10-Q

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 March 28, 2020

OR

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

For the transition period from             to             

Commission File number 1-3834

CONTINENTAL MATERIALS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	36-2274391
(State or other jurisdiction of 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)

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 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 every Interactive Data File required to be submitted 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 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.

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 ☒

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 May 1, 2020: 1,671,304.

PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 28, 2020 AND DECEMBER 28, 2019

(000’s omitted except share data)

	MARCH 28, 2020		DECEMBER 28,
	(Unaudited)		2019
ASSETS
Current assets:
Cash and cash equivalents	$	4,596	$	178
Receivables, net of allowance of $634 and $494		18,138		21,555
Receivable for insured losses		1,033		911
Inventories
Finished goods		7,372		6,419
Work in process		1,014		1,061
Raw materials and supplies		7,961		6,473
Prepaid expenses		1,762		2,171
Refundable income taxes		3,807		2,397
Other current assets		111		4,229
Other current assets held for sale		380		896
Total current assets		46,174		46,290
Property, plant and equipment		11,716		12,025
Right-of use assets		4,695		4,978
Goodwill		5,932		5,932
Intangible assets		12,274		12,437
Deferred income taxes		6,755		7,667
Other long-term assets		641		654
	$	88,187	$	89,983
LIABILITIES
Current liabilities:
Revolving bank loan payable	$	—	$	800
Accounts payable and accrued expenses		16,155		16,725
Short-term asset retirement obligation		4,181		4,200
Short-term lease liabilities		1,182		1,170
Liability for unpaid claims covered by insurance		1,033		911
Total current liabilities		22,551		23,806
Long-term lease liabilities		3,695		3,991
Long-term compensation liabilities		1,945		1,842
Asset retirement obligation		23,855		23,713
Other long-term liabilities		528		1,442
SHAREHOLDERS’ EQUITY
Common shares, $.25 par value; authorized 3,000,000 shares; issued 2,574,264 shares		643		643
Capital in excess of par value		1,853		1,853
Retained earnings		47,936		47,232
Treasury shares, 898,780 and 860,910 at cost		(14,819)		(14,539)
		35,613		35,189
	$	88,187	$	89,983

See notes to condensed consolidated financial statements.

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CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

FOR THE THREE MONTHS ENDED MARCH 28, 2020 AND MARCH 30, 2019

(Unaudited)

(000’s omitted except per-share amounts)

	MARCH 28,		MARCH 30,
	2020		2019
Net sales	$	30,845	$	22,528
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization)		22,565		17,847
Depreciation and amortization		513		519
Selling and administrative		7,778		6,792
Gain on legal settlement				(15,000)
Gain on disposition of property and equipment		(145)		(5)
		30,711		10,153
Operating income		134		12,375
Interest income		114		149
Interest expense		(101)		(71)
Other income, net		59		13
Income from continuing operations before income taxes		206		12,466
Credit (provision) for income taxes		498		(3,366)
Income from continuing operations		704		9,100
Income from discontinued operations net of income tax provision of $0 and $1,562		—		4,222
Net income		704		13,322
Retained earnings, beginning of period		47,232		61,131
Retained earnings, end of period	$	47,936	$	74,453
Basic and diluted loss per share:
Income from continuing operations	$	0.42	$	5.33
Income from discontinued operations		-		2.47
Basic and diluted income per share	$	0.42	$	7.80
Average shares outstanding		1,685		1,709

See notes to condensed consolidated financial statements

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CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 28, 2020 AND MARCH 30, 2019

(Unaudited)

(000’s omitted)

	MARCH 28,		MARCH 30,
	2020		2019
Net cash provided by continuing operations	$	2,955	$	11,624
Net cash (used) provided by discontinued operations		—		(15)
Net cash provided by operating activities		2,955		11,609
Investing activities:
Capital expenditures by continuing operations		(26)		(63)
Capital expenditures by discontinued operations		—		(172)
Cash proceeds from sale of discontinued operations		1,918		24,927
Cash proceeds from sale of continuing operations property and equipment		664		5
Net cash provided by investing activities		2,556		24,697
Financing activities:
Borrowings on the revolving bank loan		3,450		4,050
Repayments on the revolving bank loan		(4,250)		(5,450)
Repayments of finance lease obligations		(13)		(10)
Payments to acquire treasury stock		(280)		(69)
Net cash used by financing activities		(1,093)		(1,479)
Net increase in cash and cash equivalents		4,418		34,827
Cash and cash equivalents:
Beginning of period		178		594
End of period	$	4,596	$	35,421
Supplemental disclosures of cash flow items:
Cash paid during the period for:
Interest, net	$	111	$	72
Income taxes, net		—		—

See notes to condensed consolidated financial statements

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CONTINENTAL MATERIALS CORPORATION

CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(000’s omitted, except share data)

Three Months ended March 28, 2020
		Common		Capital
	Common	shares		in excess		Retained		Treasury	Treasury
	shares	amount		of par		earnings		shares	shares cost		Total
Balance at December 28, 2019	2,574,264	$	643	$	1,853	$	47,232	860,910	$	(14,539)	$	35,189
Net income	—		—		—		704	—		—		704
Purchase of treasury shares	—		—		—		—	37,870		(280)		(280)
Balance at March 28, 2020	2,574,264	$	643	$	1,853	$	47,936	898,780	$	(14,819)	$	35,613

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 loss	—		—		—		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

See notes to condensed consolidated financial statements

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CONTINENTAL MATERIALS CORPORATION

SECURITIES AND EXCHANGE COMMISSION FORM 10-Q

NOTES TO THE QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUARTER ENDED MARCH 28, 2020

(Unaudited)

1.    Significant Accounting Policies:

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 28, 2019 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. The results of operations for the period are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the 2019 consolidated financial statements to conform to the 2020 presentation. The reclassifications had no effect on the consolidated results of operations, the net 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. See Note 15. Accordingly, the operations of these businesses are presented as discontinued operations for all periods presented.

Revenue Recognition:

The Company recognizes revenue in accordance with Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). 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 majority of sales within the Door division do not include extended installation components. Most of the sales of MDHI that contain installation are completed within 30 days and contain two specific components, the product and the installation service. The transaction price for these contracts is allocated to each performance obligation based on its stated stand-alone price. Revenue is recognized at a point in time as each performance obligation is completed. The Company does not offer maintenance or service contracts. The acquisition of Fastrac and Serenity in mid-2019 expanded the type of contracts that require analysis under Topic 606 guidelines as these operations may include extended installation services within the contracts. The company negotiates the terms of the contract and prepares a detailed project quote that might include number and type of doors, number and style of hardware, locks, electronic items and estimated installation cost. Contract price for each item of the quote is negotiated and stated in

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the contract. Modifications are treated as adjustments to an existing contract and are part of the changes in billing invoices. Revenue is recognized as performance obligations, per the contract agreement, are completed. Revenue for product is recognized as shipped. Revenue for installation services is recognized on a percentage of completion method with costs in excess of billings and/or billings in excess of costs being recorded as an asset or liability until recognized. Costs in excess of billings, of approximately  $238,000 and $420,000, are included in Prepaid expenses and retainage on contracts of approximately  $182,000 and $345,000 is included in Receivables on the Consolidated Balance Sheets as of March 28, 2020 and December 28, 2019, respectively.

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

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 March 27, 2020 Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the Act). The Act provides various relief for businesses including a temporary five-year NOL carryback for losses incurred in 2018, 2019 and 2020 as well as an NOL deduction of 100% of taxable income for the same years. The current quarter tax provision includes a $541,000 benefit representing the difference between the anticipated tax refund related to the expected NOL carryback and the value of the NOL asset previously included in Deferred income taxes on the Company’s Consolidated Balance Sheet. 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 March 28, 2020 or December 28, 2019.

3.    Fair Value Measurements

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:

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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 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.

Lease liabilities: Fair value was estimated based on the borrowing rates 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 Lease liabilities represents a reasonable estimate of the corresponding fair value and was valued as Level 2.

Phantom equity and phantom equity appreciation liability awards: Fair value is estimated based on the use of a Black-Scholes option pricing model based on publicly available inputs. The carrying amount of the liability represents a reasonable estimate of the vested portion of the corresponding fair value of the awards granted and was valued as Level 3.

Contingent consideration: Fair value is estimated based on the use of a Monte Carlo Simulation model based on significant inputs that are not observable in the market, which are considered Level 3 inputs in accordance with ASC Topic 820.

ARO liability: Fair value is estimated using an expected present value technique using estimated cash flows over a period of time and then discounting the expected cash flows using a credit-adjusted risk-free interest rate using significant inputs that are not observable in the market, which are considered Level 3 inputs in accordance with ASC Topic 820.

ARO for asset impairment: Fair value is estimated using an expected present value technique using estimated cash flows over a period of time and then discounting the expected cash flows using a credit-adjusted risk-free interest rate using significant inputs that are not observable in the market, which are considered Level 3 inputs in accordance with ASC Topic 820.

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

4.   Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which superseded Topic 840, “Leases”. The new accounting standard was effective for the Company beginning on December 30, 2018 (the beginning of fiscal 2019) and required the recognition on the balance sheet of right-of-use assets (ROU) and lease liabilities for all long-term leases, including operating leases. The Company elected the optional transition method and adopted the new guidance on December 30, 2018 on a modified retrospective basis with no restatement of prior period amounts. 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

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components for most asset categories and to exclude short-term leases from its Consolidated Balance Sheet. The 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 of the date of adoption. In connection with the adoption of this guidance, as required, the Company reclassified deferred rent liabilities as reductions to lease assets. Adoption of the new standard did not have a material impact on the Company’s Consolidated Statements of Income or 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.    Seasonality and Current Economic Conditions

Certain products within the Company’s portfolio are seasonal, primarily furnaces and evaporative coolers in the HVAC segment which are sensitive to weather conditions particularly during their respective peak selling seasons. Other products within the HVAC segment, specifically fan-coils and dryer boxes, and Door segment sales are, to a significant extent, dependent on construction activity. Historically, the Company has experienced operating losses during the first quarter and typically improved in the second and third quarters reflecting more favorable weather conditions for legacy products. Fourth quarter results have typically varied based on weather conditions affecting the Company’s discontinued operations as well as in the principal markets for the Company’s heating equipment. The 2019 sale of the Company’s ready-mix and Daniels Sand operations along with the acquisitions completed in 2019 are expected to reduce the seasonality of the Company’s operations.

The first quarter of 2020 has presented significant economic challenges from the effects of COVID-19. The Company cannot reasonably determine what the future impact on revenue, cash flow or earnings from operations will be. Our operations were considered essential and thus far all businesses within the portfolio continue to manufacture and sell product, but we are seeing a slowdown in demand and are anticipating potentially significant impacts through the remainder of 2020.

6.    Earnings Per Share

There is no difference in the calculation of basic and diluted earnings per share (EPS) for the three-month periods ended March 28, 2020 and March 30, 2019 as the Company does not have any dilutive instruments.

7.    Industry Segment Information

The Company operates primarily in the Building Products industry group. Within this industry group the Company has identified three reportable segments: the HVAC segment, the Door segment and the Construction Materials segment.

The HVAC segment produces and sells a variety of products including wall furnaces, fan coils, evaporative coolers, boiler room equipment and dryer boxes and related accessories from the Company’s wholly-owned subsidiaries, Williams Furnace Co. (WFC) of Colton, California, Phoenix Manufacturing, Inc. (PMI) of Phoenix, Arizona, Global Flow Products /American HVAC (GFP) of Broken Arrow, Oklahoma, and InOvate Dryer Technologies (InOvate) of Jupiter, Florida. Sales of this segment are nationwide although WFC and PMI sales are more concentrated in the southwestern United States. The Door segment sells hollow metal and wood doors, door frames and related hardware, sliding door systems and electronic access and security systems from the Company’s wholly-owned subsidiaries: McKinney Door and Hardware, Inc. (MDHI), Fastrac Building Supply (Fastrac) and Serenity Sliding Door Systems (Serenity), which operate out of facilities in Pueblo and Colorado Springs, Colorado. Sales of this segment are concentrated in Colorado, California and the Northwestern United States although door sales are also made throughout the United States. The Construction Materials segment offers construction supplies from locations along the Southern Front Range of Colorado operated by the Company’s wholly-owned subsidiaries, Castle Aggregates and Castle Rebar & Supply of Colorado Springs, and TMOP Legacy Company (formerly Transit Mix of Pueblo, Inc.) of Pueblo, Colorado (the three companies collectively are referred to as the Castle Companies).

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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 three-month periods ended March 28, 2020 and March 30, 2019 along with the items necessary to reconcile the segment information to the totals reported in the financial statements (amounts in thousands):

					Construction		Unallocated		Held for
Three Months ended March 28, 2020	HVAC		Doors		Materials		Corporate		Sale		Total
Revenues from external customers	$	23,655	$	5,721	$	1,470	$	—	$	—	$	30,845
Depreciation and amortization		332		73		48		61		—		513
Operating income (loss)		2,536		79		(636)		(1,845)		—		134
Segment assets		46,250		11,506		7,291		22,760		380		88,187
Capital expenditures (b)		12		14		—		—		—		26

					Construction		Unallocated		Held for
Three Months ended March 30, 2019	HVAC		Doors		Materials		Corporate		Sale		Total
Revenues from external customers	$	16,720	$	4,242	$	1,554	$	11	$	—	$	22,528
Depreciation and amortization		411		43		52		13		—		519
Operating income (loss)		(481)		379		14,044		(1,567)		—		12,375
Segment assets (a)		50,822		14,248		10,463		13,554		896		89,983
Capital expenditures (b)		44		19		—		—		—		63

(a) Segment assets are as of December 28, 2019.

(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.    Fair Value Measurement

The outstanding Phantom Equity (PE) and Phantom Equity Appreciation Rights (PEAR) awards under the Company’s Value Creation Incentive Plan (VCIP; see Note 19) were recorded at fair value using the Black-Scholes option pricing model. There were no PE or PEAR appreciation awards granted during the quarter ended March 28, 2020 or March 30, 2019. The following assumptions were used in determining the fair value of the award liability as of March 28, 2020.

Risk-free interest rate	1.58% - 1.62%
Dividend rate	0.00%
Volatility range	24% - 38%
Weighted average expected term (years)	3.8

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The following table is a reconciliation for the PE and PEAR liability measured at fair value using Level 3 unobservable inputs (in thousands):

Balance at December 28, 2019	$	496
Awards related to acquired companies		-
Change due to vesting of awards granted		166
Change in fair value measurement of liability		(52)
Balance at March 28, 2020	$	610

Contingent consideration was recorded at fair value using a Monte Carlo Simulation model. The following assumptions were used in determining the fair value of contingent consideration at March 28, 2020:

Risk-free interest rate	.09% - 1.6%
Expected term (years)	.18 - 2.33

The following table is a reconciliation for the contingent consideration liability measured at fair value using Level 3 unobservable inputs (in thousands):

Balance at December 28, 2019	$	1,482
Contingent consideration granted with acquisitions		-
Change in fair value measurement of liability		120
Balance at March 28, 2020	$	1,602

The ARO liabilities were recorded at fair value using an expected present value technique. The following assumptions were used in determining the fair value of the ARO liabilities at March 28, 2020:

Credit adjusted risk-free interest rate	3.66%
Expected term (years)	4.5

9.    Non-Employee Directors Share Based Compensation

The Company issued a total of 16,998 shares to the six  eligible board members effective December 13, 2019 as partial payment for their 2020 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. All shares were issued under the 2010 Non-Employee Directors Stock Plan.

10.    Revolving Bank Loan and Long-Term Debt

The Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) effective March  16,  2020, with the Lenders from time to time party thereto and CIBC Bank USA, as administrative agent. 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.

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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) 85% of eligible accounts receivable, (b) the lesser of 60% of eligible inventories and $8,500,000.

· Financial Covenants include:

o  Minimum EBITDA for the three months ending March 31, 2020 must exceed $(525,000) 

o  Minimum EBITDA for the three months ending June 30, 2020 must exceed $265,000 

o  The Minimum Fixed Charge Coverage Ratio is not permitted to be below 1.06 to 1.0 for each computation period measured at the end of each fiscal quarter, provided that the Fixed Charge Coverage Ratio shall not be tested if the average daily Excess Availability during the Fiscal Quarter exceeds $5,000,000. A computation period is the nine months ending September 30, 2020 or twelve months for all subsequent fiscal quarters

· The maturity date of the credit facility is May 1, 2023.

