<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
                                   (Mark One)

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

                    For the fiscal year ended January 2, 1999

                                       OR

                |_| 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

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


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

     225 West Wacker Drive, Suite 1800                 60606
            Chicago, Illinois                        (Zip Code)
 (Address of principal executive offices)

Registrant's telephone number, including area code 312-541-7200

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


         TITLE OF EACH CLASS               NAME OF EACH EXCHANGE ON WHICH
                                                     REGISTERED
       Common Stock - $.50 par value         American Stock Exchange

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

     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   X    No 
                                                    ----     -----  
     Indicate by check mark if disclosure of delinquent filers pursuant to 
Item 405 of Regulation S-K is not contained herein, and will notbe 
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. [ ]

     The aggregate market value (based on March 26, 1999 closing price) of
voting stock held by non-affiliates of registrant: Approximately $21,841,000.

     Number of common shares outstanding at March 26, 1999: 1,057,251.

     Incorporation by reference: Portions of registrant's definitive proxy 
statement for the 1999 Annual meeting of stockholders to be held on May 26, 
1999 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 27 hereof.

                                       1


<PAGE>

NOTE: References to a "Note" are to the Notes to Consolidated Financial
      Statements which are included on pages 16 through 24 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 purchase of substantially all of the assets of Valco, 
Inc.'s (Valco) ready-mix concrete and aggregates operation in Pueblo, 
Colorado on October 21, 1996. The Company formed a new subsidiary, Transit 
Mix of Pueblo, Inc. to hold and operate these acquired assets.

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 is comprised of wall furnaces, 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 Construction Materials segment is comprised of 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.

In addition to the above operating segments, an Other classification is 
utilized to cover 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.

The Company has a 30% interest in Oracle Ridge Mining Partners (ORMP). ORMP 
is a general partnership that owns an inactive copper mine near Tucson, 
Arizona. The Company is not the managing partner of ORMP and thus its 
operations are accounted for on the equity method with the Company's share of 
ORMP's operations presented in the other income and expense section of the 
Company's operating statements. See Note 4 on page 19 for further discussion 
of the Company's accounting for and valuation of the investment in ORMP.

Financial information relating to industry segments appears in Note 13 on 
pages 23 and 24 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 direct 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 small 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 September 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 (dating) are offered to 
customers.

                                       2

<PAGE>

The Construction Materials segment markets its products primarily through its 
own direct sales representatives and confines its sales to the Front Range 
area in southern Colorado. Sales are made to 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 1998, no customer accounted for 10% or more of the total sales of the 
Company.

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 January 2, 1999 and January 3, 1998 for the Heating and 
Air Conditioning segment were as follows:

<TABLE>
<CAPTION>

                                      January 2, 1999               January 3, 1998
                                   ----------------------        ------------------------
<S>                                   <C>                             <C>
     Furnaces                          $     900,000                   $  1,226,000
     Console heaters                         230,000                         74,000
     Evaporative coolers                   1,200,000                      1,500,000
     Fan coil                                860,000                        500,000
                                   ----------------------        ------------------------
     Total                             $   3,190,000                   $  3,300 000
                                   ----------------------        ------------------------
                                   ----------------------        ------------------------
</TABLE>

The above backlogs are expected to be filled during the first quarter of 1999.

At January 2, 1999, the Construction Materials segment had a backlog of 
approximately $1,900,000 ($2,200,000 at January 3, 1998) primarily relating 
to construction contracts awarded and expected to be filled during the first 
half of 1999.

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 for the evaporative 
coolers and patent applications on the configuration of the heat exchanger 
for furnaces which has increased efficiency above that previously offered by 
the industry. A patent is pending related to the Company's new combination 
cooling and heating product. 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.


                                       3

<PAGE>

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 have historically purchased most of their cement requirements from 
a single supplier. These companies experienced some difficulty in obtaining 
cement during the latter half of 1997 and 1998 but were able to purchase 
sufficient quantities from non-traditional sources, which will 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 five principal companies 
producing wall furnaces (excluding units sold to the recreational vehicle 
industry). The wall furnace market is only a small component of the heating 
industry. The market area is covered from a plant in Colton, California and a 
warehouse in Ohio. The sales force consists of in-house sales personnel and 
external 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.

The Colton plant also manufactures a line of gas fired console heaters. 
Distribution is similar to wall furnaces with the principal market areas in 
the South and Southeast. There are six other manufacturers, none of whom is 
believed to have a dominant share of the market.

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 three companies producing 
ready mix concrete in the Colorado Springs area and one of two companies 
producing ready mix concrete in the Pueblo area. Although we hold a 
significant share of both of the markets served, the other competitors 
compete aggressively on the basis of price, service and product features.

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

                                       4

<PAGE>

Metal doors and door frames, rebar reinforcement and other building materials 
sold in the Colorado Springs and Pueblo metropolitan areas are subject to 
intense competition from two larger companies from Denver, one large company 
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 746 people as of January 2, 1999. 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:

<TABLE>
<CAPTION>


                                              1998               1997               1996
                                        --------------     -------------      --------------
<S>                                         <C>               <C>                <C>
Heating and Air Conditioning                 402               367                428
Construction Materials                       332               307                309
Corporate Office                              12                11                 11
                                        --------------     -------------      --------------
                      Total                  746               685                748
                                        --------------     -------------      --------------
                                        --------------     -------------      --------------

</TABLE>

The factory employees at the Colton, California plant voted to be represented 
by the Carpenters Local 721 Union. The Amalgamated Industrial Workers Union 
had previously represented the workers under a contract that expired in June 
1997. Negotiations with the Carpenters Local 721 are ongoing. Certain 
drivers, laborers and mechanics at the Pueblo facility are represented by the 
Western Conference of Teamsters under a contract that expires in December 
1999.

The Company considers relations with its employees and with its unions 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 construction materials segment operates out of five owned facilities in 
Colorado Springs, Colorado and two-owned facilities in Pueblo, Colorado. 
Additionally, this segment owns six mining properties in five counties in the 
vicinity of Colorado Springs and Pueblo, Colorado. In the opinion of 
management, these six properties contain permitted and minable reserves 
sufficient to service sand, rock and gravel requirements for the foreseeable 
future.

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

Item 3.    LEGAL PROCEEDINGS

See Management Discussion and Analysis of Financial Condition and Results of 
Operations on pages 8 through 11 and Note 6 on page 20 of this Annual Report 
on Form 10-K.


                                       5


<PAGE>

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 1998.


                                    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 fiscal years 
are:

<TABLE>
<CAPTION>

<S>            <C>                          <C>             <C>
                                              HIGH             LOW
                                              ----             ---
1998            Fourth Quarter               $36-1/2         $28-1/2
                Third Quarter                 37-1/4          29-1/4
                Second Quarter                37-3/4          28-3/8
                First Quarter                 28-7/8          25-3/4

1997            Fourth Quarter               $28             $25-11/16
                Third Quarter                 24              20-7/8
                Second Quarter                22-1/4          19-3/4
                First Quarter                 23-5/8          19-1/8
</TABLE>

At March 16, 1999, the Company had approximately 2,800 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.


