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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K

(Mark One)

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 29, 2001

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 1-3834

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Continental Materials Corporation(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction
of incorporation or organization)

36-2274391(I.R.S. Employer Identification No.)225 West Wacker Drive, Suite 1800
Chicago, Illinois(Address of principal executive offices)

60606(Zip Code)


Registrant's telephone number, including area code312-541-7200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registeredCommon Stock$.25 par value

American Stock Exchange


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

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ý    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. o

The
aggregate market value (based on March 25, 2002 closing price) of voting stock held by non-affiliates of registrant: Approximately $23,872,000.

Number
of common shares outstanding at March 25, 2002: 1,803,642.

Incorporation
by reference: Portions of registrant's definitive proxy statement for the 2002 Annual meeting of stockholders to be held on May 22, 2002 into Part III of this
Form 10-K. (The definitive proxy statement will
be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Form 10-K.)

Index
to Exhibits: on page 31 hereof.

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|NOTE: |  | References to a Note are to the Notes to Consolidated Financial Statements which are included on pages 19 through 28 of this Annual Report on Form 10-K.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

PART I

Item 1.BUSINESS

There have been no significant changes in the business during the past five years other than the acquisition of all of the stock of Rocky Mountain Ready Mix
Concrete, Inc., a ready-mix concrete producer in the metropolitan Denver, Colorado area, on December 31, 2000. Accordingly, results for 2001 include activity for this new
company.

The
Company operates primarily in two industry segments, the Heating and Air Conditioning segment and the Construction Materials segment. The Heating and Air Conditioning segment
produces and sells gas-fired wall furnaces and console heaters, evaporative coolers and fan coils which are manufactured by Phoenix Manufacturing, Inc. of Phoenix, Arizona and
Williams Furnace Co. of Colton, California. The principal products of the Construction Materials segment are ready mix concrete, construction aggregates, building supplies and doors which are offered
by Castle Concrete Company and Transit Mix Concrete Co. both of Colorado Springs, Colorado and Transit Mix of Pueblo, Inc. of Pueblo, Colorado. Currently, Rocky Mountain Ready Mix
Concrete, Inc. of Denver Colorado only offers ready mix concrete.

In
addition to the above operating segments, an Other classification is utilized to report a small real estate operation and the holding costs for certain mining interests that remain
from the period the Company maintained significant interests in mining operations. The expenses of the corporate office,
which provides treasury, insurance and tax services as well as strategic business planning and general management services, are not allocated to the segments. Expenses related to the Management
Information Systems group are allocated to all locations, including the corporate office.

Financial
information relating to industry segments appears in Note 12 on pages 27 and 28 of this Form 10-K.

MARKETING, SALES AND SUPPORT

MARKETING

The Heating and Air Conditioning segment markets its products throughout the United States through plumbing, heating and air conditioning wholesale distributors
as well as directly to some major retail home-centers and other retail outlets. Fan coils are also sold to HVAC installing contractors and equipment manufacturers for commercial
applications. Independent manufacturers' representatives are utilized for all products. The Company also employs and utilizes a staff of sales and sales support personnel. Sales in this segment are
predominantly in the United States and are concentrated in the Western and Southwestern states. Sales of furnaces and console heaters usually increase in the months of August through January. Sales of
evaporative coolers usually increase in the months of March through July. Sales of the fan coil product line are more evenly distributed throughout the year although the highest volume typically
occurs during the late spring and summer. In order to sell wall furnaces and evaporative coolers during the off season, extended payment terms are offered to customers.

The
Construction Materials segment markets its products primarily through its own direct sales personnel and confines its sales to the Front Range area in Colorado. Sales are made to

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general and sub-contractors, government entities and individuals. Sales are affected by the general economic conditions in the areas serviced (as it relates to construction) and weather
conditions. Revenues usually decline in the winter months as the pace of construction slows.

During
2001, no customer accounted for 10% or more of the total sales of the Company, although a large retail customer accounted for more than 10% of the sales of the Heating and Air
Conditioning segment.

CUSTOMER SERVICE AND SUPPORT

The Heating and Air Conditioning segment offers parts departments and help lines to assist contractors, distributors and end users in servicing the products. The
Company does not perform installation services, nor are maintenance or service contracts offered. In addition, training and product information sessions for the furnace, cooler and fan coil product
lines are offered at our plants and other sites for distributors, contractors, utility company employees and other customers. This segment does not derive any revenue from after-sales service and
support other than from parts sales. The personnel in the Construction Materials segment routinely take a leadership role in formulation of the products to meet the specifications of the customers.

BACKLOG

The order backlog at December 29, 2001 and December 30, 2000 for the Heating and Air Conditioning segment were as follows:

December 29, 2001

December 30, 2000Furnaces

$
204,000

$
366,000Console heaters


16,000


20,000Evaporative coolers


1,000,000


1,100,000Fan coil


1,661,000


1,469,000Total

$
2,881,000

$
2,955,000


The
above backlogs are expected to be substantially filled during the first quarter of 2002.

At
December 29, 2001, the Construction Materials segment had a backlog of approximately $2,463,000 ($5,225,000 at December 30, 2000) primarily relating to construction
contracts awarded and expected to be filled during the first half of 2002.

Management
does not believe that any of the above backlogs represent a trend but rather are indicative only of the timing of orders received or contracts awarded.

RESEARCH AND DEVELOPMENT/PATENTS

In general, the companies rely upon, and intend to continue to rely upon, unpatented proprietary technology and information. However, research and development
activities in the Heating and Air Conditioning segment have resulted in a patent related to the Power Cleaning System (expiring January 2014) for the evaporative coolers and a patent entitled
"Wall Furnace With Side Vented Draft Hood" (expiring November 2011) which has increased efficiency above that previously offered by the industry. The amounts expended on research and
development are not material and are expensed as incurred. The Company believes its interests in its patent applications, as well as its proprietary knowledge, are sufficient for its businesses as
currently conducted.

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MANUFACTURING

The Company conducts its manufacturing operations through a number of facilities as more completely described in Item 2, Properties, below.

Due
to the seasonality of the businesses, furnaces and evaporative coolers build inventory during their off seasons in order to have adequate supplies to sell during the season.

In
general, raw materials required by the Company can be obtained from various sources in the quantities desired. The Construction Materials companies in Colorado Springs and Pueblo have
historically purchased most of their cement requirements from a single supplier. These companies have, on past occasion, experienced some difficulty in obtaining cement, however, all were able to
purchase sufficient quantities from non-traditional sources, which are expected to remain available in the future. The Company has no long-term supply contracts and does not
consider itself dependent on any individual supplier.

In
connection with permits to mine properties in Colorado, the Company is obligated to reclaim the mined areas. In recent years, reclamation costs have had a more significant effect on
the results of operations compared to prior years.

COMPETITIVE CONDITIONS

Heating and Air ConditioningThe Company is one of four principal companies producing wall furnaces (excluding units sold
to the recreational vehicle industry) and gas fired console heaters. The wall furnace and console heater markets are only a small component of the heating industry. The Company serves these market
areas from a plant in Colton, California. The sales force consists of in-house sales personnel and independent manufacturers' representatives. The entire heating industry is dominated by
manufacturers (most of which are substantially larger than the Company) selling diversified lines of heating and air conditioning units directed primarily toward central heating and cooling systems.
All of the producers compete on a basis of price, service and timeliness of delivery.

Fan
coils are also produced at the Colton plant. Fan coil sales are usually obtained through a competitive bidding process. International Environmental Corp., a subsidiary of LSB
Industries, Inc., a manufacturer of a diversified line of commercial and industrial products, dominates this market. There are also a number of other companies that produce fan coils. All of
the producers compete on the basis of price, ability to meet customers' specific requirements and timeliness of delivery.

The
Company manufactures evaporative air coolers at a plant located in Phoenix, Arizona. The cooler market is dominated by Adobe Air. The other principal competitor is Champion/Essick.
All producers of evaporative air coolers compete aggressively on the basis of price and service.

Construction
MaterialsThe Company is one of five companies producing ready mix concrete in the Colorado Springs area, one of three companies
producing ready mix concrete in the Pueblo area and one of fourteen companies producing ready mix concrete in the Denver area. Although we hold a significant share the Colorado Springs and Pueblo
markets served, the other competitors compete aggressively on the basis of price, service and product features. In Denver, two of the producers are significantly larger than RMRM. This market also
experiences aggressive competition based on price, service and product features.

The
Company is one of six producers of aggregates in the marketing area served. All producers compete aggressively on the basis of price, quality of material and service.

Sales
of metal doors and door frames, rebar reinforcement and other building materials in the Colorado Springs and Pueblo metropolitan areas are subject to intense competition from two

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larger companies from Denver, two large companies in Colorado Springs and a number of small local competitors. However, the Company has a slight competitive advantage in that many of our customers
also purchase concrete, sand and aggregates from us whereas our competitors for these particular product lines do not offer concrete, sand or aggregates. In addition, our Pueblo location has a slight
competitive advantage with respect to the two Denver companies based upon delivery costs.

EMPLOYEES

The Company employed 787 people as of December 29, 2001. Employment varies throughout the year due to the seasonal nature of the businesses. A breakdown of
the prior three years employment at year-end by segment was:

2001

2000

1999Heating and Air Conditioning

386

397

433Construction Materials

387

347

354Corporate Office

14

14

14Total

787

758

801


The
factory employees at the Colton, California plant are represented by the Carpenters Local 721 Union under a contract that expires in April 2002. Negotiations have begun and
the Company does not anticipate a work stoppage. The Company considers relations with its employees and with its union to be good.