· Interest rate pricing for the revolving credit facility is currently LIBOR plus 2.0% or the prime rate.

Definitions under the Credit Agreement as amended are as follows:

· Fixed Charge Coverage Ratio means, for any Computation Period, the ratio of (a) the sum (without duplication) for such period of (i) EBITDA, minus (ii) income taxes paid in cash by the Loan Parties, minus (iii) all unfinanced Capital Expenditures, minus (iv) all amounts paid in cash in respect of any Permitted Capital Securities Repurchase, to (b) the sum for such period of (i) cash Interest Expense, plus (ii) scheduled payments of principal of Funded Debt (excluding the Revolving Loans), plus (iii) cash payments made in respect of Capital Leases, plus (iv) the amount by which reclamation or similar costs paid in such period exceed the cash proceeds received from the sale of quarry assets and cash refunds of escrow balances; provided, however that for purposes hereof, to the extent during any period there are excess cash proceeds from the sale of quarry assets after netting such proceeds against the reclamation or similar costs in such period, such excess cash proceeds may be carried forward and netted against the reclamation or similar costs in a later period, plus (v) all amounts paid in respect of any earnout or other deferred payment in connection with any Permitted Acquisition.

· EBITDA means, for any Computation Period (or another time period to the extent expressly provided herein), the sum of the following with respect to the Company and its Subsidiaries each as determined in accordance with GAAP:

· Consolidated Net Income, plus (without duplication) each of the following items to the extent deducted in determining such Consolidated Net Income:

i. federal, state and other income taxes deducted in the determination of Consolidated Net Income;

ii. interest Expense deducted in the determination of Consolidated Net Income;

ii. depreciation, depletion and amortization expense deducted in the determination of Consolidated Net Income;

iv.non-recurring fees and costs paid by the Company and its Subsidiaries in respect of the following: (i) fees, expenses (including legal fees and expenses) and due diligence costs associated with Permitted Acquisitions, whether or not consummated; (ii) legal fees and costs associated with the Valco trial preparation; (iii) fees, costs and expenses (including legal fees and expenses) in connection with the amendment and restatement of this agreement and all matters reasonably related thereto; (iv) fees, costs and expenses (including legal fees and expenses) in connection with the purchase of Capital Securities of the Company by Bee Street Holdings LLC or a Subsidiary thereof and transactions and other matters reasonably related thereto; (v) additional fees and costs associated with the exploration of the Hitch Rack Ranch facility in Colorado Springs, Colorado to determine the sustainability for mining and the pursuit of mining permits; and (vi) fees, costs and expenses in connection with reclamation or similar transactions related to the sale of quarry assets;

v.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); and

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vi.the amount of any earnout or other deferred payment paid in connection with any Permitted Acquisition; minus

· 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 zero as of March 28, 2020 compared to $800,000 as of December 28, 2019. The highest balance outstanding during the first three months of 2020 and 2019 was $2,950,000 and $2,200,000, respectively. Average outstanding funded debt was $1,134,000 and $802,000 for the first three months of 2020 and 2019 respectively. At March 28, 2020, the Company had outstanding letters of credit totaling $5,620,000. 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.

Management expects a trend of decreased working capital and decreased cash from continuing operations, relative to fiscal year 2019, may occur over the remainder of fiscal 2020 due to uncertainty of the impact of the COVID-19 coronavirus pandemic and related governmental reaction on economic conditions. Although no assurance can be provided that the Company will obtain forgiveness of the PPP Loan (See note 20) in whole or in part, management currently expects to use the proceeds of the PPP Loan for forgivable purposes in accordance with the CARES Act, and management expects that such proceeds will substantially fund any trend of increased working capital requirements and to offset the decreased cash from continuing operations, relative to fiscal year 2019, that may occur into the second quarter of fiscal 2020.

Management cannot currently predict when the negative impacts on the Company and its businesses related to the COVID-19 coronavirus pandemic and related governmental reaction will end. Although the Company believes that its existing cash balance, anticipated cash flow from continuing operations and available borrowing capacity under the Credit Agreement and the PPP Loan will be sufficient to cover expected cash needs during the remainder of fiscal year 2020, that belief is based on the assumption that negative impacts related to the COVID-19 coronavirus pandemic and related governmental reaction will substantially improve commencing in the second quarter and continuing thereafter.

The Company was not in compliance with the Fixed Coverage Charge Ratio covenant under the Credit Agreement as of December 28, 2019. The lender provided a waiver of the covenant violation for the period ended December 28, 2019. Based on the assumption that negative impacts related to the COVID-19 coronavirus pandemic and related governmental reaction will substantially improve commencing in the second quarter and continuing thereafter, the Company currently expects to be in compliance with all covenants under the Credit Agreement throughout the facility’s remaining term.

11.    Legal Proceedings

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.

12.    Other Assets

The Company had previously paid $2,500,000 related to an aggregate property near Colorado Springs. During fiscal year 2019, the Company decided to cease negotiations with the State of Colorado to obtain mining permits for the property. The amount, less $325,000 that was not expected to be recovered, was included in Other current assets in the Consolidated Balance Sheet as of December 28, 2019. The funds were refunded to the Company during the first quarter of 2020.

The Company sold the assets of its ready-mix and Daniels Sand Company operations in the first quarter of 2019. In conjunction with the transaction, certain amounts were held in escrow (see Note 15). Combined escrow amounts of

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$2,049,000 were included in Other current assets in the Consolidated Balance Sheet at December 28, 2019. The escrow amounts, less fees and $111,000 still in question, were received by the Company in the first quarter of 2020.

13.    Leases

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 for any of the periods presented. The following table displays the undiscounted cash flows related to operating leases along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets (amounts in thousands) as of March 28, 2020:

	OPERATING
	LEASE
	LIABILITIES
2020	$	1,062
2021		1,389
2022		1,307
2023		761
2024		255
Thereafter		655
Total lease payments		5,429
Less: interest		(552)
Present value of operating lease liabilities	$	4,877

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. Components of lease expense and other information is as follows:

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Operating lease expense	$	356	$	529
Short-term lease expense	$	215	$	203
Weighted-average remaining lease term (years)		4.5		5.5
Weighted-average discount rate		6.0%		6.1%

New leases entered into during the three month periods ended March 28, 2020 and March 30, 2019 were not material.

14.    Settlement Receipt

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.

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15.    Disposition of Assets

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 Transit Mix Concrete Company’s (TMC) 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 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 December 28, 2019. The escrow funds, less nominal expenses and $111,000 under dispute, were received by the Company during the first quarter 2020.

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. 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):

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Revenue	$	—	$	4,058
Costs and expenses		—		(3,900)
Depreciation, depletion and amortization		—		(578)
Selling and administrative		—		(304)
Gain on sales of equipment		—		—
Gain on sale of assets		—		6,508
Pre-tax income	$	—	$	5,784

The results of discontinued operations are summarized as follows:

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Operating loss	$	—	$	(724)
Gain on sale of assets		—		6,508
Income tax benefit		—		(1,562)
Income from discontinued operations	$	—	$	4,222

16.    Acquisitions

During fiscal 2019 the Company completed three different asset purchase transactions, acquiring the assets of four operating businesses. On May 20, 2019 the Company acquired the assets of Serenity and Fastrac, both based in Colorado Springs, Colorado, using available cash reserves. Serenity is a proprietary sliding door system providing superior sound attenuation, sold primarily into healthcare markets across the country. Fastrac is a leading supplier of commercial doors and hardware to healthcare and hospitality customers across the country. Serenity continues to

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operate as a stand-alone business while Fastrac operations were consolidated with the Company’s existing portfolio company, McKinney Door and Hardware, which has similar operations. The results of the acquisition of Serenity and Fastrac are included in the Company’s Consolidated Financial Statements from the date of acquisition. Both companies are included in the Door segment for reporting purposes.

On June 3, 2019 the Company acquired the assets of American Wheatley HVAC and Global Flow Products (together “GFP”), based in Broken Arrow, Oklahoma using available cash reserves. GFP sells American Wheatley HVAC branded products, including a broad line of ASME pressure vessels, custom fabricated products, valves, strainers and other hydronic accessories to commercial HVAC customers. The results of the acquisition of GFP are included in the Company’s Consolidated Financial Statements from the date of acquisition. GFP is included in the HVAC segment for reporting purposes.

These two transactions are not considered material individually. However, they are considered material in the aggregate. The total purchase price paid for these transactions was $12,855,000, which included a traditional post-closing working capital adjustment for $608,000, with approximately $12,163,000 paid in cash at closing. The Company will pay additional contingent consideration, if earned, in the form of an earn out amount pursuant to the terms of earn out agreements in amounts of up to $4,300,000, the payment of which is subject to certain conditions and the successful achievement of gross profit growth targets for the acquired businesses following the closing of the transactions over a period of twenty-four (24) to thirty-six (36) months. Approximately $1,300,000 has been accrued based on estimated fair values of these earn out agreements. We acquired trade receivables of $1,916,000, inventory of $1,745,000, property and equipment of $2,530,000, other assets of $256,000, intangibles of $4,000,000 and goodwill of $3,614,000 and retained liabilities of $1,205,000. The current value assigned to trade receivables represents fair market value. The working capital adjustment has been finalized on both transactions and final valuation of the fair value of assets and liabilities including receivables, inventory, fixed assets, intangibles, goodwill and accounts payable has been recorded as of December 28, 2019. There were no transaction costs related to either acquisition included in Selling and administrative expenses on the Condensed Consolidated Statements of Operations for the three month periods ended Mach 28, 2020 or March 30, 2019.

On June 17, 2019 the Company acquired the assets of InOvate, a supplier of commercial and residential dryer and HVAC venting systems and components. The total purchase price for the net assets acquired was $11,206,000, including a post-closing working capital adjustment of $84,000, with approximately $11,050,000 paid in cash at closing, using available cash reserves. The Company will pay additional contingent consideration, if earned, in the form of an earn out amount pursuant to the terms of an earn out agreement in an amount of up to $1,250,000, the payment of which is subject to certain conditions and the successful achievement of gross profit growth targets for the acquired business following the closing of the transaction over a period of twelve (12) months. Approximately $1,202,000 has been accrued based on an estimated fair value of this earn out agreement. The results of the acquisition of InOvate are included in the Company’s Consolidated Financial Statements from the date of acquisition. There were no transaction costs related to the transaction included in the Condensed Consolidated Statement of Operations for the three months ended March 28, 2020 or March 30, 2019.

In accordance with GAAP, the total purchase price has been allocated to the tangible and intangible net assets acquired based on their fair values. The working capital adjustment was finalized in the fourth quarter of 2019. The condensed balance sheet of InOvate at the acquisition date was as follows:

Purchase price	$	11,206
Accounts receivable, net		1,448
Other tangible assets		984
Intangible assets		8,808
Right of use asset		387
Accounts payable and accrued expenses		(1,353)
Right of use liability		(387)
Total identifiable net assets		9,887
Goodwill	$	1,319

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Accounts receivable are valued at anticipated fair market value and are not materially different from contracted value.

The following table presents selected unaudited pro forma information for the Company assuming the acquisition of InOvate had occurred as of December 30, 2018. This pro forma information does not purport to represent what the Company’s actual results would have been if the acquisition had occurred as of the date indicated or what such results would be for any future periods.

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Revenue	$	30,845	$	26,485
Pre-tax income from continuing operations	$	206	$	13,240
Basic and diluted loss per share:
Income from continuing operations	$	0.42	$	5.66
Average shares outstanding		1,685		1,709

Per ASC 805, the chart below summaries the comparative financial statements for revenue and earnings as if all the acquisitions occurred at the beginning of beginning of fiscal 2019.

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Revenue	$	30,845	$	31,334
Pre-tax income from continuing operations	$	206	$	14,146

Revenue of the acquired companies increased total revenue by 34.6% in the first quarter of 2020. The acquired companies contributed a combined $411,000 to earnings for the current year quarter. Total goodwill added to the Consolidated Balance Sheet as of December 28, 2019 was $4,932,000. The goodwill is attributable to the skills and technical talent of the established work force at each of the acquired businesses and synergies expected to be achieved from integrating the individual acquired business operations in to the Company’s existing consolidated business portfolio. This amount is attributable to the HVAC and Door segments in the amounts of $2,734,000 and $2,198,000, respectively.

17.    Intangible Assets

Intangible assets with definite lives include trade names, intellectual property, and customer relationships. These intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortizable intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value may be greater than the fair value. There were no amortizable intangible assets as of March 30, 2019. See Note 16 for additional discussion of intangible assets acquired during 2019. Amortizable intangible assets on the Consolidated Balance Sheet as of March 28, 2020 were $12,274,000, net of $534,000 accumulated amortization.

Amortization Expense for the quarter ended March 28, 2020 was $164,000. The estimated amortization expense for each of the next five years is $664,000.

18.    Asset Retirement Obligation

The Company has recorded asset retirement obligations (AROs) for its legal obligation to complete reclamation of certain mining properties, in the Construction Materials segment, as required by its mining permits with the State of Colorado. The related ARO assets were considered 100% impaired as total carrying value including future costs to maintain and dispose of the asset will exceed the fair value and therefore were previously impaired.

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The following table details activity related to the Company’s ARO liabilities (amounts in thousands):

	MARCH 28,
	2020
Beginning balance	$	27,913
Obligations settled		(94)
Accretion expense		217
Ending balance		28,036
Less current portion		4,181
Long-term portion	$	23,855

In connection with the third quarter 2019 decision to cease mining activities, management performed a review of remaining assets to determine which, if any, should be classified as assets held for sale (AHS). Based on this review a total of $896,000, previously reported as Machinery and equipment on the Consolidated Balance Sheet, was reclassified as AHS as of December 28, 2019. As of March 28, 2020 a total of $380,000 remains classified as AHS.

19.    Value Creation Incentive Plan

The Company adopted the Continental Materials Corporation Value Creation Incentive Plan (VCIP) effective July 1, 2019. The VCIP is designed to attract and retain key management personnel by providing an incentive and reward for selected executive officers and employees of the Company. The VCIP involves only the payment of cash, not the issuance of common stock, based on appreciation of Phantom Equity or Phantom Equity Appreciation Rights (PE or PEARs, respectively) of the defined business unit, over a certain period of time. Fair value of the PE or PEAR awards was measured as of the balance sheet date presented. The awards vest over a period of four or five years and are payable over a three-year period following vesting. At March 28, 2020 total future compensation expense related to unvested awards yet to be recognized by the Company was approximately $1,595,000. This expense is expected to be recognized over a weighted-average remaining vesting period of approximately 3.8 years.

The Company used the Black-Scholes option pricing model as its method for determining fair value of the awards. The compensation expense related to the awards is recognized over the vesting period for each award. For the three months ended March 28, 2020 the Company’s net income included $114,000 of stock-based compensation. The total liability related to the PE and PEAR awards was $610,000, which includes $292,000 from an acquisition recorded at the opening balance sheet date, and is included as Long-term compensation on the Consolidated Balance Sheet as of March 28, 2019. The following table

Balance at December 28, 2019	$	496
Awards related to acquired companies		-
Change due to vesting of awards granted		166
Change in fair value measurement of liability		(52)
Balance at March 28, 2020	$	610

20.    Subsequent Events

Tender Offer

On February 18, 2020, Bee Street Holdings LLC (Bee Street), commenced an unsolicited tender offer for all outstanding shares of Common Stock of the Company (Common Stock) not already owned by Bee Street. The subsequent offering period of the extended tender offer expired on April 17, 2020. Bee Street is an entity controlled by James G. Gidwitz, our chairman and Chief Executive Officer, and other members of Mr. Gidwitz’ s family. Mr. Gidwitz and three other members of the Company's Board of Directors are also board members of Bee Street. Bee Street owns 1,494,511, or approximately 89.2%, of the outstanding shares of Common Stock.

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Delisting and Deregistration of Common Stock

On April 20, 2020, the Company, acting pursuant to authorization from its Board of Directors, issued a press release announcing its intention to voluntarily delist its Common Stock from the NYSE American Stock Exchange and to deregister its Common Stock under Section 12(g) of the Exchange Act of 1934, as amended (the “Exchange Act”) and suspend its SEC reporting obligations under Section 15(d) of the Exchange Act. The Company also provided written notice to NYSE American, LLC (the “Exchange”) on April 20, 2020 of the Company’s decision to voluntarily withdraw the listing of the Common Stock from the Exchange.

