UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 29, 2018~~March 30, 2019


☐��	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 incorporation or organization)		(I.R.S. Employer Identification No.)

440 South LaSalle Street, Suite 3100, Chicago, Illinois		60605
(Address of principal executive offices)		(Zip Code)

(312) 541-7200

(Registrant’s telephone number, including area code)

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

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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


Large Accelerated Filer ☐		Accelerated Filer ☐

Non-Accelerated Filer ☐☒		Smaller reporting company ☒

		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 or the Exchange Act). Yes ☐ No ☒

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	CUO	NYSE American

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.25 par value, shares outstanding at ~~November 6, 2018: 1,697,855.~~May 10, 2019: 1,715,487.

PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

~~SEPTEMBER~~MARCH 30, 2019 AND DECEMBER 29, 2018 ~~AND DECEMBER 30, 2017~~

(000’s omitted except share data)



	SEPTEMBER 29, 2018		DECEMBER 30,		MARCH 30, 2019		DECEMBER 29,
	(Unaudited)		2017		(Unaudited)		2018
ASSETS
Current assets:
Cash and cash equivalents	$	452	$	507	$	35,421	$	594
Receivables, net		25,710		24,227		15,053		15,321
Receivable for insured losses		875		—		875		874
Inventories
Finished goods		5,159		8,391		7,481		5,448
Work in process		2,855		1,198		1,414		1,365
Raw materials and supplies		13,067		10,770		4,538		7,993
Prepaid expenses		2,490		1,901		2,066		1,785
Refundable income taxes		996		57		—		494
Other current assets						4,549		2,500
Other current assets held for sale						—		10,968
Total current assets		51,604		47,051		71,397		47,342

Property, plant and equipment		17,220		22,824		9,972		10,431

Other assets
Right-of use assets						5,114		—
Goodwill		7,229		7,229		1,000		1,000
Deferred income taxes		2,497		1,616		2,353		3,414
Other assets		3,674		3,769
Other long-term assets						773		448
Other assets held for sale						—		13,068
	$	82,224	$	82,489	$	90,609	$	75,703

LIABILITIES
Current liabilities:
Revolving bank loan payable	$	6,700	$	3,500	$	800	$	2,200
Accounts payable and accrued expenses		18,849		18,374		11,617		13,316
Short-term lease liabilities						933
Liability for unpaid claims covered by insurance		875		—		875		874
Income taxes payable						3,373		—
Other current liabilities held for sale						—		3,800
Total current liabilities		26,424		21,874		17,598		20,190

Long-term lease liabilities						4,240		—
Other long-term liabilities		6,484		6,293		6,301		6,445
Other long-term liabilities held for sale						—		292
Commitments and contingencies (Note 6)

SHAREHOLDERS’ EQUITY
Common shares, $.25 par value; authorized 3,000,000 shares; issued 2,574,264 shares		643		643		643		643
Capital in excess of par value		1,930		1,887		2,013		1,930
Retained earnings		61,671		66,987		74,453		61,131
Treasury shares, 876,409 and 892,097 at cost		(14,928)		(15,195)
Treasury shares, 858,777 and 876,409 at cost						(14,639)		(14,928)
		49,316		54,322		62,470		48,776
	$	82,224	$	82,489	$	90,609	$	75,703

See notes to condensed consolidated financial statements.

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

FOR THE THREE MONTHS ENDED ~~SEPTEMBER 29,~~MARCH 30, 2019 AND MARCH 31, 2018 ~~AND SEPTEMBER 30, 2017~~

(Unaudited)

(000’s omitted except per-share amounts)


					MARCH 30,		MARCH 31,
	SEPTEMBER 29,		SEPTEMBER 30,		2019		2018
	2018		2017
Net sales	$	40,978	$	38,627	$	22,528	$	23,410

Costs and expenses:
Cost of sales (exclusive of depreciation, depletion and amortization)		34,745		31,426		17,847		18,404
Depreciation, depletion and amortization		682		617		519		405
Selling and administrative		7,006		5,361		6,792		5,190
Charges related to write-off of deferred development						—		6,934
Gain on legal settlement						(15,000)		—
Gain on disposition of property and equipment		(3)		(95)		(5)		—
		42,430		37,309		10,153		30,933

Operating (loss) income		(1,452)		1,318
Operating income (loss)						12,375		(7,523)

Interest income		14		18		149		24
Interest expense		(140)		(98)		(71)		(108)
Other (expense) income, net		(70)		28
Other income, net						13		19
Income (loss) from continuing operations before income taxes						12,466		(7,588)
Provision (benefit) for income taxes						3,366		(1,898)
Income (loss) from continuing operations						9,100		(5,690)
Income (loss) from discontinued operations net of income tax provision of $1,562 and benefit of $167						4,222		(503)

(Loss) income before income taxes		(1,648)		1,266

(Benefit) provision for income taxes		(412)		431

Net (loss) income		(1,236)		835
Net income (loss)						13,322		(6,193)

Retained earnings, beginning of period		62,907		65,775		61,131		66,987

Retained earnings, end of period	$	61,671	$	66,610	$	74,453	$	60,794

Basic and diluted income per share	$	(0.73)	$	0.50
Basic and diluted income (loss) per share:
Income (loss) from continuing operations						5.33		(3.35)
Income (loss) from discontinued operations						2.47		(0.30)
Basic and diluted income (loss) per share:					$	7.80	$	(3.65)
Average shares outstanding		1,698		1,682		1,709		1,696

See notes to condensed consolidated financial statements

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS AND RETAINED EARNINGS~~CASH FLOWS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 29,~~MARCH 30, 2019 AND MARCH 31, 2018 ~~AND SEPTEMBER 30, 2017~~

(Unaudited)

(000’s ~~omitted except per-share amounts)~~omitted)

SEPTEMBER 29,

SEPTEMBER 30,

2018

2017

Net sales

$
121,151

$
112,617

Costs and expenses:

Cost of sales (exclusive of depreciation, depletion and amortization)

101,185

91,232

Depreciation, depletion and amortization

2,065

1,932

Selling and administrative

18,656

17,210

Charges related to write off of deferred development

6,840

—

Gain on disposition of property and equipment

(892)

(119)

127,854

110,255

Operating (loss) income

(6,703)

2,362

Interest income

59

50

Interest expense

(415)

(272)

Other (expense) income, net

(29)

44

(Loss) income before income taxes

(7,088)

2,184

Benefit (provision) for income taxes

1,772

(743)

Net (loss) income

(5,316)

1,441

Retained earnings, beginning of period

66,987

65,169

Retained earnings, end of period

$
61,671

$
66,610

Basic and diluted (loss) income per share

$
(3.13)

$
0.86

Average shares outstanding

1,697

1,679


	MARCH 30,		MARCH 31,
	2019		2018
Net cash provided (used) by continuing operations	$	11,624	$	(1,615)
Net cash provided by discontinued operations		(15)		16
Net cash provided (used) by operating activities		11,609		(1,599)

Investing activities:
Capital expenditures by continuing operations		(63)		(411)
Capital expenditures by discontinued operations		(172)		(289)
Cash proceeds from sale of discontinued operations		24,927		—
Cash proceeds from sale of property and equipment		5		—
Net cash provided (used) in investing activities		24,697		(700)

Financing activities:
Borrowings on the revolving bank loan		4,050		9,900
Repayments on the revolving bank loan		(5,450)		(7,700)
Repayments of finance lease obligations		(10)		—
Payments to acquire treasury stock		(69)		—
Net cash (used) provided by financing activities		(1,479)		2,200

Net increase (decrease) in cash and cash equivalents		34,827		(99)
Cash and cash equivalents:
Beginning of period		594		507

End of period	$	35,421	$	408

Supplemental disclosures of cash flow items:
Cash paid during the year for:
Interest, net	$	72	$	104
Income taxes, net		—		—

See notes to condensed consolidated financial statements

CONTINENTAL MATERIALS CORPORATION

CONDENSED ~~CONSOLIDATED STATEMENTS~~STATEMENT OF ~~CASH FLOWS~~

~~FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2018 AND SEPTEMBER 30, 2017~~CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(000’s ~~omitted)~~omitted, except share data)

SEPTEMBER 29,

SEPTEMBER 30,

2018

2017

Net cash used by operating activities

$
(2,256)

$
(1,410)

Investing activities:

Capital expenditures

(2,402)

(4,378)

Cash proceeds from sale of property and equipment

1,403

122

Net cash used in investing activities

(999)

(4,256)

Financing activities:

Borrowings on the revolving bank loan

27,600

25,050

Repayments on the revolving bank loan

(24,400)

(19,450)

Net cash provided by financing activities

3,200

5,600

Net decrease in cash and cash equivalents

(55)

(66)

Cash and cash equivalents:

Beginning of period

507

301

End of period

$
452

$
235

Supplemental disclosures of cash flow items:

Cash paid during the year for:

Interest, net

$
404

$
339

Income taxes, net

50

252


Three Months ended March 30, 2019
		Common		Capital
	Common	shares		in excess		Retained		Treasury	Treasury
	shares	amount		of par		earnings		shares	shares cost		Total
Balance at December 29, 2018	2,574,264	$	643	$	1,930	$	61,131	876,409	$	(14,928)	$	48,776
Net income	—		—		—		13,322	—		—		13,322
Compensation of Board of Directors by issuance of treasury shares	—		—		83		—	(21,000)		358		441
Purchase of treasury shares	—		—		—		—	3,368		(69)		(69)
Balance at March 30, 2019	2,574,264	$	643	$	2,013	$	74,453	858,777	$	(14,639)	$	62,470


Three Months ended March 31, 2018
		Common		Capital
	Common	shares		in excess		Retained		Treasury	Treasury
	shares	amount		of par		earnings		shares	shares cost		Total
Balance at December 30, 2017	2,574,264	$	643	$	1,887	$	66,987	892,097	$	(15,195)	$	54,322
Net loss	—		—		—		(6,193)			—		(6,193)
Compensation of Board of Directors by issuance of treasury shares	—		—		43		—	(16,000)		271		314
Purchase of treasury shares	—		—		—		—	112		—		—
Balance at March 31, 2018	2,574,264	$	643	$	1,930	$	60,794	876,209	$	(14,924)	$	48,443

See notes to condensed consolidated financial statements

CONTINENTAL MATERIALS CORPORATION

SECURITIES AND EXCHANGE COMMISSION FORM 10-Q

NOTES TO THE QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUARTER ENDED ~~SEPTEMBER 29, 2018~~MARCH 30, 2019

(Unaudited)

1. Significant Accounting Policies:

Basis of Presentation:

~~Basis of Presentation~~:

The unaudited interim condensed consolidated financial statements included herein are prepared pursuant to the Securities and Exchange Commission (the “Commission”) rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally accompanying the annual consolidated financial statements have been omitted. The condensed consolidated balance sheet of Continental Materials Corporation (the “Company”) as of December ~~30, 2017~~29, 2018 has been derived from the audited consolidated balance sheet of the Company as of that date. The interim condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s latest annual report on Form 10-K. In the opinion of management, the condensed consolidated financial statements include all adjustments (none of which were other than normal recurring adjustments) necessary for a fair statement of the results for the interim periods and to ensure the financial statements are not misleading. Certain reclassifications have been made to the ~~2017~~2018 consolidated financial statements to conform to the ~~2018~~2019 presentation. The reclassifications had no effect on the consolidated results of operations, the net ~~change~~decrease in cash or the total assets, liabilities or shareholders’ equity of the Company. During the quarter ended March 30, 2019 the Company sold substantially all of the assets of Transit Mix Concrete Company’s ready-mix business and Daniels sand operation. The assets and liabilities related to these operations are presented as held for sale in accordance with generally accepted accounting principles. See Note 15. Accordingly, the operations of these businesses are presented as discontinued operations for all periods presented.

Revenue ~~Recognition~~:Recognition:

Effective December 31, 2017, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) and related amendments, which creates a single source of revenue guidance for all companies in all industries and is more principles-based than previous revenue guidance. The Company adopted the standard using the modified retrospective approach. The adoption of this standard did not result in significant changes to the Company’s accounting policies, business processes, systems or controls, or have a material impact on its financial position, consolidated results of operations or consolidated cash flows. As such, prior period financial statements were not recast and there was no cumulative effect adjustment upon adoption.