                                       6


<PAGE>


SELECTED FINANCIAL DATA
(Amounts in thousands, except per share amounts)
------------------------------------------------------------------------------

<TABLE>
<CAPTION>


                                                     1998             1997            1996             1995              1994
                                                 -------------    ------------    -------------    -------------    --------------
<S>                                              <C>               <C>             <C>              <C>              <C>
SUMMARY OF OPERATIONS 
Net sales from continuing operations              $  108,744        $ 98,038        $  91,414          $75,560          $75,294
                                                 -------------    ------------    -------------    -------------    --------------
Earnings from continuing operations
   Before interest, taxes, depreciation
   And amortization (EBITDA)                          11,570           9,224            6,703            3,396            5,899
                                                 -------------    ------------    -------------    -------------    --------------
Net income from continuing
   Operations                                          4,618           3,110            2,355              681            1,849
Net loss from discontinued operation                      --              --               --               --             (464)
                                                 -------------    ------------    -------------    -------------    --------------
Net income                                        $    4,618        $  3,110        $   2,355          $   681          $ 1,385
                                                 -------------    ------------    -------------    -------------    --------------
                                                 -------------    ------------    -------------    -------------    --------------

PER SHARE DATA
Basic EPS:
Continuing operations                             $     4.30        $   2.83        $   2.13        $     .60           $  1.62
Discontinued operation                                  --               --              --               --               (.41)
                                                 -------------    ------------    -------------    -------------    --------------
Net income                                        $     4.30        $   2.83        $   2.13        $     .60           $  1.21
                                                 -------------    ------------    -------------    -------------    --------------
                                                 -------------    ------------    -------------    -------------    --------------
Average shares outstanding during year                 1,074           1,100           1,105            1,135             1,140
                                                 -------------    ------------    -------------    -------------    --------------
                                                 -------------    ------------    -------------    -------------    --------------

Diluted EPS:
Continuing operations                             $     4.21        $   2.78        $   2.11        $     .60         $ 1.62
Discontinued operation                                    --              --              --               --           (.41)
                                                 -------------    ------------    -------------    -------------    --------------
Net income                                        $     4.21        $   2.78        $   2.11        $     .60         $ 1.21
                                                 -------------    ------------    -------------    -------------    --------------
                                                 -------------    ------------    -------------    -------------    --------------
Average shares outstanding during year                 1,098           1,120           1,114            1,135          1,140
                                                 -------------    ------------    -------------    -------------    --------------
                                                 -------------    ------------    -------------    -------------    --------------


FINANCIAL CONDITION
Current ratio                                          1.9:1           2.4:1           2.1:1            2.0:1            2.0:1
Total assets                                      $   63,617        $ 54,355        $ 53,550        $  47,223         $ 48,162
Long-term debt, including current
   Portion                                             6,810           8,300           8,000            4,011            4,923
Shareholders' equity                                  36,238          31,858          29,350           27,281           26,789
Long-term debt to net worth                              .19             .26             .27              .15              .18
Book value per share                              $    33.74        $  28.96        $  26.56        $   24.04         $  23.50


CASH FLOWS
Net cash provided by (used in):
   Operating activities                           $   14,223        $  6,086        $  6,676        $     848         $  7,191
   Investing activities                               (6,899)         (4,239)         (9,174)          (3,751)          (1,884)
   Financing activities                               (1,728)           (702)          1,803            1,199           (3,596)
                                                 -------------    ------------    -------------    -------------    --------------
   Net increase (decrease) in cash and
     Cash equivalents                             $    5,596        $  1,145        $   (695)        $ (1,704)        $ 1,711
                                                 -------------    ------------    -------------    -------------    --------------
                                                 -------------    ------------    -------------    -------------    --------------
</TABLE>

                                       7


<PAGE>


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 $7,120,000 at year-end compared to 
$1,524,000 in the prior year. Operations in 1998 provided $14,223,000 of cash 
compared to $6,086,000 in 1997 and the $6,676,000 generated in 1996. The 
increase in net cash generated by operating activities in 1998 was primarily 
due to higher earnings and an increase in accounts payable and accrued 
expenses. The decrease in 1997 from the 1996 level was mainly due to a 
decrease in accounts payable.

The Company made payments to settle product liability claims totaling 
$1,000,000 in 1996 related to Imeco, Inc., a subsidiary sold in 1993. There 
are no known product liability claims remaining related to Imeco for which 
the Company would be liable.

Net cash used in investing activities was $6,899,000 in 1998, $4,239,000 in 
1997 and $9,174,000 in 1996. Capital expenditures for 1998, 1997 and 1996, 
exclusive of the purchase of certain assets of Valco, Inc. (Valco), were 
$6,464,000, $4,194,000 and $3,222,000, respectively. The capital expenditures 
were principally to support the continuing strong business demand that has 
been experienced by the companies in the Construction Materials segment. In 
addition, the 1998 capital additions include $1,339,000 made toward the 
computer project discussed more fully under the heading "Year 2000 
Compliance." Also during 1998, the Company invested $470,000 to acquire a new 
product line for the Heating and Air Conditioning Segment. During 1996, the 
Company acquired substantially all of the assets of Valco's ready-mix 
concrete and aggregates operation in Pueblo, Colorado for a cash purchase 
price of $5,148,000 net of $163,000 of accrued liabilities assumed. 
Concurrent with this purchase, the Company entered into a long-term operating 
lease to mine aggregates from properties in Pueblo owned by Valco. The lease 
calls for the Company to pay a production royalty based upon the tons of 
aggregate mined up to an agreed upon total tonnage, with a minimum annual 
royalty payment of $300,000. Both the production and minimum royalty are 
subject to annual inflation adjustments. Transit Mix of Pueblo, Inc. holds 
and operates the acquired assets. There were no significant commitments for 
capital expenditures at the end of 1998.

Budgeted capital expenditures for 1999 are approximately $6,000,000 
($3,400,000 for the Construction Materials segment and $2,600,000 for the 
Heating and Air Conditioning segment), which is $1,400,000 more than planned 
depreciation. The Construction Materials budget contemplates building 
projects totaling approximately $480,000, the purchase of approximately 
$1,300,000 of additional equipment to support the increased business and 
$250,000 related to the computer project. The Heating and Air Conditioning 
budget includes approximately $1,370,000 for additional office and warehouse 
space and $250,000 related to the computer project. The 1999 expenditures 
will be funded from internal sources, available borrowing or leasing capacity.

Cash invested in Oracle Ridge Mining Partners (ORMP) during 1998, 1997 and 
1996 was $52,000, $107,000, and $868,000, respectively. Future cash support 
related to ORMP should approximate the levels experienced in the last two 
years.

During 1998, cash of $1,728,000 was used in financing activities. Scheduled 
long-term debt repayments of $1,900,000 were made during the year and cash of 
$238,000 was used to acquire 8,030 shares of treasury stock. A capital lease 
for $440,000 financed software related to the computer project. The scheduled 
repayments of $30,000 were made against the lease


                                     8

<PAGE>

during the year. During 1997, cash of $702,000 was used in financing 
activities. The Company converted $2,000,000 from the revolving credit 
facility to term debt to fund certain capital expenditures. Scheduled 
long-term debt repayments of $1,700,000 were made during the year and the 
$400,000 balance outstanding on the revolving line of credit at the end of 
1996 was repaid. Cash of $602,000 was used to acquire 22,810 shares of 
treasury stock. During 1996, financing activities provided cash of 
$1,803,000. The Company made scheduled long-term debt repayments of 
$1,011,000 and reduced the revolving line of credit by $1,900,000. Cash of 
$286,000 was used to acquire 20,700 shares of treasury stock. Additional 
long-term debt borrowings of $5,000,000 were utilized to finance the 
acquisition of the Pueblo operation.