On May 1, 2020, the Company filed with the SEC a Form 25 relating to the delisting of its Common Stock. The Company expects the delisting to be effective May 11, 2020, at which time the Common Stock will no longer be traded on the Exchange.

On May 11, 2020, the Company filed with the SEC a Form 15 to deregister its Common Stock under Section 12(g) of the Exchange Act and suspend its reporting obligations under Section 15(d) of the Exchange Act, as the Common Stock is held by less than 300 stockholders of record.

Paycheck Protection Program

On April 14, 2020, the Company received proceeds of $5,487,000 from a  loan by CIBC Bank USA (the “PPP Loan”) pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).  Under the PPP, the Company may apply for forgiveness of the PPP Loan in an amount equal to the sum of the following costs incurred during the 8-week period beginning on the date of the first disbursement of the PPP Loan: (a) payroll costs, (b) any payment of interest on a covered obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), (c) any payment on a covered rent obligation, and (d) any covered utility payment, calculated in accordance with the terms of the CARES Act.  Although no assurance can be provided that the Company will obtain forgiveness of the PPP Loan in whole or in part, management currently expects to use the proceeds of the PPP Loan for forgivable purposes in accordance with the CARES Act.

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 condensed 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 28, 2019.

Company Overview

In December 2019, a novel strain of coronavirus (SARS-CoV-2) emerged in Wuhan, Hubei Province, China, which on March 11, 2020 was announced by the World Health Organization to be causing a global pandemic disease (COVID-19). The outbreak of novel coronavirus and resulting pandemic disease continues to spread throughout the United States and around the world.

At various times since the commencement of the COVID-19 coronavirus outbreak, the Governors of each state in which the Company has material operations have declared states of emergency and/or disaster and ordered that all non-essential businesses cease activities except for certain minimum basic operations. Management believes that the Company and its subsidiaries qualify as essential businesses as defined in the respective Governors’ orders, but we have nevertheless reduced our operations and implemented additional cleaning and social distancing protocols in response to the COVID-19 coronavirus pandemic. Among other issues considered by management in reaching this belief, our business operates within a critical infrastructure sector as established by the Cybersecurity & Infrastructure Security Agency of the Department of Homeland Security. Thus, as of the date of the filing of this Quarterly Report, we believe our manufacturing and distribution facilities generally are permitted to continue to operate subject to enhanced safety protocols, both voluntary and government mandated, that are aimed to protect the health of our workforce.

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Based on the financial results reported in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report, management believes that the COVID-19 coronavirus pandemic and the related governmental reaction had only a limited impact on our business during the quarter ended March 28, 2020; however, management expects that the COVID-19 coronavirus pandemic and the related governmental reaction has and will negatively impact our business during second quarter of fiscal 2020 and, depending on the duration of the pandemic and related governmental reaction, thereafter, including our liquidity and financial position, results of operations, stock price and ability to convert backlog to revenue among other negative impacts. Management cannot currently quantify the magnitude of such negative impacts or predict when the negative impacts on the Company and its businesses related to the COVID-19 coronavirus pandemic and related governmental reaction will end. These risks to our business are more fully described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for Fiscal Year 2019, which we filed with the SEC on March 23, 2020. We are closely monitoring the impact of the COVID-19 coronavirus pandemic and the related governmental reaction on all aspects of our business.

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

Certain products within the Company’s portfolio are seasonal, primarily furnaces and evaporative coolers in the HVAC segment which are sensitive to weather conditions particularly during their respective peak selling seasons. Other products within the HVAC segment, specifically fan-coils and dryer boxes, and Door segment sales are, to a significant extent, dependent on construction activity. Historically, the Company has experienced operating losses during the first quarter and typically improved in the second and third quarters reflecting more favorable weather conditions for legacy products. Fourth quarter results have typically varied based on weather conditions affecting the Company’s discontinued operations as well as in the principal markets for the Company’s heating equipment. The sale of the Company’s Transit Mix Concrete (TMC) ready-mix and Daniels Sand operations along with the acquisitions completed in the 2019 fiscal year are expected to reduce the seasonality of the Company’s operations. The first quarter 2019 profit was attributable to the legal settlement and sale of TMC ready-mix and Daniels sand operations’ assets, both non-recurring items.

Historically, the Company would typically experience 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 HVAC segment and payment 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 tended to peak during the second quarter and then decline over the remainder of the year. In the first quarter of 2019, a legal settlement and the sale of TMC assets provided sufficient cash reserves such that borrowings against the revolving credit facility were significantly less than historical experience. The fiscal 2019 divestiture and acquisition activity is expected to smooth cash flow over the course of the fiscal year and result in more consistent levels of borrowings throughout future years.

Cash provided by continuing operations was $2,955,000 during the first three months of 2020 compared to $11,624,000 provided during the first three months of 2019.  The first quarter of 2020 included $2,321,000 cash received from the release of escrow amounts related to an aggregate property near Colorado Springs, Colorado. See Note 12 for additional discussion.  The first quarter of 2019 included  $15,000,000 cash received related to a legal settlement. See Note 14 for further discussion. Cash used by discontinued operations in the first quarter of 2019 was $15,000 that reflected operating results combined with changes in working capital items.

During the three months ended March 28, 2020, investing activities provided  $2,556,000 of cash compared to $24,697,000 of cash provided in the prior year’s first quarter. Capital expenditures by continuing operations were $26,000 during the first three months of 2020. Capital expenditures for continuing and discontinued operations were $63,000 and $172,000, respectively, during the first three months of 2019. The reduction in capital expenditures is attributable to the sale of TMC’s ready-mix business which, historically, was more capital intensive. The three months ended March 28, 2020 included $1,918,000 cash received from escrow released from the sale of TMC’s

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ready-mix and Daniels Sand operations. The three months ended March 30, 2019 included $24,927,000 cash received from the sale of TMC’s ready-mix and Daniels Sand operations.

Cash used by financing activities during the first three months of 2020 was  $1,093,000 as available cash was used to reduce borrowings on the revolving line of credit. Financing activities during the first three months of 2019 used  $1,479,000 as available cash was used to reduce borrowings on the revolving line of credit.

Management expects a trend of decreased working capital and decreased cash from continuing operations, relative to fiscal year 2019, may occur over the remainder of fiscal 2020 due to uncertainty of the impact of the COVID-19 pandemic on economic conditions. On April 14, 2020, the Company received proceeds of $5,487,000 from loan by CIBC Bank USA (the “PPP Loan”) pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).  Under the PPP, the Company may apply for forgiveness of the PPP Loan in an amount equal to the sum of the following costs incurred during the 8-week period beginning on the date of the first disbursement of the PPP Loan: (a) payroll costs, (b) any payment of interest on a covered obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), (c) any payment on a covered rent obligation, and (d) any covered utility payment, calculated in accordance with the terms of the CARES Act.  Although no assurance can be provided that the Company will obtain forgiveness of the PPP Loan in whole or in part, management currently expects to use the proceeds of the PPP Loan for forgivable purposes in accordance with the CARES Act, and management expects that such proceeds will substantially fund any trend of increased working capital requirements and to offset the decreased cash from continuing operations, relative to fiscal year 2019, that may occur into the second quarter of fiscal 2020. The term of the PPP Loan is two years. The Company will be required to pay any unforgiven principal of and interest on the PPP Loan in eighteen equal monthly installments, with the first payment being due in the fourth quarter of fiscal 2020. The PPP Loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

Management cannot currently predict when the negative impacts on the Company and its businesses related to the COVID-19 coronavirus pandemic and related governmental reaction will end.  Although the Company believes that its existing cash balance, anticipated cash flow from continuing operations, available borrowing capacity under the Credit Agreement and the PPP Loan will be sufficient to cover expected cash needs, including planned capital expenditures, during the remainder of fiscal year 2020, that belief is based on the assumption that negative impacts related to the COVID-19 coronavirus pandemic and related governmental reaction will substantially improve commencing in the second quarter and continuing thereafter, and such assumption may not prove accurate.

Revolving Credit and Term Loan Agreement

As discussed in Note 10 to the condensed consolidated financial statements contained in this Quarterly Report, the Company maintains a Credit Agreement, which provides for a Revolving Commitment of up to $20,000,000. 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) 85% of eligible accounts receivable, (b) the lesser of 60% of eligible inventories and $8,500,000. Borrowings under the Credit Agreement bear interest based on a 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 has a maturity date of May 1, 2023.

There were no outstanding borrowings against the revolving credit facility at March 28, 2020. 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.

As of March 28, 2020 the Company was in compliance with all covenants in the Credit Agreement. Based on the assumption that negative impacts related to the COVID-19 coronavirus pandemic and related governmental reaction

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will substantially improve commencing in the second quarter and continuing thereafter, the Company currently expects to be in compliance with all covenants under the Credit Agreement throughout the facility’s remaining term.

Results of Continuing Operations - Comparison of Quarter Ended March 28, 2020 to the Quarter Ended March 30, 2019

(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 and amortization from sales. The gross profit ratio is gross profit divided by sales.)

Consolidated sales in the first quarter of 2020 were $30,845,000, an increase of $8,317,000, or 36.9%, compared to the first quarter of 2019.  The increase in sales is substantially attributable to acquisitions completed after the first quarter of 2019. On a pro forma basis, as if all the acquisitions had occurred at the beginning of fiscal 2019, sales in the first quarter would have declined $489,000. See Note 16 for additional discussion.

The consolidated gross profit ratio in the first quarter of 2020 was 26.8% compared to 20.8% in the same period of 2019.  The increase is primarily due to results in the HVAC segment reflecting the acquisitions of Global Flow and InOvate. The variances in gross profit are discussed in segment discussion below.

Consolidated selling and administrative expenses were $986,000 higher in the first quarter of 2020 than the comparable prior year quarter driven primarily by the 2019 acquisition activity.  As a percentage of consolidated sales, selling and administrative expenses decreased to 25.2%  in the first quarter of 2020 from 30.1%  in the first quarter of 2019. The decrease between periods is attributable to reduced investments in the HVAC segment related to previously owned business lines.

The 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 2020 included $145,000 in gains from the sale of property and equipment, primarily in the Construction Materials segment. The first quarter of 2019 included $5,000 in gains from the sale of property and equipment.

The consolidated operating profit in the first quarter of 2020 was $134,000. The consolidated operating loss in the first quarter of 2019,  before the gain from legal settlement discussed above, was $2,625,000.  The increase in operating performance was driven by the HVAC and Construction Materials segments. The HVAC segment reported an increase of $3,017,000 in operating profit. The Construction Materials segment, excluding the $15,000,000 legal settlement, reported a reduction in operating loss of $320,000. Individual segment results are discussed further in the segment section below.

Interest income for the first quarter of 2020 was $114,000 compared to $149,000 for the first quarter of 2019. The decrease in interest income is primarily due to interest earned on the higher 2019 cash reserves resulting from the proceeds from the legal settlement and the sale of TMC assets.

Interest expense in the first quarter of 2020 was $101,000 compared to $71,000 in the first quarter of 2019.  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 from the prior year quarter is attributable to higher average borrowings. Outstanding funded debt in the first quarter of 2020 was $1,134,000 compared to $802,000 for the first quarter of 2019.  At the end of the first quarter of 2020 the outstanding funded debt was zero compared to $800,000 at the end of the first quarter of 2019.

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 quarter of 2020 was 21.0% compared to 27.0% for the first quarter of 2019.

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The Company operates businesses primarily within the Building Products industry group. The businesses are grouped into three reportable segments:  the HVAC segment, the Door segment and the Construction Materials segment. The following addresses various aspects of operating performance focusing on the reportable segments. 

Results of Discontinued Operations - Comparison of Quarter Ended March 28, 2020 to the Quarter Ended March 30, 2019

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. There was no income or loss from discontinued operations recognized in the first quarter of 2020. 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.

HVAC Segment

The table below presents a summary of operating information for the two reportable segments within the HVAC products industry group for the quarters ended March 28, 2020 and March 30, 2019 (dollar amounts in thousands):

	Three Months ended
	MARCH 28,			MARCH 30,
	2020			2019
Revenues from external customers	$	23,655		$	16,720
Segment gross profit		7,421			3,819
Gross profit as percent of sales		31.4	%		22.8	%
Segment operating income (loss)	$	2,536		$	(481)
Operating income (loss) as a percent of sales		10.7	%		(2.9)	%
Segment assets	$	46,250		$	30,171
Return on assets		5.5	%		(1.6)	%

The HVAC segment is comprised of four operating companies and sells a variety of products including residential and commercial wall furnaces, fan coils, evaporative coolers, boiler room equipment, dryer boxes and related accessories from the Company’s wholly-owned subsidiaries, Williams Furnace Co. (WFC), Phoenix Manufacturing, Inc. (PMI) Global Flow Products (GFP) and InOvate Dryer Technologies (InOvate).

Sales in the HVAC segment during the first quarter of 2020 increased 41.5%  compared to the first quarter of 2019. The increase is primarily attributable to the acquisitions of GFP and InOvate in the second quarter of 2019.  

The HVAC  segment’s gross profit ratio for the first quarter of 2020 was 31.4% compared to 22.8% in the first quarter of 2019. The increase is primarily due to the impact of the acquisitions noted above.

Selling and administrative expenses in the first quarter of 2020 were $661,000 higher than the first quarter of the previous year primarily due to 2019 acquisition activity.  The year over year increase was mitigated by investment spending on personnel and processes to stimulate future growth in previously owned lines of business in the first quarter of 2019. As a percentage of sales, selling and administrative expenses decreased to 19.2% in the first quarter of 2020 compared to 23.3% in the first quarter of 2019.

The HVAC segment reported operating income of $2,536,000 for the first quarter of 2020 compared to an operating loss of $481,000 for the first quarter of 2019. The increase is attributable to the 2019 acquisition activity combined with lower selling and administrative costs in previously owned lines of business.

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Door Segment

The table below presents a summary of operating information for the Door segment for the quarters ended March 28, 2020 and March 30, 2019 (dollar amounts in thousands):

	Three Months ended
	MARCH 28,			MARCH 30,
	2020			2019
Revenues from external customers	$	5,721		$	4,242
Segment gross profit		1,409			1,219
Gross profit as percent of sales		24.6	%		28.7	%
Segment operating income	$	79		$	379
Operating income as a percent of sales		1.4	%		8.9	%
Segment assets	$	11,506		$	6,805
Return on assets		0.7	%		5.6	%

The Door segment sells hollow metal doors, door frames and related hardware, wood doors, sliding door systems, lavatory fixtures and electronic access and security systems. Nearly all of the Door segments sales are for commercial and institutional buildings such as schools, hotels, 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. The Door segment does not track unit sales of the various products through its accounting or management reporting, but instead tracks gross profit by job. Management relies on the trend in sales and the gross profit rate by job and in the aggregate in managing the business.

Door sales in the first quarter of 2020 were $1,479,000 (34.9%) higher than in the first quarter of the previous year. The increase is primarily due to the acquisition of Fastrac and Serenity in the second quarter of 2019. The gross profit ratio in the first quarter of 2020 was 24.6% compared to 28.7% in the first quarter of 2019.

Sales and administrative expenses were $461,000 higher in the first quarter of 2020 compared to the first quarter of 2019. As a percentage of sales, these expenses were 22.0% and 18.8% in the first quarters of 2020 and 2019, respectively.

Construction Materials Segment

The table below presents a summary of operating information for the Construction Materials segment for the quarters ended March 28, 2020 and March 30, 2019 (dollar amounts in thousands):

	Three Months ended
	MARCH 28,			MARCH 30,
	2020			2019
Revenues from external customers	$	1,470		$	1,554
Segment gross loss		(550)			(367)
Gross loss as percent of sales		(37.4)	%		(23.6)	%
Segment operating (loss) income		(636)			14,044
Operating (loss) income as a percent of sales		(43.3)	%		903.5	%
Segment assets	$	7,291		$	11,760
Return on assets		(8.7)	%		119.4	%

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 for periods presented. See Note 15 for further discussion of the transaction. The discontinued operations, together with the continuing operations formerly known as the Concrete, Aggregate and Construction Supply (CACS) segment, were reclassified to the Construction Materials segment for current reporting. The product offerings of continuing operations of the former CACS segment consisted of aggregates and construction supplies. Aggregates were produced at multiple locations in or

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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.  Management made a strategic decision to cease mining operations at the end of the third quarter of 2019 when it was determined that continued mining was not in the best economic interests of the consolidated portfolio. The quarries may continue to report some revenue from dumping fees or for remaining inventory sales, but otherwise will turn to full reclamation status. Revenue of the Construction Materials segment decreased 5.4%  in the first quarter of 2020 compared to the first quarter of 2019 as management continued the process of winding down the aggregates operations. 