Item 2.PROPERTIES

The Heating and Air Conditioning segment operates out of one owned (Colton, California) and one leased (Phoenix, Arizona) facility. Both manufacturing facilities
utilized by this segment are, in the opinion of management, in good condition and sufficient for the Company's current needs. Productive capacity exists at the locations such that the Company could
exceed the highest volumes achieved in prior years or expected in the foreseeable future and maintain timely delivery.

The
Company serves the Colorado ready-mix concrete market from ten owned batch plants. In addition, the Company currently operates aggregate processing facilities on three
owned and three leased mining properties. These facilities are, in the opinion of management, in good condition and sufficient for the Company's current needs. The Company also owns or leases other
aggregate deposits not currently in production. In the opinion of management, the owned and leased properties contain permitted and minable reserves sufficient to service sand, rock and gravel
requirements for the foreseeable future.

Product
volumes at all of the facilities of the Company are subject to seasonal fluctuations, but in the opinion of management, the facilities are generally well utilized.

The
corporate office operates out of a leased facility in Chicago, Illinois.

Item 3.LEGAL PROCEEDINGS

See Management Discussion and Analysis of Financial Condition and Results of Operations on pages 8 through 14 and Note 5 on page 23 of this Annual Report
on Form 10-K.

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Item 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 2001.

PART II

Item 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Continental Materials Corporation shares are traded on the American Stock Exchange under the symbol CUO. Market prices for the past two years are:

High

Low2001

Fourth Quarter

$
20.00

$
18.70Third Quarter


22.00


19.30Second Quarter


21.35


18.80First Quarter


18.81


13.752000

Fourth Quarter

$
14.00

$
10.75Third Quarter


17.25


12.63Second Quarter


23.00


16.00First Quarter


23.75


21.75


At
March 15, 2002, the Company had approximately 310 shareholders of record.

The
Company has never paid a dividend. The Company's policy is to reinvest earnings from operations, and the Company expects to follow this policy for the foreseeable future.

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Item 6.SELECTED FINANCIAL DATA(Amounts in thousands, except per share amounts)

|                                                                        |                                                      | 2001 |         | 2000    |   | 1999    |        | 1998 |         | 1997   |  
|----------------------------------------------------------------------- | ---------------------------------------------------- | ---- | ------- | ------- | - | ------- | ------ | ---- | ------- | ------ | -
|SUMMARY OF OPERATIONS                                                   |                                                      |      |         |         |   |         |        |      |         |        |  
|Sales                                                                   |                                                      | $    | 130,211 |         | $ | 116,002 |        | $    | 123,886 |        | $
|Earnings before interest, taxes, depreciation and amortization (EBITDA) |                                                      |      | 16,412  |         |   | 14,300  |        |      | 16,209  |        |  
|Net income                                                              |                                                      | $    | 6,438   |         | $ | 5,335   |        | $    | 6,902   |        | $
|PER SHARE DATA                                                          |                                                      |      |         |         |   |         |        |      |         |        |  
|Basic earnings per share                                                |                                                      | $    | 3.55    |         | $ | 2.86    |        | $    | 3.39    |        | $
|Weighted average shares outstanding                                     |                                                      |      | 1,812   |         |   | 1,869   |        |      | 2,035   |        |  
|Diluted earnings per share                                              |                                                      | $    | 3.49    |         | $ | 2.81    |        | $    | 3.32    |        | $
|Weighted average shares outstanding                                     |                                                      |      | 1,845   |         |   | 1,901   |        |      | 2,082   |        |  
|FINANCIAL CONDITION                                                     |                                                      |      |         |         |   |         |        |      |         |        |  
|Current ratio                                                           |                                                      |      | 2.2:1   |         |   | 2.4:1   |        |      | 1.7:1   |        |  
|Total assets                                                            |                                                      | $    | 86,063  |         | $ | 68,250  |        | $    | 67,751  |        | $
|Long-term debt, including current portion                               |                                                      |      | 17,140  |         |   | 7,305   |        |      | 4,457   |        |  
|Shareholders' equity                                                    |                                                      |      | 47,722  |         |   | 41,813  |        |      | 39,043  |        |  
|Long-term debt to net worth                                             |                                                      |      | .36     |         |   | .18     |        |      | .11     |        |  
|Book value per diluted share                                            |                                                      | $    | 25.87   |         | $ | 22.00   |        | $    | 18.75   |        | $
|CASH FLOWS                                                              |                                                      |      |         |         |   |         |        |      |         |        |  
|Net cash provided by (used in):                                         |                                                      |      |         |         |   |         |        |      |         |        |  
|                                                                        | Operating activities                                 |      | $       | 13,219  |   | $       | 10,021 |      | $       | 6,272  |  
|                                                                        | Investing activities                                 |      |         | (19,215 | ) |         | (2,662 | )    |         | (8,982 | )
|                                                                        | Financing activities                                 |      |         | 7,359   |   |         | (1,490 | )    |         | (4,063 | )
|                                                                        | Net increase (decrease) in cash and cash equivalents |      | $       | 1,363   |   | $       | 5,869  |      | $       | (6,773 | )

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Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(References
to a "Note" are to Notes to Consolidated Financial Statements)

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents increased to $7,579,000 at year-end compared to $6,216,000 in the prior year. Operations in 2001 provided $13,219,000 of
cash compared to $10,021,000 in 2000 and the $6,272,000 generated in 1999. The increase in net cash generated by operating activities in 2001 compared to 2000 was primarily due to the increased
earnings. Net changes in various working capital accounts also
contributed approximately $1,073,000 of cash. The increase in net cash generated by operating activities in 2000 compared to 1999 was due primarily to the net change in receivables.

Net
cash used in investing activities was $19,215,000 in 2001, $2,662,000 in 2000, and $8,982,000 in 1999. The primary use during 2001 was the $11,263,000 purchase of Rocky Mountain
Ready Mix Concrete, Inc. (RMRM) net of cash on December 31, 2000. Capital expenditures for 2001, 2000 and 1999 were $9,213,000, $3,306,000 and $9,024,000, respectively. The capital
expenditures were principally to support the continuing strong business demand that has been experienced by the construction materials companies in Colorado Springs and Pueblo. The expenditures in
2001 included some projects planned for 2000 that had been postponed. During 2001, the Company also invested approximately $1,800,000 in new office space in Colton. The 1999 capital additions include
approximately $1,100,000 related to the implementation of a Year 2000 compliant enterprise planning system as well as the modernization and integration of Company systems. Also during 1999, the
Company invested approximately $1,237,000 in new office/warehouse space in Phoenix.

Budgeted
capital expenditures for 2002 are approximately $5,180,000 (including $4,050,000 for the construction materials segment and $1,060,000 for the heating and air conditioning
segment), which is approximately $200,000 more than planned depreciation. The construction materials budget includes approximately $920,000 for the replacement of an existing batch plant. All other
expenditures are primarily for routine replacement and upgrades in the two segments. The Company expects that the 2002 expenditures will be funded from existing cash balances and operating cash flow.

During
2001, cash of $7,359,000 was provided by financing activities. The Company increased its term debt by $12,000,000 for the acquisition of RMRM. Scheduled long-term debt
repayments of $3,526,000 were made during the year including $526,000 against capital lease obligations. Cash of $600,000 was used to acquire 33,127 shares of treasury stock partially offset by
proceeds of $39,000 from the exercise of stock options. During 2000, cash of $1,490,000 was used in financing activities. The Company increased its term debt by $4,000,000. Scheduled
long-term debt repayments of $1,152,000 were made during the year and the $1,600,000 balance outstanding on the revolving line of credit at the end of 1999 was repaid. Cash of $2,770,000
was used to acquire 146,032 shares of treasury stock partially offset by proceeds of $32,000 from the exercise of stock options. During 1999, cash of $4,063,000 was used in financing activities.
Scheduled long-term debt repayments of $2,556,000 were made during the year. Costs and expenses associated with the June cancellation of 79,096 (post-split) shares were
$1,595,000. An additional $2,746,000 was used to acquire 139,574 shares of treasury stock. Borrowings against the revolving credit facility of $1,600,000 and an increase in the capital lease of
$203,000 provided a portion of the above cash while proceeds from the exercise of stock options generated $144,000.

The
Company maintains a term loan and revolving credit facility with two banks. At December 29, 2001 $16,000,000 was outstanding on the term loan. A revolving credit facility of
up to

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$10,000,000 is available for seasonal needs including the funding of seasonal sales programs related to the furnace and evaporative cooler product lines. The line is also used for
stand-by letters of credit to insurance carriers in support of self-insured amounts under the Company's insurance program.
Borrowings are unsecured and bear interest at prime or a performance based LIBOR rate. Currently such performance based rate is LIBOR plus 1.40% for the term loan and LIBOR plus 1.15% for the
revolving credit facility. Effective December 17, 2001, the Company entered into an interest rate swap agreement (Agreement) in order to fix the floating interest rate characteristic of most of
the Company's term loan borrowings. The Company's current interest rate under the Agreement is 5.78%. Such rate is subject to adjustment depending upon the Company's performance. The Company concluded
that it was appropriate to take advantage of the interest rate environment and fix the interest rate at a relatively low level for a five year period.