The Company maintains a credit agreement with two banks. The agreement, as 
amended in October 1996 and June 1997, provides for a term loan of $9,250,000 
($6,400,000 outstanding at January 2, 1999) and a revolving credit facility 
of $11,500,000 for 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 an adjusted LIBOR rate.

The Company anticipates the primary source of cash flow in 1999 to be from 
its operating subsidiaries. This anticipated cash flow, supplemented by the 
line of credit, will be sufficient to cover normal and expected future cash 
needs, including servicing debt and planned capital expenditures.

The Company purchases insurance coverage for property loss, workers' 
compensation, general, product and automobile liability maintaining certain 
levels of retained risk (self-insured portion). 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 Statement of 
Financial Accounting Standards (SFAS) No. 5, "Accounting for Contingencies." 
The accrual for workers' compensation, automobile liability and product 
liability claims covers occurrences through January 2, 1999.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, 
"Accounting for Derivative Instruments and Hedging Activities," which is 
effective for the year ended December 30, 2000. The Company has not yet 
adopted this pronouncement but does not expect that it will have a material 
impact on the Company's financial position or results of operations.


OPERATIONS
1998 VS. 1997


Consolidated sales increased $10,706,000, or 11%, to $108,744,000. The net 
sales of the construction materials segment rose $7,190,000 (14%) while the 
net sales of the heating and air conditioning segment rose $3,516,000 (7%) 
compared to the previous year. The construction materials segment continued 
to report gains due to a very strong construction market in the Colorado 
Springs and Pueblo areas of Colorado. The improvement in the heating and air 
conditioning segment was due to the combined improvements in the fan coil and 
furnace lines offset by the decline in evaporative cooler sales. The decline 
in the evaporative cooler line was the result of the adverse effect of El 
Nino especially felt during the second quarter of 1998.


                                     9

<PAGE>

The Company experienced a high level of price competition in all of its 
roduct lines, which the Company expects to continue into 1999. During 1998, 
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, improved slightly from 76% to just over 75%. The 
improvement reflects the increased volume in the fan coil and furnace lines 
as well as the construction materials segment. Cost of sales were reduced by 
approximately $361,000 during 1998 and $225,000 during 1997 due to 
liquidation of LIFO inventory layers carried at costs that were lower than 
the costs of current purchases.

Depreciation,  depletion and  amortization  increased from  $3,493,000 to 
$3,992,000  due to the increased  capital expenditure level the past two 
years.

Selling and administrative expenses increased $605,000. As a percentage of 
sales, selling and administrative expense declined from 15% to 14%. The 
decrease is primarily due to the continued increase in the construction 
materials segment where these expenses do not increase (or decrease) 
proportionally with volume.

The increased operating income is principally tied to the improved sales 
volume.

The decline in interest expense of $336,000 is the result of the lower term 
loan balance and the strong cash flow, which allowed the earlier than normal 
payback of the line of credit.

The Company wrote down the investment in ORMP from $600,000 to $100,000 
during 1998 and recorded a loss of $52,000 related to on going carrying 
costs of the property.

The Company's 1998 effective income tax rate on income (34.0%) reflects 
federal and state statutory rates adjusted for non-deductible and other tax 
items. See note 11.


OPERATIONS
1997 VS. 1996


Consolidated net sales increased $6,624,000 or 7% to $98,038,000. The net 
sales of the construction materials segment rose $8,030,000 while the net 
sales of the heating and air conditioning segment declined $1,406,000 
compared to the previous year. The increase in the construction materials 
segment was due to the October 1996 acquisition of the Pueblo, Colorado 
operation. Sales of fan coil rose while sales of evaporative coolers declined 
in large part related to unfavorable weather conditions last summer.

The Company experienced a high level of price competition in all of its 
product lines. During 1997, inflation was not a significant factor at any of 
the operations.

Cost of sales (exclusive of depreciation, depletion and amortization) 
remained relatively constant at 76%. Cost of sales were reduced by 
approximately $225,000 during 1997 and $140,000 during 1996 due to 
liquidation of LIFO inventory layers carried at costs that were lower than 
the costs of current purchases.

Depreciation, depletion and amortization increased from $2,614,000 to 
$3,493,000 due to the Pueblo asset acquisition and increased capital 
expenditures in recent years.


                                     10

<PAGE>

Selling and administrative expenses declined $32,000. As a percentage of 
sales, selling and administrative expense declined from 16% to 15%. The 
decrease is primarily due to the increase in sales occurring in the 
construction materials segment where these expenses are more fixed.

The relatively constant operating income, despite the increase in sales, is 
due to the additional depreciation expense as a result of the Pueblo asset 
acquisition and a slight change in product mix.

The increase in interest expense of $337,000 is the result of the additional 
debt incurred to purchase the Pueblo assets.

The Company recorded an equity loss of $287,000 related to its investment in 
Oracle Ridge Mining Partners. Production at the mine was halted in February 
1996. The partners continue their efforts to sell the project.

The Company's 1997 effective income tax rate on income (35.3%) reflects 
federal and state statutory rates adjusted for non-deductible and other tax 
items. See Note 11.


YEAR 2000 COMPLIANCE


The year 2000 issue relates to the way computer hardware and software define 
calendar dates; many use only two digits to represent the year which could 
cause failures or miscalculations. In addition, many systems and equipment 
that are not typically thought of as "computer-related" (referred to as 
"non-IT") contain imbedded hardware or software that may include a time 
element. The Year 2000 issue can arise at any point in the Company's supply, 
manufacturing, processing, distribution and financial chains. As a result, 
the Company is at risk of disruptions to its business operations from 
possible miscalculations or system failures occurring not only in its own 
equipment and software, but those occurring in any business or governmental 
entity that the Company relies on for goods or services.

The Company has completed a study, with the assistance of external 
consultants, to evaluate the Company's current internal information and 
financial systems. The Company concluded that the majority of the existing 
systems were not Year 2000 compliant. We have therefore undertaken to 
implement a Year 2000 compliant enterprise resource planning (ERP) system to 
replace all non-compliant systems as well as to modernize and integrate all 
of the Company's systems. The majority of the hardware utilized by the 
Company, including all that may be Year 2000 non-compliant, has been 
replaced. Work on the project began in the second quarter of 1998 and is 
expected to be completed during the third quarter of 1999. The cost of the 
entire project is currently estimated at $3,000,000 including hardware, 
software, consulting fees and other out-of-pocket expenses. Approximately 
$2,500,000 has been incurred to date. Funding will be furnished by a lease of 
approximately $1,500,000 with the balance provided by operating cash flow. 
The cost of the project is not expected to have a significant negative impact 
on the Company's future financial results.