Selling and administrative expenses were $353,000 lower in the first quarter of 2020 compared to the same period in 2019.  The decrease was attributable primarily to decreased legal fees. Litigation fees during the first quarter of 2020 were $50,000 compared to $305,000 incurred during the comparable period of 2019. As a percentage of sales, selling and administrative expenses decreased to 12.5% in the first quarter of 2020 compared to 34.5% in the first quarter of 2019.

The operating loss reported in the first quarter of 2020 was $636,000. The first quarter of 2019 included a $15,000,000 gain from a legal settlement. See Note 14. Excluding this non-recurring item, the operating loss for the first quarter of 2019 would have been $956,000. The reduced operating loss between comparable periods is attributable to reduced sales volume in the aggregates operations offset by reduced selling and administrative spending.

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 March 28, 2020 and December 28, 2019 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 28, 2019.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 4 to the condensed consolidated financial statements contained in this Quarterly 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 March 28, 2020.

FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 3b-6 promulgated under the Exchange Act. 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 severity and duration of the COVID-19 coronavirus pandemic and governmental reaction thereto, 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

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policies and the ability of the Company to obtain credit on commercially reasonable terms. Changes in accounting pronouncements 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 March 28, 2020. 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 March 28, 2020, 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.

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PART II - OTHER INFORMATION

Items 1, 1A, 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

During the quarter ended March 28, 2020, the Company made the following repurchases of Common Stock under

the program:

	Issuer Purchases of Equity Securities
Period		(a) Total number of shares (or units) purchased (1)	(b) Average price paid per share (or unit)	(c) Total number of shares (or units) purchased as part of publicly announced plans or programs	(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
December 29, 2019 – January 25, 2020		22,342	$7.30	22,342	$649,281
January 26, 2020 – February 22, 2020		15,528	$7.57	15,528	$531,737
February 23, 2020 – March 28, 2020		—	—	—	$531,737
Total		37,870	$7.41	37,870	$531,737

(1) The Company has an open-ended program which was announced on March 6, 2019 to repurchase its common stock under which the Board authorized purchases up to a maximum amount of $1,000,000. Repurchases may be made on the open market or in block trades at the discretion of management.

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 5.Other Information

On May 1, 2020, Continental Materials Corporation (the “Company”), filed with the Securities and Exchange Commission (the “SEC”) a Form 25 Notification of Removal from Listing in connection with its previously announced plan to voluntarily delist its Common Stock, $0.25 par value per share (the “Common Stock”), from the NYSE American Stock Exchange (the “Exchange”).  The Company expects the delisting to be effective May 11, 2020, at which time the Common Stock will no longer be traded on the Exchange. 

The Company currently anticipates that, on or about May 11, 2020, it will file with the SEC a Form 15 to deregister its Common Stock under Section 12(g) of the Exchange Act and suspend its reporting obligations under Section 15(d) of the Exchange Act, as the Common Stock is held by less than 300 stockholders of record. 

The Company is taking these steps in order to reduce legal, accounting and administrative costs associated with being an SEC reporting company, to reduce the specificity of the financial information which the Company is

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required to disclose publicly in connection with its business segments, which disclosure the Company believes has, at times in the past, been competitively disadvantageous to the Company, and to allow the Company’s management to increase its focus on executing the Company’s strategic and business plan by reducing time spent in complying with applicable SEC reporting requirements.  In addition, the number of shares of Common Stock which are publicly held (exclusive of holdings of officers, directors, controlling shareholders or other family or concentrated holdings) is less than 200,000 as a result the tender offer made by Bee Street Holdings LLC which was completed at midnight at the end of April 17, 2020, and the Common Stock may consequently no longer be eligible for listing on the Exchange pursuant to Section 1003(b)(i)(A) of the NYSE American Company Guide.

Item 6.Exhibits

Exhibit No.	Description
10.1	Promissory Note, dated 04/08/2020, made by the Company and payable to CIBC Bank USA evidencing a loan under the Paycheck Protection Program under Division A, Title I of Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
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 March 28, 2020 filed with the SEC on May 11, 2020, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations and Retained Earnings for the three-month periods ended March 28, 2020 and March 30, 2019, (ii) the Condensed Consolidated Balance Sheets at March 28, 2020 and December 28, 2019, (iii) the Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 28, 2020 and March 30, 2019, and (iv) Notes to the Quarterly Condensed Consolidated Financial Statements.

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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:	May 11, 2020	By:	/s/ Paul Ainsworth
			Paul Ainsworth, Vice President, Secretary
			and Chief Financial Officer

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EX-10.1

Exhibit 10.1

SBA Loan #	881642070-01
SBA Loan Name	Continental Materials Corporation
Date	04/08/20
Loan Amount	5,487,000.00
Interest Rate	1.00% Fixed
Borrower	Continental Materials Corporation
Operating Company
Lender	CIBC Bank USA

1.    PROMISE TO PAY:

In return for the Loan, Borrower promises to pay to the order of Lender the amount of Five Million Four Hundred Eighty Seven Thousand ($5,487,000.00)

Dollars, interest on the unpaid principal balance, and all other amounts required by this Note.

2.    DEFINITIONS:

"Collateral" means any property taken as security for payment of this Note or any guarantee of this Note.

"Guarantor" means each person or entity that signs a guarantee of payment of this Note.

"Loan" means the loan evidenced by this Note.

"Loan Documents" means the documents related to this loan signed by Borrower, any Guarantor, or anyone who pledges collateral.

"SBA" means the Small Business Administration, an Agency of the United States of America.

3.    PAYMENT TERMS:

Borrower must make all payments at the place Lender designates. The payment terms for this Note are:

The interest rate is on this Note is fixed at 1.00% per year.

All payments of principal and interest are deferred for the first six (6) months from the date of this Note ("Deferment Period").

On or about the date that is eight weeks following the date of this Note, Borrower shall submit to Lender a certified and attested schedule or eligible amounts of forgiveness ("Forgiven Balance"), together with documentation verifying the number of full-time equivalent employees on Borrower's payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utility payments for the eight week period following the date of the first disbursement under this Note, as required by the Payroll Protection Program ("PPP"). Subject to the terms of the PPP, the Forgiven Balance will reduce the principal balance of this Note and the accrued interest on the Forgiven Balance is also forgiven.

Borrower must pay any remaining principal balance and accrued interest on or before the Maturity Date (defined below) with interest thereon paid monthly after the Deferment Period over the remaining term of this Note. Payments must be made on the same day as the date of this Note in the months they are due.

Lender will apply each installment payment first to pay interest accrued to the day Lender receives the payment, then to bring principal current, then to pay any late fees, and will apply any remaining balance to reduce principal.

The interest rate identified in the Note may not be changed during the life of the Loan unless changes in accordance with SOP 5010.

Loan Prepayment:

Notwithstanding any provision in this Note to the contrary:

Borrower may prepay this Note. Borrower may prepay 20 percent or less of the unpaid principal balance at any time without notice. If Borrower prepays more than 20 percent and the Loan has been sold on the secondary market, Borrower must:

a.  Give Lender written notice;

b.  Pay all accrued interest; and

c.  If the prepayment is received less than 21 days from the date Lender receives the notice, pay an amount equal to 21 days' interest from the date lender receives the notice, less any interest accrued during the 21 days and paid under subparagraph b., above.

If Borrower does not prepay within 30 days from the date Lender received the notice, Borrower must give Lender a new notice.

All remaining principal and accrued interest is due and payable 2 years from date of Note ("Maturity Date").

Late Charge: If a payment on this Note is more than 10 days late, Lender may charge Borrower a late fee of up to 5.00% of the unpaid portion of the regularly scheduled payment.

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4.    DEFAULT:

Borrower is in default under this Note if Borrower does not make a payment when due under this Note, or if Borrower or Operating Company:

A. Fails to do anything required by this Note and other Loan Documents;

B. Defaults on any other loan with Lender;

C. Does not preserve, or account to Lender's satisfaction for, any of the Collateral or its proceeds;

D. Does not disclose, or anyone acting on their behalf does not disclose, any material fact to Lender or SBA;

E. Makes, or anyone acting on their behalf makes, a materially false or misleading representation to Lender or SBA;

F. Defaults on any loan or agreement with another creditor, if Lender believes the default may materially affect Borrower's ability to pay this Note;

G. Fails to pay any taxes when due;

H. Becomes the subject of a proceeding under any bankruptcy or insolvency law;

I. Has a receiver or liquidator appointed for any part of their business or property;

J. Makes an assignment for the benefit of creditors;

K. Has any adverse change in financial condition or business operation that Lender believes may materially affect Borrower's ability to pay this Note;

L. Reorganizes, merges, consolidates, or otherwise changes ownership or business structure without Lender's prior written consent; or

M. Becomes the subject of a civil or criminal action that Lender believes may materially affect Borrower's ability to pay this Note.

5.    LENDER'S RIGHTS IF THERE IS A DEFAULT:

Without notice or demand and without giving up any of its rights, Lender may:

A. Require immediate payment of all amounts owing under this Note;

B. Collect all amounts owing from any Borrower or Guarantor;

C. File suit and obtain judgment;

D. Take possession of any Collateral; or

E. Sell, lease, or otherwise dispose of, any Collateral at public or private sale, with or without advertisement.

6.    LENDER'S GENERAL POWERS:

Without notice and without Borrower's consent, Lender may:

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A. Bid on or buy the Collateral at its sale or the sale of another lienholder, at any price it chooses;

B. Incur expenses to collect amounts due under this Note, enforce the terms of this Note or any other Loan Document, and preserve or dispose of the Collateral. Among other things, the expenses may include payments for property taxes, prior liens, insurance, appraisals, environmental remediation costs, and reasonable attorney's fees and costs. If Lender incurs such expenses, it may demand immediate repayment from Borrower or add the expenses to the principal balance;

C. Release anyone obligated to pay this Note;

D. Compromise, release, renew, extend or substitute any of the Collateral; and

E. Take any action necessary to protect the Collateral or collect amounts owing on this Note.

7.    WHEN FEDERAL LAW APPLIES:

When SBA is the holder, this Note will be interpreted and enforced under federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt federal law.

8.    SUCCESSORS AND ASSIGNS:

Under this Note, Borrower and Operating Company include the successors of each, and Lender includes its successors and assigns.

9.    GENERAL PROVISIONS:

A. All individuals and entities signing this Note are jointly and severally liable.

B. Borrower waives all suretyship defenses.

C. Borrower must sign all documents necessary at any time to comply with the Loan Documents and to enable Lender to acquire, perfect, or maintain Lender's liens on Collateral.

D. Lender may exercise any of its rights separately or together, as many times and in any order it chooses. Lender may delay or forgo enforcing any of its rights without giving up any of them.

E. Borrower may not use an oral statement of Lender or SBA to contradict or alter the written terms of this Note.

F. If any part of this Note is unenforceable, all other parts remain in effect.

G. To the extent allowed by law, Borrower waives all demands and notices in connection with this Note, including presentment, demand, protest, and notice of dishonor. Borrower also waives any defenses based upon any claim that Lender did not obtain any guarantee; did not obtain, perfect, or maintain a lien upon Collateral; impaired Collateral; or did not obtain the fair market value of Collateral at a sale.

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10.   STATE-SPECIFIC PROVISIONS:

This Note is made pursuant to the terms and conditions of the Paycheck Protection Program (“PPP”), which is part of the CARES Act 2020. Notwithstanding any provision to the contrary, this Note shall be interpreted in accordance with the PPP and guidance issued by the Small Business Administration implementing the PPP.

Borrower agrees to execute and deliver to Lender any additional documents consistent with the Loan Documents as may be recommended or required in connection with the PPP. Borrower acknowledges the speed of the implementation of the PPP and recognizes that additional documents may be required to document the Loan.

This Note may be executed by electronic signature, which shall be considered as an original signature for all purposes and shall have the same force and effect as an original signature. Without limitation, “electronic signature” shall include faxed versions of an original signature or electronically scanned and transmitted versions (e.g., via pdf) of an original signature.

THE HOLDER OF THIS NOTE SHALL NOT BE REQUIRED TO RENEW, EXTEND OR REFINANCE THIS NOTE OR ANY AMOUNTS DUE UNDER THIS NOTE.

JURY WAIVER AND CONSENT TO JURISDICTION. LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. TO INDUCE LENDER TO ACCEPT THIS NOTE BORROWER IRREVOCABLY AGREE THAT, SUBJECT TO LENDER’S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE WILL BE LITIGATED IN COURTS HAVING SITUS IN COOK COUNTY, ILLINOIS. BORROWER HEREBY CONSENT AND SUBMIT TO THE JURISDICTION OF ANY COURT LOCATED WITHIN COOK COUNTY, ILLINOIS, WAIVES PERSONAL SERVICE OF PROCESS AND AGREE THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO BORROWER AT THE ADDRESS STATED HEREIN AND SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT.

  SBA Form 147 (06/03/02) Version 4.1 5 of 6

11.   BORROWER'S NAME(S) AND SIGNATURE(S):

By signing below, each individual or entity becomes obligated under this Note as Borrower.

BORROWER:

By: Continental Materials Corporation

Name: Paul Ainsworth

Title: CFO

  SBA Form 147 (06/03/02) Version 4.1 6 of 6

EX-31.1

Exhibit 31.1

CERTIFICATION

I, James G. Gidwitz, certify that:

1. I have reviewed this Form  for the quarterly period ended March 28,  2020 of Continental Materials Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: May  11, 2020

By:	/s/ James G. Gidwitz
	James G. Gidwitz
	Chairman of the Board and
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Paul Ainsworth, certify that:

1. I have reviewed this Form 10-Q for the quarterly period ended March 28, 2020 of Continental Materials Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: May  11,  2020

By:	/s/ Paul Ainsworth
	Paul Ainsworth
	Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Continental Materials Corporation (the “Company”) on Form 10-Q for the period ended March 28, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James G. Gidwitz, the Chairman of the Board and Chief Executive Officer of the Company, and I, Paul Ainsworth, the Vice President, Secretary and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May  11, 2020

By:	/s/  James G. Gidwitz
	James G. Gidwitz
	Chairman of the Board and
	Chief Executive Officer
By:	/s/  Paul Ainsworth
	Paul Ainsworth
	Vice President, Secretary and Chief Financial Officer

EX-95

Exhibit 95

Mine Safety Disclosures

The following disclosures are provided pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of SEC Regulation S-K, which require certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate mines regulated under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).

Mine Safety Information. Whenever the Federal Mine Safety and Health Administration (“MSHA”) believes a violation of the Mine Act, any health or safety standard or any regulation has occurred, it may issue a citation which describes the alleged violation and fixes a time within which the mining operator must abate the alleged violation. In some situations, such as when MSHA believes that conditions pose a hazard to miners, MSHA may issue an order removing miners from the area of the mine affected by the condition until the alleged hazards are corrected. When MSHA issues a citation or order, it generally proposes a civil penalty, or fine, as a result of the alleged violation, that the operator is ordered to pay.  Citations and orders can be contested and appealed, and as part of that process, are often reduced in severity and amount, and are sometimes dismissed. The number of citations, orders and proposed assessments vary depending on the size and type (underground or surface) of the mine as well as by the MSHA inspectors assigned.

Mine Safety Data. The following headings are used in the table below to describe the categories of violations, orders or citations issued by MSHA under the Mine Act with respect to the Company’s mines:

· Section 104 S&S Citations: Citations received from MSHA under Section 104 of the Mine Act for violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard.

· Section 104(b) Orders: Orders issued by MSHA under Section 104(b) of the Mine Act, which represents a failure to abate a citation under Section 104(a) within the period of time prescribed by MSHA. This results in an order of immediate withdrawal from the area of the mine affected by the condition until MSHA determines that the violation has been abated.

· Section 104(d) Citations and Orders: Citations and orders issued by MSHA under Section 104(d) of the Mine Act for unwarrantable failure to comply with mandatory health or safety standards.

· Section 110(b)(2) Violations: Flagrant assessments issued by MSHA under Section 110(b)(2) of the Mine Act.

· Section 107(a) Orders: Orders issued by MSHA under Section 107(a) of the Mine Act for situations in which MSHA determined an “imminent danger” existed.