Sales are recognized when control of the promised goods or services transfers to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company’s payment terms generally range between 30 to 90 days after invoice is billed to the customer. Sales are reported net of sales tax. Shipping and other transportation costs paid by the Company and rebilled to the buyer are recorded gross (as both sales and cost of sales). The Company generally recognizes revenue from the sale of products at the time the products are shipped.

While the return of products is generally not allowed, some large customers have been granted the right to return a certain amount at the end of the normal selling season for seasonal products. Sales returns and allowances are estimated based on current program terms and historical experience. Provisions for estimated returns, discounts,

volume rebates and other price adjustments are provided for in the same period the related revenues are recognized and are netted against revenues.

The Company is responsible for warranties related to the manufacture of its HVAC products and estimates the future warranty claims based upon historical experience and management estimates. The Company reviews warranty and related claims activities and records provisions, as necessary.

The Company does not perform installation services except for installation of electronic access and security systems in the Door segment. These installation service contracts are generally short-term in nature, usually less than 30 days. It was determined for the installation service contracts there are two performance obligations, the equipment and the installation services. The transaction price for these contracts is allocated to each performance obligation based on its stated stand-alone selling price. Revenue is recognized at a point in time as each performance obligation is completed. No maintenance or service contracts are offered by the Company.

See Note 7, Segment reporting for disaggregation of revenue by segment.

Leases

Effective December 30, 2018 (the beginning of fiscal 2019) the Company adopted ASU No. 2016-02, “Leases (Topic 842),” which superseded Topic 840, “Leases”. As allowed under the new accounting standard, the Company elected to apply practical expedients to carry forward the original lease determinations, lease classifications and accounting of initial direct costs for all asset classes at the time of adoption. The Company also elected not to separate lease components from non-lease components for asset categories, except office space, and to exclude short-term leases from its Consolidated Balance Sheet. For the office space lease category the election was made to report lease and non-lease components separately as the non-lease components are billed and paid separately and are not a fixed amount over the lease term. The implicit discount rate of leases is used to calculate present values when available. When an implicit discount rate is not readily available an incremental borrowing rate is used to calculate present values.

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

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted in the United States. The Tax Act significantly revised the U.S. tax code by, among other items, reducing the Company’s federal tax rate from 34% to 21%, providing for the full expensing of certain depreciable property and eliminating the corporate Alternative Minimum Tax (AMT).

The Tax Act repeals AMT and allows for all existing credit carryforwards to be used to offset regular tax ~~liabilities in~~liability for tax years beginning after December 31, 2017. Additionally, for tax years 2018, ~~through~~2019 and 2020, ~~or, if not fully usable~~ to ~~offset~~the extent that the AMT credit carryover exceeds the regular tax ~~liabilities, refunded by~~liability, 50% of the excess AMT credit is refundable. Any remaining credits will be fully refundable in 2021. For state tax purposes, net operating losses can be carried forward for various periods for the states that the Company is required to file in. California Enterprise Zone credits can be used through 2023 while Colorado credits can be carried forward for 7 years. The Company has established a valuation reserve related to a portion of the California Enterprise Zone credit not expected to be utilized prior to expiration.

The Company’s income tax returns are subject to audit by the Internal Revenue Service (the “IRS”) and state tax authorities. The amounts recorded for income taxes reflect the Company’s tax positions based on research and interpretations of complex laws and regulations. The Company accrues liabilities related to uncertain tax positions taken or expected to be taken in its tax returns. The Company did not identify any such uncertain tax positions as of ~~September 29, 2018~~March 30, 2019 or December ~~30, 2017.~~29, 2018.

3. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:


Level 1	Quoted prices in active markets for identical assets or liabilities.

Level 2	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3	Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or liabilities. Unobservable inputs reflect the assumptions that market participants would use when pricing the asset or liability including assumptions about risk.

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheet:

Cash and Cash Equivalents: The carrying amount approximates fair value and was valued as Level 1.

Revolving Bank Loan Payable: Fair value is estimated based on the borrowing rates ~~currently~~then available to the Company for bank loans with similar terms and maturities and determined through the use of a discounted cash flow model. The carrying amount of the Revolving Bank Loan Payable represents a reasonable estimate of the corresponding fair value as the Company’s debt is held at variable interest rates and was valued as Level 2.

There were no transfers between fair value measurement levels of any financial instruments in the current quarter.

4. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This new revenue standard ~~created~~creates a single source of revenue guidance for all companies in all industries and is more

principles-based than ~~prior~~current revenue guidance. Subsequently, the FASB issued various ASUs to provide further clarification around certain aspects of ASC 606. This standard was adopted by the Company in the first quarter of fiscal 2018. See Note 1 for further discussion of the Company’s revenue recognition policies and practices.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), requiring that the statement of cash flows explain the change in total cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. This standard was adopted by the Company inis the first quarter of fiscal 2018 and did not have a material impact to the consolidated statement of cash flows.

In February 2016, the FASB issued ASU No. 2016-02, ~~Leases~~“Leases (Topic 842),” which superseded Topic 840, “Leases”. ~~This~~The new accounting standard ~~supersedes existing lease guidance to require lessees to recognize assets~~was effective for the Company beginning on December 30, 2018 (the beginning of fiscal 2019) and ~~liabilities~~required the recognition on the balance sheet of right-of-use assets (ROU) and lease liabilities for ~~the rights and obligations created by~~all long-term leases, ~~and to disclose additional quantitative and qualitative information about leasing arrangements.~~including operating leases. The ~~standard will be effective for~~Company elected the Company in the first quarter of fiscal 2019. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which includes new transition guidance for the adoption of ASU 2016-02. Such guidance creates an additionaloptional transition method allowing entities to use the effective date of ASU 2016-02 as the date of initial application on transition. Under this method, entities will not be required to recast comparative periods when transitioning toand adopted the new ~~guidance. Entities will also not be required to present comparative~~guidance on December 30, 2018 on a modified retrospective basis with no restatement of prior period ~~disclosures~~amounts. As allowed under the new ~~guidance in~~accounting standard, the ~~period~~Company elected to apply practical expedients to carry forward the original lease determinations, lease classifications and accounting of initial direct costs for all asset classes at the time of adoption. The Company ~~expects~~also elected not to ~~select this new transition method upon~~separate lease components from non-lease components for most asset categories and to exclude short-term leases from its ~~adoption in the first quarter of 2019.~~Consolidated Balance Sheet. The ~~Company has begun its evaluation~~Company’s adoption of the new standard resulted in the recognition of ROUs of $5,353,000 and liabilities of $5,427,000 related to operating leases, with no material cumulative effect adjustment to equity as ~~well as accumulating relevant documents. This process is expected to continue through~~of the ~~effective~~ date ~~and will include analysis~~ of contractual arrangements, evaluation of related disclosures and, potentially, changes/modifications to processes, accounting systems, and internal controls to ensure compliance. The Company expects thatadoption. In connection with the adoption of ~~ASU 2016-02 will~~this guidance, as required, the Company reclassified deferred rent liabilities as reductions to lease assets. Adoption of the new standard did not have ~~a significant impact on its consolidated balance sheets and disclosures, but does not anticipate~~ a material impact on ~~its consolidated cash flow~~the Company’s Consolidated Statements of Income or ~~consolidated results of operations.~~Cash Flows. See Note 13.

There are no other significant prospective accounting pronouncements that are expected to have a material effect on the Company’s consolidated financial statements.

5. Operating results for the first ~~nine~~three months of ~~2018~~2019 are not necessarily indicative of performance for the entire year due to the seasonality of most of the Company’s products. Historically, sales of the Evaporative Cooling segment are higher in the first and second quarters, sales of the Concrete, Aggregates and Construction Supplies (CACS) segment are higher in the second and third quarters and sales of furnaces in the Heating and Cooling segment are higher in the third and fourth quarters. Sales of the Door segment are generally more evenly spread throughout the year.

6. There is no difference in the calculation of basic and diluted earnings per share (EPS) for the three-month ~~or nine month~~ periods ended ~~September 29,~~March 30, 2019 and March 31, 2018 ~~and September 30, 2017~~ as the Company does not have any dilutive instruments.

7. The Company operates primarily in two industry groups, Heating, Ventilation and Air Conditioning (HVAC) and Construction Products. The Company has identified two reportable segments within each of the industry groups: the Heating and Cooling segment and the Evaporative Cooling segment in the HVAC industry group and the CACS segment and the Door segment in the Construction Products industry group.

The Heating and Cooling segment primarily produces and sells gas-fired wall furnaces, console heaters and fan coils from the Company’s wholly-owned subsidiary, Williams Furnace Co. (WFC) of Colton, California. The Evaporative Cooling segment primarily produces and sells evaporative coolers from the Company’s wholly-owned subsidiary, Phoenix Manufacturing, Inc. (PMI) of Phoenix, Arizona. Sales of these two segments are nationwide, but are concentrated in the southwestern United States. Concrete, aggregates and construction supplies ~~are~~were offered from numerous locations along the Southern Front Range of Colorado operated by the Company’s wholly-owned subsidiaries Castle Concrete Company and Transit Mix Concrete Co., of Colorado Springs and Transit Mix of Pueblo, Inc. of Pueblo, Colorado (the three companies collectively are referred to as TMC). On February 1, 2019 the Company sold the assets of the ready-mix and Daniels sand operations of TMC, previously reported in the CACS segment. The Company retained the remaining aggregates operations and the construction supply business, and the associated assets and liabilities, which were rebranded as Castle Aggregates and Castle Rebar & Supply, respectively. See additional discussion of the discontinued operations in Note 15. The Door segment sells hollow metal and wood doors, door frames and related hardware, lavatory fixtures and electronic access and security systems from the Company’s wholly-owned subsidiary, McKinney Door and Hardware, Inc. (MDHI), which

operates out of facilities in Pueblo and Colorado Springs, Colorado. Sales of these two segments are highly concentrated in the Southern Front Range of Colorado although door sales are also made throughout the United States.

In addition to the above reporting segments, an “Unallocated Corporate” classification is used to report the unallocated expenses of the corporate office which provides treasury, insurance and tax services as well as strategic business planning and general management services. Expenses related to the corporate information technology group are allocated to all locations, including the corporate office.

The Company evaluates the performance of its segments and allocates resources to them based on a number of criteria including operating income, return on investment and other strategic objectives. 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, other income or loss or income taxes.