The
Company is in a strong cash position heading into 2002. The existing cash balances and anticipated cash flow in 2002, supplemented by seasonal borrowings against the revolving line
of credit, will be sufficient to cover expected cash needs, including servicing debt and planned capital expenditures.

Operations
2001 vs. 2000

Consolidated
sales increased $14,209,000, or 12.2% to $130,211,000. The sales of the construction materials segment increased $12,038,000 due primarily to the acquisition of RMRM. Sales
at the Company's other construction materials sites declined due to cold weather during the first quarter and a decline in commercial construction in the Colorado Springs market. The heating and air
conditioning segment sales improved $2,171,000 or 4.4%, compared to the previous year. The increase in the heating and air conditioning segment was due to evaporative cooler sales that improved from
the depressed conditions encountered in 2000, while a small improvement in the furnace line due to cold weather during the first quarter was more than offset by a decline in fan coil sales as a result
of a slow down in commercial construction.

The
Company experienced a high level of price competition in all of its product lines during 2001, which the Company expects to continue into 2002. During 2001, inflation was not a
significant factor at any of the operations.

Cost
of sales (exclusive of depreciation, depletion and amortization), as a percent of sales, increased from 70.3% to 71.4%. This slight increase was experienced in both segments. The
reduced fan coil sales and heightened competition in the furnace product line resulted in increases that more than offset the improvement in the evaporative cooler line in the heating and air
conditioning segment. The addition of RMRM was the main factor in the construction materials segment as their cost of sales ratio has historically exceeded that experienced by the Company's other
construction materials operations in Southern Colorado.

Depreciation,
depletion and amortization increased from $5,419,000 to $6,387,000 due to the purchase of RMRM.

Selling
and administrative expenses increased $800,000 due to the acquisition of RMRM. As a percentage of sales, selling and administrative expenses declined from 13.1% to 12.3%. RMRM
was also the major factor in the percentage improvement as its relationship of selling and administrative expense to sales is relatively low, similar to the Company's other construction materials
sites. Contributing to the improvement was a reduction of the selling and administrative expense level at Williams Furnace Co. which was largely due to personnel reductions.

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The
improved operating income primarily reflects the contribution of RMRM. An additional increase from the evaporative cooler product line more that offset the decline experienced in the
furnace and fan coil product lines.

Interest
expense increased $366,000 to $937,000 reflecting the increased debt resulting from the acquisition of RMRM.

Other
income is primarily the result of gains from sales of aggregate properties in Colorado that were either depleted or not exploitable and miscellaneous equipment sales. These gains
totaled $851,000 and $461,000 for 2001 and 2000, respectively.

The
Company's 2001 effective income tax rate on income (29.2%) reflects federal and state statutory rates adjusted for state tax credits, non-deductible and other tax items.
See Note 10. The reduction from the prior year's rate of 35.8% is due to California Enterprise Zone credits earned during the years 1995 through 2001. The benefit of these credits for prior and
future years reduced the effective rate by 5%. Application of the credits against the tax due on the current year's earnings reduced the rate by 1.5% and is included in the 1.4% noted as "State income
taxes, net of federal benefit" line in Note 10.

Operations
2000 vs. 1999

Consolidated
sales declined $7,884,000, or 6% to $116,002,000. The sales of the heating and air conditioning segment declined $7,685,000 (14%) while sales of the construction materials
segment were off $195,000, less than 1%, compared to the previous year. The decline in the heating and air conditioning segment was experienced by all three of the product lines.

The
Company experienced a high level of price competition in all of its product lines. During 2000, inflation was not a significant factor at any of the operations.

Cost
of sales (exclusive of depreciation, depletion and amortization), as a percent of sales, remained relatively constant at approximately 70%. The slight increase is primarily due to
the decline in sales in the heating and air conditioning segment although heightened competition in the Pueblo, Colorado ready-mix concrete market and increased costs at two construction
aggregate operations affected profit margins in the construction materials segment.

Depreciation,
depletion and amortization increased from $4,998,000 to $5,419,000 due to the high level of capital expenditures during 1999.

Selling
and administrative expenses decreased $988,000. As a percentage of sales, selling and administrative expenses remained relatively constant at just over 13%.

The
decline in operating income primarily reflects the decreased sales, the heightened competition in Pueblo, Colorado and the increased costs at the two construction aggregate
operations. The increased depreciation also had a dampening effect on operating income.

The
increase in interest expense of $102,000 is the result of the higher term loan balance and higher interest rates.

The
increase in other income is primarily the result of a $383,000 gain on the sale of a depleted gravel property in Colorado Springs.

The
Company's 2000 effective income tax rate on income (35.8%) reflects federal and state statutory rates adjusted for non-deductible and other tax items. See Note 10.

10

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RELATED PARTY TRANSACTIONS

The
Company purchases insurance coverage for workers' compensation, general and product liability together with another group of companies controlled or related to the Company's
principal shareholders to minimize insurance costs and to obtain other more favorable terms. Allocation of the expense of the program is either provided by the underwriter or based upon a formula that
considers, among other things, sales levels and claim experience. Claims under the self-insured portion of the policies are allocated directly to the incurring party.

CRITICAL ACCOUNTING POLICIES

Financial
Reporting Release No. 60 was issued by the Securities and Exchange Commission during 2001 and requires all registrants, including the Company, to include a discussion of
"critical" accounting policies or methods used in the preparation of financial statements. We believe the following are our critical accounting policies and methods.

Inventories

Inventories
are priced at the lower of cost (84% at December 29, 2001 at last-in, first-out, with the remainder at first-in,
first-out or average) or market. Inventories are reviewed annually for excess or obsolete stock with a provision recorded, where appropriate.

Intangibles

Goodwill
was amortized using a 40-year life through the 2001 year. In accordance with Statement of Financial Accounting Standards (SFAS) 141 and 142, goodwill will no
longer be amortized as a charge to earnings. In the future, we will be required to assess goodwill for potential impairment on an annual basis.

Liabilities

The
Company purchases insurance coverage for workers' compensation, general product and automobile liability, retaining certain levels of risk (self-insured portion).
Provision for workers' compensation and automobile claims is estimated based upon information provided by the Company's independent administrator and the Company's own experience. With regard to
product liability, provisions for both claims and unasserted claims that would be covered under the self-insured portion of the policies are recorded in accordance with the requirements of
SFAS No. 5, "Accounting for Contingencies" and are reviewed at least annually for revisions in estimates.

The
Company records a reserve for future reclamation work to be performed at its' various aggregate operations based upon estimates of the recoverable quantities of rock and sand
available in each location combined with an estimate of the total expense that will be incurred to reclaim a property. Provision is made based upon the units of production method. Actual reclamation
costs are charged against the reserve. The adequacy of the recorded reserve is assessed annually. Estimates of both the quantities of recoverable material and the cost of reclamation are periodically
updated by an independent professional. In a similar manner, depletion of rock and sand deposits and amortization of deferred development costs are computed by the
units-of-production method based upon estimated recoverable quantities of rock and sand.

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Sales

The
Company generally recognizes revenue as products are shipped to customers. The amount is recorded net of applicable provisions for discounts, volume incentives, returns and
allowances. At the time of revenue recognition, the Company also provides an estimate of potential bad debt and warranty expense as well as an amount anticipated to be granted to customers under
cooperative advertising programs based upon historical experience.

Recently
Issued Accounting Standards

Emerging
Issues Task Force (EITF) No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)" addresses
the recognition, measurement and statement of earnings classification for certain sales incentives and other expenses. The Company has two types of customer programs that are considered within the
scope of this statement; volume rebate incentives and cooperative advertising. The Company early adopted EITF 01-09 as both programs have historically been recorded as required by the new
pronouncement. Volume rebate incentives are
classified as a reduction of sales while cooperative advertising is classified as a marketing expenditure included within "selling and administrative" expenses as the advertising arrangements meet the
requirement of receipt of a separable and measurable benefit.

The
Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets". Effective January 1, 2002,
the Company will no longer be required to amortize goodwill as a charge to earnings. In addition, we will be required to annually review goodwill for potential impairment. The Company does have
certain finite lived identifiable intangible assets that will continue to be amortized over their estimated useful economic lives. These finite lived identifiable intangible assets will be assessed
for impairment under the new SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." As a result of adopting this new standard, we currently anticipate that
amortization expense will be reduced by approximately $156,000 (pre-tax) on an annual basis compared to 2001.

SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" and its related amendment SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" were adopted by the Company effective December 31, 2000. These statements establish accounting and reporting standards for derivative instruments, including the
interest rate swap agreement that the Company entered into on December 17, 2001. These statements require recognition of all derivatives as either assets or liabilities on the balance sheet and
the measurement of those instruments at fair value.

SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," was issued in August 2001 and is effective for fiscal years beginning after
December 15, 2001. The Statement clarifies and revises existing guidance on accounting for the impairment or disposal of long-lived assets such as property, plant and equipment,
amortized intangibles and other long-lived assets not specifically addressed in other accounting literature. We plan to adopt the standard at the beginning of 2002. We do not expect the
adoption of this standard will have a significant impact on our 2002 financial results.