The following table details the violations, citations and orders issued to us by MSHA during the fiscal quarter ended March 28, 2020 (Dollar amounts in thousands):

			Section
	Section 104	Section	104(d)	Section	Section			Mining
	S&S	104(b)	Citations	110(b)(2)	107(a)	Proposed		Related
	Citations(2)	Orders	and Orders	Violations	Orders	Assessments(2)		Fatalities
Mine(1)	(#)	(#)	(#)	(#)	(#)	($)		(#)
Snyder Quarry	—	—	—	—	—	$	—	—
Grisenti Farms Gravel Pit	—	—	—	—	—		—	—
Daniels Sand Pit 1 & 2 (4)	—	—	—	—	—		—	—
Pueblo East	—	—	—	—	—		—	—
Pikeview Quarry	1	—	—	—	—		—	—

(1) The definition of “mine” found in Section 3 of the Mine Act includes the mine, as well as other items used in, or to be used in, or resulting from, the work of extracting minerals, such as land, structures, facilities, equipment, machines, tools and minerals preparation facilities. Unless otherwise indicated, any of these other items associated with a single mine have been aggregated in the totals for that mine. MSHA assigns an identification number to each mine and may or may not assign separate identification numbers to related facilities such as preparation facilities. We are providing the information in the table by mine rather than MSHA identification number because that is how we manage and operate our mining business and we believe this presentation will be more useful to the reader than providing information based on MSHA identification numbers.

(2) No Section 104 Citations were subject to contest as of March 28, 2020.

(3) Represents the total dollar value of the proposed assessment from MSHA under the Mine Act pursuant to the citations and/or orders preceding such dollar value in the corresponding row.

(4) Sold 2/1/2019

Pattern or Potential Pattern of Violations. During the fiscal quarter ended March 28, 2020, none of the mines operated by us received written notice from MSHA of (a) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of mine health or safety hazards under Section 104(e) of the Mine Act or (b) the potential to have such a pattern.

Pending Legal Actions. There were no legal actions pending before the Federal Mine Safety and Health Review Commission (the “Commission”) as of March 28, 2020, nor were any legal actions instituted and resolved during the fiscal quarter ended March 28, 2020. The Commission is an independent adjudicative agency established by the Mine Act that provides administrative trial and appellate review of legal disputes arising under the Mine Act. These cases may involve, among other questions, challenges by operators to citations, orders and penalties they have received from MSHA, or complaints of discrimination by miners under Section 105 of the Mine Act. The following provides additional information of the types of proceedings that may be brought before the Commission:

· Contest Proceedings: A contest proceeding may be filed by an operator to challenge the issuance of a citation or order issued by MSHA.

· Civil Penalty Proceedings: A civil penalty proceeding may be filed by an operator to challenge a civil penalty MSHA has proposed for a violation contained in a citation or order. We do not institute civil penalty proceedings based solely on the assessment amount of proposed penalties. Any initiated adjudications address substantive matters of law and policy instituted on conditions that are alleged to be in violation of mandatory standards of the Mine Act.

· Discrimination Proceedings: Involves a miner’s allegation that he or she has suffered adverse employment action because he or she engaged in activity protected under the Mine Act, such as making a safety complaint. Includes also temporary reinstatement proceedings involving cases in which a miner has filed a complaint with MSHA stating that he or she has suffered discrimination and the miner has lost his or her position.

· Compensation Proceedings: A compensation proceeding may be filed by miners entitled to compensation when a mine is closed by certain closure orders issued by MSHA. The purpose of the proceeding is to determine the amount of compensation, if any, due to miners idled by the orders.

· Temporary Relief: Applications for temporary relief are applications filed under Section 105(b)(2) of the Mine Act for temporary relief from any modification or termination of any order.

· Appeals: An appeal may be filed by an operator to challenge judges’ decisions or orders to the Commission, including petitions for discretionary review and review by the Commission on its own motion.

During the fiscal quarter ended March 28, 2020, the Company had no legal actions instituted or resolved. As of March 28, 2020, the Company had no pending legal actions.

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FAIR VALUE MEASUREMENT - Contingent Consideration (Details)	Mar. 28, 2020
Risk-free interest rate | Minimum
FAIR VALUE MEASUREMENT
Contingent consideration liability measurement input	0.09
Risk-free interest rate | Maximum
FAIR VALUE MEASUREMENT
Contingent consideration liability measurement input	1.6
Expected term (years) | Minimum
FAIR VALUE MEASUREMENT
Contingent consideration liability measurement input	0.18
Expected term (years) | Maximum
FAIR VALUE MEASUREMENT
Contingent consideration liability measurement input	2.33

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EARNINGS PER SHARE (Details) - $ / shares	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
EARNINGS PER SHARE
Difference between the calculation of basic and diluted EPS (in dollars per share)	$ 0.00	$ 0.00

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REVOLVING BANK LOAN AND LONG-TERM DEBT (Details)	3 Months Ended
	Jun. 30, 2020 USD ($)	Mar. 31, 2020 USD ($)	Mar. 28, 2020 USD ($)	Mar. 30, 2019 USD ($)	Dec. 28, 2019 USD ($)
Minimum | Period Ending June 28, 2014 [Member]
Debt Instrument [Line Items]
Fixed charge coverage ratio			1.06
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Maximum revolving credit facility line			$ 20,000,000
Borrowings as a percentage of eligible accounts receivable			85.00%
Borrowings as a percentage of eligible inventories			60.00%
Maximum inventory borrowings			$ 8,500,000
Minimum EBITDA threshold amount		$ (525,000)
Minimum EBITDA threshold amount in next three months	$ 265,000
Threshold average daily excess availability			5,000,000
Outstanding amount			0		$ 800,000
Highest balance outstanding during the period			2,950,000	$ 2,200,000
Average outstanding			1,134,000	$ 802,000
Outstanding amount of letters of credit total			$ 5,620,000
Revolving Credit Facility [Member] | LIBOR
Debt Instrument [Line Items]
Percentage points added to the reference rate			2.00%

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VALUE CREATION INCENTIVE PLAN (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 28, 2020	Dec. 28, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
PE and PEAR awards liability	$ 1,945,000	$ 1,842,000
Beginning balance	496,000
Change due to vesting of awards granted	166,000
Change in fair value measurement of liability	(52,000)
Ending balance	$ 610,000	496,000
VCIP | PE or PEARs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Payment period following vesting	3 years
Total future compensation expense related to unvested awards yet to be recognized		$ 1,595,000
Weighted-average remaining vesting period		3 years 9 months 18 days
Stock-based compensation expense		$ 114,000
PE and PEAR awards liability		610,000
PE and PEAR awards liability from acquisition		$ 292,000
VCIP | Maximum | PE or PEARs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	5 years
VCIP | Minimum | PE or PEARs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years

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INDUSTRY SEGMENT INFORMATION (Tables)

3 Months Ended

Mar. 28, 2020

INDUSTRY SEGMENT INFORMATION

Schedule of information about reported segments along with the items necessary to reconcile the segment information to totals reported in financial statements

The following table presents information about reported segments for the three-month periods ended March 28, 2020 and March 30, 2019 along with the items necessary to reconcile the segment information to the totals reported in the financial statements (amounts in thousands):

					Construction		Unallocated		Held for
Three Months ended March 28, 2020	HVAC		Doors		Materials		Corporate		Sale		Total
Revenues from external customers	$	23,655	$	5,721	$	1,470	$	—	$	—	$	30,845
Depreciation and amortization		332		73		48		61		—		513
Operating income (loss)		2,536		79		(636)		(1,845)		—		134
Segment assets		46,250		11,506		7,291		22,760		380		88,187
Capital expenditures (b)		12		14		—		—		—		26

					Construction		Unallocated		Held for
Three Months ended March 30, 2019	HVAC		Doors		Materials		Corporate		Sale		Total
Revenues from external customers	$	16,720	$	4,242	$	1,554	$	11	$	—	$	22,528
Depreciation and amortization		411		43		52		13		—		519
Operating income (loss)		(481)		379		14,044		(1,567)		—		12,375
Segment assets (a)		50,822		14,248		10,463		13,554		896		89,983
Capital expenditures (b)		44		19		—		—		—		63

(a) Segment assets are as of December 28, 2019.

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

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SETTLEMENT RECEIPT

3 Months Ended

Mar. 28, 2020

SETTLEMENT RECEIPT

SETTLEMENT RECEIPT

14.    Settlement Receipt

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.

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ARO ASSET/LIABILITY

3 Months Ended

Mar. 28, 2020

ARO ASSET/LIABILITY

ARO ASSET/LIABILITY

18.    Asset Retirement Obligation

The Company has recorded asset retirement obligations (AROs) for its legal obligation to complete reclamation of certain mining properties, in the Construction Materials segment, as required by its mining permits with the State of Colorado. The related ARO assets were considered 100% impaired as total carrying value including future costs to maintain and dispose of the asset will exceed the fair value and therefore were previously impaired.

The following table details activity related to the Company’s ARO liabilities (amounts in thousands):

	MARCH 28,
	2020
Beginning balance	$	27,913
Obligations settled		(94)
Accretion expense		217
Ending balance		28,036
Less current portion		4,181
Long-term portion	$	23,855

In connection with the third quarter 2019 decision to cease mining activities, management performed a review of remaining assets to determine which, if any, should be classified as assets held for sale (AHS). Based on this review a total of $896,000, previously reported as Machinery and equipment on the Consolidated Balance Sheet, was reclassified as AHS as of December 28, 2019. As of March 28, 2020 a total of $380,000 remains classified as AHS.

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EARNINGS PER SHARE

3 Months Ended

Mar. 28, 2020

EARNINGS PER SHARE

EARNINGS PER SHARE

6.    Earnings Per Share

There is no difference in the calculation of basic and diluted earnings per share (EPS) for the three-month periods ended March 28, 2020 and March 30, 2019 as the Company does not have any dilutive instruments.

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REVOLVING BANK LOAN AND LONG-TERM DEBT

3 Months Ended

Mar. 28, 2020

REVOLVING BANK LOAN AND LONG-TERM DEBT

REVOLVING BANK LOAN AND LONG-TERM DEBT

10.    Revolving Bank Loan and Long-Term Debt

The Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) effective March 16, 2020, with the Lenders from time to time party thereto and CIBC Bank USA, as administrative agent. 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) 85% of eligible accounts receivable, (b) the lesser of 60% of eligible inventories and $8,500,000.

· Financial Covenants include:

o  Minimum EBITDA for the three months ending March 31, 2020 must exceed $(525,000) 

o  Minimum EBITDA for the three months ending June 30, 2020 must exceed $265,000 

o  The Minimum Fixed Charge Coverage Ratio is not permitted to be below 1.06 to 1.0 for each computation period measured at the end of each fiscal quarter, provided that the Fixed Charge Coverage Ratio shall not be tested if the average daily Excess Availability during the Fiscal Quarter exceeds $5,000,000. A computation period is the nine months ending September 30, 2020 or twelve months for all subsequent fiscal quarters

· The maturity date of the credit facility is May 1, 2023.

· Interest rate pricing for the revolving credit facility is currently LIBOR plus 2.0% or the prime rate. 

Definitions under the Credit Agreement as amended are as follows:

· Fixed Charge Coverage Ratio means, for any Computation Period, the ratio of (a) the sum (without duplication) for such period of (i) EBITDA, minus (ii) income taxes paid in cash by the Loan Parties, minus (iii) all unfinanced Capital Expenditures, minus (iv) all amounts paid in cash in respect of any Permitted Capital Securities Repurchase, to (b) the sum for such period of (i) cash Interest Expense, plus (ii) scheduled payments of principal of Funded Debt (excluding the Revolving Loans), plus (iii) cash payments made in respect of Capital Leases, plus (iv) the amount by which reclamation or similar costs paid in such period exceed the cash proceeds received from the sale of quarry assets and cash refunds of escrow balances; provided, however that for purposes hereof, to the extent during any period there are excess cash proceeds from the sale of quarry assets after netting such proceeds against the reclamation or similar costs in such period, such excess cash proceeds may be carried forward and netted against the reclamation or similar costs in a later period, plus (v) all amounts paid in respect of any earnout or other deferred payment in connection with any Permitted Acquisition.

· EBITDA means, for any Computation Period (or another time period to the extent expressly provided herein), the sum of the following with respect to the Company and its Subsidiaries each as determined in accordance with GAAP:

· Consolidated Net Income, plus (without duplication) each of the following items to the extent deducted in determining such Consolidated Net Income:

i. federal, state and other income taxes deducted in the determination of Consolidated Net Income;

ii. interest Expense deducted in the determination of Consolidated Net Income;

ii. depreciation, depletion and amortization expense deducted in the determination of Consolidated Net Income;

iv.non-recurring fees and costs paid by the Company and its Subsidiaries in respect of the following: (i) fees, expenses (including legal fees and expenses) and due diligence costs associated with Permitted Acquisitions, whether or not consummated; (ii) legal fees and costs associated with the Valco trial preparation; (iii) fees, costs and expenses (including legal fees and expenses) in connection with the amendment and restatement of this agreement and all matters reasonably related thereto; (iv) fees, costs and expenses (including legal fees and expenses) in connection with the purchase of Capital Securities of the Company by Bee Street Holdings LLC or a Subsidiary thereof and transactions and other matters reasonably related thereto; (v) additional fees and costs associated with the exploration of the Hitch Rack Ranch facility in Colorado Springs, Colorado to determine the sustainability for mining and the pursuit of mining permits; and (vi) fees, costs and expenses in connection with reclamation or similar transactions related to the sale of quarry assets;

v.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); and

vi.the amount of any earnout or other deferred payment paid in connection with any Permitted Acquisition; minus

· 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 zero as of March 28, 2020 compared to $800,000 as of December 28, 2019. The highest balance outstanding during the first three months of 2020 and 2019 was $2,950,000 and $2,200,000, respectively. Average outstanding funded debt was $1,134,000 and $802,000 for the first three months of 2020 and 2019 respectively. At March 28, 2020, the Company had outstanding letters of credit totaling $5,620,000. 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.

Management expects a trend of decreased working capital and decreased cash from continuing operations, relative to fiscal year 2019, may occur over the remainder of fiscal 2020 due to uncertainty of the impact of the COVID-19 coronavirus pandemic and related governmental reaction on economic conditions. Although no assurance can be provided that the Company will obtain forgiveness of the PPP Loan (See note 20) in whole or in part, management currently expects to use the proceeds of the PPP Loan for forgivable purposes in accordance with the CARES Act, and management expects that such proceeds will substantially fund any trend of increased working capital requirements and to offset the decreased cash from continuing operations, relative to fiscal year 2019, that may occur into the second quarter of fiscal 2020.

Management cannot currently predict when the negative impacts on the Company and its businesses related to the COVID-19 coronavirus pandemic and related governmental reaction will end. Although the Company believes that its existing cash balance, anticipated cash flow from continuing operations and available borrowing capacity under the Credit Agreement and the PPP Loan will be sufficient to cover expected cash needs during the remainder of fiscal year 2020, that belief is based on the assumption that negative impacts related to the COVID-19 coronavirus pandemic and related governmental reaction will substantially improve commencing in the second quarter and continuing thereafter.

The Company was not in compliance with the Fixed Coverage Charge Ratio covenant under the Credit Agreement as of December 28, 2019. The lender provided a waiver of the covenant violation for the period ended December 28, 2019. Based on the assumption that negative impacts related to the COVID-19 coronavirus pandemic and related governmental reaction will substantially improve commencing in the second quarter and continuing thereafter, the Company currently expects to be in compliance with all covenants under the Credit Agreement throughout the facility’s remaining term.

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ARO ASSET/LIABILITY (Tables)

3 Months Ended

Mar. 28, 2020

ARO ASSET/LIABILITY

Schedule of activity related to the Company’s ARO liabilities

The following table details activity related to the Company’s ARO liabilities (amounts in thousands):

	MARCH 28,
	2020
Beginning balance	$	27,913
Obligations settled		(94)
Accretion expense		217
Ending balance		28,036
Less current portion		4,181
Long-term portion	$	23,855

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FAIR VALUE MEASUREMENT (Tables)

3 Months Ended

Mar. 28, 2020

Schedule of share-based payment award phantom equity awards, valuation assumptions

The following assumptions were used in determining the fair value of the award liability as of March 28, 2020.

