed to since thosediscussed in the Company’s 2009 Annual Report on Form 10-K.

 

**Item 4T.****    ****Controls and Procedures**

 

(a)       Evaluationof Disclosure Controls and Procedures.

 

TheCompany’s Chief Executive Officer and Chief Financial Officer, with theparticipation of management, have evaluated the effectiveness of the Company’sdisclosure controls and procedures as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (ExchangeAct) as of April 3, 2010. The Chief Executive Officer and Chief FinancialOfficer, based on that valuation, concluded that our disclosure controls andprocedures were effective and were reasonably designed to ensure that allmaterial information relating to the Company (including its subsidiaries)required to be disclosed in this quarterly report is recorded, processed,summarized and reported within the time periods specified in the rules andforms of the Securities and Exchange Commission. The previously reportedmaterial weakness relating to accounting controls over inventory and relatedcost of sales reporting in the Heating and Cooling segment has been remediated.This conclusion is based in part on the results of a physical inventory takenat the end of April 2010.

 

(b)       Changesin Internal Control Over Financial Reporting.

 

The Company continually reassesses ourinternal control over financial reporting and makes changes as deemed prudent.The Company had identified a material weakness in internal control overfinancial reporting related to accounting for inventory and related cost ofsales in its Heating and Cooling segment prior to the close of the thirdquarter of Fiscal 2008. As part of its remediation process, the Companyidentified the causes that resulted in the inventory accounting errors anddeveloped an action plan to address each of these causes. The Company believesthat the changes made during 2009 and 2010 have improved the internal controlsover financial reporting related to accounting for inventory and related costof sales in its Heating and Cooling segment such that these controls can berelied upon as of April 3, 2010.

 

Duringthe quarter ended April 3, 2010, there were no other material weaknessesidentified in our review of internal control over financial reporting and nosignificant changes in the Company’s internal control over financial reportingoccurred during the quarter that have materially affected, or are reasonablylikely to materially affect, the Company’s internal control over financialreporting except as noted in the previous paragraph.

 

PART II - OTHER INFORMATION

 

**Item 2.****       ****UnregisteredSales of Equity Securities and Use of Proceeds**

 

The Company has not purchasedany of its common stock to become treasury stock during the period January 2,2010 through April 3, 2010.

 

On January 19, 1999,the Company initiated purchases under the current open-ended program torepurchase its common stock. Purchases are made on the open market or in blocktrades at the discretion of management. The dollar amount authorized for theprogram has been periodically increased by the Board of Directors and approvedby the Company’s lender under the Company’s credit facility. As of April 3,2010, $1,307,404 of the authorized amount remains available for stockrepurchases. The Credit Agreement contains certain restrictions on the Company’sability to repurchase its stock. Amendments to the Credit Agreement haveretained these restrictions. See further discussion in Note 8 and the “Liquidityand Capital Resources” section of Item 2 above.

 

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**Item 6.****       ****Exhibits**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|----------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3                    |       | Registrant’s  Restated Certificate of Incorporation dated May 28, 1975, as amended on  May 24, 1978, May 27, 1987 and June 3, 1999 filed as  Exhibit 3 to Form 10-K for the year ended January 1, 2005,  incorporated by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3a                   |       | Registrant’s  By-laws, as amended September 19, 1975 filed as Exhibit 6 to Form  8-K for the month of September 1975, incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1                 |       | Credit  Agreement dated April 16, 2009 among Continental Materials Corporation,  as the Company, The Various Financial Institutions Party Hereto, as Lenders,  and The PrivateBank and Trust Company, as Administrative Agent and Arranger,  filed as Exhibit 10f to Form 10-K for the year ended  January 3, 2009, incorporated herein by reference; First Amendment  thereto dated as of November 18, 2009, filed as Exhibit 10.1 to Form  10-K for the year ended January 2, 2010, incorporated herein by  reference; and Second Amendment thereto dated April 15, 2010, filed as  Exhibit 10.2 to Form 10-K for the year ended January 2, 2010,  incorporated herein by reference. |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 31.1                 |       | Certification  of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) and  Rule 13a-14(d)/15d-14(d) of the Securities Exchange Act of 1934, as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 31.2                 |       | Certification  of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) and  Rule 13a-14(d)/15d-14(d) of the Securities Exchange Act of 1934, as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 32                   |       | Certification  of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes —  Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

 

SIGNATURE

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|   |              | CONTINENTAL  MATERIALS CORPORATION |
|--------|-------------------|------------------------------------|
|   |              |                               |
|   |              |                               |
| Date:  | May 18, 2010 |                               | By: | /s/  Joseph J. Sum |
|   |              |                               | Joseph  J. Sum, Vice President |
|   |              |                               | and  Chief Financial Officer |
|        |                   |                                    |  |  |

 

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