FORWARD-LOOKING STATEMENTS

This
Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements are based on
the beliefs of the Company's management as well as on assumptions made by and information

12

---

available to the Company at the time such statements were made. When used in this Report, words such as "anticipates," "contemplates," "expects" and similar expressions are intended to identify
forward-looking statements. Actual results could differ materially from those projected in the forward-
looking statements as a result of factors including but not limited to: weather, interest rates, availability of raw materials and their related costs and competitive forces. Changes in accounting
pronouncements could also alter projected results. Forward-looking statements speak only as of the date they were made and we undertake no obligation to publicly update them.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The
Company is exposed to market risks related to commodity prices and interest rates. To manage interest rate risk, the Company has, from time to time, entered into interest rate swaps
as authorized by the Company's policies and procedures. The Company does not use swaps or hedging instruments for trading purposes, and is not a party to any transaction involving leveraged
derivatives. Effective December 17, 2001, the Company entered into an interest swap agreement to offset the majority of the floating interest rate characteristic of the Company's term loan
borrowings, see paragraph below. At December 29, 2001, the amount subject to this agreement is $15,000,000. See above discussion under Financial Condition, Liquidity and Capital Resources. The
cash payments or receipts associated with this agreement are recorded as adjustments to interest expense. The effect on the 2001 operations was immaterial.

Interest
Rates

The
Company utilizes revolving credit and term-loan facilities that bear interest at either prime or an adjusted LIBOR rate. The amount outstanding under these facilities
aggregated $16,000,000 at December 29, 2001. In addition, the Company is party to various capital lease agreements with fixed interest rates and original maturity dates ranging up to
60 months. As the latest of the leases matures in early 2004, and the total long-term portion of all leases is $520,000, the book and fair value was considered to be approximately
the same. See Note 4.

Commodities

The
Company purchases commodities, such as steel, copper, aluminum, cement and cardboard for packaging, at market prices and does not currently use financial instruments to hedge
commodity prices.

The
statements and other information in this section constitute forward-looking statements.

13

---

OBLIGATIONS
AND COMMITMENTS

The
following tables represent our obligations and commitments to make future payments under contracts, such as debt and lease agreements, and under contingent commitments, such as debt
guarantees, as of December 29, 2001.

Payments
Due by Period as of December 29, 2001 (amounts in thousands)

Contractual Obligations

Less than 1 year

1 - 3 years

4 - 5 years

After 5 years

TotalLong-term debt (See Note 4)

$
3,000

$
9,000

$
4,000

$


$
16,000Capital lease obligations (See Note 4)


619


520








1,139Operating leases (See Note 8)


1,856


3,061


1,250


5,070


11,237Minimum royalty agreement (See Note 8)


386


1,158


772


17,778


20,094Total Contractual Obligations

$
5,861

$
13,739

$
6,022

$
22,848

$
48,470


Amounts
of Commitment Expiration per Period as of December 29, 2001 (amounts in thousands)

Less than 1 year

1 - 3 years

4 - 5 years

After 5 years

TotalStandby letters of credit

$
1,725

$


$


$


$
1,725Reclamation bonds


4,026











4,026Total Commercial Commitments

$
5,751

$


$


$


$
5,751


14

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PAGEFinancial Statements and Schedule of Continental Materials Corporation and report thereon:Consolidated statements of operations and Retained earnings for fiscal years 2001, 2000 and 1999

16Consolidated statements of cash flows for fiscal years ended 2001, 2000 and 1999

17Consolidated balance sheets at December 29, 2001 and December 30, 2000

18Notes to consolidated financial statements

19 - 28Report of Independent Accountants

29


15

---



Continental Materials Corporation        Consolidated Statements of Operations and  Retained Earnings For Fiscal Years 2001, 2000 and 1999(Amounts in thousands, except per share data)

|                                     |                                                                       | 2001 |         | 2000   |   | 1999    |       
|------------------------------------ | --------------------------------------------------------------------- | ---- | ------- | ------ | - | ------- | ------
|Sales                                |                                                                       | $    | 130,211 |        | $ | 116,002 |       
|Freight costs                        |                                                                       |      | 5,793   |        |   | 5,714   |       
|                                     |                                                                       |      |         |        |   |         |       
|Net sales                            |                                                                       |      | 124,418 |        |   | 110,288 |       
|Costs and expenses                   |                                                                       |      |         |        |   |         |       
|                                     | Cost of sales (exclusive of depreciation, depletion and amortization) |      |         | 92,919 |   |         | 81,521
|                                     | Depreciation, depletion and amortization                              |      |         | 6,387  |   |         | 5,419 
|                                     | Selling and administrative                                            |      |         | 15,958 |   |         | 15,158
|                                     |                                                                       |      |         |        |   |         |       
|Operating income                     |                                                                       |      | 9,154   |        |   | 8,190   |       
|Interest expense                     |                                                                       |      | (937    | )      |   | (571    | )     
|Other income (expense), net          |                                                                       |      | 871     |        |   | 691     |       
|                                     |                                                                       |      |         |        |   |         |       
|Income before income taxes           |                                                                       |      | 9,088   |        |   | 8,310   |       
|Income tax provision                 |                                                                       |      | 2,650   |        |   | 2,975   |       
|                                     |                                                                       |      |         |        |   |         |       
|Net income                           |                                                                       |      | 6,438   |        |   | 5,335   |       
|Retained earnings, beginning of year |                                                                       |      | 48,138  |        |   | 42,803  |       
|                                     |                                                                       |      |         |        |   |         |       
|Retained earnings, end of year       |                                                                       | $    | 54,576  |        | $ | 48,138  |       
|                                     |                                                                       |      |         |        |   |         |       
|Basic earnings per share             |                                                                       | $    | 3.55    |        | $ | 2.86    |       
|                                     | Weighted average shares outstanding                                   |      |         | 1,812  |   |         | 1,869 
|Diluted earnings per share           |                                                                       | $    | 3.49    |        | $ | 2.81    |       
|                                     | Weighted average shares outstanding                                   |      |         | 1,845  |   |         | 1,901 

The
accompanying notes are an integral part of the financial statements.

16

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Continental Materials Corporation        Consolidated Statements of Cash Flows  For Fiscal Years 2001, 2000 and 1999(Amounts in thousands)

|                                                     |                                                                                  | 2001                                                 |         | 2000    |       | 1999   |       
|---------------------------------------------------- | -------------------------------------------------------------------------------- | ---------------------------------------------------- | ------- | ------- | ----- | ------ | ------
|Operating activities                                 |                                                                                  |                                                      |         |         |       |        |       
|Operating activities                                 |                                                                                  |                                                      |         |         |       |        |       
|                                                     | Net income                                                                       |                                                      | $       | 6,438   |       | $      | 5,335 
|                                                     | Adjustments to reconcile net income to net cash provided by operating activities |                                                      |         |         |       |        |       
|                                                     |                                                                                  | Depreciation, depletion and amortization             |         |         | 6,387 |        |       
|                                                     |                                                                                  | Deferred income tax provision                        |         |         | 6     |        |       
|                                                     |                                                                                  | Provision for doubtful accounts                      |         |         | 134   |        |       
|                                                     |                                                                                  | Tax benefit from exercise of stock options           |         |         | 32    |        |       
|                                                     |                                                                                  | (Gain) loss on disposition of property and equipment |         |         | (851  | )      |       
|                                                     |                                                                                  | Write-down of investment in mining partnership       |         |         |      |        |       
|                                                     | Changes in operating assets and liabilities                                      |                                                      |         |         |       |        |       
|                                                     |                                                                                  | Receivables                                          |         |         | (512  | )      |       
|                                                     |                                                                                  | Inventories                                          |         |         | 754   |        |       
|                                                     |                                                                                  | Prepaid expenses                                     |         |         | 33    |        |       
|                                                     |                                                                                  | Prepaid royalties                                    |         |         | (6    | )      |       
|                                                     |                                                                                  | Accounts payable and accrued expenses                |         |         | 1,152 |        |       
|                                                     |                                                                                  | Income taxes                                         |         |         | (398  | )      |       
|                                                     |                                                                                  | Other                                                |         |         | 50    |        |       
|                                                     |                                                                                  |                                                      |         |         |       |        |       
|Net cash provided by operating activities            |                                                                                  |                                                      | 13,219  |         |       | 10,021 |       
|                                                     |                                                                                  |                                                      |         |         |       |        |       
|Investing activities                                 |                                                                                  |                                                      |         |         |       |        |       
|                                                     | Purchase of Rocky Mountain Ready Mix Concrete, Inc. net of cash received         |                                                      |         | (11,263 | )     |        |      
|                                                     | Capital expenditures                                                             |                                                      |         | (9,213  | )     |        | (3,306
|                                                     | Proceeds from sale of property and equipment                                     |                                                      |         | 1,261   |       |        | 644   
|                                                     |                                                                                  |                                                      |         |         |       |        |       
|Net cash used in investing activities                |                                                                                  |                                                      | (19,215 | )       |       | (2,662 | )     
|                                                     |                                                                                  |                                                      |         |         |       |        |       
|Financing activities                                 |                                                                                  |                                                      |         |         |       |        |       
|                                                     | (Repayment) borrowings of revolving credit facility                              |                                                      |         |        |       |        | (1,600
|                                                     | Long-term borrowings                                                             |                                                      |         | 12,000  |       |        | 4,000 
|                                                     | Repayment of long-term debt                                                      |                                                      |         | (3,526  | )     |        | (1,152
|                                                     | Payment to purchase and cancel stock                                             |                                                      |         | (554    | )     |        |      
|                                                     | Proceeds from exercise of stock options                                          |                                                      |         | 39      |       |        | 32    
|                                                     | Payments to acquire treasury stock                                               |                                                      |         | (600    | )     |        | (2,770
|                                                     |                                                                                  |                                                      |         |         |       |        |       
|Net cash used in financing activities                |                                                                                  |                                                      | 7,359   |         |       | (1,490 | )     
|                                                     |                                                                                  |                                                      |         |         |       |        |       
|Net increase (decrease) in cash and cash equivalents |                                                                                  |                                                      | 1,363   |         |       | 5,869  |       
|Cash and cash equivalents                            |                                                                                  |                                                      |         |         |       |        |       
|                                                     | Beginning of year                                                                |                                                      |         | 6,216   |       |        | 347   
|                                                     |                                                                                  |                                                      |         |         |       |        |       
|                                                     | End of year                                                                      |                                                      | $       | 7,579   |       | $      | 6,216 
|                                                     |                                                                                  |                                                      |         |         |       |        |       
|Supplemental disclosures of cash flow items          |                                                                                  |                                                      |         |         |       |        |       
|                                                     | Cash paid during the year                                                        |                                                      |         |         |       |        |       
|                                                     |                                                                                  | Interest                                             |         | $       | 990   |        | $     
|                                                     |                                                                                  | Income taxes                                         |         |         | 3,011 |        |       

The
accompanying notes are an integral part of the financial statements.