Risk-free interest rate	1.58% - 1.62%
Dividend rate	0.00%
Volatility range	24% - 38%
Weighted average expected term (years)	3.8

Schedule of contingent consideration liability measured at fair value

The following table is a reconciliation for the contingent consideration liability measured at fair value using Level 3 unobservable inputs (in thousands):

Balance at December 28, 2019	$	1,482
Contingent consideration granted with acquisitions		-
Change in fair value measurement of liability		120
Balance at March 28, 2020	$	1,602

Schedule of contingent consideration valuation techniques

The following assumptions were used in determining the fair value of contingent consideration at March 28, 2020:

Risk-free interest rate	.09% - 1.6%
Expected term (years)	.18 - 2.33

Schedule of ARO liabilities valuation techniques

The following assumptions were used in determining the fair value of the ARO liabilities at March 28, 2020:

Credit adjusted risk-free interest rate	3.66%
Expected term (years)	4.5

PE and PEAR awards

Schedule of contingent consideration liability measured at fair value

The following table is a reconciliation for the PE and PEAR liability measured at fair value using Level 3 unobservable inputs (in thousands):

Balance at December 28, 2019	$	496
Awards related to acquired companies		-
Change due to vesting of awards granted		166
Change in fair value measurement of liability		(52)
Balance at March 28, 2020	$	610

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FAIR VALUE MEASUREMENTS (Details)	Mar. 28, 2020 USD ($)
Fair Value Measurements
Fair value, financial instruments transferred between levels	$ 0

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INCOME TAXES

3 Months Ended

Mar. 28, 2020

INCOME TAXES

INCOME TAXES

2.    Income Taxes

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 March 27, 2020 Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the Act). The Act provides various relief for businesses including a temporary five-year NOL carryback for losses incurred in 2018, 2019 and 2020 as well as an NOL deduction of 100% of taxable income for the same years. The current quarter tax provision includes a $541,000 benefit representing the difference between the anticipated tax refund related to the expected NOL carryback and the value of the NOL asset previously included in Deferred income taxes on the Company’s Consolidated Balance Sheet. 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 March 28, 2020 or December 28, 2019.

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ACQUISITIONS - PROFORMA (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 28, 2020	Mar. 30, 2019	Dec. 28, 2019
ACQUISITIONS
Revenue	$ 308,450,000	$ 313,340,000
Pre-tax income from continuing operations	$ 2,060,000	141,460,000
Percentage of increase in total revenue due to revenue of the acquired companies	34.60%
Basic and diluted loss per share:
Acquired companies combined earnings contribution	$ 411,000
Goodwill added due to acquisition			$ 4,932,000
Inovate
ACQUISITIONS
Revenue	30,845,000	26,485,000
Pre-tax income from continuing operations	$ 206,000	$ 13,240,000
Basic and diluted loss per share:
Income from continuing operations	$ 0.42	$ 5.66
Average shares outstanding	1,685	1,709
Doors
Basic and diluted loss per share:
Goodwill added due to acquisition			2,198,000
HVAC | Concrete Aggregates and Construction Supplies
Basic and diluted loss per share:
Goodwill added due to acquisition			$ 2,734,000

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 28, 2020	May 01, 2020
Document and Entity Information
Document Type	10-Q
Document Period End Date	Mar. 28, 2020
Entity Registrant Name	Continental Materials Corporation
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Interactive Data Current	Yes
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		1,671,304
Current Fiscal Year End Date	--01-02
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Entity Central Index Key	0000024104
Amendment Flag	false

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LEASES (Details) - USD ($)	3 Months Ended
	Mar. 28, 2020	Dec. 28, 2019	Dec. 30, 2018
Lessee, Lease, Description [Line Items]
Operating right-of-use assets	$ 4,695,000	$ 4,978,000
Present value of operating lease liabilities	$ 4,877,000
Options to renew	true
ASU 2016-02 | Restatement Adjustment
Lessee, Lease, Description [Line Items]
Operating right-of-use assets			$ 5,353,000
Present value of operating lease liabilities			$ 5,427,000

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DISPOSITIONS OF ASSETS (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 28, 2020	Mar. 30, 2019	Dec. 28, 2019	Feb. 01, 2019	Jan. 15, 2019	Jul. 31, 2015
Disposition of assets.
Escrow Deposit			$ 2,049,000		$ 200,000	$ 2,500,000
Write-off of deferred development costs	$ 111,000		$ 325,000
Revenue, expenses and pre-tax income reclassified to discontinued operations
Revenue		$ 4,058,000
Costs and expenses		(3,900,000)
Depreciation, depletion and amortization		(578,000)
Selling and administrative		(304,000)
Gain on sale of assets		6,508,000
Pre-tax income		5,784,000
The results of discontinued operations
Gain on sale of assets		6,508,000
Income tax benefit	0	(1,562,000)
Income from discontinued operations		4,222,000
Transit Mix Concrete | Discontinued operation
Disposition of assets.
Sale price				$ 27,129,000
Escrow Deposit	$ 111,000			$ 2,049,000
Revenue, expenses and pre-tax income reclassified to discontinued operations
Gain on sale of assets		6,508,000
The results of discontinued operations
Operating loss		(724,000)
Gain on sale of assets		6,508,000
Income tax benefit		(1,562,000)
Income from discontinued operations		$ 4,222,000

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Consolidated Statements of Operations and Retained Earnings (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Consolidated Statements of Operations
Income tax provision	$ 0	$ 1,562

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SEASONALITY AND CURRENT ECONOMIC CONDITIONS

3 Months Ended

Mar. 28, 2020

SEASONALITY AND CURRENT ECONOMIC CONDITIONS

SEASONALITY AND CURRENT ECONOMIC CONDITIONS

5.    Seasonality and Current Economic Conditions

Certain products within the Company’s portfolio are seasonal, primarily furnaces and evaporative coolers in the HVAC segment which are sensitive to weather conditions particularly during their respective peak selling seasons. Other products within the HVAC segment, specifically fan-coils and dryer boxes, and Door segment sales are, to a significant extent, dependent on construction activity. Historically, the Company has experienced operating losses during the first quarter and typically improved in the second and third quarters reflecting more favorable weather conditions for legacy products. Fourth quarter results have typically varied based on weather conditions affecting the Company’s discontinued operations as well as in the principal markets for the Company’s heating equipment. The 2019 sale of the Company’s ready-mix and Daniels Sand operations along with the acquisitions completed in 2019 are expected to reduce the seasonality of the Company’s operations.

The first quarter of 2020 has presented significant economic challenges from the effects of COVID-19. The Company cannot reasonably determine what the future impact on revenue, cash flow or earnings from operations will be. Our operations were considered essential and thus far all businesses within the portfolio continue to manufacture and sell product, but we are seeing a slowdown in demand and are anticipating potentially significant impacts through the remainder of 2020.

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NON-EMPLOYEE DIRECTORS SHARE-BASED COMPENSATION

3 Months Ended

Mar. 28, 2020

NON-EMPLOYEE DIRECTORS SHARE-BASED COMPENSATION

NON-EMPLOYEE DIRECTORS SHARE-BASED COMPENSATION

9.    Non-Employee Directors Share Based Compensation

The Company issued a total of 16,998 shares to the six eligible board members effective December 13, 2019 as partial payment for their 2020 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. All shares were issued under the 2010 Non-Employee Directors Stock Plan.

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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - (Details) - USD ($)	Mar. 28, 2020	Dec. 28, 2019	Dec. 30, 2018
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating right-of-use assets	$ 4,695,000	$ 4,978,000
Liabilities related to operating leases	$ 4,877,000
ASU 2016-02 | Restatement Adjustment
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating right-of-use assets			$ 5,353,000
Liabilities related to operating leases			$ 5,427,000

XML

VALUE CREATION INCENTIVE PLAN (Tables)

3 Months Ended

Mar. 28, 2020

Schedule of contingent consideration liability measured at fair value

The following table is a reconciliation for the contingent consideration liability measured at fair value using Level 3 unobservable inputs (in thousands):

Balance at December 28, 2019	$	1,482
Contingent consideration granted with acquisitions		-
Change in fair value measurement of liability		120
Balance at March 28, 2020	$	1,602

PE and PEAR awards

Schedule of contingent consideration liability measured at fair value

The following table is a reconciliation for the PE and PEAR liability measured at fair value using Level 3 unobservable inputs (in thousands):

Balance at December 28, 2019	$	496
Awards related to acquired companies		-
Change due to vesting of awards granted		166
Change in fair value measurement of liability		(52)
Balance at March 28, 2020	$	610

VCIP | PE and PEAR awards

Schedule of contingent consideration liability measured at fair value

Balance at December 28, 2019	$	496
Awards related to acquired companies		-
Change due to vesting of awards granted		166
Change in fair value measurement of liability		(52)
Balance at March 28, 2020	$	610

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LEASES (Tables)

3 Months Ended

Mar. 28, 2020

LEASES

Summary of undiscounted cash flows related to operating leases

The following table displays the undiscounted cash flows related to operating leases along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets (amounts in thousands) as of March 28, 2020:

	OPERATING
	LEASE
	LIABILITIES
2020	$	1,062
2021		1,389
2022		1,307
2023		761
2024		255
Thereafter		655
Total lease payments		5,429
Less: interest		(552)
Present value of operating lease liabilities	$	4,877

Components of lease expense and other information

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Operating lease expense	$	356	$	529
Short-term lease expense	$	215	$	203
Weighted-average remaining lease term (years)		4.5		5.5
Weighted-average discount rate		6.0%		6.1%

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DEFERRED DEVELOPMENT WRITE OFF (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 28, 2020	Dec. 28, 2019	Jan. 15, 2019	Jul. 31, 2015
DEFERRED DEVELOPMENT WRITE OFF
Escrow Deposit		$ 2,049,000	$ 200,000	$ 2,500,000
Write-off of deferred development costs	$ 111,000	$ 325,000

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Consolidated Statements of Operations and Retained Earnings - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Consolidated Statements of Operations
Net sales	$ 30,845	$ 22,528
Type of Revenue [Extensible List]	us-gaap:ProductMember	us-gaap:ProductMember
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization)	$ 22,565	$ 17,847
Depreciation and amortization	513	519
Selling and administrative	7,778	6,792
Gain on legal settlement		(15,000)
Gain on disposition of property and equipment	(145)	(5)
Total costs and expenses	30,711	10,153
Operating income	134	12,375
Interest income	114	149
Interest expense	(101)	(71)
Other income, net	59	13
Income from continuing operations before income taxes	206	12,466
Provision for income taxes	498	(3,366)
Income from continuing operations	704	9,100
Income from discontinued operations net of income tax provision of $0 and $1,562		4,222
Net income	704	13,322
Retained earnings, beginning of period	47,232	61,131
Retained earnings, end of period	$ 47,936	$ 74,453
Basic and diluted loss per share:
Income from continuing operations	$ 0.42	$ 5.33
Income from discontinued operations		2.47
Basic and diluted income per share (in dollar per share)	$ 0.42	$ 7.80
Average shares outstanding (in shares)	1,685	1,709

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SETTLEMENT RECEIPT (Details) - USD ($)	Jan. 15, 2019	Dec. 28, 2019	Jul. 31, 2015
SETTLEMENT RECEIPT
Settlement receipt	$ 15,000,000
Escrow deposit	$ 200,000	$ 2,049,000	$ 2,500,000

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ACQUISITIONS - INOVATE (Details) - USD ($)		3 Months Ended	12 Months Ended
	Jun. 17, 2019	Mar. 30, 2019	Jan. 02, 2021	Mar. 28, 2020	Dec. 28, 2019
ACQUISITIONS
Goodwill				$ 5,932,000	$ 5,932,000
Inovate
ACQUISITIONS
Purchase price	$ 11,206,000
Post-closing working capital adjustment	84,000
Consideration paid in cash	11,050,000
Contingent liability	$ 1,250,000
Earn out agreement, achievement of growth targets period	12 months
Accrual based on fair value of earnout agreement	$ 1,202,000
Accounts receivable, net	1,448,000
Other tangible assets	984,000
Intangible assets	8,808,000
Right of use asset	387,000
Accounts payable and accrued expenses	(1,353,000)
Right of use liability	(387,000)
Total identifiable net assets	9,887,000
Goodwill	$ 1,319,000
Selling and administrative expense | Inovate
ACQUISITIONS
Transaction costs		$ 0	$ 0

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SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 28, 2020

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES

1.    Significant Accounting Policies:

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 28, 2019 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. The results of operations for the period are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the 2019 consolidated financial statements to conform to the 2020 presentation. The reclassifications had no effect on the consolidated results of operations, the net 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. See Note 15. Accordingly, the operations of these businesses are presented as discontinued operations for all periods presented.

Revenue Recognition:

The Company recognizes revenue in accordance with Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). 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 majority of sales within the Door division do not include extended installation components. Most of the sales of MDHI that contain installation are completed within 30 days and contain two specific components, the product and the installation service. The transaction price for these contracts is allocated to each performance obligation based on its stated stand-alone price. Revenue is recognized at a point in time as each performance obligation is completed. The Company does not offer maintenance or service contracts. The acquisition of Fastrac and Serenity in mid-2019 expanded the type of contracts that require analysis under Topic 606 guidelines as these operations may include extended installation services within the contracts. The company negotiates the terms of the contract and prepares a detailed project quote that might include number and type of doors, number and style of hardware, locks, electronic items and estimated installation cost. Contract price for each item of the quote is negotiated and stated in the contract. Modifications are treated as adjustments to an existing contract and are part of the changes in billing invoices. Revenue is recognized as performance obligations, per the contract agreement, are completed. Revenue for product is recognized as shipped. Revenue for installation services is recognized on a percentage of completion method with costs in excess of billings and/or billings in excess of costs being recorded as an asset or liability until recognized. Costs in excess of billings, of approximately $238,000 and $420,000, are included in Prepaid expenses and retainage on contracts of approximately $182,000 and $345,000 is included in Receivables on the Consolidated Balance Sheets as of March 28, 2020 and December 28, 2019, respectively.

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.

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LEGAL PROCEEDINGS (Details)	3 Months Ended
	Mar. 28, 2020 item
LEGAL PROCEEDINGS
Number of proceedings having material adverse effect on the consolidated results of operations, cash flows or financial condition	0

XML

FAIR VALUE MEASUREMENT - Reconciliation For Contingent Consideration Liability (Details) - Level 3 $ in Thousands	3 Months Ended
	Mar. 28, 2020 USD ($)
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance	$ 1,482
Change in fair value measurement of liability	120
Ending balance	$ 1,602

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INDUSTRY SEGMENT INFORMATION (Details) $ in Thousands	3 Months Ended
	Mar. 28, 2020 USD ($) segment company	Mar. 30, 2019 USD ($)	Dec. 28, 2019 USD ($)
INDUSTRY SEGMENT INFORMATION
Number of reportable segments | segment	3
Number of companies | company	3
Revenues from external customers	$ 30,845	$ 22,528
Depreciation and amortization	513	519
Operating income (loss)	134	12,375
Segment assets	88,187	89,983	$ 89,983
Capital expenditures	26	63
Held for Sale
INDUSTRY SEGMENT INFORMATION
Segment assets	380	896
Unallocated Corporate
INDUSTRY SEGMENT INFORMATION
Revenues from external customers		11
Depreciation and amortization	61	13
Operating income (loss)	(1,845)	(1,567)
Segment assets	22,760	13,554
HVAC
INDUSTRY SEGMENT INFORMATION
Revenues from external customers	23,655	16,720
Depreciation and amortization	332	411
Operating income (loss)	2,536	(481)
Segment assets	46,250	50,822
Capital expenditures	12	44
Doors
INDUSTRY SEGMENT INFORMATION
Revenues from external customers	5,721	4,242
Depreciation and amortization	73	43
Operating income (loss)	79	379
Segment assets	11,506	14,248
Capital expenditures	14	19
Construction Materials
INDUSTRY SEGMENT INFORMATION
Revenues from external customers	1,470	1,554
Depreciation and amortization	48	52
Operating income (loss)	(636)	14,044
Segment assets	$ 7,291	$ 10,463

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ARO ASSET/LIABILITY - ARO Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Dec. 28, 2019
ARO liabilities
Beginning balance	$ 27,913
Obligations settled	(94)
Accretion expense	217
Ending balance	28,036
Less current portion	4,181	$ 4,200
Long-term portion	$ 23,855	$ 23,713

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LEASES

3 Months Ended

Mar. 28, 2020

LEASES

LEASES

13.    Leases

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 for any of the periods presented. The following table displays the undiscounted cash flows related to operating leases along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets (amounts in thousands) as of March 28, 2020:

	OPERATING
	LEASE
	LIABILITIES
2020	$	1,062
2021		1,389
2022		1,307
2023		761
2024		255
Thereafter		655
Total lease payments		5,429
Less: interest		(552)
Present value of operating lease liabilities	$	4,877

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. Components of lease expense and other information is as follows:

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Operating lease expense	$	356	$	529
Short-term lease expense	$	215	$	203
Weighted-average remaining lease term (years)		4.5		5.5
Weighted-average discount rate		6.0%		6.1%

New leases entered into during the three month periods ended March 28, 2020 and March 30, 2019 were not material.