The following table presents information about reported segments for the ~~nine-month and~~ three-month periods ended ~~September 29,~~March 30, 2019 and March 31, 2018 ~~and September 30, 2017~~ along with the items necessary to reconcile the segment information to the totals reported in the financial statements (amounts in thousands):


	Construction Products Industry						HVAC Industry										Construction Products Industry						HVAC Industry
	Concrete,																Concrete,
	Aggregates &				Combined		Heating				Combined						Aggregates &				Combined		Heating				Combined
	Construction				Construction		and		Evaporative		HVAC		Unallocated				Construction				Construction		and		Evaporative		HVAC		Unallocated		Held for
	Supplies		Doors		Products		Cooling		Cooling		Products		Corporate		Total		Supplies		Doors		Products		Cooling		Cooling		Products		Corporate		Sale		Total
Nine Months ended September 29, 2018
Revenues from external customers	$	53,965	$	14,824	$	68,789	$	29,314	$	22,980	$	52,294	$	68	$	121,151
Depreciation, depletion and amortization		1,100		123		1,223		487		322		809		33		2,065
Operating (loss) income		(5,365)		1,787		(3,578)		(21)		104		83		(3,208)		(6,703)
Segment assets		37,754		7,806		45,560		23,010		9,655		32,665		3,999		82,224
Capital expenditures ~~(b)~~		1,620		94		1,714		346		296		642		46		2,402
Three Months ended September 29, 2018
Three Months ended March 30, 2019
Revenues from external customers	$	19,034	$	4,746	$	23,780	$	10,909	$	6,254	$	17,163	$	35	$	40,978	$	1,554	$	4,242	$	5,796	$	10,345	$	6,376	$	16,720	$	11	$	—	$	22,528
Depreciation, depletion and amortization		362		41		403		162		107		269		10		682		52		43		96		303		107		411		13		—		519
Operating income (loss)		(63)		431		368		(95)		(416)		(511)		(1,309)		(1,452)		14,044		379		14,423		(216)		(265)		(481)		(1,567)		—		12,375
Segment assets		37,754		7,806		45,560		23,010		9,655		32,665		3,999		82,224		11,760		6,805		18,565		18,019		12,152		30,171		41,873		—		90,609
Capital expenditures (b)		1,269		61		1,330		146		231		377		(5)		1,702		—		19		19		44		—		44		—		—		63


	Construction Products Industry						HVAC Industry										Construction Products Industry						HVAC Industry
	Concrete,																Concrete,
	Aggregates &				Combined		Heating				Combined						Aggregates &				Combined		Heating				Combined
	Construction				Construction		and		Evaporative		HVAC		Unallocated				Construction				Construction		and		Evaporative		HVAC		Unallocated		Held for
	Supplies		Doors		Products		Cooling		Cooling		Products		Corporate		Total		Supplies		Doors		Products		Cooling		Cooling		Products		Corporate		Sale		Total
Nine Months ended September 30, 2017
Three Months ended March 31, 2018
Revenues from external customers	$	49,650	$	13,565	$	63,215	$	27,358	$	22,031	$	49,389	$	13	$	112,617	$	1,601	$	4,296	$	5,897	$	10,993	$	6,516	$	17,509	$	4	$	—	$	23,410
Depreciation, depletion and amortization		1,026		111		1,137		449		322		771		24		1,932		85		40		125		162		107		269		11		—		405
Operating income (loss)		2,484		1,544		4,028		219		579		798		(2,464)		2,362		(7,252)		438		(6,814)		571		(256)		315		(1,024)		—		(7,523)
Segment assets (a)		39,020		7,360		46,380		21,543		11,896		33,439		2,670		82,489		11,315		8,003		19,318		19,668		9,335		29,003		3,346		24,036		75,703
Capital expenditures (b)		3,367		131		3,498		650		216		866		14		4,378
Three Months ended September 30, 2017
Revenues from external customers	$	18,054	$	4,936	$	22,990	$	10,144	$	5,489	$	15,633	$	4	$	38,627
Depreciation, depletion and amortization		316		39		355		147		107		254		8		617
Operating income (loss)		1,602		600		2,202		151		(270)		(119)		(765)		1,318
Segment assets (a)		39,020		7,360		46,380		21,543		11,896		33,439		2,670		82,489
Capital expenditures (b)		1,148		12		1,160		285		151		436		(21)		1,575
Capital expenditures																		62		33		95		200		65		265		51		—		411

(a)

Segment assets are as of December ~~30, 2017.~~29, 2018.

(b)

Capital expenditures are presented on the accrual basis of accounting.

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

8.On September 15, 2016 a Partial Summary Judgment Order was issued regarding the Company’s previously disclosed litigation, Continental Materials Corporation v. Valco, Inc., Civil Action No. 2014-cv-2510, filed in the United States District Court for the District of Colorado. The suit regards a ~~sand~~Fee Sand and ~~gravel lease~~Gravel Lease (“Lease”) between the Company as Lessee and Valco, Inc. (“Valco”) as Lessor that calls for the payment of royalties over the life of the ~~lease~~Lease on an agreed 50,000,000 tons of sand and gravel reserves. In the suit the Company sought ~~among other things, to reform~~

~~the sand~~declaratory judgment and ~~gravel lease in regard~~damages pursuant to the ~~agreed amount~~Lease on the grounds that Agreed Sand and Gravel Reserves of ~~sand~~50 million tons did not exist, and ~~gravel reserves~~for other relief including return of approximately $1,470,000 in royalty payments made by the Company to Valco in excess of tonnage actually produced (“Prepayments”). Based on information obtained through discovery, the Company alleges, in addition to the abovementioned claims, nondisclosure or concealment by Valco of material facts concerning the existence of Agreed Sand and ~~to recover approximately $1,282,000~~Gravel Reserves of ~~royalty overpayments included in other long-term assets.~~50 million tons, and breach of warranty concerning the same. Valco asserted counterclaims against the Company alleging breach of contract and seeking declaratory judgment regarding the Company’s refusal to make further royalty payments under the Lease. In the ordinary course of business and absent any breach by Valco, the Company is required to make quarterly royalty payments amounting to not less than $300,000 in a calendar year. In response to Valco’s breaches of contract, the Company stopped making royalty payments at the start of the 2015 calendar year.

The Company has asserted partial failure of consideration as an affirmative defense to Valco’s counterclaims to offset the alleged back-due quarterly royalty payments and the amount due on quarterly royalty payments in the future. The Partial Summary Judgment Order resolved many of the Company’s claims in Valco’s favor, but ~~the Company’s claim for the return of royalty overpayments made during the statutorily allowed period is still pending. The Partial Summary Judgment Order~~ did not resolve Valco’s counterclaims or the Company’s affirmative defense. During the third quarter of 2016, the Company recorded a $632,000 write-down representing the portion of the royalty overpayment paid prior to the statutorily allowed period because of litigation risk attendant to recovering that amount. The Company sought certification of the Partial Summary Judgment Order because it and its legal counsel believe the court improperly resolved factual issues in its Partial Summary Judgment Order that should have been decided by a jury. On February 23, 2017, the Partial Summary Judgment Order was certified for immediate appeal, and all other claims, counterclaims and affirmative defenses were stayed pending the resolution of that appeal. The Company filed a notice of appeal which was denied on July 2, 2018 for lack of jurisdiction and remanded to the trial court for further proceedings. Subsequently, the trial court vacated its September 15, 2016 Partial Summary Judgment Order and set the matter for trial by jury on all issues on January 28, 2019. The Company filed its Third Amended Complaint on November 16, 2018 in which it dropped its claim to recover royalty overpayments but continued to seek to recover $1,470,000 in Prepayments. The Company wrote off the remaining royalty overpayment of $627,000, previously reported as Other assets on the Consolidated Balance Sheet, as of December 29, 2018 due to filing of the Third Amended Complaint. At the trial preparation conference on January 18, 2019, the court informed the parties that the trial would be rescheduled due to an ongoing shutdown of the federal government. The jury trial on all issues was then rescheduled for May 13, 2019. On April 30, 2019 the court entered an order stating: “Due to a conflict in the Court’s calendar, the trial preparation conference set for May 3, 2019 and the May 13, 2019, trial date are vacated.” The trial date has yet to be rescheduled.

The Company has paid royalties on approximately 17,700,000 tons, including the ~~overpayments,~~Prepayments, of the 50,000,000 tons of sand and gravel reserves through the end of the third quarter of 2014. The impact of these proceedings could have a material financial effect on the Company; however, the Company does not believe that there is a reasonable basis for estimating the financial impact, if any, of the final outcome of these proceedings and accordingly no accrual or reserve has been recorded in compliance with accounting principles generally accepted in the United States of America.

9. The Company issued a total of 21,000 shares to the seven eligible board members effective February 7, 2019 as full payment for their 2019 retainer fee. The Company issued a total of 16,000 shares to the eight eligible board members effective January 16, 2018 as full payment for their 2018 ~~retainer fee. The Company issued a total of 12,000 shares to the eight eligible board members effective March 8, 2017 as full payment for their 2017~~ retainer fee. All shares were issued under the 2010 Non-Employee Directors Stock Plan.

10. The Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) effective November 18, 2011. The Company entered into the ~~Ninth~~Tenth Amendment to Credit Agreement effective ~~May 15, 2018.~~March 22, 2019. The Company had previously entered into ~~eight~~nine separate amendments to the Credit Agreement. Cumulatively, the amendments were entered into by the Company to, among other things, (i) modify certain of the financial covenants, (ii) adjust the amount of the Revolving Commitment, (iii) terminate the Term Loan Commitment upon the repayment in full of the outstanding principal balance (and accrued interest thereon) of the Term Loan, (iv) modify the Borrowing Base calculation to provide for borrowing availability in respect of new Capital Expenditures, (v) decrease the interest rates on the Revolving Loans, (vi) extend the maturity date and (vii) decrease the Letter of Credit fee rate. Borrowings under the Credit Agreement are secured by the Company’s accounts receivable, inventories, machinery, equipment, vehicles, certain real estate and the common stock of all of the Company’s subsidiaries. Borrowings under the Credit Agreement bear interest based on a London Interbank Offered Rate (LIBOR) or prime rate based option.

The Credit Agreement either limits or requires prior approval by the lender of additional borrowings, acquisition of stock of other companies, purchase of treasury shares and payment of cash dividends. Payment of accrued interest is due monthly or at the end of the applicable LIBOR period.

The Credit Agreement as amended provides for the following:

The Revolving Commitment is $20,000,000.

Borrowings under the Revolving Commitment are limited to (a) 80% of eligible accounts receivable, (b) the lesser of 50% of eligible inventories and $8,500,000 plus (c) 80% of new qualifying Capital Expenditures not to exceed

~~$5,500,000~~ $5,500,000 in any fiscal year (excluding the aggregate amount of any Capital Expenditures financed with the proceeds of a Revolving Line Advance).

The Minimum Fixed Charge Coverage Ratio is not permitted to be below ~~1.15~~1.06 to 1.0 for each trailing twelve month period measured at the end of each Fiscal Quarter.

The Company must not permit Tangible Net Worth as of the last day of any Computation Period to be less than $31,000,000 (provided that the required amount of Tangible Net Worth shall increase (but not decrease) by an amount equal to 50% of the Consolidated Net Income for the immediately preceding Fiscal Year). Therefore, the required Tangible Net Worth as of September 29, 2018 is $33,752,000.

~~The Balance Sheet Leverage Ratio as of the last day of any Computation Period may not exceed 1.00 to 1.00.~~

The maturity date of the credit facility is May 1, 2020.

Interest rate pricing for the revolving credit facility is currently LIBOR plus 2.25% or the prime rate.

Definitions under the Credit Agreement as amended are as follows:

Tangible Net Worth is defined as net worth plus subordinated debt, minus intangible assets (goodwill, intellectual property, prepaid expenses, deposits and deferred charges), minus all obligations owed to the Company or any of its subsidiaries by any affiliate or any of its subsidiaries and minus all loans owed by its officers, stockholders, subsidiaries or employees.

Fixed Charge Coverage Ratio is defined as, for any computation period, the ratio of (a) the sum for such period of (i) EBITDA, as defined, minus (ii) the sum of income taxes paid in cash, the amount expended related to the development of the mining property discussed in Note 12 and all unfinanced capital expenditures to (b) the sum for such period of interest expense related to the Credit Agreement.

~~Balance Sheet Leverage Ratio is defined as the ratio of Total Debt to Tangible Net Worth.~~

EBITDA means for any Computation Period (or another time period to the extent expressly provided for in the Credit Agreement) the sum of the following with respect to the Company and its Subsidiaries each as determined in accordance with GAAP: (a) Consolidated Net Income, plus (b) federal, state and other income taxes deducted in the determination of Consolidated Net Income, plus (c) Interest Expense deducted in the determination of Consolidated Net Income, plus (d) depreciation, depletion and amortization expense deducted in the determination of Consolidated Net Income, plus (e) ~~for 2014, charges directly related to~~non-recurring fees and costs paid by the ~~closing and reclamation~~Company in respect of the ~~Pueblo aggregates~~following: (i) fees and due diligence costs associated with the Company’s permitted acquisitions; (ii) legal fees and costs associated with the Valco trial preparation; (iii) executive recruitment fees for the Company’s new Chief Financial Officer and Chief Operating Officer; and (iv) additional fees and costs associated with the exploration of the Company’s Hitch Rack Ranch facility in Colorado Springs, Colorado to determine the suitability for mining ~~site,~~and the pursuit of mining permits, plus (f) any other non-cash charges and any extraordinary charges deducted in the determination of Consolidated Net Income, including any asset impairment charges (including write downs of goodwill), minus (g) any gains from Asset Dispositions, any extraordinary gains and any gains from discontinued operations included in the determination of Consolidated Net Income.