17

---



Continental Materials Corporation        Consolidated Balance Sheets  December 29, 2001 and December 30, 2000(Amounts in
thousands except share data)

|                                                                                    |                                             | December 29, 2001               |                           | December 30, 2000 |      
|----------------------------------------------------------------------------------- | ------------------------------------------- | ------------------------------- | ------------------------- | ----------------- | -----
|ASSETS                                                                              |                                             |                                 |                           |                   |      
|Current assets                                                                      |                                             |                                 |                           |                   |      
|                                                                                    | Cash and cash equivalents                   |                                 | $                         | 7,579             |      
|                                                                                    | Receivables less allowance of $435 and $475 |                                 |                           | 18,291            |      
|                                                                                    | Inventories                                 |                                 |                           | 15,648            |      
|                                                                                    | Prepaid expenses                            |                                 |                           | 2,673             |      
|                                                                                    | Refundable income taxes                     |                                 |                           | 394               |      
|                                                                                    |                                             |                                 |                           |                   |      
|                                                                                    |                                             |                                 | Total current assets      |                   |      
|                                                                                    |                                             |                                 |                           |                   |      
|Property, plant and equipment:                                                      |                                             |                                 |                           |                   |      
|                                                                                    | Land and improvements                       |                                 |                           | 3,110             |      
|                                                                                    | Buildings and improvements                  |                                 |                           | 14,699            |      
|                                                                                    | Machinery and equipment                     |                                 |                           | 67,336            |      
|                                                                                    | Mining properties                           |                                 |                           | 4,909             |      
|                                                                                    | Less accumulated depreciation and depletion |                                 |                           | (57,807           | )    
|                                                                                    |                                             |                                 |                           |                   |      
|                                                                                    |                                             |                                 | 32,247                    |                   |      
|                                                                                    |                                             |                                 |                           |                   |      
|Other assets:                                                                       |                                             |                                 |                           |                   |      
|                                                                                    | Goodwill                                    |                                 |                           | 6,474             |      
|                                                                                    | Non-compete agreements                      |                                 |                           | 1,366             |      
|                                                                                    | Prepaid royalties                           |                                 |                           | 647               |      
|                                                                                    | Other                                       |                                 |                           | 744               |      
|                                                                                    |                                             |                                 |                           |                   |      
|                                                                                    |                                             | $                               | 86,063                    |                   | $    
|                                                                                    |                                             |                                 |                           |                   |      
|LIABILITIES                                                                         |                                             |                                 |                           |                   |      
|Current liabilities                                                                 |                                             |                                 |                           |                   |      
|                                                                                    | Current portion of long-term debt           |                                 | $                         | 3,620             |      
|                                                                                    | Accounts payable                            |                                 |                           | 5,174             |      
|                                                                                    | Income taxes                                |                                 |                           | 308               |      
|                                                                                    | Accrued expenses                            |                                 |                           |                   |      
|                                                                                    |                                             | Compensation                    |                           |                   | 3,274
|                                                                                    |                                             | Reserve for self-insured losses |                           |                   | 2,156
|                                                                                    |                                             | Profit sharing                  |                           |                   | 2,611
|                                                                                    |                                             | Other                           |                           |                   | 2,896
|                                                                                    |                                             |                                 |                           |                   |      
|                                                                                    |                                             |                                 | Total current liabilities |                   |      
|                                                                                    |                                             |                                 |                           |                   |      
|Long-term debt                                                                      |                                             |                                 | 13,520                    |                   |      
|Deferred income taxes                                                               |                                             |                                 | 2,511                     |                   |      
|Accrued reclamation                                                                 |                                             |                                 | 936                       |                   |      
|Other long-term liabilities                                                         |                                             |                                 | 1,335                     |                   |      
|Commitments and contingencies (Notes 5 and 8)                                       |                                             |                                 |                           |                   |      
|SHAREHOLDERS' EQUITY                                                                |                                             |                                 |                           |                   |      
|Common shares, $.25 par value; authorized 3,000,000 shares; issued 2,574,264 shares |                                             |                                 | 643                       |                   |      
|Capital in excess of par value                                                      |                                             |                                 | 1,982                     |                   |      
|Retained earnings                                                                   |                                             |                                 | 54,576                    |                   |      
|Treasury shares, at cost                                                            |                                             |                                 | (9,479                    | )                 |      
|                                                                                    |                                             |                                 |                           |                   |      
|                                                                                    |                                             |                                 | 47,722                    |                   |      
|                                                                                    |                                             |                                 |                           |                   |      
|                                                                                    |                                             | $                               | 86,063                    |                   | $    
|                                                                                    |                                             |                                 |                           |                   |      

The accompanying notes are an integral part of the financial statements.

18

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Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES
OF CONSOLIDATION

The
consolidated financial statements include Continental Materials Corporation and all of its subsidiaries including Rocky Mountain Ready Mix Concrete, Inc. (RMRM) from
December 31, 2000 (the Company).

On
December 31, 2000, the Company acquired RMRM for $11,263,000 net of cash received. The purchase of RMRM has been accounted for as a purchase. The total purchase price and the
fair value of liabilities assumed have been allocated to the tangible and intangible assets of RMRM based on respective fair values. The acquisition has resulted in an unallocated excess purchase
price over fair value of net assets acquired of $6,630,000 which has been classified as goodwill. The assigned useful life was 40 years, however, with the adoption of Statements of Financial
Accounting Standards (SFAS) No. 142, the amortization of the goodwill will cease as of December 30, 2001. Had the acquisition occurred as of January 2, 2000, the unaudited
pro-forma results of the Company would have been sales of $129,963,000, net income of $5,536,000 and diluted earnings per share of $2.91 for the year ended December 30, 2000. These pro-forma
results have been prepared for comparative purposes only and do not purport to be indicative of what would have occured had the acquisition been made at the beginning of the period presented, or the
results which may occur in the future.

Certain
prior years' amounts have been reclassified to conform to the current presentation.

RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS

Emerging
Issues Task Force (EITF) issued EITF No. 00-10 which the Company adopted during 2000. In accordance with EITF 00-10, "Sales" are reported prior to
deduction of freight costs, traditionally netted by the Company against sales in arriving at "Net sales."

EITF
No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)" addresses the recognition, measurement
and statement of earnings classification for certain sales incentives and other expenses. The Company has two types of customer programs that are considered within the scope of this statement; volume
rebate incentives and cooperative advertising. The Company early adopted EITF 01-09 as both programs have historically been recorded as required by the new pronouncement. Volume rebate
incentives are classified as a reduction of sales while cooperative advertising is classified as a marketing expenditure included within "selling and administrative" expenses as the advertising
arrangements meet the requirement of receipt of a separable and measurable benefit.

The
Financial Accounting Standards Board issued (SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets". Effective January 1,
2002, the Company will no longer be required to amortize goodwill as a charge to earnings. In addition, we will be required to annually review goodwill for potential impairment. The Company does have
certain finite lived identifiable intangible assets that will continue to be amortized over their estimated useful economic lives. These finite lived identifiable intangible assets will continue to be
assessed for impairment under SFAS No. 121, "Accounting for Certain Long-Lived Assets". As a result of adopting this new standard, we currently anticipate that amortization expense
will be reduced by approximately $156,000 (pre-tax) on an annual basis.

SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" and its related amendment SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" were adopted by the Company effective December 31, 2000. These statements establish accounting and reporting standards for derivative instruments, including hedging
activities of the nature the Company entered into on December 17, 2001. These statements require recognition of all derivatives as either assets or liabilities on the balance sheet and the
measurement of those instruments at fair value.

19

---

SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," was issued in August 2001 and is effective for fiscal years beginning after
December 15, 2001. The Statement clarifies and revises existing guidance on accounting for the impairment or disposal of long-lived assets such as property, plant and equipment,
amortized intangibles and other long-lived assets not specifically addressed in other accounting literature. We plan to adopt the standard at the beginning of 2002. We do not expect the
adoption of this standard will have a significant impact on our 2002 financial results.