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INTANGIBLE ASSETS

3 Months Ended

Mar. 28, 2020

INTANGIBLE ASSETS

INTANGIBLE ASSETS

17.    Intangible Assets

Intangible assets with definite lives include trade names, intellectual property, and customer relationships. These intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortizable intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value may be greater than the fair value. There were no amortizable intangible assets as of March 30, 2019. See Note 16 for additional discussion of intangible assets acquired during 2019. Amortizable intangible assets on the Consolidated Balance Sheet as of March 28, 2020 were $12,274,000, net of $534,000 accumulated amortization.

Amortization Expense for the quarter ended March 28, 2020 was $164,000. The estimated amortization expense for each of the next five years is $664,000.

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SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 28, 2020

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 28, 2019 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. The results of operations for the period are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the 2019 consolidated financial statements to conform to the 2020 presentation. The reclassifications had no effect on the consolidated results of operations, the net 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. See Note 15. Accordingly, the operations of these businesses are presented as discontinued operations for all periods presented.

Revenue Recognition

Revenue Recognition:

The Company recognizes revenue in accordance with Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). 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 majority of sales within the Door division do not include extended installation components. Most of the sales of MDHI that contain installation are completed within 30 days and contain two specific components, the product and the installation service. The transaction price for these contracts is allocated to each performance obligation based on its stated stand-alone price. Revenue is recognized at a point in time as each performance obligation is completed. The Company does not offer maintenance or service contracts. The acquisition of Fastrac and Serenity in mid-2019 expanded the type of contracts that require analysis under Topic 606 guidelines as these operations may include extended installation services within the contracts. The company negotiates the terms of the contract and prepares a detailed project quote that might include number and type of doors, number and style of hardware, locks, electronic items and estimated installation cost. Contract price for each item of the quote is negotiated and stated in the contract. Modifications are treated as adjustments to an existing contract and are part of the changes in billing invoices. Revenue is recognized as performance obligations, per the contract agreement, are completed. Revenue for product is recognized as shipped. Revenue for installation services is recognized on a percentage of completion method with costs in excess of billings and/or billings in excess of costs being recorded as an asset or liability until recognized. Costs in excess of billings, of approximately $238,000 and $420,000, are included in Prepaid expenses and retainage on contracts of approximately $182,000 and $345,000 is included in Receivables on the Consolidated Balance Sheets as of March 28, 2020 and December 28, 2019, respectively.

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

Leases

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.

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INCOME TAXES - Other (Details)	3 Months Ended
	Mar. 28, 2020 USD ($)
INCOME TAXES
NOL carryback, net	$ 541,000
COLORADO | State and Local Jurisdiction [Member]
INCOME TAXES
Tax credits carry-forward period	7 years

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ACQUISITIONS (Tables)

3 Months Ended

Mar. 28, 2020

ACQUISITIONS

Schedule of tangible and intangible net assets acquired

Purchase price	$	11,206
Accounts receivable, net		1,448
Other tangible assets		984
Intangible assets		8,808
Right of use asset		387
Accounts payable and accrued expenses		(1,353)
Right of use liability		(387)
Total identifiable net assets		9,887
Goodwill	$	1,319

Schedule of pro forma information

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Revenue	$	30,845	$	26,485
Pre-tax income from continuing operations	$	206	$	13,240
Basic and diluted loss per share:
Income from continuing operations	$	0.42	$	5.66
Average shares outstanding		1,685		1,709

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Revenue	$	30,845	$	31,334
Pre-tax income from continuing operations	$	206	$	14,146

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LEGAL PROCEEDINGS

3 Months Ended

Mar. 28, 2020

LEGAL PROCEEDINGS

LEGAL PROCEEDINGS

11.    Legal Proceedings

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.

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FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 28, 2020

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

3.    Fair Value Measurements

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 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.

Lease liabilities: Fair value was estimated based on the borrowing rates 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 Lease liabilities represents a reasonable estimate of the corresponding fair value and was valued as Level 2.

Phantom equity and phantom equity appreciation liability awards: Fair value is estimated based on the use of a Black-Scholes option pricing model based on publicly available inputs. The carrying amount of the liability represents a reasonable estimate of the vested portion of the corresponding fair value of the awards granted and was valued as Level 3.

Contingent consideration: Fair value is estimated based on the use of a Monte Carlo Simulation model based on significant inputs that are not observable in the market, which are considered Level 3 inputs in accordance with ASC Topic 820.

ARO liability: Fair value is estimated using an expected present value technique using estimated cash flows over a period of time and then discounting the expected cash flows using a credit-adjusted risk-free interest rate using significant inputs that are not observable in the market, which are considered Level 3 inputs in accordance with ASC Topic 820.

ARO for asset impairment: Fair value is estimated using an expected present value technique using estimated cash flows over a period of time and then discounting the expected cash flows using a credit-adjusted risk-free interest rate using significant inputs that are not observable in the market, which are considered Level 3 inputs in accordance with ASC Topic 820.

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

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INDUSTRY SEGMENT INFORMATION

3 Months Ended

Mar. 28, 2020

INDUSTRY SEGMENT INFORMATION

INDUSTRY SEGMENT INFORMATION

7.    Industry Segment Information

The Company operates primarily in the Building Products industry group. Within this industry group the Company has identified three reportable segments: the HVAC segment, the Door segment and the Construction Materials segment.

The HVAC segment produces and sells a variety of products including wall furnaces, fan coils, evaporative coolers, boiler room equipment and dryer boxes and related accessories from the Company’s wholly-owned subsidiaries, Williams Furnace Co. (WFC) of Colton, California, Phoenix Manufacturing, Inc. (PMI) of Phoenix, Arizona, Global Flow Products /American HVAC (GFP) of Broken Arrow, Oklahoma, and InOvate Dryer Technologies (InOvate) of Jupiter, Florida. Sales of this segment are nationwide although WFC and PMI sales are more concentrated in the southwestern United States. The Door segment sells hollow metal and wood doors, door frames and related hardware, sliding door systems and electronic access and security systems from the Company’s wholly-owned subsidiaries: McKinney Door and Hardware, Inc. (MDHI), Fastrac Building Supply (Fastrac) and Serenity Sliding Door Systems (Serenity), which operate out of facilities in Pueblo and Colorado Springs, Colorado. Sales of this segment are concentrated in Colorado, California and the Northwestern United States although door sales are also made throughout the United States. The Construction Materials segment offers construction supplies from locations along the Southern Front Range of Colorado operated by the Company’s wholly-owned subsidiaries, Castle Aggregates and Castle Rebar & Supply of Colorado Springs, and TMOP Legacy Company (formerly Transit Mix of Pueblo, Inc.) of Pueblo, Colorado (the three companies collectively are referred to as the Castle Companies).

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 three-month periods ended March 28, 2020 and March 30, 2019 along with the items necessary to reconcile the segment information to the totals reported in the financial statements (amounts in thousands):

					Construction		Unallocated		Held for
Three Months ended March 28, 2020	HVAC		Doors		Materials		Corporate		Sale		Total
Revenues from external customers	$	23,655	$	5,721	$	1,470	$	—	$	—	$	30,845
Depreciation and amortization		332		73		48		61		—		513
Operating income (loss)		2,536		79		(636)		(1,845)		—		134
Segment assets		46,250		11,506		7,291		22,760		380		88,187
Capital expenditures (b)		12		14		—		—		—		26

					Construction		Unallocated		Held for
Three Months ended March 30, 2019	HVAC		Doors		Materials		Corporate		Sale		Total
Revenues from external customers	$	16,720	$	4,242	$	1,554	$	11	$	—	$	22,528
Depreciation and amortization		411		43		52		13		—		519
Operating income (loss)		(481)		379		14,044		(1,567)		—		12,375
Segment assets (a)		50,822		14,248		10,463		13,554		896		89,983
Capital expenditures (b)		44		19		—		—		—		63

(a) Segment assets are as of December 28, 2019.

(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.

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LEASES - Operating Leases (Details) $ in Thousands	Mar. 28, 2020 USD ($)
Undiscounted cash flows related to operating leases
2020	$ 1,062
2021	1,389
2022	1,307
2023	761
2024	255
Thereafter	655
Total lease payments	5,429
Less: interest	(552)
Present value of operating lease liabilities	$ 4,877

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Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 28, 2020	Dec. 28, 2019
Current assets:
Cash and cash equivalents	$ 4,596	$ 178
Receivables, net of allowance of $634 and $494	18,138	21,555
Receivable for insured losses	1,033	911
Finished goods	7,372	6,419
Work in process	1,014	1,061
Raw materials and supplies	7,961	6,473
Prepaid expenses	1,762	2,171
Refundable income taxes	3,807	2,397
Other current assets	111	4,229
Other current assets held for sale	380	896
Total current assets	46,174	46,290
Property, plant and equipment	11,716	12,025
Right-of use assets	4,695	4,978
Goodwill	5,932	5,932
Intangible assets	12,274	12,437
Deferred income taxes	6,755	7,667
Other long-term assets	641	654
Total assets	88,187	89,983
Current liabilities:
Revolving bank loan payable		800
Accounts payable and accrued expenses	16,155	16,725
Short-term asset retirement obligation	4,181	4,200
Short-term lease liabilities	1,182	1,170
Liability for unpaid claims covered by insurance	1,033	911
Total current liabilities	22,551	23,806
Long-term lease liabilities	3,695	3,991
Long-term compensation liabilities	1,945	1,842
Asset retirement obligation	23,855	23,713
Other long-term liabilities	528	1,442
SHAREHOLDERS' EQUITY
Common shares, $.25 par value; authorized 3,000,000 shares; issued 2,574,264 shares	643	643
Capital in excess of par value	1,853	1,853
Retained earnings	47,936	47,232
Treasury shares, 898,780 and 860,910 at cost	(14,819)	(14,539)
Total shareholders' equity	35,613	35,189
Total liabilities and shareholders' equity	$ 88,187	$ 89,983

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
Operating activities
Net cash provided by continuing operations	$ 2,955	$ 11,624
Net cash (used) provided by discontinued operations		(15)
Net cash provided by operating activities	2,955	11,609
Investing activities:
Capital expenditures by continuing operations	(26)	(63)
Capital expenditures by discontinued operations		(172)
Cash proceeds from sale of discontinued operations	1,918	24,927
Cash proceeds from sale of continuing operations property and equipment	664	5
Net cash provided by investing activities	2,556	24,697
Financing activities:
Borrowings on the revolving bank loan	3,450	4,050
Repayments on the revolving bank loan	(4,250)	(5,450)
Repayments of finance lease obligations	(13)	(10)
Payments to acquire treasury stock	(280)	(69)
Net cash used by financing activities	(1,093)	(1,479)
Net increase in cash and cash equivalents	4,418	34,827
Cash and cash equivalents:
Beginning of period	178	594
End of period	4,596	35,421
Cash paid during the year for:
Interest, net	$ 111	$ 72

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ACQUISITIONS (Details)	12 Months Ended
	Dec. 28, 2019 agreement item
ACQUISITIONS
Number of asset purchase agreements | agreement	3
Number of asset acquired operating businesses | item	4

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INTANGIBLE ASSETS - Amortization (Details) - USD ($)	Mar. 28, 2020	Mar. 30, 2019
INTANGIBLE ASSETS
Amortizable intangible assets, net	$ 12,274,000	$ 0
Accumulated amortization	534,000
Estimated amortization expense
2020	164,000
2021	664,000
2022	664,000
2023	664,000
2024	664,000
Thereafter	$ 664,000

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SUBSEQUENT EVENTS (Details) - Subsequent Event	May 11, 2020 stockholder	Apr. 17, 2020 director shares	Apr. 14, 2020 USD ($)
Subsequent Event [Line Items]
Number of stockholders on record | stockholder	300
Loan proceeds from PPP Loan | $			$ 5,487,000
Continental Materials Corporation | Bee Street Holdings LLC
Subsequent Event [Line Items]
Number of Board Members | director		3
Number of shares owned by parent | shares		1,494,511
Ownership percentage		89.20%

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NON-EMPLOYEE DIRECTORS SHARE-BASED COMPENSATION (Details) - Director	Dec. 13, 2019 USD ($) shares	Feb. 07, 2019 director shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares issued to eligible board members	16,998	21,000
Number of eligible board members	6	7

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FAIR VALUE MEASUREMENT - Reconciliation (Details) $ in Thousands	3 Months Ended
	Mar. 28, 2020 USD ($)
FAIR VALUE MEASUREMENT
Beginning balance	$ 496
Change due to vesting of awards granted	166
Change in fair value measurement of liability	(52)
Ending balance	610
PE and PEAR awards | Level 3
FAIR VALUE MEASUREMENT
Beginning balance	496
Change due to vesting of awards granted	166
Change in fair value measurement of liability	(52)
Ending balance	$ 610

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DISPOSITIONS OF ASSETS

3 Months Ended

Mar. 28, 2020

DISPOSITIONS OF ASSETS

DISPOSITIONS OF ASSETS

15.    Disposition of Assets

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 Transit Mix Concrete Company’s (TMC) 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 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 December 28, 2019. The escrow funds, less nominal expenses and $111,000 under dispute, were received by the Company during the first quarter 2020.

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. 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):

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Revenue	$	—	$	4,058
Costs and expenses		—		(3,900)
Depreciation, depletion and amortization		—		(578)
Selling and administrative		—		(304)
Gain on sales of equipment		—		—
Gain on sale of assets		—		6,508
Pre-tax income	$	—	$	5,784

The results of discontinued operations are summarized as follows:

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Operating loss	$	—	$	(724)
Gain on sale of assets		—		6,508
Income tax benefit		—		(1,562)
Income from discontinued operations	$	—	$	4,222

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VALUE CREATION INCENTIVE PLAN

3 Months Ended

Mar. 28, 2020

VALUE CREATION INCENTIVE PLAN

VALUE CREATION INCENTIVE PLAN

19.    Value Creation Incentive Plan

The Company adopted the Continental Materials Corporation Value Creation Incentive Plan (VCIP) effective July 1, 2019. The VCIP is designed to attract and retain key management personnel by providing an incentive and reward for selected executive officers and employees of the Company. The VCIP involves only the payment of cash, not the issuance of common stock, based on appreciation of Phantom Equity or Phantom Equity Appreciation Rights (PE or PEARs, respectively) of the defined business unit, over a certain period of time. Fair value of the PE or PEAR awards was measured as of the balance sheet date presented. The awards vest over a period of four or five years and are payable over a three-year period following vesting. At March 28, 2020 total future compensation expense related to unvested awards yet to be recognized by the Company was approximately $1,595,000. This expense is expected to be recognized over a weighted-average remaining vesting period of approximately 3.8 years.