Outstanding funded revolving debt was ~~$6,700,000~~$800,000 as of ~~September 29, 2018~~March 30, 2019 compared to ~~$3,500,000~~$2,200,000 as of December ~~30, 2017.~~29, 2018. The highest balance outstanding during the first ~~nine~~three months of 2019 and 2018 was $2,200,000 and ~~2017 was $9,800,000 and $10,000,000,~~$6,200,000, respectively. Average outstanding funded debt was ~~$6,188,000~~$802,000 and ~~$5,834,000~~$3,792,000 for the first ~~nine~~three months of ~~2018~~2019 and ~~2017,~~2018, respectively. At ~~September 29, 2018,~~March 30, 2019, the Company had outstanding letters of credit totaling $4,745,000. At all times since the inception of the Credit Agreement, the Company has had sufficient qualifying and eligible assets such that the available borrowing capacity exceeded the cash needs of the Company and this situation is expected to continue for the foreseeable future.

The Company believes that its existing cash balance, anticipated cash flow from operations and borrowings available under the Credit Agreement will be sufficient to cover expected cash needs, including planned capital expenditures, for the next twelve months. The Company expects to be in compliance with all debt covenants, as amended, throughout the facility’s remaining term.

11. The Company is involved in litigation matters related to its business. In the Company’s opinion, none of these proceedings, when concluded, will have a material adverse effect on the Company’s consolidated results of operations or financial condition as the Company has established adequate accruals for matters that are probable and estimable. The Company does not accrue estimated future legal costs related to the defense of these matters but rather expenses legal costs as incurred. Additionally, see Note 8 for discussion of litigation regarding the Pueblo sand and gravel lease.

12. During July 2015, TMC began development of a granite mining property south of Colorado Springs. ~~These~~Prior to beginning the development process, the Company deposited $2,500,000 in an escrow account per agreement with the land owner. This amount was previously included in Other long-term assets on the Consolidated Balance Sheet.

The development costs included drilling the property to ascertain its suitability for mining, engineering studies and legal expenses related to the preparation of TMC’s application to obtain the required mining permits from the State of Colorado and El Paso County.

TMC made its initial application for a mining permit from the state of Colorado in 2016. The Division of Reclamation, Mining and Safety (DRMS) of the Colorado Department of Natural Resources rejected issuing the permit by a 3 to 2 vote with one recusal and one absence. The DRMS invited TMC to resubmit its request to address the concerns raised during the hearing for the initial application. TMC filed its second application to the state in November 2017, addressing the issues cited during the first hearing. The Colorado Department of Natural Resources staff reviewed the mining application and recommended that the mining plan be approved as submitted. Onwhich was rejected on April 26, 2018 despite the staff recommendation to approve the application, the head of the Department of Natural Resources, who has a seat on the DRMS Committee, voted against the permit. The permit was rejected 3 to 2 with two members recusing themselves.

2018. The Company wrote off all capitalized costs associated with the permit application in the first quarter of 2018. As of December 30, 2017 the Company had capitalized $5,430,000 of deferred development which was included in Property, plant and equipment on the consolidated balance sheet. As of March 31, 2018 TMC had invested $6,308,000 in the project. This amount plus an estimated $626,000 of additional expenses incurred during April 2018, a total of ~~$6,934,000,~~$6,934,000.

As of March 30, 2019 and December 29, 2018 the $2,500,000 escrow balance mentioned above was ~~written off~~included in Other current assets as the Company has begun the process to settle the account and recover the funds.

13. The Company adopted ASU No. 2016-02 “Leases (Topic 842)” on December 30, 2018 (the beginning of fiscal 2019), resulting in the recognition of operating right-of-use assets of $5,353,000 and operating lease liabilities of $5,427,000. The Company has entered into lease arrangements for office space, manufacturing facilities, water rights and certain equipment. A number of the leases include one or more options to renew the lease terms, purchase the leased property or terminate the lease. The exercise of these options is at the Company’s discretion and is therefore recognized on the balance sheet when it is reasonably certain the Company will exercise such options.

Substantially all of the Company’s leases are considered operating leases. Finance leases were not material as of March ~~31, 2018. During~~30, 2019 or for the ~~second quarter of 2018, final billings and adjustments~~three months ended March 30, 2019. The following table displays the undiscounted cash flows related to ~~the permit application resulted in a net recovery of $94,000 reducing the total write-off to $6,840,000~~operating leases as of ~~June~~March 30, ~~2018.~~2019, along with a reconciliation to the discounted amount recorded on the March 30, 2019 Consolidated Balance Sheet (amounts in thousands):


	OPERATING
	LEASE
	LIABILITIES
2019	$	932
2020		1,209
2021		1,196
2022		1,156
2023		694
Thereafter		899
Total lease payments		6,086
Less: interest		(913)
Present value of operating lease liabilities	$	5,173

Short-term lease cost represents the Company’s cost with respect to leases with a duration of 12 months or less and are not reflected on the Company’s Consolidated Balance Sheet. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. For the three months ended March 30, 2019 operating lease cost was $529,000 including $203,000 of short-term lease costs.

New leases entered into during the three month period ended March 30, 2019 were not material. At March 30, 2019 the weighted-average remaining lease term and discount rate for operating leases was 5.5 years and 6.1%, respectively.

14. On January 15, 2019, the Company reached an amicable resolution to a business dispute by way of a settlement agreement. Pursuant to the settlement agreement, the Company received $15,000,000. The other party and the Company further agreed to set up a joint escrow account to support certain conditions in the agreement. The Company’s contribution to the escrow account was $200,000. The Settlement Agreement does not contain any admission of liability, wrongdoing, or responsibility by any of the parties.

15. On February 1, 2019, the Company and certain of its subsidiaries sold substantially all of the real property, tangible personal property and executory contracts of TMC’s ready-mix business and the operations of Daniels Sand Company (Daniels) to Aggregate Industries — WCR, Inc. (the Buyer), a Colorado corporation for $27,129,000. The purchase price was paid to the Company on February 1, 2019 less certain amounts to be held in escrow, as provided

in the Asset Purchase Agreement among the Company parties and the Buyer (Purchase Agreement), to secure the Company’s obligations to pay its working capital adjustment and indemnification obligations under the Purchase Agreement. The working capital adjustment has not been finalized as of March 30, 2019 and will impact the final gain on the sale. The escrow also retained amounts to be held pending the subdivision of certain real property to be sold to the Buyer at a subsequent date as included in the Purchase Agreement. Combined escrow amounts of $2,049,000 were included in Other current assets in the Consolidated Balance Sheet at March 30, 2019.

The Company retained the aggregates operations and retail building materials business of TMC and all related assets and liabilities. These operations include the Pikeview quarry business located in Colorado Springs, the aggregates mining business located in Pueblo, the sand and gravel mining business located in Fremont County, and the retail building materials business at sites located in Colorado Springs and Pueblo.

In the quarter ended March 30, 2019, the Company recorded a $6,508,000 pre-tax gain on the sale of TMC assets. The operations of the ready-mix and Daniels sand businesses were classified as discontinued operations and assets held for sale for all periods presented. General corporate overhead charges were not allocated to discontinued operations. Revenue, expenses and pre-tax income reclassified to discontinued operations were as follows (amounts in thousands):


	MARCH 30,		MARCH 31,
	2019		2018
Revenue	$	4,058	$	13,463
Costs and expenses		3,900		12,940
Depreciation, depletion and amortization		578		271
Selling and administrative		304		922

Pre-tax income (loss)	$	5,784	$	(670)

The results of discontinued operations are summarized as follows:


	MARCH 30,		MARCH 31,
	2019		2018
Operating (loss)	$	(724)	$	(670)
Gain on sale of assets		6,508		—
Income tax provision (benefit)		1,562		(167)
Income (loss) from discontinued operations	$	4,222	$	(503)

The assets and liabilities held for sale related to TMC’s ready-mix and Daniels sand businesses were as follows:


	MARCH 30,		DECEMBER 29,
	2019		2018
Accounts receivable, net	$	—	$	9,054
Inventory		—		1,914
Property, plant and equipment, net		—		6,741
Other assets		—		6,327
Total assets held for sale	$	—	$	24,036

Accounts payable and accrued expenses	$		$	3,800
Other long-term liabilites		—		292
Total liabilites held for sale	$	—	$	4,092

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help investors understand the Company’s results of operations, financial condition and current business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report and the Company’s Annual Report on Form 10-K for the fiscal year ended December ~~30, 2017.~~29, 2018.

Company Overview

For an overview of the Company’s operations and operating structure, see Note 7 to the condensed consolidated financial statements contained in this Quarterly Report.

Liquidity and Capital Resources

Sales of the Company’s HVAC products are seasonal except for fan coils. Sales of furnaces, heaters and evaporative coolers are sensitive to weather conditions particularly during their respective peak selling seasons. Fan coil sales are, to a significant extent, dependent on commercial construction, particularly of hotels. Revenues in the CACS segment are primarily dependent on the level of construction activity along the Southern Front Range in Colorado. Sales for the Door segment are not as seasonal nor are they much affected by weather conditions. Historically, the Company has experienced operating losses during the first quarter except when the weather is mild and demand strong along the Southern Front Range. Operating results typically improve in the second and third quarters reflecting more favorable weather conditions in southern Colorado and the seasonal sales of the Evaporative Cooling segment. Fourth quarter results can vary based on weather conditions in Colorado as well as in the principal markets for the Company’s heating equipment. The first quarter 2019 profit is attributable to the legal settlement and sale of TMC ready-mix and Daniels sand operations’ assets, both non-recurring items.

The Company typically experiences operating cash flow deficits during the first half of the year reflecting operating results, the use of sales dating programs (extended payment terms) related to the Evaporative Cooling segment and payments of the prior year’s accrued incentive bonuses and Company profit-sharing contributions, if any. As a

result, the Company’s borrowings against its revolving credit facility tend to peak during the second quarter and then decline over the remainder of the year.

~~Cash used by operations was $2,256,000 during the~~ The 2019 first ~~nine months of 2018 compared to $1,410,000 during the first nine months of 2017. The current year use of~~quarter favorable cash position is attributable to the ~~reduced~~legal settlement and sale of TMC ready-mix and Daniels sand operations’ assets, both non-recurring items.

Cash provided by continuing operations was $11,624,000 during the first three months of 2019 compared to $1,615,000 used during the first three months of 2018. The current year quarter included $15,000,000 cash received related to a legal settlement. See Note 14 for further discussion. The prior year first quarter included $878,000 related to deferred development of a mining property which was written off as of March 31, 2018. See Note 12 for further discussion. Cash used by discontinued operations in the first quarter of 2019 was $15,000 compared to $16,000 cash provided in the first quarter of 2018. Both periods reflect operating results ~~and~~combined with changes in working capital items, primarily receivables, inventory levels and prepaid expenses, which all increased from the 2017 year-end levels. The prior year use of cash was attributable increases in working capital items, primarily receivables and inventory levels.items.

During the ~~nine~~three months ended ~~September 29, 2018,~~March 30, 2019, investing activities ~~used $999,000~~provided $24,697 of cash compared to ~~$4,256,000~~$700,000 of cash used in the prior year’s ~~period.~~first quarter. Capital expenditures by continuing and discontinued operations were $63,000 and $172,000, respectively, during the first ~~nine~~three months of ~~2018~~2019. Capital expenditures for continuing and discontinued operations were ~~$2,402,000 compared to $4,378,000~~$411,000 and $289,000, respectively, during the first ~~nine~~three months of ~~2017.~~2018. The ~~primary source of~~reduction in capital ~~spending was the CACS segment which added new rolling machinery in both periods. Additionally, during the first nine months of 2017, the CACS segment was deferring costs related~~expenditures is attributable to the ~~development~~sale of ~~an aggregates property. These amounts were written off as of~~TMC’s ready-mix business which, historically, was more capital intensive. Additionally, the three months ended March 30, ~~2018. See Note 12 to the Quarterly Condensed Consolidated Financial Statements for further discussion. The nine months ended September 29, 2018 included $1,403,000 of~~2019 includes $24,927 cash ~~proceeds~~received from the sale of ~~equipment in~~TMC’s ready-mix and Daniels sand operations.