USE
OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities as of December 29, 2001 and December 30, 2000 and the reported amounts of revenues and expenses during each
of the three years in the period ended December 29, 2001. Actual results could differ from those estimates.

CASH
AND CASH EQUIVALENTS

The
Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

INVENTORIES

Inventories
are valued at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for approximately 84% of total inventories at
December 29, 2001 (86% at December 30, 2000). The cost of all other inventory is determined by the first-in, first-out (FIFO) method.

PROPERTY,
PLANT AND EQUIPMENT

Property,
plant and equipment are carried at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method as follows:

Buildings

10 to 31 yearsLeasehold improvements

Terms of leasesMachinery and equipment

3 to 10 years


Depletion
of rock and sand deposits and amortization of deferred development costs are computed by the units-of-production method based upon estimated recoverable
quantities of rock and sand. The estimated recoverable quantities are periodically reassessed.

The
cost of property sold or retired and the related accumulated depreciation, depletion and amortization are removed from the accounts and the resulting gain or loss is reflected in
other income. Maintenance and repairs are charged to expense as incurred. Major renewals and betterments are capitalized and depreciated over their useful lives.

OTHER
ASSETS

Amortization
of certain other assets is computed on a straight-line basis over periods of 5 and 10 years.

RETIREMENT
PLANS

The
Company and certain subsidiaries have various contributory profit sharing retirement plans for specific employees. The plans allow qualified employees to make tax deferred
contributions pursuant to Internal Revenue Code Section 401(k). The Company makes annual contributions, at its discretion, based primarily on profitability. Costs under the plans are charged to
operations as incurred.

20

---

RESERVE
FOR SELF-INSURED LOSSES

The
Company's risk management program provides for certain levels of loss retention for workers' compensation, automobile liability and general and product liability claims. The
components of the reserve have been recorded in accordance with the requirements of Statement of Financial Accounting Standards (SFAS) No. 5, "Accounting for Contingencies," and represent
management's best estimate of future liability.

RECLAMATION

In
connection with permits to mine properties in Colorado, the Company is obligated to reclaim the mined areas. Reclamation costs are calculated using a rate based on the total estimated
reclamation costs, units of production and estimates of recoverable reserves. Reclamation costs are charged to operations as the properties are mined.

REVENUE
RECOGNITION

The
Company generally recognizes revenue as products are shipped to customers. The amount is recorded net of applicable provisions for discounts, volume incentives, returns and
allowances. At the time of revenue recognition, the Company also provides an estimate of potential bad debt and warranty expense as well as an amount anticipated to be granted to customers under
cooperative advertising programs based upon historical experience.

INCOME
TAXES

Income
taxes are reported consistent with SFAS No. 109, "Accounting for Income Taxes." Deferred taxes reflect the future tax consequences associated with the differences between
financial accounting and tax bases of assets and liabilities.

CONCENTRATION
OF CREDIT RISK

Financial
instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables and temporary cash investments. The Company
invests its excess cash in government securities. The Company has not experienced any losses on these investments.

The
Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses and such losses
have been within management's expectations. See Note 12 for a description of the Company's customer base and geographical location by segment.

IMPAIRMENT
OF LONG-LIVED ASSETS

In
the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability would be performed. If an
evaluation were required, the estimated
future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to market value or discounted cash flow value is
required. SFAS No. 144, discussed above, clarifies and revises existing guidance for accounting for the impairment of long-lived assets and will generally be effective for the
Company on a prospective basis.

FISCAL
YEAR END

The
Company's fiscal year end is the Saturday nearest December 31. Fiscal 2001, 2000 and 1999 each consist of 52 weeks.

21

---

2. INVENTORIES

Inventories
consisted of the following (amounts in thousands):

December 29, 2001

December 30, 2000Finished goods

$
7,710

$
6,595Work in process


1,587


1,720Raw materials and supplies


6,351


7,699$
15,648

$
16,014


If
inventories valued on the LIFO basis were valued at current costs, inventories would be higher as follows: 2001$1,842,000, 2000$1,942,000,
1999$1,713,000.

Reduction
in inventory quantities during 2001 at one of the locations resulted in liquidation of LIFO inventory layers carried at costs that were lower than the costs of current
purchases. The effect was immaterial.

3. INVESTMENT IN MINING PARTNERSHIP

The
Company has a 30% ownership interest in ORMP, a general partnership, which operated a copper mine primarily situated in Pima County, Arizona.

Production
at the mine was halted in February 1996. Although the Partners are attempting to sell the mine, continued low prices of copper makes it unlikely that the property will
be sold. In accordance with SFAS No. 121, the remaining investment in the mining partnership was written off as of January 1, 2000. The related impairment loss of $100,000 is included in
the $156,000 loss recorded for 1999. The losses are included in "Other income (expense), net" in the Consolidated Statements of Operations. Future cash contributions to ORMP for carrying costs will be
expensed when made.

4. LONG-TERM DEBT

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

December 29, 2001

December 30, 2000Unsecured term loan

$
16,000

$
7,000Capital leases


1,140


30517,140


7,305Less current portion


3,620


2,158$
13,520

$
5,147


The
unsecured term loan was amended as of January 2, 2001 to provide funding for the acquisition of RMRM. It is payable to two banks in semi-annual
installments with final principal payment due December 15, 2006. The loan, at the Company's option, bears interest at either prime or an adjusted LIBOR rate.

The
term loan agreement requires the Company to maintain certain levels of consolidated tangible net worth, to attain certain levels of cash flow (as defined) on a rolling
four-quarter basis, and to maintain certain ratios including consolidated debt to cash flow (as defined). Additional borrowing, acquisition of stock of other companies, purchase of
treasury shares and payment of cash dividends are either limited or require prior approval by the lenders.

Effective
December 17, 2001, the Company entered into an interest rate swap agreement (Agreement) in order to fix the floating interest rate characteristic of most of the
Company's term loan borrowings. The Company's current interest rate under the Agreement is 5.78%. Such rate is subject to adjustment depending upon the Company's performance. Cash payments or receipts
associated with this agreement are recorded as adjustments to interest

22

---

expense. The fair value of the Agreement is recorded on the balance sheet with subsequent changes recorded as a separate component of shareholders' equity. The effect on the 2001 operations was
immaterial. At December 29, 2001, the amount subject to this Agreement is $15,000,000 which amount decreases by $1,500,000 each September and March, terminating on December 18, 2006.

The
capital leases are payable in monthly installments over varying period, the latest of which ends in April 2004. The leases bear interest at various rates based upon the
prevailing interest rates at the inception of the respective leases.

Aggregate
long-term debt matures as follows (amounts in thousands):

2002

$
3,6202003


3,3642004


3,1562005


3,0002006


4,000$
17,140


During
2001 and 2000, the Company had an unsecured revolving line of credit of $10,000,000. The line is with two banks and is used for short-term cash needs and standby
letters of credit. Interest was charged at prime or adjusted LIBOR rates on cash borrowings during both years. The weighted average interest rate was 6.0% for fiscal 2001 and 7.8% for fiscal 2000.
There was no balance outstanding against the line as of either December 29, 2001 or December 30, 2000.

At
December 29, 2001, the Company had letters of credit outstanding totaling approximately $1,725,000 that collateralize the self-insured losses.

5. COMMITMENTS AND CONTINGENCIES

The
Company is involved in litigation matters related to its continuing business, principally product liability matters related to the gas-fired heating products. In the
Company's opinion, none of these proceedings, when concluded, will have a material adverse effect on the Company's results of operations or financial position as the Company has established adequate
reserves for known occurrences.

6. SHAREHOLDERS' EQUITY

The
shareholders approved an amendment to the Restated Certificate of Incorporation at the May 26, 1999 annual meeting effecting a reverse 1-for-50 stock
split followed immediately by a forward 100-for-1 stock split of the Company's Common Stock. As permitted by Delaware law, registered stockholders whose shares of stock were
converted into less than one share in the reverse 1-for-50 split received the right to receive cash equal to the fair value of those fractional interests. Registered
stockholders whose shares of Common Stock, $.50 par value, converted into more than one share in the reverse split
received, in the forward 100-for-1 split, a number of shares of Common Stock, $.25 par value, equal to 100 times the number of shares and fractional shares held after the
reverse split. In other words, all registered stockholders originally holding 50 or more shares of Common Stock, $.50 par value, immediately prior to the effective date of the transaction hold twice
the number of shares of Common Stock, $.25 par value, immediately subsequent to the transaction. The reverse and forward stock splits, together with the related cash payments to stockholders with
small holdings, is referred to below as the "stock split." The effective date of the stock split was June 7, 1999.

23

---

Under
the Company's Stock Option Plan (the Plan), officers and key employees may be granted options to purchase the Company's common stock at option prices established by the
Compensation Committee of the Board of Directors provided the option price is no less than the fair market value at the date of the grant. The Company has reserved 360,000 shares for distribution
under the Plan.

During
2001, 2000 and 1999, options for 6,000, 31,000 and 22,000 shares, respectively, were exercised. Per the agreement, 400 reload options were automatically granted during 1999 when
one of the individuals paid a portion of the option price by delivery of shares of the Company's common stock. The exercise price of these reload options is $23.125, the market price of the stock on
the date the reload option was granted. The reload options are vested and retain all terms of the original options, including the expiration date. At December 29, 2001, there remain 73,400
options which will expire on September 25, 2005.