A review has been undertaken to assess and correct Year 2000 issues affecting 
both our products and non-IT systems and equipment used in our businesses. At 
the present time, the Company has not identified any products that would be 
Year 2000 non-compliant.

We rely on third party suppliers for raw materials, water, utilities, 
transportation and other key


                                     11

<PAGE>

services.  Interruption to any of their operations due to Year 2000 issues 
could affect the operations of our Company. We have initiated efforts to 
ascertain the level of preparedness of this group. We have found some of 
these entities less willing to provide information concerning their state of 
readiness. Alternative sources of raw materials and certain other services 
have been identified, where possible, to help mitigate any impact due to 
disruptions at any of our key suppliers. While we believe that the steps we 
have taken should reduce the adverse effect on our Company of any such 
disruptions, the interdependent nature of the Company and its suppliers, 
service providers, utilities and governmental agencies is such that a 
disruption at one or more suppliers could have material adverse consequences.

We are also dependent upon our customers for sales and cash flow. Year 2000 
interruptions in our customers' operations could result in reduced sales, 
increased inventory or receivable levels and cash flow reductions. While 
these events are possible, we believe our customer base is broad enough to 
minimize the affects to our Company of system disruptions at some customers' 
operations. We are, however, taking steps to contact and monitor the status 
of our larger customers as a means of determining risks and alternatives.

At this time, we have not learned of any potential exposures from external, 
non-compliant third party suppliers or customers.

Various statements made within this Management's Discussion and Analysis of 
Financial Condition and Results of Operations and elsewhere in this Annual 
Report on Form 10-K constitute "forward looking statements" for purposes of 
the Securities and Exchange Commission's "safe harbor" provisions under the 
Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under 
Securities and Exchange Act of 1934, as amended. Investors are cautioned that 
all forward-looking statements involve risks and uncertainties, including 
those detailed in the Company's filings with the Securities and Exchange 
Commission. There can be no assurance that actual results will not differ 
from the Company's expectations.


Item 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
                                                                  PAGE
<S>                                                              <C>
    Financial Statements and Schedule of Continental
     Materials Corporation and report thereon:

    Consolidated statements of operations and
     retained earnings for fiscal years
     1998, 1997 and 1996                                           13

    Consolidated statements of cash flows
     for fiscal years ended 1998, 1997 and 1996                    14

    Consolidated balance sheets at January 2, 1999
     and January 3, 1998                                           15

    Notes to consolidated financial statements                    16-24

    Report of Independent Accountants                              25
</TABLE>


                                     12

<PAGE>

<TABLE>
<CAPTION>

CONTINENTAL MATERIALS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND 
RETAINED EARNINGS 
FOR FISCAL YEARS 1998, 1997 AND 1996 
(Amounts in thousands, except per share data) 
-----------------------------------------------------------------------------------------------

                                                        1998             1997          1996
                                                    -----------      -----------    ----------
<S>                                                  <C>              <C>            <C>
  NET SALES                                           $108,744        $ 98,038       $ 91,414
  COSTS AND EXPENSES
  Cost of sales (exclusive of depreciation,
     depletion and amortization)                        81,881          74,524         68,740
  Depreciation, depletion and amortization               3,992           3,493          2,614
  Selling and administrative                            15,056          14,451         14,483
                                                    -----------      -----------    ----------
  OPERATING INCOME                                       7,815           5,570          5,577
  Interest expense                                        (585)           (921)          (584)
  Equity loss from mining partnership                     (552)           (287)        (1,768)
  Other income, net                                        315             448            280
                                                    -----------      -----------    ----------
  INCOME BEFORE INCOME TAXES                             6,993           4,810          3,505
  Income tax provision                                   2,375           1,700          1,150
                                                    -----------      -----------    ----------
  NET INCOME                                             4,618           3,110          2,355
  Retained earnings, beginning of year                  31,283          28,173         25,818
                                                    -----------      -----------    ----------
                                                    -----------      -----------    ----------
  RETAINED EARNINGS, END OF YEAR                      $ 35,901        $ 31,283       $ 28,173
                                                    -----------      -----------    ----------
                                                    -----------      -----------    ----------

  Basic earnings per share                            $   4.30        $   2.83       $   2.13
                                                    -----------      -----------    ----------
                                                    -----------      -----------    ----------
     Average shares outstanding                          1,074           1,100          1,105
                                                    -----------      -----------    ----------
                                                    -----------      -----------    ----------
  Diluted earnings per share                          $   4.21        $   2.78       $   2.11
                                                    -----------      -----------    ----------
                                                    -----------      -----------    ----------
     Average shares outstanding                          1,098           1,120          1,114
                                                    -----------      -----------    ----------
                                                    -----------      -----------    ----------
</TABLE>

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


                                     13


<PAGE>




  CONTINENTAL MATERIALS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
  FOR FISCAL YEARS 1998, 1997, AND 1996
 (Amounts in thousands)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------


                                                                         1998             1997              1996
                                                                     -------------     -----------      ------------
<S>                                                                   <C>               <C>              <C>
Operating activities:
   Net income                                                         $   4,618          $  3,110         $  2,355
   Adjustments to reconcile net income to net
     cash provided by operating activities:
     Depreciation, depletion and amortization                             3,992             3,493            2,614
     Deferred income tax (benefit) provision                               (708)              141             (332)
     Provision for doubtful accounts                                        304               264              179
     Gain on disposition of property and equipment                          (42)              (26)             (59)
     Equity loss from mining partnership                                     52               287              988
     Write down of investment in mining partnership                         500                --              780
   Changes in operating assets and liabilities, net of effect
      of purchase of assets of Valco, Inc.:
     Receivables                                                         (3,243)              437           (1,688)
     Inventories                                                          2,243               891             (191)
     Prepaid expenses                                                       306                (9)            (476)
     Income taxes                                                         1,050              (229)             420
     Accounts payable and accrued expenses                                5,367            (1,818)           2,396
     Other                                                                 (216)             (455)            (310)
                                                                       --------           --------         -------
Net cash provided by operating activities                                14,223             6,086            6,676
                                                                       --------           --------         -------
Investing activities:
     Purchase of assets of Valco, Inc.                                       --                --           (5,148)
     Capital expenditures                                                (6,464)           (4,194)          (3,222)
     Investment in new product line                                        (470)               --               --
     Investment in mining partnership                                       (52)             (107)            (868)
     Proceeds from sale of property and equipment                            87                62               64
                                                                       --------           --------         -------
Net cash used in investing activities                                    (6,899)           (4,239)          (9,174)
                                                                       --------           --------         -------
Financing activities:
     Repayment of revolving credit facility                                  --              (400)          (1,900)
     Long-term borrowings                                                    --             2,000            5,000
     Capital lease obligation                                               440                --               --
     Repayment of long-term debt                                         (1,930)           (1,700)          (1,011)
     Payments to acquire treasury stock                                    (238)             (602)            (286)
                                                                       --------           --------         -------
Net cash (used in) provided by financing activities                      (1,728)             (702)           1,803
                                                                       --------           --------         -------
Net increase (decrease) in cash and cash equivalents                      5,596             1,145             (695)
Cash and cash equivalents:
     Beginning of year                                                    1,524               379            1,074
                                                                       --------           --------         -------
     End of year                                                      $   7,120          $  1,524          $   379
                                                                       --------           --------         -------
                                                                       --------           --------         -------