Cash used by financing activities during the ~~CACS segment discussed in the nine month results. The~~ first ~~nine~~three months of ~~2017 included $122,000~~2019 was $1,479,000 as available cash was used to reduce borrowings on the revolving line of ~~cash proceeds from the sale of equipment.~~

credit. Financing activities during the first ~~nine~~three months of 2018 provided $3,200,000 of cash as borrowings against the Company’s revolving bank loan were used primarily to finance the increase in working capital. During the first nine months of 2017 financing activities provided $5,600,000 of cash$2,200,000 as borrowings were used to partially finance the increase in working capital and the pursuit of

mining permits for ~~the aggregates~~a property ~~discussed in~~south of Colorado Springs. See Note 12 to the condensed consolidated financial statements contained in this Quarterly ~~Condensed Consolidated Financial Statements. See also the discussion of the Revolving Credit and Term Loan Agreement below.~~Report for further discussion.

Revolving Credit and Term Loan Agreement

As discussed in Note 10 to the condensed consolidated financial statements contained in this Quarterly ~~Condensed Consolidated Financial Statements,~~Report, the Company maintains a Credit Agreement, which, as amended, provides for a Revolving Commitment of $20,000,000. ~~The Revolving Commitment covers the Company’s outstanding letters of credit ($4,745,000 at September 29, 2018) and cash borrowings.~~ Borrowings under the Credit Agreement are secured by the Company’s accounts receivable, inventories, machinery, equipment, vehicles, certain real estate and the common stock of all of the Company’s subsidiaries. Borrowings under the Revolving Commitment are limited to (a) 80% of eligible accounts receivable, (b) the lesser of 50% of eligible inventories and $8,500,000 plus (c) 80% of new Capital Expenditures not to exceed $5,500,000 in any fiscal year (excluding the aggregate amount of any Capital Expenditures financed with the proceeds of a Revolving Line advance). Borrowings under the Credit Agreement bear interest based on a LIBOR or prime rate based option.

The Company’s outstanding borrowings against the revolving credit facility were ~~$6,700,000~~$800,000 at ~~September 29, 2018.~~March 30, 2019. At all times since the inception of the Credit Agreement, the Company has had sufficient qualifying and eligible assets such that the entire revolving credit facility was available to the Company. This situation is expected to continue for the foreseeable future.

As of ~~September 29, 2018~~March 30, 2019 the Company was in compliance with all covenants in the Credit Agreement, as amended, and expects to be in compliance with all loan covenants for the remaining term of the Credit Agreement. The Company believes that its existing cash balance, anticipated cash flow from operations and borrowings available under the Credit Agreement will be sufficient to cover expected cash needs, including planned capital expenditures, for the next twelve months.

The Company expects to be in compliance with all debt covenants, as amended, throughout the facility’s remaining term.

Results of Continuing Operations - Comparison of Quarter Ended ~~September 29, 2018~~March 30, 2019 to the Quarter Ended ~~September 30, 2017~~March 31, 2018

(In the ensuing discussions of the results of operations the Company defines the term gross profit as the amount determined by deducting cost of sales before depreciation, depletion and amortization from sales. The gross profit ratio is gross profit divided by sales.)

Consolidated sales in the ~~third~~first quarter of ~~2018~~2019 were ~~$40,978,000, an increase~~$22,528,000, a decrease of ~~$2,351,000,~~$882,000, or ~~6.1%~~3.8%, compared to the ~~third~~first quarter of ~~2017.~~2018. All segments reported lower current quarter sales. The ~~Evaporative Cooling segment reported sales up 13.9% over~~primary decrease was in the ~~third quarter of the prior year. The~~ Heating and Cooling ~~segment reported~~and Evaporative Cooling segments where combined sales ~~up 7.5%~~were down $789,000 in the current quarter compared to the prior year ~~third quarter as fan coil sales increased over the prior year third~~ quarter. Sales in the CACS segment were higher by 5.4% in the third quarter of 2018 compared to the prior year third quarter attributable to the concrete and supply divisions. The Door segment reported sales in the third quarter of 2018 down 3.8% compared to the third quarter of the previous year.

The consolidated gross profit ratio in the ~~third~~first quarter of ~~2018~~2019 was ~~15.2%~~20.8% compared to ~~18.6%~~21.4% in the same period of ~~2017 driven by cost increases~~2018. The decrease is mainly due to results in the CACS ~~and~~segment which reported a negative gross profit in the current quarter compared to positive gross profit in the prior year quarter. The Evaporative Cooling ~~segments and to~~segment reported a ~~lesser extent~~decrease of 0.8 points in the current period compared to the prior year first quarter. The Door ~~segment.~~and Heating and Cooling segments reported increases in gross profit of 0.5 and 4.0 points, respectively, in the first quarter of 2019 compared to the first quarter of 2018. The variances in gross profit are discussed in segment discussion below.

Consolidated selling and administrative expenses were ~~$1,645,000~~$1,602,000 higher in the ~~third~~first quarter of ~~2018 compared to~~2019 than the third quarter of 2017. The increase between years is primarily due to recent investments in the Heating and Cooling and Evaporative Cooling segments, as well as at the Corporate level, to stimulate growth of the Company. The investments include key personnel, sales and marketing enhancements, consulting, research and development and travel.comparable prior year quarter. As a percentage of consolidated sales, selling and administrative expenses increased

to ~~17.1%~~30.1% in the ~~third~~first quarter of ~~2018~~2019 from ~~13.9%~~22.2% in the ~~third~~first quarter of ~~2017.~~2018. The increase between periods is attributable to investments in personnel and services to promote future growth of the Company.

Consolidated depreciation and amortization charges increased $114,000 in the first quarter of 2019 compared to the first quarter of 2018.

The ~~third~~first quarter of 2019 included a $15,000,000 gain from a legal settlement recognized in January 2019. See Note 14 for additional discussion. The first quarter of 2018 included ~~a $3,000 gain~~the write-off of $6,934,000 of deferred development costs previously capitalized in property, plant and equipment on the ~~sale of equipment, discussed below~~consolidated balance sheet or incurred in the ~~CACS segment results. Gains on sales of equipment for the third~~first quarter of ~~2017 were $95,000.~~2018. See Note 12 to the condensed consolidated financial statements contained in this Quarterly Report for further discussion.

The consolidated operating loss ~~for~~in the ~~third~~first quarter of 2019, before the gain from legal settlement discussed above, was $2,625,000. The consolidated operating loss in the first quarter of 2018, before write-off of deferred development related to a mining property discussed above, was ~~$1,452,000 compared to~~$589,000. The decrease in operating ~~income of $1,318,000~~performance was reported in all segments. The CACS segment operating loss, excluding non-recurring items, was $637,000 higher in the ~~third~~current quarter than in the first quarter of the prior year. The ~~decreased performance is primarily attributable to the CACS segment which~~combined Heating and Cooling and Evaporative cooling segments reported a ~~current quarter~~$796,000 increase in operating loss ~~of $63,000 compared to operating income of $1,602,000 for~~in the ~~third~~first quarter of 2017. The Corporate office also contributed to the decline as the addition of a Chief Operating Officer position and consulting expenses resulted in an increase of $544,000 in operating expenses in the third quarter of 20182019 compared to the ~~third~~first quarter of ~~2017.~~2018. Individual segment ~~performance is~~results are discussed further in the segment section below.

Interest income for the first quarter of 2019 was $149,000 compared to $24,000 for the first quarter of 2018. The increase in interest income is primarily due to interest earned on the higher cash reserves resulting from the proceeds from the legal settlement and the sale of TMC assets.

Interest expense in the ~~third~~first quarter of ~~2018~~2019 was ~~$140,000~~$71,000 compared to ~~$98,000~~$108,000 in the ~~third~~first quarter of ~~2017.~~2018. Interest expense includes interest on outstanding funded debt, finance charges on outstanding letters of credit, the fee on the unused revolving credit line and other recurring fees charged by the lending bank. The ~~increase~~decrease from the prior year ~~third~~ quarter is attributable to ~~rising interest rates.~~lower average borrowings. Average outstanding funded debt in the first quarter of 2019 was $802,000 compared to $3,792,000 for the first quarter of 2018. The weighted average interest rate on outstanding funded debt in the ~~third~~first quarter of ~~2018,~~2019, including the fee on the unused line of credit and other recurring bank charges but excluding finance charges on letters of credit, was approximately ~~5.6%~~15.3% compared to ~~4.0%~~6.7% in the ~~third~~first quarter of ~~2017. Average outstanding funded debt~~2018. The increase in the ~~third~~current quarter average interest rate is due to the fixed nature of ~~2018 was $7,007,000 compared to $8,199,000 in~~certain bank charges combined with the ~~third quarter of 2017.~~lower average borrowings. At the end of the ~~third~~first quarter of ~~2018~~2019 the outstanding funded debt was ~~$6,700,000~~$800,000 compared to ~~$7,600,000~~$5,700,000 at the end of the ~~third~~first quarter of ~~2017.~~2018.

The Company’s effective income tax rate reflects federal and state statutory income tax rates adjusted for non-deductible expenses, tax credits and other tax items. The estimated effective income tax rate in the ~~third~~first quarter of ~~2018~~2019 was ~~25.0%~~27.0% compared to ~~34.0%~~a benefit of 25.0% for the ~~third~~first quarter of ~~2017. The decrease in rate is primarily attributable to the recently enacted Tax Act which reduced the Company’s Federal Tax Rate from 34.0% to 21.0%.~~2018.

The Company operates four businesses in two industry groups. The businesses are generally seasonal, weather sensitive and subject to cyclical factors. The following addresses various aspects of operating performance focusing on the reportable segments within each of the two industry groups.

Results of Discontinued Operations - Comparison of Quarter Ended March 30, 2019 to the Quarter Ended March 31, 2018

The results of discontinued operations reflect the operations of the ready-mix and Daniels sand businesses of TMC. The Company sold the assets of these business units on February 1, 2019. The 2019 income realized from discontinued operations included a pre-tax loss from operations of $724,000 and a pre-tax gain on the sale of assets of $6,508,000. The pre-tax loss from discontinued operations for the first quarter of 2018 was $670,000.

1517

Construction Products

The table below presents a summary of operating information for the two reportable segments within the Construction Products industry group for the quarters ended ~~September 29,~~March 30, 2019 and March 31, 2018 ~~and September 30, 2017~~ (dollar amounts in thousands):


	Concrete,						Concrete,
	Aggregates and						Aggregates and
	Construction						Construction
	Supplies			Door			Supplies			Door
Three Months ended September 29, 2018
Three Months ended March 30, 2019
Revenues from external customers							$	1,554		$	4,242
Segment gross profit								(367)			1,219
Gross profit as percent of sales								(23.6)	%		28.7	%
Segment operating income							$	14,044		$	379
Operating income as a percent of sales								903.5	%		8.9	%
Segment assets as of March 30, 2019							$	11,760		$	6,805
Return on assets								119.4	%		5.6	%

Three Months ended March 31, 2018
Revenues from external customers	$	19,034		$	4,746		$	1,601		$	4,296
Segment gross profit		1,877			1,244			169			1,211
Gross profit as percent of sales		9.9	%		26.2	%		10.6	%		28.2	%
Segment operating (loss) income	$	(63)		$	431		$	(7,252)		$	438
Operating (loss) income as a percent of sales		(0.3)	%		9.1	%		(453.0)	%		10.2	%
Segment assets as of September 29, 2018	$	37,754		$	7,806
Segment assets as of March 31, 2018							$	9,903		$	7,047
Return on assets		(0.2)	%		5.5	%		(73.2)	%		6.2	%

Three Months ended September 30, 2017
Revenues from external customers	$	18,054		$	4,936
Segment gross profit		3,050			1,367
Gross profit as percent of sales		16.9	%		27.7	%
Segment operating income	$	1,602		$	600
Operating income as a percent of sales		8.9	%		12.2	%
Segment assets as of September 30, 2017	$	40,013		$	7,617
Return on assets		4.0	%		7.9	%

Concrete, Aggregates and Construction Supplies Segment

The ready-mix concrete and Daniels sand operational assets of TMC were sold on February 1, 2019. The operations of the ready-mix and Daniels sand businesses were classified as discontinued operations and assets held for sale for all periods presented. See Note 15 for further discussion of the transaction. The product offerings of continuing operations of the CACS segment consist of ~~ready mix concrete,~~ aggregates and construction supplies. ~~Ready mix concrete and aggregates~~Aggregates are produced at multiple locations in or near Colorado Springs and Pueblo, Colorado. Construction supplies encompass numerous products purchased from third party suppliers and sold to the construction trades, particularly concrete sub-contractors. ~~During the three months ended September 29, 2018 concrete, aggregates and construction supplies accounted for approximately 79%, 14% and 7% of the sales~~Revenue of the CACS segment ~~respectively, including aggregates consumed internally~~decreased in the ~~production of concrete. In the third~~first quarter of 2017, the sales mix between concrete, aggregates and construction supplies was 77%, 18% and 5%, respectively. Sales including aggregates consumed internally increased $520,000 (2.5%) between the third quarter of 2018 and the comparable prior year quarter. Sales to third parties increased by $980,000 (5.4%) between the same periods. The gross profit reported by the CACS segment decreased to 9.9% in the third quarter of 2018 from 16.9% in the third quarter of the prior year as decreases in concrete and aggregates were partially offset by improved results in the construction supplies division.