The
Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its Plan. Accordingly, no
compensation expense was recognized for its stock-based compensation Plan. Had compensation cost for the reload options been determined based on the fair value at the grant date consistent with the
methodology proscribed under SFAS No. 123, "Accounting for Stock-Based Compensation," the effect on the Company's net income and earnings per share would not have been significant.

The
following is the common shares and capital in excess of par value activity during 1999, 2000 and 2001.

Common Shares

Common shares amount

Capital in excess of par valueBalance at January 2, 1999

1,326,588

$
663

$
3,484Effect of reverse split

(39,456
)

(20
)

(1,575
)Effect of forward split

1,287,132





Common shares issued under the Stock Option Plan (from treasury)







(26
)Tax benefit from exercise of options







100Balance at January 1, 2000

2,574,264


643


1,983Common shares issued under the Stock Option Plan (from treasury)







(172
)Tax benefit from exercise of options







174Balance at December 30, 2000

2,574,264


643


1,985Common shares issued under the Stock Option Plan (from treasury)







(36
)Tax benefit from exercise of options







32Balance at December 29, 2001

2,574,264

$
643

$
1,981


24

---

The
Board of Directors of the Company has, from time to time, authorized various amounts to be utilized in acquiring treasury shares. Treasury share activity during 1999, 2000 and 2001
was as follows (dollars in thousands and shares restated for the stock split):

Number of shares

CostBalance at January 2, 1999

508,434

$
3,810Purchase of treasury shares

139,574


2,746Issuance of treasury shares related to the Stock Option Plan

(22,000
)

(170
)Balance at January 1, 2000

626,008


6,386Purchase of treasury shares

146,032


2,770Issuance of treasury shares related to the Stock Option Plan

(31,000
)

(203
)Balance at December 30, 2000

741,040


8,953Purchase of treasury shares

33,127


600Issuance of treasury shares related to the Stock Option Plan

(6,000
)

(74
)Balance at December 29, 2001

768,167

$
9,479


Four
hundred thousand shares of preferred stock ($.50 par value) are authorized and unissued.

7. EARNINGS PER SHARE

The
Company computes earnings per share (EPS) in accordance with SFAS No. 128, "Earnings Per Share." The following is a reconciliation of the calculation of basic and diluted EPS
for the years-ended 2001, 2000 and 1999 (dollars in thousands and shares restated for the stock split).

Net Income

Weighted average shares

Per-share earnings2001Basic EPS

$
6,438

1,812

$
3.55Effect of dilutive options




33Diluted EPS

$
6,438

1,845

$
3.492000Basic EPS

$
5,335

1,869

$
2.86Effect of dilutive options




32Diluted EPS

$
5,335

1,901

$
2.811999Basic EPS

$
6,902

2,035

$
3.39Effect of dilutive options




47Diluted EPS

$
6,902

2,082

$
3.32


8. RENTAL EXPENSE, LEASES AND COMMITMENTS

The
Company leases certain of its facilities and equipment and is required to pay the related taxes, insurance and certain other expenses. Rental expense was $3,282,000, $2,727,000 and
$2,460,000 for 2001, 2000 and 1999, respectively.

25

---

Future
minimum rental commitments under non-cancelable operating leases for 2002 and thereafter are as follows: 2002$2,242,000; 2003$1,659,000;
2004$1,438,000; 2005$1,123,000; 2006$1,011,000 and thereafter$23,859,000. Included in these amounts is $386,000 per year and approximately
$18,163,000 in the "thereafter" amount related to an aggregates lease in conjunction with the Pueblo, Colorado operation. Also included in these amounts is $235,000 per year and approximately
$1,117,000 in the "thereafter" amount related to a ground lease upon which the Company owns a building leased to a third party for approximately $145,000 per year through January 2003 and
$344,000 per year thereafter. The ground lease runs through October 1, 2016 and contains a renewal clause. The building lease runs through January 31, 2013.

9. RETIREMENT PLANS

As
discussed in Note 1, the Company maintains retirement benefit plans for eligible employees. Total plan expenses charged to operations were $2,464,000, $2,375,000 and $2,783,000
in 2001, 2000 and 1999, respectively.

10. INCOME TAXES

The
provision (benefit) for income taxes is summarized as follows (amounts in thousands):

2001

2000

1999Federal:

Current

$
2,457

$
2,156

$
3,221Deferred


(144
)

477


98State:

Current


187


287


510Deferred


150


55


11$
2,650

$
2,975

$
3,840


The
difference between the tax rate on income for financial statement purposes and the federal statutory tax rate was as follows:

2001

2000

1999Statutory tax rate

34.0
%
34.0
%
34.0
%Percentage depletion

(1.4
)
(1.4
)
(1.8
)State income taxes, net of federal benefit

1.4

3.0

3.0Non-deductible expenses

.7

.2

.1Benefit of state tax credits

(5.0
)


Other

(.5
)


.429.2
%
35.8
%
35.7
%


For
financial statement purposes, deferred tax assets and liabilities are recorded at a blend of the current statutory federal and states' tax rates38%. The
principal temporary differences and their related deferred taxes are as follows (amounts in thousands):

2001

2000Reserves for self-insured losses

$
911

$
1,012Deferred compensation


445


469Asset valuation reserves


1,002


1,041Other


74


35Total deferred tax assets


2,432


2,557Depreciation


2,854


1,953Other


524


708Total deferred tax liabilities


3,378


2,661Net deferred tax (liability) asset

$
(946
)
$
(104
)


26

---

The
net current deferred tax assets are $1,565 and $1,494 at year-end 2001 and 2000, respectively, and are included with "Prepaid expenses" on the
Consolidated Balance Sheets.

11. UNAUDITED QUARTERLY FINANCIAL DATA

The
following table provides summarized unaudited fiscal quarterly financial data for 2001 and 2000 (amounts in thousands, except per share amounts; per share data restated for the stock
split):

First
quarter

Second
quarter

Third
quarter

Fourth
quarter2001Sales

$
27,102

$
32,934

$
31,350

$
34,401Gross profit


4,501


6,687


7,192


7,433Depreciation, depletion and amortization


1,651


1,631


1,589


1,516Net income


(81
)

1,167


1,936


3,416Basic income per share


(.04
)

.64


1.07


1.89Diluted income per share


(.04
)

.63


1.05


1.86


First
quarter

Second
quarter

Third
quarter

Fourth
quarter2000Sales

$
25,350

$
30,232

$
29,186

$
31,234Gross profit


4,715


6,057


5,955


7,331Depreciation, depletion and amortization


1,352


1,371


1,605


1,091Net income


383


1,040


939


2,973Basic income per share


.20


.56


.50


1.61Diluted income per share


.20


.55


.49


1.59


Earnings
per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share may not equal the total for the year. The fourth
quarter results for 2000, as compared to 2001, were positively affected by adjustments to maintenance costs in the construction materials segment.

12. INDUSTRY SEGMENT INFORMATION

The
Company reports its segments in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company is organized along its two
principal product lines. Wall furnaces, console heaters, evaporative coolers and fan coils have been aggregated into the heating and air conditioning segment. Ready mix concrete, construction
aggregates, building supplies and doors are combined to form the construction materials segment. The heating and air conditioning segment produces heating and cooling equipment for residential
applications which is sold primarily to wholesale distributors and retail home centers. Fan coils are also sold to HVAC installing contractors and equipment manufacturers for commercial applications.
A significant portion of fan coil revenues is dependent upon new hotel construction. Sales are nationwide, but are concentrated in the southwestern U.S. The construction materials segment is involved
in the production and sale of concrete and other building materials and the exploration, extraction and sales of construction aggregates. Sales of this segment are confined to the Front Range area in
Colorado.

The
Company evaluates the performance of its segments and allocates resources to them based on operating income and return on investment. Other factors are also considered. Operating
income is determined by deducting operating expenses from all revenues. In computing operating income, none of the following has been added or deducted: unallocated corporate expenses, interest,
income or loss from unconsolidated investees, other income or loss or income taxes.

27

---

The
following table presents information about reported segments for the fiscal years 2001, 2000 and 1999 along with the items necessary to reconcile the segment information to the
totals reported in the financial statements (amounts in thousands).

|                                         |  | Heating and air conditioning |        | Construction
materials(a) |   | All other(b) |  | Unallocated corporate(c) |     | Total
|---------------------------------------- |  | ---------------------------- | ------ | ------------------------- | - | ------------ |  | ------------------------ | --- | -----
|2001                                     |  |                              |        |                           |   |              |  |                          |     |      
|Revenues from external customers         |  | $                            | 51,254 |                           | $ | 78,809       |  | $                        | 145 |      
|Depreciation, depletion and amortization |  |                              | 1,155  |                           |   | 5,156        |  |                          |    |      
|Segment operating income                 |  |                              | 5,257  |                           |   | 6,881        |  |                          | 28  |      
|Segment assets                           |  |                              | 30,446 |                           |   | 46,549       |  |                          | 38  |      
|Expenditures for segment assets          |  |                              | 2,572  |                           |   | 6,592        |  |                          |    |      
|2000                                     |  |                              |        |                           |   |              |  |                          |     |      
|Revenues from external customers         |  | $                            | 49,083 |                           | $ | 66,771       |  | $                        | 145 |      
|Depreciation, depletion and amortization |  |                              | 1,220  |                           |   | 4,117        |  |                          | 22  |      
|Segment operating income                 |  |                              | 5,002  |                           |   | 6,144        |  |                          | 45  |      
|Segment assets                           |  |                              | 28,868 |                           |   | 31,536       |  |                          | 36  |      
|Expenditures for segment assets          |  |                              | 651    |                           |   | 2,586        |  |                          |    |      
|1999                                     |  |                              |        |                           |   |              |  |                          |     |      
|Revenues from external customers         |  | $                            | 56,768 |                           | $ | 66,966       |  | $                        | 145 |      
|Depreciation, depletion and amortization |  |                              | 1,181  |                           |   | 3,758        |  |                          | 22  |      
|Segment operating income                 |  |                              | 7,793  |                           |   | 7,001        |  |                          | 43  |      
|Segment assets                           |  |                              | 31,568 |                           |   | 34,157       |  |                          | 65  |      
|Expenditures for segment assets          |  |                              | 2,640  |                           |   | 6,262        |  |                          |    |      

---

All
long-lived assets are in the United States and no customer accounts for 10% or more of consolidated revenue, although a large retail customer accounted for more than 10%
of the sales of the Heating and Air Conditioning segment.