Supplemental disclosures of cash flow items:
Cash paid during the year for:
     Interest                                                         $     471          $    973          $   520
     Income taxes                                                         2,038             1,793            1,075
</TABLE>

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


                                       14


<PAGE>


CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED BALANCE SHEETS JANUARY 2, 1999 AND JANUARY 3, 1998
(Amounts in thousands except share data)
------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                        January 2,                 January 3,
                                                            1999                       1998
                                                  ----------------------     ----------------------
<S>                                                    <C>                       <C>
ASSETS
Current assets:
   Cash and cash equivalents                            $    7,120                $     1,524
   Receivables less allowance of $775 and $580              16,821                     13,882
   Inventories                                              12,050                     14,293
   Prepaid expenses                                          2,695                      2,343
                                                   ----------------------     ----------------------
         Total current assets                               38,686                     32,042
                                                   ----------------------     ----------------------
Property, plant and equipment:
   Land and improvements                                     2,200                      2,159
   Buildings and improvements                                9,512                      8,474
   Machinery and equipment                                  55,103                     50,444
   Mining properties                                         2,170                      2,170
   Less accumulated depreciation and depletion             (46,880)                   (43,666)
                                                    ----------------------     ----------------------
                                                            22,105                     19,581
                                                    ----------------------     ----------------------
Other assets:
   Investment in mining partnership                            100                        600
   Other                                                     2,726                      2,132
                                                    ----------------------     ----------------------
                                                             2,826                      2,732
                                                    ----------------------     ----------------------
                                                    ----------------------     ----------------------
                                                        $   63,617                $    54,355
                                                    ----------------------     ----------------------
                                                    ----------------------     ----------------------
LIABILITIES
Current liabilities:
   Current portion of long-term debt                    $    2,526                $     1,900
   Accounts payable                                          5,124                      3,514
   Income taxes                                              1,271                        222
   Accrued expenses:
     Compensation                                            2,707                      1,765
     Reserve for self-insured losses                         3,210                      2,030
     Profit sharing                                          2,108                      1,293
     Reclamation                                             1,495                      1,160
     Other                                                   2,051                      1,565
                                                    ----------------------     ----------------------
         Total current liabilities                          20,492                     13,449
                                                    ----------------------     ----------------------

Long-term debt                                               4,284                      6,400
Deferred income taxes                                        1,670                      1,722
Other long-term liabilities                                    933                        926
Commitments and contingencies (Notes 6 and 9)

SHAREHOLDERS' EQUITY
Common shares, $.50 par value; authorized
   3,000,000 shares; issued 1,326,588 shares                   663                        663
Capital in excess of par value                               3,484                      3,484
Retained earnings                                           35,901                     31,283
Treasury shares, at cost                                    (3,810)                    (3,572)
                                                    ----------------------     ----------------------
                                                            36,238                     31,858
                                                    ----------------------     ----------------------
                                                    ----------------------     ----------------------
                                                        $   63,617                $    54,355
                                                    ----------------------     ----------------------
                                                    ----------------------     ----------------------
</TABLE>


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

                                       15


<PAGE>


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 (the Company).

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

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 January 2, 1999 and January 3, 1998 
and the reported amounts of revenues and expenses during each of the three 
years in the period ended January 2, 1999. 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 83% of total 
inventories at January 2, 1999 (82% at January 3, 1998). 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 years
                Leasehold improvements..............Terms of leases
                Machinery and equipment.............3 to 10 years


Depletion of rock and sand deposits is computed by the unit-of-production 
method based upon estimated recoverable quantities of rock and sand.

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

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.

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.

                                       16



<PAGE>


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 for both known and unasserted 
claims based upon the Company's history of claims paid.

RECLAMATION
In connection with permits to mine properties in or near Colorado Springs and
Pueblo, 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.

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 commercial 
paper of companies with strong credit ratings. These securities typically 
mature within 30 days. 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 13 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.

FISCAL YEAR END
The Company's fiscal year end is the Saturday nearest December 31. Fiscal 
1998 and 1996 each consist of 52 weeks while 1997 consists of 53 weeks.

2.   ACQUISITION

On October 21, 1996, the Company acquired substantially all of the assets of 
Valco, Inc.'s (Valco) ready-mix concrete and aggregates operation in Pueblo, 
Colorado for a cash purchase price of $5,148,000 net of $163,000 of accrued 
liabilities assumed. The acquisition has been accounted for under the 
purchase method and, accordingly, the operating results of the Pueblo 
operations have been included in the consolidated results since the date of 
acquisition. The Company formed a new subsidiary, Transit Mix of Pueblo, Inc. 
to operate this acquisition.

In addition to the above, the Company concurrently entered into a long-term 
operating lease to mine aggregates from properties in Pueblo owned by Valco. 
The lease calls for the Company to pay a production royalty based upon the 
tons of aggregate mined, up to an agreed upon total                           

                                       17

<PAGE>


tonnage, with a minimum annual royalty payment of $300,000. Both the 
production and minimum royalties are subject to annual inflation adjustments. 
Royalties paid in advance of actual tons mined will be recorded as a prepaid 
to be applied against production at the end of the lease.

The funds used to acquire the Pueblo operation were provided by a 
renegotiated unsecured term loan entered into on October 21, 1996 with the 
Company's existing lending banks. The expenses related to the acquisition as 
well as the cost of a non-competition agreement are included in other assets 
and are being amortized over 5 and 10 years, respectively.

The purchased operations are involved in the production and sale of ready-mix 
concrete and other building materials as well as the extraction and sale of 
sand and river rock from two locations in Pueblo, Colorado. Sales are made 
primarily in Pueblo County, Colorado.

The table below summarizes the unaudited pro-forma results of operations for 
the year ended December 28, 1996, assuming the acquisition described had been 
consummated as of January 1, 1996, with adjustments primarily attributed to 
the royalty on tons of aggregates produced, interest expense relating to the 
refinancing of long-term debt and depreciation expense relating to the fair 
value of assets acquired.

Amounts in thousands, except per share amounts:

<TABLE>

                                              1996
                                            Unaudited
                                            _________
<S>                                        <C>
Sales                                       $101,532 
Net income                                     2,342
Net income per share                            2.12
</TABLE>

These pro-forma results have been prepared for comparative purposes only and 
do not purport to be indicative of what would have occurred had the 
acquisition been made at the beginning of the period presented, or of results 
which may occur in the future.

3.   INVENTORIES
     Inventories consisted of the following (amounts in thousands):

<TABLE>
<CAPTION>
                                  January 2,                   January 3,
                                    1999                          1998
                           -----------------------        ----------------------
<S>                            <C>                           <C>              
Finished goods                  $  6,761                      $  8,562
Work in process                 $  1,176                         1,471
Raw materials and supplies         4,113                         4,260
                            -----------------                ------------
                                $ 12,050                      $ 14,293
                            -----------------                ------------
                            -----------------                ------------
</TABLE>

If inventories valued on the LIFO basis were valued at current costs, 
inventories would be higher as follows: 1998--$1,610,000; 1997--$2,340,000; 
1996--$2,590,000.