~~Ready mix concrete sales increased 6.4% in the third quarter of 2018 versus the third quarter of 2017 as both volume and sales prices were higher in the current year quarter~~2019, down 2.9% compared to the ~~prior year quarter. Concrete volume was 3.0% higher in the third~~first quarter of 2018 compared to the prior year quarter as weather conditions in the current year were more favorable than the cool, wet conditions experienced in 2017. The gross profit ratio from concrete decreased to 9.1% for the third quarter 2018 from 16.2% in the third quarter of 2017, driven by increases in material costs (up 10.1% per yard) and increased labor and delivery expenses.2018.

The CACS segment ~~also~~ produces and sells sand, crushed limestone and gravel (collectively “aggregates”) from deposits in and around Colorado Springs. Sales volume (tons) of ~~construction~~ aggregates ~~including those used internally~~decreased over 50% in the ~~production of ready mix concrete, decreased 20.9% in the third~~first quarter of ~~2018~~2019 compared to the comparable ~~2017~~2018 quarter. This is mainly attributable to the Grisenti pit being fully mined and working to complete reclamation with minimal sales. Sales volume at the Pikeview quarry increased in the first quarter of 2019 by 47.7% compared to the prior year period. Improved pricing on rock sales helped decrease the loss from operations at Pikeview compared to the prior year quarter. The ~~decreased volume is attributable to an unplanned temporary shut-down~~improvement at ~~one~~

~~property and completion of mining~~Pikeview, offset by additional reclamation related costs at ~~one property. Average selling prices, excluding freight, decreased 3.3% due~~Grisenti lead to the ~~higher ratio of sand to rock sales. The combined~~ aggregates operations ~~reported a~~reporting an operating loss ~~of $2,200~~ in the ~~third~~first quarter of 2019, $616,000, that was consistent with the first quarter of 2018, compared to a profit of $413,000 in the third quarter of 2017. The decline in operating results is attributed to lower sales, increased labor costs and higher repairs and maintenance and equipment rental costs.$621,000.

Sales of construction supplies increased ~~$449,000 (41.3%~~by $52,000 (4.9%) in the ~~third~~first quarter of ~~2018~~2019 compared to the prior year ~~third~~quarter. The division reported an operating profit in first quarter of 2019 compared to an operating loss in the first quarter 2018 mainly due to ~~several new jobs in the current year quarter. The gross profit increased to 15.9% from 4.5% in 2017 as management focuses on improving project bidding~~lower material and ~~pricing.~~labor costs.

Selling and administrative expenses were ~~$354,000~~$133,000 higher in the ~~third~~first quarter of ~~2018~~2019 compared to the same period in ~~2017~~2018. The increase was attributable primarily ~~due increased compensation related costs and~~to increased legal ~~fees unrelated to the Pueblo litigation.~~fees. Litigation fees ~~related to the Pueblo aggregate lease were $223,000~~ during the ~~third~~first quarter of ~~2018~~2019 were $305,000 compared to ~~$260,000~~$200,000 incurred during the comparable period of ~~2017.~~2018. As a percentage of sales

selling and administrative expenses ~~were 8.3%~~increased to 34.5% in the ~~third~~first quarter of ~~2018~~2019 compared to ~~6.8%~~25.2% in the ~~third~~first quarter of ~~2017.~~2018.

The ~~third~~first quarter of 2019 included a $15,000,000 gain from a legal settlement recognized in January 2019. See Note 14 for additional discussion. The first quarter of 2018 included a ~~gain~~$6,934,000 write-off of ~~$3,000 on the sale of equipment. The third quarter of 2017 included~~deferred development costs associated with a ~~gain of $95,000 on the sale of equipment.~~

The prices of two commodities, cement and diesel fuel, can have a significant effect on the results of operations of this segment. Management negotiates cement prices with producers who have production facilities in or near the concrete markets thatmining property for which the Company ~~serves. Management may negotiate separate cement prices~~had applied to the state of Colorado for ~~large construction projects depending on~~ the ~~demand~~required mining permits. Subsequent to March 31, 2018 the permits were denied by the state’s Reclamation Mining and Safety Division. See Note 12 for and availability of cement from the local producers. The Company buys diesel fuel from local distributors and occasionally enters into a short term arrangement with a distributor whereby the price of diesel fuel is fixed for a period of up to six months. In the past year the Company has not hedged diesel fuel prices. Increases in the cost of these two commodities have a direct effect on the results of operations depending upon whether competitive conditions prevailing in the marketplace enable the Company to adjust its selling prices to recover such increases.further discussion.

Door Segment

The Door segment sells hollow metal doors, door frames and related hardware, wood doors, lavatory fixtures and electronic access and security systems. Nearly all of the Door ~~segment’s~~segments sales are for commercial and institutional buildings such as schools and healthcare facilities. Approximately 65% to 70% of the sales of the Door segment are related to jobs obtained through a competitive bidding process. Bid prices may be higher or lower than bid prices on similar jobs in the prior year. ~~As the product components of any one job likely vary significantly from any other job, the~~The Door segment does not track unit sales of the various products through its accounting or management reporting systems. Management focuses on the level of the sales backlog, the trend in sales and the gross profit rate in managing the business.

Door sales in the ~~third~~first quarter of ~~2018~~2019 were ~~$190,000 (3.8%~~$54,000 (1.3%) ~~less~~lower than in the ~~third~~first quarter of the previous ~~year primarily due to timing of shipment of certain jobs.~~year. Bidding prices remain competitive. The gross profit ratio in the ~~third~~first quarter of 2019 was 28.7%, up from 28.2% in the comparable quarter of 2018 ~~and 2017 was 26.2% versus 27.7%, respectively,~~ as ~~competitive pricing~~management continues to focus on ~~certain larger jobs and increased labor costs resulted in lower margins.~~improving the bidding process.

~~Selling~~Sales and administrative expenses were ~~$44,000~~$64,000 higher in the ~~third~~first quarter of ~~2018~~2019 compared to the ~~third~~first quarter of ~~2017 mainly due to increased compensation related costs.~~2018. As a percentage of sales, these expenses ~~increased to 16.3%~~were 18.8% and 17.1% in the ~~third quarter~~first quarters of 2019 and 2018, ~~from 14.8% in the comparable 2017 quarter.~~respectively.

HVAC Products

The table below presents a summary of operating information for the two reportable segments within the HVAC products industry group for the quarters ended ~~September 29,~~March 30, 2019 and March 31, 2018 ~~and September 30, 2017~~ (dollar amounts in thousands):


	Heating and			Evaporative			Heating and			Evaporative
	Cooling			Cooling			Cooling			Cooling
Three Months ended September 29, 2018
Three Months ended March 30, 2019
Revenues from external customers	$	10,909		$	6,254		$	10,345		$	6,376
Segment gross profit		2,250			827			2,878			939
Gross profit as percent of sales		20.6	%		13.2	%		27.8	%		14.7	%
Segment operating (loss) income	$	(95)		$	(416)		$	(216)		$	(265)
Operating (loss) income as a percent of sales		(0.9)	%		(6.7)	%		(2.1)	%		(4.2)	%
Segment assets as of September 29, 2018	$	23,010		$	9,655
Segment assets as of March 30, 2019							$	18,019		$	12,152
Return on assets		(0.4)	%		(4.3)	%		(1.2)	%		(2.2)	%

Three Months ended September 30, 2017
Three Months ended March 31, 2018
Revenues from external customers	$	10,144		$	5,489		$	10,993		$	6,516
Segment gross profit		1,867			913			2,611			1,010
Gross profit as percent of sales		18.4	%		16.6	%		23.8	%		15.5	%
Segment operating income	$	151		$	(270)
Operating income as a percent of sales		1.5	%		(4.9)	%
Segment assets as of September 30, 2017	$	24,764		$	10,461
Segment operating income (loss)							$	571		$	(256)
Operating income (loss) as a percent of sales								5.2	%		(3.9)	%
Segment assets as of March 31, 2018							$	19,288		$	14,910
Return on assets		0.6	%		(2.6)	%		3.0	%		(1.7)	%

Heating and Cooling Segment

In the ~~third~~first quarter of ~~2018,~~2019, approximately ~~60%~~83% of sales in the Heating and Cooling segment consisted of wall furnaces and heaters. Fan coils accounted for ~~39%~~17% of the segment’s sales and other products were ~~about~~less than 1% ~~of the segment’s sales.~~. In the ~~third~~first quarter of ~~2017~~2018 these shares of total segment sales were ~~65%~~73%, ~~33%~~26% and 2%1%, respectively. Overall sales in the Heating and Cooling segment in the ~~third~~first quarter of ~~2018 increased by $765,000 (7.5%)~~2019 were flat compared to the same period in ~~2017.~~2018.

Sales of furnaces and heaters increased ~~less than 1%~~9.7% in the three months ended ~~September 29, 2018~~March 30, 2019 compared to the three months ended ~~September 30, 2017.~~March 31, 2018. Unit shipments of furnaces and heaters were ~~4.4% lower~~3.9% higher in the ~~third~~first quarter of 2018 compared to the prior year third quarter. Management believes a price increase that was implemented in the second quarter of 2018 may have pushed sales from the third quarter into the second quarter as customers placed orders prior to the implementation date.2018. Average sales prices for furnaces and heaters were about ~~5.1%~~5.7% higher compared to a year ago ~~due~~attributable to ~~changes~~a price increase implemented in ~~product mix~~mid-2018. The gross profit from furnaces and heaters increased in the ~~price increase.~~first quarter of 2019 attributable to the higher prices and increased production levels.

Sales of fan coils during the ~~third~~first quarter of 2019 declined 36.8% from the comparable 2018 ~~increased 27.5%~~quarter. The fan coil backlog at March 30, 2019 was $3,011,000 compared to ~~the third quarter 2017.~~$3,173,000 at March 31, 2018. Typically, approximately 90% of the sales of fan coils are custom-made systems for hotels and other commercial buildings. Fan coil jobs are obtained through a competitive bidding process. Since every bid job is a unique configuration of materials and parts, the Company does not track ~~unit~~units of sales or production as such unit volume data would not be useful in managing the business. Management focuses on the contribution margin by job, the current level of sales and the sales backlog in managing the fan coil business. Contribution margin is measured by deducting variable manufacturing costs and variable selling expenses from sales for a particular product line and is used as an internal measure of profitability for a product or first product line. The fan coil contribution margin percentage in the ~~third~~first quarter of ~~2018 increased to 32.2%~~2019 was 25.4%, down from ~~24.9%~~29.6% in the ~~third~~ quarter of ~~2017. The increase in~~2018. Reduced production levels contributed to the lower contribution margin in the ~~third quarter of 2018 can~~current quarter. Both quarters’ margins were considered to be ~~attributed to more favorable pricing in the current year.~~ within acceptable performance levels.