The Company used the Black-Scholes option pricing model as its method for determining fair value of the awards. The compensation expense related to the awards is recognized over the vesting period for each award. For the three months ended March 28, 2020 the Company’s net income included $114,000 of stock-based compensation. The total liability related to the PE and PEAR awards was $610,000, which includes $292,000 from an acquisition recorded at the opening balance sheet date, and is included as Long-term compensation on the Consolidated Balance Sheet as of March 28, 2019. The following table

Balance at December 28, 2019	$	496
Awards related to acquired companies		-
Change due to vesting of awards granted		166
Change in fair value measurement of liability		(52)
Balance at March 28, 2020	$	610

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ARO ASSET/LIABILITY (Details) - USD ($)	3 Months Ended
	Mar. 28, 2020	Dec. 28, 2019
Asset Retirement Obligations, Noncurrent [Abstract]
Percent impairment of ARO asset	100.00%
Assets held-for-sale	$ 380,000	$ 896,000

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FAIR VALUE MEASUREMENT - ARO Liabilities (Details)	Mar. 28, 2020 Y
Risk-free interest rate
FAIR VALUE MEASUREMENT
ARO measurement input	3.66
Expected term (years)
FAIR VALUE MEASUREMENT
ARO measurement input	4.5

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FAIR VALUE MEASUREMENT - Award Liability (Details) - PE and PEAR awards	3 Months Ended
	Mar. 28, 2020
Fair Value Assumptions of Award Liability
Dividend rate	0.00%
Volatility range, minimum	24.00%
Volatility range, maximum	38.00%
Weighted average expected term (years)	3 years 9 months 18 days

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ACQUISITIONS

3 Months Ended

Mar. 28, 2020

ACQUISITIONS

ACQUISITIONS

16.    Acquisitions

During fiscal 2019 the Company completed three different asset purchase transactions, acquiring the assets of four operating businesses. On May 20, 2019 the Company acquired the assets of Serenity and Fastrac, both based in Colorado Springs, Colorado, using available cash reserves. Serenity is a proprietary sliding door system providing superior sound attenuation, sold primarily into healthcare markets across the country. Fastrac is a leading supplier of commercial doors and hardware to healthcare and hospitality customers across the country. Serenity continues to operate as a stand-alone business while Fastrac operations were consolidated with the Company’s existing portfolio company, McKinney Door and Hardware, which has similar operations. The results of the acquisition of Serenity and Fastrac are included in the Company’s Consolidated Financial Statements from the date of acquisition. Both companies are included in the Door segment for reporting purposes.

On June 3, 2019 the Company acquired the assets of American Wheatley HVAC and Global Flow Products (together “GFP”), based in Broken Arrow, Oklahoma using available cash reserves. GFP sells American Wheatley HVAC branded products, including a broad line of ASME pressure vessels, custom fabricated products, valves, strainers and other hydronic accessories to commercial HVAC customers. The results of the acquisition of GFP are included in the Company’s Consolidated Financial Statements from the date of acquisition. GFP is included in the HVAC segment for reporting purposes.

These two transactions are not considered material individually. However, they are considered material in the aggregate. The total purchase price paid for these transactions was $12,855,000, which included a traditional post-closing working capital adjustment for $608,000, with approximately $12,163,000 paid in cash at closing. The Company will pay additional contingent consideration, if earned, in the form of an earn out amount pursuant to the terms of earn out agreements in amounts of up to $4,300,000, the payment of which is subject to certain conditions and the successful achievement of gross profit growth targets for the acquired businesses following the closing of the transactions over a period of twenty-four (24) to thirty-six (36) months. Approximately $1,300,000 has been accrued based on estimated fair values of these earn out agreements. We acquired trade receivables of $1,916,000, inventory of $1,745,000, property and equipment of $2,530,000, other assets of $256,000, intangibles of $4,000,000 and goodwill of $3,614,000 and retained liabilities of $1,205,000. The current value assigned to trade receivables represents fair market value. The working capital adjustment has been finalized on both transactions and final valuation of the fair value of assets and liabilities including receivables, inventory, fixed assets, intangibles, goodwill and accounts payable has been recorded as of December 28, 2019. There were no transaction costs related to either acquisition included in Selling and administrative expenses on the Condensed Consolidated Statements of Operations for the three month periods ended Mach 28, 2020 or March 30, 2019.

On June 17, 2019 the Company acquired the assets of InOvate, a supplier of commercial and residential dryer and HVAC venting systems and components. The total purchase price for the net assets acquired was $11,206,000, including a post-closing working capital adjustment of $84,000, with approximately $11,050,000 paid in cash at closing, using available cash reserves. The Company will pay additional contingent consideration, if earned, in the form of an earn out amount pursuant to the terms of an earn out agreement in an amount of up to $1,250,000, the payment of which is subject to certain conditions and the successful achievement of gross profit growth targets for the acquired business following the closing of the transaction over a period of twelve  (12) months. Approximately $1,202,000 has been accrued based on an estimated fair value of this earn out agreement. The results of the acquisition of InOvate are included in the Company’s Consolidated Financial Statements from the date of acquisition. There were no transaction costs related to the transaction included in the Condensed Consolidated Statement of Operations for the three months ended March 28, 2020 or March 30, 2019.

In accordance with GAAP, the total purchase price has been allocated to the tangible and intangible net assets acquired based on their fair values. The working capital adjustment was finalized in the fourth quarter of 2019. The condensed balance sheet of InOvate at the acquisition date was as follows:

Purchase price	$	11,206
Accounts receivable, net		1,448
Other tangible assets		984
Intangible assets		8,808
Right of use asset		387
Accounts payable and accrued expenses		(1,353)
Right of use liability		(387)
Total identifiable net assets		9,887
Goodwill	$	1,319

Accounts receivable are valued at anticipated fair market value and are not materially different from contracted value.

The following table presents selected unaudited pro forma information for the Company assuming the acquisition of InOvate had occurred as of December 30, 2018. This pro forma information does not purport to represent what the Company’s actual results would have been if the acquisition had occurred as of the date indicated or what such results would be for any future periods.

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Revenue	$	30,845	$	26,485
Pre-tax income from continuing operations	$	206	$	13,240
Basic and diluted loss per share:
Income from continuing operations	$	0.42	$	5.66
Average shares outstanding		1,685		1,709

Per ASC 805, the chart below summaries the comparative financial statements for revenue and earnings as if all the acquisitions occurred at the beginning of beginning of fiscal 2019.

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Revenue	$	30,845	$	31,334
Pre-tax income from continuing operations	$	206	$	14,146

Revenue of the acquired companies increased total revenue by 34.6% in the first quarter of 2020. The acquired companies contributed a combined $411,000 to earnings for the current year quarter. Total goodwill added to the Consolidated Balance Sheet as of December 28, 2019 was $4,932,000. The goodwill is attributable to the skills and technical talent of the established work force at each of the acquired businesses and synergies expected to be achieved from integrating the individual acquired business operations in to the Company’s existing consolidated business portfolio. This amount is attributable to the HVAC and Door segments in the amounts of $2,734,000 and $2,198,000, respectively.

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 28, 2020

SUBSEQUENT EVENT

SUBSEQUENT EVENT

20.    Subsequent Events

Tender Offer

On February 18, 2020, Bee Street Holdings LLC (Bee Street), commenced an unsolicited tender offer for all outstanding shares of Common Stock of the Company (Common Stock) not already owned by Bee Street. The subsequent offering period of the extended tender offer expired on April 17, 2020. Bee Street is an entity controlled by James G. Gidwitz, our chairman and Chief Executive Officer, and other members of Mr. Gidwitz’ s family. Mr. Gidwitz and three other members of the Company's Board of Directors are also board members of Bee Street. Bee Street owns 1,494,511, or approximately 89.2%, of the outstanding shares of Common Stock.

Delisting and Deregistration of Common Stock

On April 20, 2020, the Company, acting pursuant to authorization from its Board of Directors, issued a press release announcing its intention to voluntarily delist its Common Stock from the NYSE American Stock Exchange and to deregister its Common Stock under Section 12(g) of the Exchange Act of 1934, as amended (the “Exchange Act”) and suspend its SEC reporting obligations under Section 15(d) of the Exchange Act. The Company also provided written notice to NYSE American, LLC (the “Exchange”) on April 20, 2020 of the Company’s decision to voluntarily withdraw the listing of the Common Stock from the Exchange.

On May 1, 2020, the Company filed with the SEC a Form 25 relating to the delisting of its Common Stock. The Company expects the delisting to be effective May 11, 2020, at which time the Common Stock will no longer be traded on the Exchange.

On May 11, 2020, the Company filed with the SEC a Form 15 to deregister its Common Stock under Section 12(g) of the Exchange Act and suspend its reporting obligations under Section 15(d) of the Exchange Act, as the Common Stock is held by less than 300 stockholders of record.

Paycheck Protection Program

On April 14, 2020, the Company received proceeds of $5,487,000 from a  loan by CIBC Bank USA (the “PPP Loan”) pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).  Under the PPP, the Company may apply for forgiveness of the PPP Loan in an amount equal to the sum of the following costs incurred during the 8-week period beginning on the date of the first disbursement of the PPP Loan: (a) payroll costs, (b) any payment of interest on a covered obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), (c) any payment on a covered rent obligation, and (d) any covered utility payment, calculated in accordance with the terms of the CARES Act.  Although no assurance can be provided that the Company will obtain forgiveness of the PPP Loan in whole or in part, management currently expects to use the proceeds of the PPP Loan for forgivable purposes in accordance with the CARES Act.

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SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)	3 Months Ended
	Mar. 28, 2020	Dec. 28, 2019
Cost in excess of billings	$ 238,000	$ 420,000
Retainage on contracts	$ 182,000	$ 345,000
Minimum
Payment terms number of days	30 days
Maximum
Payment terms number of days	90 days

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DISPOSITIONS OF ASSETS (Tables)

3 Months Ended

Mar. 28, 2020

DISPOSITIONS OF ASSETS

Summary of revenue, expenses and pre-tax income reclassified to discontinued operations, results of discontinued operations

Revenue, expenses and pre-tax income reclassified to discontinued operations were as follows (amounts in thousands):

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Revenue	$	—	$	4,058
Costs and expenses		—		(3,900)
Depreciation, depletion and amortization		—		(578)
Selling and administrative		—		(304)
Gain on sales of equipment		—		—
Gain on sale of assets		—		6,508
Pre-tax income	$	—	$	5,784

The results of discontinued operations are summarized as follows:

	Three Months ended
	MARCH 28,		MARCH 30,
	2020		2019
Operating loss	$	—	$	(724)
Gain on sale of assets		—		6,508
Income tax benefit		—		(1,562)
Income from discontinued operations	$	—	$	4,222

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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

3 Months Ended

Mar. 28, 2020

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

4.   Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which superseded Topic 840, “Leases”. The new accounting standard was effective for the Company beginning on December 30, 2018 (the beginning of fiscal 2019) and required the recognition on the balance sheet of right-of-use assets (ROU) and lease liabilities for all long-term leases, including operating leases. The Company elected the optional transition method and adopted the new guidance on December 30, 2018 on a modified retrospective basis with no restatement of prior period amounts. 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 most asset categories and to exclude short-term leases from its Consolidated Balance Sheet. The 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 of the date of adoption. In connection with the adoption of this guidance, as required, the Company reclassified deferred rent liabilities as reductions to lease assets. Adoption of the new standard did not have a material impact on the Company’s Consolidated Statements of Income or 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.

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FAIR VALUE MEASUREMENT

3 Months Ended

Mar. 28, 2020

FAIR VALUE MEASUREMENTS

Fair Value Measurement

8.    Fair Value Measurement

The outstanding Phantom Equity (PE) and Phantom Equity Appreciation Rights (PEAR) awards under the Company’s Value Creation Incentive Plan (VCIP; see Note 19) were recorded at fair value using the Black-Scholes option pricing model. There were no PE or PEAR appreciation awards granted during the quarter ended March 28, 2020 or March 30, 2019. The following assumptions were used in determining the fair value of the award liability as of March 28, 2020.

Risk-free interest rate	1.58% - 1.62%
Dividend rate	0.00%
Volatility range	24% - 38%
Weighted average expected term (years)	3.8

The following table is a reconciliation for the PE and PEAR liability measured at fair value using Level 3 unobservable inputs (in thousands):

Balance at December 28, 2019	$	496
Awards related to acquired companies		-
Change due to vesting of awards granted		166
Change in fair value measurement of liability		(52)
Balance at March 28, 2020	$	610

Contingent consideration was recorded at fair value using a Monte Carlo Simulation model. The following assumptions were used in determining the fair value of contingent consideration at March 28, 2020:

Risk-free interest rate	.09% - 1.6%
Expected term (years)	.18 - 2.33

The following table is a reconciliation for the contingent consideration liability measured at fair value using Level 3 unobservable inputs (in thousands):

Balance at December 28, 2019	$	1,482
Contingent consideration granted with acquisitions		-
Change in fair value measurement of liability		120
Balance at March 28, 2020	$	1,602

The ARO liabilities were recorded at fair value using an expected present value technique. The following assumptions were used in determining the fair value of the ARO liabilities at March 28, 2020:

Credit adjusted risk-free interest rate	3.66%
Expected term (years)	4.5

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DEFERRED DEVELOPMENT WRITE OFF

3 Months Ended

Mar. 28, 2020

DEFERRED DEVELOPMENT WRITE OFF

DEFERRED DEVELOPMENT WRITE OFF

12.    Other Assets

The Company had previously paid $2,500,000 related to an aggregate property near Colorado Springs. During fiscal year 2019, the Company decided to cease negotiations with the State of Colorado to obtain mining permits for the property. The amount, less $325,000 that was not expected to be recovered, was included in Other current assets in the Consolidated Balance Sheet as of December 28, 2019. The funds were refunded to the Company during the first quarter of 2020.

The Company sold the assets of its ready-mix and Daniels Sand Company operations in the first quarter of 2019. In conjunction with the transaction, certain amounts were held in escrow (see Note 15). Combined escrow amounts of $2,049,000 were included in Other current assets in the Consolidated Balance Sheet at December 28, 2019. The escrow amounts, less fees and $111,000 still in question, were received by the Company in the first quarter of 2020.

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Mar. 28, 2020	Dec. 28, 2019
Consolidated Balance Sheets
Receivables, allowance (in dollars)	$ 634	$ 494
Common shares, par value (in dollars per share)	$ 0.25	$ 0.25
Common shares, authorized shares	3,000,000	3,000,000
Common shares, issued shares	2,574,264	2,574,264
Treasury, shares	898,780	860,910

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LEASES - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 28, 2020	Mar. 30, 2019
LEASES
Operating lease expense	$ 356	$ 529
Short-term lease expense	$ 215	$ 203
Weighted-average remaining lease term (years)	4 years 6 months	5 years 6 months
Weighted-average discount rate	6.00%	6.10%

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ACQUISITIONS - GFP (Details) - USD ($)		3 Months Ended
	Jun. 03, 2019	Mar. 28, 2020	Mar. 30, 2019	Dec. 28, 2019
ACQUISITIONS
Goodwill		$ 5,932,000		$ 5,932,000
American Wheatley HVAC And Global Flow Products
ACQUISITIONS
Purchase price	$ 12,855,000
Estimated working capital adjustment	608,000
Consideration paid in cash	12,163,000
Contingent liability	4,300,000
Accrual For Earn Out Agreement Achievement Of Growth Targets	1,300,000
Trade receivables	1,916,000
Inventory	1,745,000
Property and equipment	2,530,000
Other assets	256,000
Intangibles	4,000,000
Goodwill	3,614,000
Retained liabilities	$ 1,205,000
American Wheatley HVAC And Global Flow Products | Minimum
ACQUISITIONS
Earn out agreement, achievement of growth targets period	24 months
American Wheatley HVAC And Global Flow Products | Maximum
ACQUISITIONS
Earn out agreement, achievement of growth targets period	36 months
Selling and administrative expense | American Wheatley HVAC And Global Flow Products
ACQUISITIONS
Transaction costs		$ 0	$ 0

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Consolidated Statements of Shareholders’ Equity - USD ($) $ in Thousands	Common shares	Capital in excess of par	Retained earnings	Treasury shares	Total
Balance at Dec. 29, 2018	$ 643	$ 1,930	$ 61,131	$ (14,928)	$ 48,776
Balance (in shares) at Dec. 29, 2018	2,574,264			876,409
Consolidated Statements of Shareholders' Equity
Net income (loss)			13,322		13,322
Compensation of Board of Directors by issuance of treasury shares		83		$ 358	441
Compensation of Board of Directors by issuance of treasury shares (in shares)				(21,000)
Purchase of treasury shares				$ (69)	(69)
Purchase of treasury shares (in shares)				3,368
Balance at Mar. 30, 2019	$ 643	2,013	74,453	$ (14,639)	62,470
Balance (in shares) at Mar. 30, 2019	2,574,264			858,777
Balance at Dec. 28, 2019	$ 643	1,853	47,232	$ (14,539)	35,189
Balance (in shares) at Dec. 28, 2019	2,574,264			860,910
Consolidated Statements of Shareholders' Equity
Net income (loss)			704		704
Purchase of treasury shares				$ (280)	(280)
Purchase of treasury shares (in shares)				37,870
Balance at Mar. 28, 2020	$ 643	$ 1,853	$ 47,936	$ (14,819)	$ 35,613
Balance (in shares) at Mar. 28, 2020	2,574,264			898,780