Reduction in inventory quantities during 1998 and 1997 at one of the 
locations, resulted in liquidation of LIFO inventory layers carried at costs 
that were lower than the costs of current purchases. These effects were 
recorded in their respective fourth quarters. In 1998, the effect was to 
decrease cost of goods sold by approximately $361,000 and to increase net 
earnings by $224,000 or $.20 per diluted share. In 1997, the effect was to 
decrease cost of goods sold by approximately $225,000 and to increase net 
earnings by $140,000 or $.13 per diluted share.



                                       18

<PAGE>

4.   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. The equity method of accounting 
is used to include 30% of ORMP's income and losses in the Company's 
consolidated financial statements.

Production at the mine was halted in February 1996. The Partners are 
attempting to sell the mine. Due to the current low price of copper, it is 
unlikely that the property will be sold in the near future. In accordance 
with SFAS No. 121, the investment in mining partnership was written down to 
management's best estimate of net realizable value, $100,000, as of January 
2, 1999. The related impairment loss of $500,000 is included in the $552,000 
loss recorded for 1998. During 1997, the Company recorded a loss totaling 
$287,000 from ORMP, while for 1996, the equity loss was $1,768,000 including 
an impairment loss of $780,000 to reduce the carrying value to $600,000. The 
year end values of $100,000 for 1998 and $600,000 for 1997 and 1996, were 
based on the estimated fair market value of the partnership's property and 
assets less liabilities at the respective dates. Future cash contributions to 
ORMP for carrying costs will be expensed when made.

5.   LONG-TERM DEBT Long-term debt consisted of the following (amounts in 
thousands):

<TABLE>
<CAPTION>
                                     January 2,           January 3,
                                        1999                 1998
                                     ----------           -----------
        <S>                          <C>                  <C>
        Unsecured term loan            $6,400                $8,300
        Capital lease                     410                     0
                                     ----------           -----------
                                        6,810                 8,300
        Less current portion            2,526                 1,900
                                     ----------           -----------
                                       $4,284                $6,400
                                     ----------           -----------
                                     ----------           -----------
</TABLE>

The unsecured term loan is payable to two banks in semi-annual installments 
with final principal payment due June 15, 2001. The loan, at the Company's 
option, bears interest at either prime or an adjusted LIBOR rate.

The Company is required 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.

The capital lease is payable in monthly installments through March 2002, with 
interest at 6.7%.

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

<TABLE>
<CAPTION>
                    <S>                         <C>
                    1999                        $2,526
                    2000                         2,526
                    2001                         1,726
                    2002                            32
                                              --------
                                                $6,810
                                              --------
                                              --------
</TABLE>

During 1998 and 1997, the Company had an $11,500,000 unsecured revolving line 
of credit. 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.

                                     19

<PAGE>

The weighted average interest rate was 7.6% for fiscal 1998 and 7.7% for 
fiscal 1997. There were no outstanding balances against the line as of either 
January 2, 1999 or January 3, 1998.

At January 2, 1999, the Company had letters of credit outstanding totaling 
approximately $2,794,000 that primarily collateralize the self-insured losses.

6.   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.

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

Treasury share activity during 1996, 1997 and 1998 was as follows (dollars in 
thousands):

<TABLE>
<CAPTION>
                                               Number
                                              of shares         Cost
      <S>                                     <C>              <C>
      Balance at  December 30, 1995            202,677         $2,684
      Purchase of treasury shares               20,700            286
                                              --------        -------
      Balance at December 28, 1996             223,377         $2,970
      Purchase of treasury shares               22,810            602
                                              --------        -------
      Balance at January 3,1998                246,187         $3,572
      Purchase of treasury shares                8,030            238
                                              --------        -------
      Balance at January 2, 1999               254,217         $3,810
                                              --------        -------
                                              --------        -------
</TABLE>

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 180,000 shares for distribution under 
the Plan. On September 26, 1995, a total of 78,000 options were granted to 
five individuals at an exercise price of $13.125. These shares became 
exercisable when the Company's stock price rose to 133% of the price at the 
time of issuance ($17.50) and remained at or above this level for a period of 
30 consecutive trading days. This condition was met during 1996 and thus all 
of the 78,000 shares became exercisable.

These 78,000 options represent the only grant under the Company's Plan during 
the three years ended January 2, 1999. As of January 2, 1999, none of the 
options had been exercised or lapsed during the period, however one 
individual who had been granted 12,000 shares left the Company during 1997 
without exercising his options. The remaining 66,000 of outstanding options 
expire on September 25, 2005. There were no options outstanding related to 
the predecessor plan during the periods.

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 has been recognized for its 
stock-based compensation Plan. Had compensation cost for the Company's Plan 
been determined based upon the fair value at the grant date for these awards 
consistent with the methodology proscribed under SFAS No. 123, "Accounting 
for Stock-Based Compensation," the Company's net income and earnings per 
share would have been reduced by approximately $201,000, or $0.18 per share 
for 1996. The fair value of the options granted during 1995 is estimated as 
$5.00 on the date of the grant using the Black-Sholes option-pricing model 
with the following assumptions: dividend yield 0%, volatility of 30%, 
risk-free interest rate of 6.05%, and an expected life of five years.


                                     20

<PAGE>

8.   EARNINGS PER SHARE

In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." This 
pronouncement simplifies the standards for computing earning per share (EPS) 
and requires the presentation of two amounts, basic and diluted EPS. Basic 
EPS is computed by dividing net income by the weighted-average number of 
common shares outstanding during the period. Diluted EPS is computed by 
dividing net income by the weighted-average number of common shares 
outstanding, adjusted for dilutive common share equivalents attributed to 
outstanding options to purchase common stock. The Company adopted SFAS 128 
for the quarter and year-ended January 3, 1998 and restated EPS for all prior 
periods reported.

The following is a reconciliation of the calculation of basic and diluted EPS 
for the years ended 1998, 1997 and 1996.

<TABLE>
<CAPTION>
                                                               Per-share
                                      Income       Shares       earnings
                                     ---------    --------    -----------
       <S>                            <C>          <C>          <C>
       1998
       Basic EPS                      $4,618        1,074        $4.30
                                                                 -----
                                                                 -----
       Effect of dilutive options         --           24
                                      ------        -----
       Diluted EPS                    $4,618        1,098        $4.21
                                      ------        -----        -----
                                      ------        -----        -----
       1997
       Basic EPS                      $3,110        1,100        $2.83
                                                                 -----
                                                                 -----
       Effect of dilutive options         --           20
                                      ------        -----
       Diluted EPS                    $3,110        1,120        $2.78
                                      ------        -----        -----
                                      ------        -----        -----
       1996
       Basic EPS                      $2,355        1,105        $2.13
                                                                 -----
                                                                 -----
       Effect of dilutive options         --            9
                                      ------        -----
       Diluted EPS                    $2,355        1,114        $2.11
                                      ------        -----        -----
                                      ------        -----        -----
</TABLE>

9.   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 $2,435,000, $2,170,000 and $2,223,000 for 1998, 1997, and 1996, 
respectively.