The Heating and Cooling segment’s gross profit ratio for the ~~third~~first quarter of ~~2018~~2019 was ~~20.6%~~27.8% compared to ~~18.4%~~23.8% in the ~~third~~first quarter of ~~2017.~~2018. The ~~increase in~~current quarter gross profit ratio ~~is attributable to increased margins~~was aided by the sales price increase implemented in mid-2018 as well as a new rebate program with Southern California Gas on the sale of certain furnaces. There was no similar program in the ~~fan coil product line noted above tempered by increased material costs, most notably steel, in the furnace product line.~~first quarter of 2018.

Selling and administrative expenses in the ~~third~~first quarter of ~~2018~~2019 were ~~$614,000~~$918,000 higher than the ~~third~~first quarter of the previous ~~year. The increase was attributable~~year primarily due to investments ~~being made~~in personnel to ~~stimulate~~promote future growth. ~~These increased costs included compensation related expenses, sales and marketing related expenses and research and developmental related expenses.~~ As a percentage of sales, selling and administrative expenses were ~~20.0%~~27.0% in the ~~third~~first quarter of ~~2018~~2019 and ~~15.5%~~17.1% in the ~~third~~first quarter of ~~2017.~~2018.

The Heating and Cooling segment reported an operating loss of $216,000 for the first quarter of 2019 compared to operating profit of $571,000 for the first quarter of 2018. The decrease is primarily due to lower overall sales combined with increased selling and administrative expenses.

Evaporative Cooling Segment

Sales of evaporative coolers ~~increased 13.9%~~decreased $140,000 (2.1%) in the ~~third~~first quarter of ~~2018~~2019 compared to the ~~third~~first quarter of ~~2017.~~2018. Unit sales of evaporative coolers ~~were virtually~~in the ~~same in both quarters.~~first quarter of 2019 declined 12.0% compared to the first quarter of 2018. Average selling prices, ~~increased 13.1%~~including parts sales, were up 11.1% between the ~~third~~first quarter of 2019 and the first quarter of 2018 ~~and the third quarter of 2017, attributed~~primarily due to a price increase implemented ~~earlier in 2018 and increased parts sales~~ in the ~~current quarter.~~second quarter of 2018. The gross profit ratio in the ~~third~~first quarter of ~~2018~~2019 was ~~13.2%~~14.7% compared to ~~16.6% a year ago.~~15.5% in the first quarter of 2018. The ~~decrease~~decline in gross profit ratio is attributable mainly ~~attributable~~ to ~~increased material costs, notably steel.~~reduced production levels.

Selling and administrative expenses were ~~$60,000 (5.6%~~$63,000 (5.4%) ~~higher~~lower in the ~~third~~first quarter of ~~2018 mainly due~~2019 compared to ~~increased compensation related costs.~~the first quarter of 2018. As a percentage of sales, selling and administrative expenses decreased to ~~18.2%~~17.2% in the current quarter of ~~2018~~2019 from ~~19.6%~~17.8% in the prior year first quarter.

The Evaporative Cooler segment reported an operating loss of $265,000 for the first quarter of 2019 compared to an operating loss of $256,000 for the first quarter of 2018.

Both businesses in the HVAC group are sensitive to changes in prices for a number of different raw materials, commodities and purchased parts. Prices of steel and copper in particular can have a significant effect on the results of operations of this group. Neither company is currently a party to any hedging arrangements with regard to steel or copper.

~~Results of Operations - Comparison of Nine Months Ended September 29, 2018 to Nine Months Ended September 30, 2017~~

In the ensuing discussions of the results of operations the Company defines the term gross profit as the amount determined by deducting cost of sales before depreciation, depletion and amortization from sales. The gross profit ratio is gross profit divided by sales.

Consolidated sales in the first nine months of 2018 were $121,151,000, an increase of $8,534,000 or 7.6% compared to the first nine months of 2017. All segments contributed to the increase in sales. The CACS segment sales increased $4,315,000 (8.7%) in the first nine months of 2018 compared to the first nine months of 2017 as current weather patterns were more favorable than the cool, wet weather experienced in the first nine months of 2017. The Door segment reported an increase in sales in the current nine-month period of $1,259,000 (9.3%) compared to the prior year mainly due to strong second quarter performance. The Heating and Cooling segment reported a $1,956,000 increase in sales in the first nine months of 2018 compared to the first nine months of 2017 as furnace sales continue to remain strong and fan coil sales exceeded prior year levels. The Evaporative Cooling segment also reported increased sales, up $949,000 in the current nine-month period, primarily due to the sales price increase implemented earlier in the year.

The consolidated gross profit ratio in the first nine months of 2018 was 16.5% compared to 19.0% in the first nine months of 2017. The gross profit ratio in the Door segment remained relatively constant between the two periods while all other segments reported decreases in the gross profit ratio. The CACS segment reported a decrease of 3.9% due to increased material, labor and equipment related costs in multiple divisions. The Evaporative Cooling segment reported a decline of 3.0% mainly due to increased material costs. While smaller, the Heating and Cooling segment also reported a decrease in gross profit ratio, down 0.9% in the first nine months of 2018 compared to the first nine months of 2017. The changes are addressed in more detail in the discussion by segment below.

~~Depreciation and amortization charges in the first nine months of 2018 increased $133,000 (6.9%) compared to the first nine months of 2017.~~

Selling and administrative expenses in the first nine months of 2018 were $1,446,000 (8.4%) higher compared to the same period of the prior year. The primary source of the increase is in the Unallocated Corporate expenses. The addition of a new Chief Operating Officer and increased professional fees related to efforts to increase future growth are the reasons behind the $790,000 increase in unallocated corporate expenses during the nine months ended September 29, 2018 compared to the nine months ended September 30, 2017. Selling and administrative expenses also increased in all other segments, except the Evaporative Cooling segment, as addressed in the discussion by segment below. As a percentage of consolidated sales, selling and administrative expenses remained relatively stable at 15.4% in the first nine months of 2018 compared to 15.3% in the same period of the prior year.

The first nine months of 2018 included the net write-off of $6,840,000 of deferred development costs previously capitalized in property, plant and equipment on the consolidated balance sheet or incurred in the current fiscal year. These costs included exploration of a property south of Colorado Springs to determine suitability for mining as well as costs associated with the Company’s pursuit of mining permits for the property. In April 2018 the permits were denied by the State of Colorado for the second time. See Note 12 to the Quarterly Condensed Consolidated Financial Statements for further discussion. The first nine months of 2018 also included an $892,000 gain from the sale of equipment in the CACS segment discussed below.

The Company reported a $6,703,000 consolidated operating loss in the first nine months of 2018 compared to consolidated operating income of $2,362,000 in the first nine months of the prior year. Excluding the write-off of deferred development costs, the Company would have reported operating income of $137,000 for the first nine months of 2018. Only the Door segment reported an increase in operating income in the first nine months of 2018 compared to the first nine months of 2017, up $243,000. The CACS segment operating income, excluding the deferred development write-off, decreased $1,009,000 in the first nine months of 2018 compared to the same period in 2017. The unallocated Corporate expenses discussed above also contributed significantly to the reduced operating performance in the 2018 period. The Evaporative Cooling segment reported a decrease of $475,000 in operating income in the current nine month period compared to the same period in the prior year. The Heating and Cooling segment reported an operating loss of $21,000 in the first nine months of 2018 compared to operating income of $219,000 for the first nine months of 2017. See further details in the discussion of segments below.

Interest expense for the first nine months of 2018 was $415,000 compared to $272,000 in the first nine months of 2017 due to a higher weighted average interest rate on higher average outstanding debt. The weighted average interest rate on outstanding funded debt, including the availability fee on the unused line of credit and other recurring bank charges but excluding finance charges on letters of credit, was approximately 6.2% for the first nine months of 2018 compared to 4.9% for the same period in 2017. Average outstanding funded debt in the first nine months of 2018 was $6,188,000 compared to $5,834,000 in the first nine months of 2017.

The Company’s effective income tax rate reflects federal and state statutory income tax rates adjusted for non-deductible expenses, tax credits and other tax items. The estimated effective income tax rate in the first nine months of 2018 was a benefit of 25.0% compared to a provision of 34.0% for the first nine months of 2017. The decrease in benefit is attributable to the recently enacted Tax Act which reduced the Company’s Federal Tax Rate from 34.0% to 21.0%.

~~A discussion of operations by segment follows.~~

~~Construction Products~~

The table below presents a summary of operating information for the two reportable segments within the Construction Products industry group for the nine months ended September 29, 2018 and September 30, 2017 (dollar amounts in thousands):

Concrete,


Aggregates and

Construction

Supplies

Door

Nine Months ended September 29, 2018

Revenues from external customers

$
53,965

$
14,824

Segment gross profit

5,722

4,141

Gross profit as percent of sales

10.6
%

27.9
%

Segment operating (loss) income

(5,365)

1,787

Operating (loss) income as a percent of sales

(9.9)
%

12.1
%

Segment assets as of September 29, 2018

$
37,754

$
7,806

Return on assets

(14.2)
%

22.9
%

Nine Months ended September 30, 2017

Revenues from external customers

$
49,650

$
13,565

Segment gross profit

7,219

3,775

Gross profit as percent of sales

14.5
%

27.8
%

Segment operating income

2,484

1,544

Operating income as a percent of sales

5.0
%

11.4
%

Segment assets as of September 30, 2017

$
40,013

$
7,617

Return on assets

6.2
%

20.3
%

~~Concrete, Aggregates and Construction Supplies Segment~~

In the first nine months of 2018 concrete, aggregates and construction supplies accounted for approximately 78%, 15% and 7% of sales of the CACS segment, respectively, including aggregates consumed internally in the production of concrete. In the first nine months of 2017 the sales mix among concrete, aggregates and construction supplies was 78%, 16% and 6%, respectively. Sales, including aggregates consumed internally, increased by $4,578,000 (8.2%) and sales to third parties increased $4,315,000 (8.7%) in the first nine months of 2018 compared to the prior year.

Ready mix concrete sales, excluding flow fill material, improved by $3,427,000 (8.3%) in the first nine months of 2018 over the comparable 2017 period due to increased prices and current year weather patterns that were more favorable than the cool, wet weather experienced in the prior year. Ready mix volume increased by 3.4% in the first nine months of 2018 compared to the first nine months of 2017. Average concrete prices for the first nine months of 2018 increased by 4.7% compared to the first nine months of 2017. While concrete prices have increased, the market remains sharply competitive especially on large construction projects. Material costs per yard, including cement, increased by 11.0% in the first nine months of 2018 compared to the same period in 2017 primarily due to higher rock costs and to a lesser extent by increased cement costs. Batching costs per yard were essentially static in the first nine months of 2018 compared to the first nine months of 2017 as increased repairs and maintenance costs were offset by lower equipment rental, laboratory and utility expenses. Delivery costs per yard increased 11.7% in the first nine months of 2018 compared to the first nine months of 2017. This rise is attributable to increased labor related costs, repairs and maintenance expense and higher fuel costs. The gross profit ratio from concrete declined to 11.3% in the first nine months of 2018 from 15.6% in 2017.

Sales volume (tons) of construction aggregates, including those used internally in the production of ready mix concrete, decreased 11.6% during the first nine months of 2018 compared to the first nine months of 2017. Average selling prices increased 3.8% as both sand and rock prices improved. The sand operation remained profitable in the first nine months of 2018. However, increased material, labor, repairs and maintenance and equipment rental costs

in the first nine months of 2018 reduced the related gross profit by 29.4% compared to the prior year period. This decline, combined with continued operating challenges at two quarries and carrying costs related to the closed Pueblo quarry, contributed to the $229,000 loss reported by the aggregates operations in the first nine months of 2018 compared to a profit of $190,000 in the first nine months of 2017.