28

---

REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Continental Materials Corporation

In
our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and retained earnings and cash flows present fairly, in all material
respects, the financial position of Continental Materials Corporation and its subsidiaries at December 29, 2001 and December 30, 2000, and the results of their operations and their cash
flows for each of the three years in the period ended December 29, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements
in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers
LLP

Chicago,
Illinois
March 11, 2002

29

---



Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no changes of accountants and/or disagreements on any matter of accounting principle or financial statement disclosure during the past
24 months which would require a filing under Item 9.

PART III

Part III
(Items 10, 11, 12,and 13) has been omitted from this 10-K Report since Registrant will file, not later than 120 days following the close of its
fiscal year ended December 29, 2001, its definitive 2002 proxy statement. The information required by Part III will be included in that proxy statement and such information is hereby
incorporated by reference, but excluding the information under the headings "Compensation Committee Report" and "Comparison of Total Shareholders' Return".

PART IV

Item 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



All
other schedules are omitted because they are not applicable or the information is shown in the financial statements or notes thereto.

30

---

|Exhibit 3   |  | 1975 Restated Certificate of Incorporation dated May 28, 1975 filed as Exhibit 5 to Form 8-K for the month of May 1975, incorporated herein by reference.                                                                                                                                                                                                      
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 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.                                                                                                                                                                                                           
|Exhibit 3b  |  | Registrant's Certificate of Amendment of Certificate of Incorporation dated May 24, 1978 filed as Exhibit 1 to Form 10-Q for quarter ended June 30, 1978, incorporated herein by reference.                                                                                                                                                                    
|Exhibit 3c  |  | Registrant's Certificate of Amendment of Certificate of Incorporation dated May 27, 1987 filed as Exhibit 3c to Form 10-K for the year ended January 1, 1988, incorporated herein by reference.                                                                                                                                                                
|Exhibit 3d  |  | Registrant's Certificate of Amendment of Restated Certificate of Incorporation dated June 4, 1999 filed as Exhibit 1 to Form 8-K for the month of June 1999, incorporated herein by reference.                                                                                                                                                                 
|Exhibit 10  |  | Continental Materials Corporation Amended and Restated 1994 Stock Option Plan dated May 25, 1994 filed as Appendix A to the 1994 Proxy Statement, incorporated herein by reference.*                                                                                                                                                                           
|Exhibit 10a |  | Revolving Credit and Term Loan Agreement between The Northern Trust Company, LaSalle National Bank and Continental Materials Corporation dated as of October 21, 1996 filed as Exhibit 2D to Form 8-K for the month of
October 1996 and the Amendment thereto filed as Exhibit 2B to Form 8-K for the month of December 2000, incorporated herein by reference.
|Exhibit 10b |  | Acquisition Agreement Between Valco Properties, Ltd. And Continental Materials Corporation filed as Exhibit 2A to Form 8-K for the month October 1996, incorporated herein by reference.                                                                                                                                                                       
|Exhibit 10c |  | Non-Competition and Non-Disclosure Agreement by Valco, Inc. And Thomas E. Brubaker in favor of Continental Materials Corporation filed as Exhibit 2B to Form 8-K for the month of October 1996, incorporated herein by
reference.                                                                                                                              
|Exhibit 10d |  | Fee Sand and Gravel Lease Between Valco, Inc. And Continental Materials Corporation filed as Exhibit 2C to Form 8-K for the month of October 1996, incorporated herein by reference.                                                                                                                                                                           
|Exhibit 10e |  | Form of Supplemental Deferred Compensation Agreement filed as Exhibit 10 to Form 10-Q for the quarter ended July 1, 1983, incorporated herein by reference.*                                                                                                                                                                                                   
|Exhibit 10f |  | Stock Purchase Agreement By and Among Continental Materials Corporation, Rocky Mountain Ready Mix Concrete, Inc. and The Shareholders of Rocky Mountain Ready Mix Concrete, Inc. Filed as Exhibit 2A to Form 8-K for the
month of December 2000, incorporated herein by reference.                                                                             
|Exhibit 21  |  | Subsidiaries of Registrant (filed herewith).                                                                                                                                                                                                                                                                                                                   
|Exhibit 23  |  | Consent of Independent Accountants (filed herewith).                                                                                                                                                                                                                                                                                                           
|Exhibit 99a |  | Continental Materials Corporation Employee Profit Sharing Retirement Plan Amended and Restated Generally Effective October 1, 1997 filed as Exhibit 99a to Form 10-K for the year ended January 1, 2000, incorporated herein
by reference.*                                                                                                                    
|Exhibit 99b |  | Continental Materials Corporation Employees Profit Sharing Retirement Plan on Form 11-K for the year ended December 29, 2001 (to be filed by amendment).                                                                                                                                                                                                       

---

31

---

No
reports on Form 8-K were filed during the quarter ended December 29, 2001.

SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

| |  | CONTINENTAL MATERIALS CORPORATIONRegistrant
| |  | -------------------------------------------
| |  | By:                                        

Date:
March 28, 2002

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|SIGNATURE                                   |  | CAPACITY(IES)                          |  | DATE          
|------------------------------------------- |  | -------------------------------------- |  | --------------
|                                            |  |                                        |  |               
|/s/JAMES G. GIDWITZJames G. Gidwitz         |  | Chief Executive Officer
And a Director |  | March 28, 2002
|/s/JOSEPH J. SUMJoseph J. Sum               |  | Vice President
And a Director          |  | March 28, 2002
|/s/MARK S. NICHTERMark S. Nichter           |  | Secretary and Controller               |  | March 28, 2002
|/s/THOMAS H. CARMODYThomas H. Carmody       |  | Director                               |  | March 28, 2002
|/s/BETSY R. GIDWITZBetsy R. Gidwitz         |  | Director                               |  | March 28, 2002
|/s/RALPH W. GIDWITZRalph W. Gidwitz         |  | Director                               |  | March 28, 2002
|/s/RONALD J. GIDWITZRonald J. Gidwitz       |  | Director                               |  | March 28, 2002
|/s/THEODORE R. TETZLAFFTheodore R. Tetzlaff |  | Director                               |  | March 28, 2002
|/s/PETER E. THIERIOTPeter E. Thieriot       |  | Director                               |  | March 28, 2002
|/s/DARRELL M. TRENTDarrell M. Trent         |  | Director                               |  | March 28, 2002

32

---

REPORT OF INDEPENDENT ACCOUNTANTS ON  FINANCIAL STATEMENT SCHEDULE

To
the Board of Directors and Shareholders of Continental Materials Corporation

Our
audits of the consolidated financial statements referred to in our report dated March 11, 2002 appearing in the 2001 Annual Report to Shareholders of Continental Materials
Corporation also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly,
in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers
LLP

Chicago,
Illinois
March 11, 2002

---

CONTINENTAL MATERIALS CORPORATIONSCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS AND RESERVES (c) (d)for the fiscal years 2001, 2000 and 1999

|COLUMN A                           |  | COLUMN B |         | COLUMN C(1) |   | COLUMN D |   | COLUMN E
|---------------------------------- |  | -------- | ------- | ----------- | - | -------- | - | --------
|
|Year 2001                          |  |          |         |             |   |          |   |         
|Allowance for doubtful accounts(e) |  | $        | 486,000 |             | $ | 134,000  |   | $       
|                                   |  |          |         |             |   |          |   |         
|Inventory valuation reserve        |  | $        | 443,000 |             | $ | 33,000   |   | $       
|                                   |  |          |         |             |   |          |   |         
|Year 2000                          |  |          |         |             |   |          |   |         
|Allowance for doubtful accounts    |  | $        | 800,000 |             | $ | (110,000 | ) | $       
|                                   |  |          |         |             |   |          |   |         
|Inventory valuation reserve        |  | $        | 568,000 |             | $ | 14,000   |   | $       
|                                   |  |          |         |             |   |          |   |         
|Year 1999                          |  |          |         |             |   |          |   |         
|Allowance for doubtful accounts    |  | $        | 775,000 |             | $ | 486,000  |   | $       
|                                   |  |          |         |             |   |          |   |         
|Inventory valuation reserve        |  | $        | 504,000 |             | $ | 127,000  |   | $       
|                                   |  |          |         |             |   |          |   |         

---

Notes:

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