Future minimum rental commitments under non-cancelable operating leases for 
1999 and thereafter are as follows: 1999--$2,034,000; 2000--$1,723,000; 
2001--$1,253,000; 2002--$851,000; 2003--$638,000 and thereafter--$18,091,000. 
Included in these amounts is $300,000 per year and approximately $16,041,000 
in the "thereafter" amount related to an aggregates lease in conjunction with 
the Pueblo operation.

The Company also receives annual rental income of $145,000 from a building it 
owns. The related lease expires in January 2003 and contains renewal options.

10.  RETIREMENT PLANS
As discussed in Note 1, the Company maintains retirement benefit plans for 
eligible employees. Total plan expenses charged to operations were 
$2,025,000, $1,228,000 and $1,152,000 in 1998, 1997 and 1996, respectively.

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


                                     21

<PAGE>

<TABLE>
<CAPTION>

                                     1998       1997       1996
                                    -------    -------    -------
          <S>                       <C>        <C>        <C>
          Federal: Current          $ 2,742    $ 1,475    $ 1,378
                  Deferred             (634)       126       (297)
          State:  Current               341         84        104
                  Deferred              (74)        15        (35)
                                    -------    -------    -------
                                    $ 2,375    $ 1,700    $ 1,150
                                    -------    -------    -------
                                    -------    -------    -------
</TABLE>

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

<TABLE>
<CAPTION>
                                                1998     1997     1996
                                              -------   ------   ------
<S>                                            <C>       <C>      <C>
Statutory tax rate                              34.0%    34.0%    34.0%
Percentage depletion                            (3.2)    (3.4)    (4.5)
State income taxes, net of federal benefit       2.3      1.5      1.5
Non-deductible expenses                           .3       .4       .5
Other                                             .6      2.8      1.3
                                              -------   ------   ------
                                                34.0%    35.3%    32.8%
                                              -------   ------   ------
                                              -------   ------   ------
</TABLE>

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):


<TABLE>
<CAPTION>
                                              1998                     1997
                                             -------                 ---------
<S>                                          <C>                      <C>
Reserves for self-insured losses              $ 1,130                  $    681
Deferred compensation                             396                       394
Asset valuation reserves                        1,038                       757
Other                                              40                       112
                                             --------                 ----------
Total deferred tax assets                       2,604                     1,944
                                             --------                 ----------

Depreciation                                    1,873                     1,710
Investment in mining partnership                   52                       271
Other                                             142                       135
                                             --------                 ----------
Total deferred tax liabilities                  2,067                     2,116
                                             --------                 ----------

Net deferred tax asset (liability)           $    537                  $   (172)
                                             --------                 ----------
                                             --------                 ----------
</TABLE>

The net current deferred tax assets are $2,208 and $1,550 at year-end 1998 
and 1997, respectively, and are included with "Prepaid expenses" on the 
Consolidated Balance Sheets.

12.  UNAUDITED QUARTERLY FINANCIAL DATA

     The following table provides summarized unaudited quarterly financial data 
     for 1998 and 1997 (amounts in thousands, except per share amounts):


<TABLE>
<CAPTION>

                                                           First            Second           Third            Fourth
                                                          Quarter          Quarter          Quarter          Quarter
                                                        -------------    -------------    -------------    -------------
<S>                                                      <C>              <C>               <C>             <C>
1998
Net sales                                                 $  22,806        $  28,935         $  29,069       $  27,935
                                                          ---------        ---------         ---------       ---------
                                                          ---------        ---------         ---------       ---------
Gross profit                                              $   4,592        $   5,822         $   6,467       $   6,330
                                                          ---------        ---------         ---------       ---------
                                                          ---------        ---------         ---------       ---------
Depreciation, depletion and amortization                  $   1,020        $   1,029         $   1,045       $     898
                                                          ---------        ---------         ---------       ---------
                                                          ---------        ---------         ---------       ---------
Net income                                                $     579        $   1,232         $   1,685       $   1,123
                                                          ---------        ---------         ---------       ---------
                                                          ---------        ---------         ---------       ---------
Basic income per share                                    $     .54        $    1.15         $    1.57       $    1.05
                                                          ---------        ---------         ---------       ---------
                                                          ---------        ---------         ---------       ---------
Diluted income per share                                  $     .53        $    1.12         $    1.54       $    1.02
                                                          ---------        ---------         ---------       ---------
                                                          ---------        ---------         ---------       ---------
</TABLE>

                                                        22



<PAGE>

<TABLE>
<CAPTION>

                                                           First            Second           Third            Fourth
                                                          Quarter          Quarter          Quarter          Quarter
                                                        -------------    -------------    -------------    -------------
<S>                                                     <C>               <C>              <C>               <C>
1997
Net sales                                                $  20,905         $  27,991        $  25,612         $ 23,530
                                                         ----------        ---------        ----------        ---------
                                                         ----------        ---------        ----------        ---------
Gross profit                                             $   3,632         $   5,548        $   5,111         $  5,955
                                                         ----------        ---------        ----------        ---------
                                                         ----------        ---------        ----------        ---------
Depreciation, depletion and amortization                 $     879         $     876        $     881         $    857
                                                         ----------        ---------        ----------        ---------
                                                         ----------        ---------        ----------        ---------
Net (loss) income                                        $     (42)        $   1,020        $   1,153         $    979
                                                         ----------        ---------        ----------        ---------
Basic (loss) income per share                            $    (.04)        $    .93         $    1.05         $    .90
                                                         ----------        ---------        ----------        ---------
                                                         ----------        ---------        ----------        ---------
Diluted (loss) income per share                          $    (.04)        $    .91         $    1.03         $     88
                                                         ----------        ---------        ----------        ---------
                                                         ----------        ---------        ----------        ---------
</TABLE>

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.

13.  INDUSTRY SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an 
Enterprise and Related Information. SFAS 131 replaces the "industry segment" 
approach with the "management" approach. The management approach designates 
the internal organization that is used by management for making operating 
decisions and assessing performance as the source of the Company's reportable 
segments. SFAS 131 also requires disclosures about products and services, 
geographic areas and major customers. The adoption of SFAS 131 did not affect 
results of operations or financial position but did affect the disclosure of 
segment 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 southern 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.

The table below presents information about reported segments for the fiscal 
years 1998, 1997 and 1996 along with the items necessary to reconcile the 
segment information to the totals reported in the financial statements 
(amounts in thousands).

                                       23

<PAGE>

<TABLE>
<CAPTION>

                                       Heating and          Construction            All            Unallocated
                                     Air conditioning        Materials          Other (a)          Corporate           Total
                                    ------------------     --------------      -------------     --------------     -----------
<S>                                     <C>                 <C>                 <C>               <C>               <C>
1998
Revenues from external customers         $ 51,117            $ 57,482            $  145            $      -          $ 108,744
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------
Depreciation, depletion 
   and amortization                         1,091               2,862                22                  17              3,992
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------
Segment operating income                    4,183               6,414                41              (2,823)             7,815
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------
Segment assets                             25,628              29,888               183               7,918             63,617
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------
Expenditures for segment assets            1,352                4,994                 -                 118              6,464
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------

1997
Revenues from external
     Customers                           $ 47,601            $ 50,292            $   145           $      -          $  98,038
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------
Depreciation, depletion
    and amortization                        1,085               2,364                 25                 19              3,493
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------
Segment operating income                    3,334               4,975                (97)            (2,642)             5,570
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------
Segment assets                             23,927              27,221                720              2,487             54,355
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------
Expenditures for segment assets             1,191               2,991                  3                  9              4,194
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------
1996
Revenues from external
     customers                           $ 49,007            $ 42,262            $   145           $      -          $  91,414
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------
Depreciation, depletion
     and amortization                       1,055               1,514                 26                 19              2,614
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------
Segment operating income                    4,058               4,455                (56)            (2,880)             5,577
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------
Segment assets                             26,908              24,266                738              1,638             53,550
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------
Expenditures for segment assets               491               2,692                 26                 13              3,222
                                    ------------------     --------------      -------------     --------------     -----------
                                    ------------------     --------------      -------------     --------------     -----------
</TABLE>

(a)  All Other represents segments below the quantitative thresholds. The
     segments include 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.