Sales of construction supplies increased by $1,134,000 (37.5%) in the first nine months of 2018 compared to the same period in 2017. The gross profit ratio increased to 9.1% for the nine months ended September 29, 2018 compared to 5.0% for the nine months ended September 30, 2017. The increase in sales and gross profit ratio for the comparison periods is due to the reasons discussed in the quarterly results.

Selling and administrative expenses were $235,000 higher in the first nine months of 2018 compared to the same period in 2017. The increase was due to increased professional fees as well as higher insurance and bad debt expenses. Litigation fees related to the Pueblo aggregate lease were $445,000 during the nine months ended September 29, 2018 compared to $645,000 incurred during the nine months ended September 30, 2017. See Note 8 to the Quarterly Condensed Consolidated Financial Statements.

The first nine months of 2018 included a $6,840,000 write-off of deferred development costs and an $892,000 gain on the sale of equipment. The CACS segment sold its Industrial Sand Plant to an unrelated party that will continue to operate the plant at its current location having entered into a land lease with the Company. See Note 12 to the Quarterly Condensed Consolidated Financial Statements for further discussion of the write-off of deferred development costs.

~~Door Segment~~

Door sales in the first nine months of 2018 increased $1,259,000 (9.3%) compared to the first nine months of the previous year as current year bidding opportunities increased over prior year levels. The gross profit ratio remained relatively flat at 27.9% in the first nine months of 2018 compared to 27.8% in the first nine months of 2017.

Sales and administrative expenses in the first nine months of 2018 increased by $86,000 compared to the first nine months of 2017 primarily due to increased compensation costs. As a percentage of sales, these expenses declined to 15.0% in the first nine months of 2018 from 15.8% in the first nine months of 2017.

~~HVAC Products~~

The table below presents a summary of operating information for the two reportable segments within the HVAC products industry group for the nine months ended September 29, 2018 and September 30, 2017 (dollar amounts in thousands).

Heating and

Evaporative

Cooling

Cooling

Nine Months ended September 29, 2018

Revenues from external customers

$
29,314

$
22,980

Segment gross profit

6,113

3,922

Gross profit as percent of sales

20.9
%

17.1
%

Segment operating (loss) income

(21)

104

Operating (loss) income as a percent of sales

(0.1)
%

0.5
%

Segment assets as of September 29, 2018

$
23,010

$
9,655

Return on assets

(0.1)
%

1.1
%

Nine Months ended September 30, 2017

Revenues from external customers

$
27,358

$
22,031

Segment gross profit

5,953

4,425

Gross profit as percent of sales

21.8
%

20.1
%

Segment operating income

219

579

Operating income as a percent of sales

0.8
%

2.6
%

Segment assets as of September 30, 2017

$
24,764

$
10,461

Return on assets

0.9
%

5.5
%

~~Heating and Cooling Segment~~

In the first nine months of 2018, approximately 63% of sales in the Heating and Cooling segment consisted of wall furnaces and heaters. Fan coils accounted for 36% of the segment’s sales and other products were approximately 1%. In the first nine months of 2017 these shares of total segment sales were 61%, 37% and approximately 2%, respectively. Overall sales in the Heating and Cooling segment in the first nine months of 2018 increased by $1,956,000 (7.1%) compared to the same period in 2017 due to strong furnace sales, improved fan coil sales and a sales price increase implemented in the second quarter of 2018. Sales of furnaces increased by 9.0% in the first nine months of 2018 compared to the first nine months of 2017. Sales of fan coils improved 5.0% between the first nine months of 2018 and the same period in the prior year. As discussed above, contribution margin is an internal measure of profitability for a product or product line. The fan coil contribution margin percentage in the first nine months of 2018 was 30.4% compared to 27.3% in the first nine months of 2017 due to better pricing and more favorable material usage. Unit shipments of furnaces and heaters were up 5.7% in the first nine months of 2018 versus the first nine months of 2017. Average sales price was up 3.1% in the first nine months of 2018 compared to the first nine months of 2017 due to changes in product mix and the impact of the sales price increase.

The Heating and Cooling segment’s gross profit ratio for the first nine months of 2018 was 20.9% compared to 21.8% for the first nine months of 2017. The lower gross profit ratio was principally due to higher material costs, primarily steel.

Selling and administrative expenses in the first nine months of 2018 were $362,000 higher compared to the first nine months of 2017. The increase is attributable to investments being made to stimulate future growth as discussed in the quarterly results. As a percentage of sales, selling and administrative expenses remained constant at 19.3% in the first nine months of 2018 and the first nine months of 2017.

~~Evaporative Cooling Segment~~

Unit sales of evaporative coolers in the first nine months of 2018 were 4.2% lower compared to the first nine months of 2017. Revenue from evaporative cooler sales in the first nine months of 2018 increased 4.3% compared to the same period in the prior year as average selling prices per unit increased 8.9% attributable to product mix and a price increase implemented in the second quarter. The gross profit ratio in the first nine months of 2018 was 17.1% compared to 20.1% in the first nine months of 2017. The decrease was due to higher material costs, particularly steel, and costs associated with the planned elimination of a mobile cooler line as well as the conscious decision to reduce inventory levels discussed in the quarterly results. Selling and administrative expenses were $28,000 lower in the first nine months of 2018 primarily due to streamlining of certain sales incentive programs. As a percentage of sales, selling and administrative expenses were 15.2% and 16.0% in the first nine months of 2018 and 2017, respectively.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The condensed consolidated financial statements contained in this Quarterly Report have been prepared in accordance with accounting principles generally accepted in the United States of America which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of ~~September~~March 30, 2019 and December 29, 2018 ~~and December 30, 2017~~ and affect the reported amounts of revenues and expenses for the periods reported. Actual results could differ from those estimates.

Information with respect to the Company’s critical accounting policies which the Company believes could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management, is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the fiscal year ended December ~~30, 2017.~~

~~OUTLOOK~~

Overall the Company expects consolidated sales in 2018 to exceed 2017 levels. The level of construction activity along the Front Range in Southern Colorado appears to be slightly stronger in 2018 than 2017 although somewhat lower than anticipated in the third quarter of the current year. Concrete prices have increased largely in response to higher material costs. Labor and other costs, including fuel, have also increased modestly. Pricing on most bid jobs remains sharply competitive. Operating results for the remainder of the year will depend on the ability of the Company to pass on additional increases in material and/or fuel costs as well as favorable weather conditions continuing through the fourth quarter. The Door segment is expected to report 2018 results equal to or above those reported for 2017.

The Company’s Heating and Cooling segment anticipates an increase in sales in 2018 with the realization of the sales price increase announced in the second quarter. This increase is expected to affect principally the furnace line. Fan coil sales have pulled ahead of the 2017 year-to-date levels. Future performance will require recent investments to produce the anticipated sales growth and cost savings. In the Evaporative Cooling segment, residential coolers are sold primarily for replacement purposes and unit sales have been stagnant in recent years. Industrial coolers have performed well and management hopes to increase the unit volume of these sales going forward. Sales of both furnaces and residential coolers can be significantly influenced by weather conditions, particularly during their respective selling seasons.29, 2018.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 4 to the condensed consolidated financial statements contained in this Quarterly ~~Condensed Consolidated Financial Statements~~Report for a discussion of recently issued accounting standards.

MATERIAL CHANGES TO CONTRACTUAL OBLIGATIONS

There were no material changes to contractual obligations that occurred during the quarter ended ~~September 29, 2018.~~March 30, 2019.

FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements are based on the beliefs of the Company’s management as well as on assumptions made by and information available to the Company at the time such statements were made. When used in this Quarterly Report, words such as “anticipates,” “believes,” “contemplates,” “estimates,” “expects,” “plans,” “projects,” “will,” “continue” and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of various factors including but not limited to: the amount of new construction, weather, interest rates, availability of raw materials and their related costs, economic conditions and competitive forces in the regions where the Company does business, changes in governmental regulations and policies and the ability of the Company to obtain credit on commercially reasonable terms. Changes in accounting pronouncements as well as the ultimate resolution of the Pueblo lease litigation could also alter projected results. Other factors not currently anticipated may also materially and adversely affect the Company’s results of operations, cash flows and financial position. Forward-looking statements speak only as of the date they were made and we undertake no obligation to publicly update them.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

The Company is a smaller reporting company as defined by Item 10(f) of Regulation S-K and, as such, is not required to provide information in response to this item.

Item 4.Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures.

The Company’s Chief Executive Officer and Chief Financial Officer, with the participation of management, have evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act) as of ~~September 29, 2018.~~March 30, 2019. The Chief Executive Officer and Chief Financial Officer, based on that evaluation, concluded that the Company’s disclosure controls and procedures are effective and were reasonably designed to ensure that all material information relating to the Company (including its subsidiaries) required to be disclosed in the reports filed and submitted by the Company under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Commission.

(b)Changes in Internal Control Over Financial Reporting.

During the quarter ended ~~September 29, 2018,~~March 30, 2019, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

2522

PART II - OTHER INFORMATION

Items 1, 1A, 2, 3 and 5 are not applicable or the Company has nothing to report thereunder; therefore, the items have been omitted and no reference is required in this Quarterly Report.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

The Company reserved 150,000 treasury shares representing the maximum number allowed to be granted under the 2010 Non-Employee Directors Stock Plan (Plan) to non-employee directors in lieu of the base director retainer fee. The Company issued a total of 21,000 shares to the seven eligible board members effective February 7, 2019 as full payment for their 2019 retainer fee. In 2018 the Company issued 16,000 shares to the eight eligible board members as full payment of their 2018 retainer fee during the first quarter. Transactions pursuant to the Plan are exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 4(a)(2) of the Securities Act, as the shares authorized under the plan may only be issued to the Company’s directors and are not offered to the public. At March 30, 2019, a total of 17,000 shares remain eligible for issuance under the Plan.

Item 4.Mine Safety Disclosure

The Company’s aggregates mining operations, all of which are surface mines, are subject to regulation by the Federal Mine Safety and Health Administration (MSHA) under the Federal Mine Safety and Health Act of 1977 (as amended, the “Mine Act”). MSHA inspects these operations on a regular basis and issues various citations and orders when it believes a violation of the Mine Act has occurred. Information concerning mine safety violations and other regulatory matters required to be disclosed by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of SEC Regulation S-K is included in Exhibit 95 to this Quarterly Report.

Item 6.Exhibits


Exhibit No.		Description
3.1		Restated Certificate of Incorporation dated May 28, 1975, as amended on May 24, 1978, May 27, 1987 and June 3, 1999 incorporated by reference to Exhibit 3 to Form 10-K for the year ended January 1, 2005 (Accession # 0001104659-05-016256).

3.2		Registrant’s By-laws as amended September 19, 1975 filed as Exhibit 3a to Form 10-Q for the period ended June 28, 2014 (Accession # 0001104659-14-059740), incorporated herein by reference.

31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) and Exchange Act Rules 13a-15(f) and 15d-15(f), filed herewith.

31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) and Exchange Act Rules 13a-15(f) and 15d-15(f), filed herewith.

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.

95		Mine Safety Disclosures filed herewith.

101		The following financial information from Continental Materials Corporation’s Quarterly Report on Form 10-Q for the period ended ~~September 29, 2018~~March 30, 2019 filed with the SEC on ~~November 13, 2018,~~May 14, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations and Retained Earnings for the ~~three and nine-month~~three-month periods ended ~~September 29,~~March 30, 2019 and March 31, 2018, ~~and September 30, 2017,~~ (ii) the Condensed Consolidated Balance Sheets at ~~September~~March 30, 2019 and December 29, 2018, ~~and December 30, 2017,~~ (iii) the Condensed Consolidated Statements of Cash Flows for the ~~nine-month~~three-month periods ended ~~September 29,~~March 30, 2019 and March 31, 2018, ~~and September 30, 2017,~~ and (iv) Notes to the Quarterly Condensed Consolidated Financial Statements.

2623

SIGNATURE

Pursuant to the requirements 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



Date:	~~November 13, 2018~~May 14, 2019	By:	/s/ Paul Ainsworth
			Paul Ainsworth, Vice President, Secretary
			and Chief Financial Officer

2724