All long-lived assets are in the United States and no customer accounts for 10%
or more of consolidated revenue.


                                       24





<PAGE>




REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
 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 Subsidiaries at January 2, 1999 and January 3, 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended January 2, 1999, in conformity with generally accepted
accounting principles. 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
statements in accordance with generally accepted auditing standards 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 the opinion expressed above.


                                                  PricewaterhouseCoopers LLP

Chicago, Illinois
March 3, 1999



                                       25


<PAGE>



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 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 January 
3, 1998, its definitive 1999 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

(a) 1      Financial statements required by Item 14 are included in Item 8 of 
           Part II.

(a) 2      The following is a list of financial statement schedules filed as 
           part of this Report:

                   Report of Independent Accountants


                   Schedule II Valuation and Qualifying Accounts & Reserves
                   For the Fiscal Years 1998, 1997 and 1996

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


                                       26



<PAGE>


(a) 3         The following is a list of all exhibits filed as part of this
              Report:


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 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, 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, ental Materials Corporation filed as Exhibit 2C 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, herein incorporated 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   Continental Materials Corporation Employee Profit Sharing
              Retirement Plan Amended and Restated Generally
              Effective January 1, 1989 filed as Exhibit 10c to Form 10-K
              for the year ended December 31, 1994.

Exhibit 21    Subsidiaries of Registrant (filed herewith).

Exhibit 23    Consent of Independent Accountants (filed herewith).

Exhibit 27.1  Financial Data Schedule (filed herewith).

Exhibit 27.2  Financial Data Schedule Restated (filed herewith).

Exhibit 28    Continental  Materials  Corporation Employees Profit
              Sharing Retirement Plan on Form 11-K for the year ended
              December 31, 1998 (to be filed by amendment).

* - Compensatory plan or arrangement

(b)             Reports on Form 8-K:

                No reports on Form 8-K were filed during the quarter ended
January 2, 1999.


                                       27




<PAGE>

                                    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 CORPORATION
                                        ----------------------------------
                                                   Registrant

                                          By:       /S/ Joseph J. Sum
                                                 ----------------------
                                                       Joseph J. Sum,
                                                    Vice President, Finance

Date:  March 30, 1999

       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.

<TABLE>
<CAPTION>

<S>                                                  <C>
             SIGNATURE                                      CAPACITY(IES)                                 DATE
-------------------------------------            ------------------------------------            -----------------------

/S/ James G. Gidwitz
-------------------------------------
     James G. Gidwitz                                  Chief Executive Officer
                                                           and a Director                            March 30, 1999

/S/ Joseph J. Sum
-------------------------------------
     Joseph J. Sum                                         Vice President
                                                           and a Director                            March 30, 1999

/S/ Mark S. Nichter
-------------------------------------
     Mark S. Nichter                                  Secretary and Controller                       March 30, 1999

/S/ Thomas H. Carmody
-------------------------------------
      Thomas H. Carmody                                       Director                               March 30, 1999

/S/ Betsy R. Gidwitz
-------------------------------------
     Betsy R. Gidwitz                                         Director                               March 30, 1999

/S/ Ralph W. Gidwitz
-------------------------------------
      Ralph W. Gidwitz                                        Director                               March 30, 1999

/S/ Ronald J. Gidwitz
-------------------------------------
      Ronald J. Gidwitz                                       Director                               March 30, 1999

/S/ William G. Shoemaker
-------------------------------------
     William G. Shoemaker                                     Director                               March 30, 1999

/S/ Theodore R. Tetzlaff
-------------------------------------
     Theodore R. Tetzlaff                                     Director                               March 30, 1999

/S/ Darrell M. Trent
-------------------------------------
     Darrell M. Trent                                         Director                               March 30, 1999

</TABLE>

                                       28



<PAGE>



                  REPORT OF INDEPENDENT ACCOUNTANTS


     Our report on the consolidated financial statements of Continental 
Materials Corporation and Subsidiaries is included on page 25 of this Annual 
Report on Form 10-K. In connection with our audits of such financial 
statements, we have also audited the related financial statement schedule 
listed in the index on page 26 of this Form 10-K.

In our opinion, the financial statement schedule referred to above, when 
considered in relation to the basic financial statements taken as a whole, 
presents fairly, in all material respects, the information required to be 
included therein.

                                            PRICEWATERHOUSECOOPERS LLP



Chicago, Illinois
March 3, 1999



















                                       29
<PAGE>
                       CONTINENTAL MATERIALS CORPORATION
     SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (c) (d)

                   for the fiscal years 1998, 1997 and 1996

<TABLE>
<CAPTION>

       COLUMN A                 COLUMN B           COLUMN C(1)          COLUMN D          COLUMN E
                               Balance at           Additions
                              Beginning of         Charged to         Deductions -     Balance at End
     Description                Period              Costs and          Describe           of Period
                                                    Expenses
----------------------        ------------         ----------         ------------     ---------------
<S>                           <C>                  <C>                <C>              <C>
YEAR 1998
Allowance for doubtful        $580,000             $304,000           $109,000(a)      $775,000
accounts
                              ------------         ----------         ------------     ---------------
                              ------------         ----------         ------------     ---------------
Inventory valuation reserve   $233,000             $667,000           $396,000         $504,000
                              ------------         ----------         ------------     ---------------
                              ------------         ----------         ------------     ---------------
YEAR 1998
Allowance for doubtful        $373,000             $264,000           $ 57,000(a)      $580,000
accounts
                              ------------         ----------         ------------     ---------------
                              ------------         ----------         ------------     ---------------
Inventory valuation reserve   $404,000             $203,000           $374,000(b)      $233,000
                              ------------         ----------         ------------     ---------------
                              ------------         ----------         ------------     ---------------
YEAR 1996
Allowance for doubtful        $260,000             $199,000           $ 86,000(a)      $373,000
accounts
                              ------------         ----------         ------------     ---------------
                              ------------         ----------         ------------     ---------------
Inventory valuation reserve   $236,000             $310,000           $142,000(b)      $404,000
                              ------------         ----------         ------------     ---------------
                              ------------         ----------         ------------     ---------------
</TABLE>

    Notes:

    (a) Accounts written off, net of recoveries.

    (b) Amounts written off upon disposal of assets.

    (c) Reserve deducted in the balance sheet from the asset to which it 
        applies.

    (d) Column C(2) has been omitted as the answer would be "none."


                                      30