PART I

FINANCIAL INFORMATION

PAGE NO.

Item 1.

Financial Statements

Consolidated Balance Sheets - April 3, 2010 (Unaudited) and December 31, 2009

4

Consolidated Statements of Operations (Unaudited) - Three Months Ended April 3, 2010 and April 4, 2009

5

Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended April 3, 2010 and April 4, 2009

6

Notes to Unaudited Consolidated Financial Statements

7

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18

Item 4.

Controls and Procedures

18

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

18

Item 1A.

Risk Factors

 18

Item 6.

Exhibits

20

Signature

21

April 3,

December 31,

ASSETS

2010

2009

(Unaudited)

(Audited)

Current assets:

Cash and cash equivalents

$

1,124

$

1,713

Trade receivables, net

7,062

7,241

Inventories

14,827

15,077

Income taxes receivable

559

429

Other current assets

1,348

1,191

Assets held for sale

758

758

            Total current assets            

25,678

26,409

Property, plant and equipment, net

31,067

30,559

Identified intangible assets, net

548

582

Goodwill

387

387

Deferred tax assets

41

40

Other long term assets

512

475

            Total assets

$

58,233

$

58,452

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Borrowings under line of credit

$

-

$

214

Current maturities of long-term debt

1,463

801

Trade payables

1,244

1,285

Accrued expenses

1,478

1,264

Salary continuation and other post-employment benefits

702

691

Customer deposits

897

774

Current deferred tax liabilities

-

236

            Total current liabilities

5,784

5,265

Long-term debt, excluding current installments

14,546

13,361

Salary continuation liability, net of current portion

5,277

5,386

Accrued pension cost

4,723

4,810

Deferred salary liability

1,504

1,504

Accrued other post-employment benefits, net of current portion

1,623

1,622

            Total liabilities

33,457

31,948

Stockholders' equity:

     Preferred stock - $.01 par value; 2,500,000 shares authorized; No shares issued or outstanding

    Common stock - Class A, $.01 par value; 30,000,000 shares authorized; 4,812,342   

         shares issued and outstanding as of April 3, 2010 and December 31, 2009

48

48

     Common stock - Class B, $.01 par value; 15,000,000 shares authorized; 2,603,721  

         shares issued and outstanding as of April 3, 2010 and December 31, 2009

26

26

     Additional paid-in capital

65,764

65,751

     Accumulated deficit

(36,838

) 

(34,746)

     Accumulated other comprehensive loss

(4,224

) 

(4,575)

            Total stockholders' equity

24,776

26,504

            Total liabilities and stockholders' equity

$

58,233

$

58,452

Three Months Ended

April 3,

April 4,

2010

2009

Cash flows from operating activities:

  Net loss

$

(2,092)

$

(2,774)

   Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

      (Gain)/loss on sale of assets

4

(13)

      Depreciation, depletion and amortization

588

598

      Stock compensation expense

13

15

      Deferred taxes

(180)

-

    Changes in operating assets and liabilities:

      Trade receivables, net

228

5,287

      Inventories

462

458

      Other assets

(270)

(463)

      Trade payables, accrued expenses and income taxes

84

(1,343)

      Customer deposits

124

455

      Salary continuation and pension

(188)

347

      Other liabilities

-

21

      Net cash (used in) provided by operating activities

(1,227)

2,588

Cash flows from investing activities:

    Purchases of property, plant and equipment

(881)

(399)

    Proceeds from sale of assets, net

6

118

       Net cash used in investing activities

(875)

(281)

Cash flows from financing activities:

   Net repayments under line of credit

(214)

(2,467)

   Proceeds from long-term debt

3,967

-

   Principal payments on long-term debt

(2,121)

(126)

      Net cash provided by (used in) financing activities

1,632

(2,593)

Effect of exchange rate changes on cash

(119)

(13)

     Net decrease in cash and cash equivalents

(589)

(299)

Cash and cash equivalents, beginning of period

1,713

888

Cash and cash equivalents, end of period

$

1,124

$

589

Supplemental cash flow information:

   Cash paid during the period for:

             Interest

$

302

$

227

             Income taxes

329

121

 (1)

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and notes required by accounting principles generally accepted in the United States of America ("U.S. GAAP") for complete financial statements are not included herein. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. Results of operations for the interim periods are not necessarily indicative of the results that may be expected for a full year. The Company has historically experienced certain seasonal patterns. Generally, our net sales have been highest in the second or third quarter and lowest in the first quarter of each year due primarily to weather conditions affecting operations in Vermont and Canada and the setting of memorials in cemeteries located in northern regions. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009, filed on March 31, 2010 (SEC File No. 000-29464) (the "2009 Annual Report").

In this report, the terms "Company," "we," "us," or "our" mean Rock of Ages Corporation and all subsidiaries included in our consolidated financial statements.

The Company's fiscal year ends on December 31 and its fiscal quarters are the 13-week periods ending on the Saturday nearest March 31, June 30 and September 30. As a result, the first and fourth quarter may be more or less than 13 weeks, by 1 to 6 days, which can affect comparability between periods. The first quarter of 2010 has 93 days versus 94 in 2009.

(2)

Stock-Based Compensation

The following tables set forth stock option activity for the periods ended April 3, 2010 and April 4, 2009 and information on outstanding and exercisable options at such dates:

Three Months Ended

April 3, 2010

April 4, 2009

Number
Of Options

Weighted
Average
Exercise Price

Number
Of Options

Weighted
Average
Exercise Price

Outstanding at beginning of period

314,000

$

4.08

324,000

$

4.06

   Granted

-

-

20,000

2.63

   Exercised

-

-

-

-

   Canceled

-

-

-

-

Outstanding at end of period

314,000

$

4.08

344,000

$

3.98

Exercisable at end of period

157,000

$

5.22

119,000

$ 

5.98

Weighted average remaining contractual life

6.0 years

7.1 years

At April 3, 2010, the closing price of the Company's stock was less than the weighted average exercise price of the outstanding options, therefore, there was no aggregate intrinsic value of outstanding options.

(3)

Inventories

Inventories consist of the following (in thousands):

April 3,

December 31,

2010

2009

Raw materials

$

9,011

$

10,402

Work-in-process

1,583

1,057

Finished goods and supplies

4,233

3,618

$

14,827

$

15,077

The finished goods and supplies inventory includes $1,900,000 of retail display inventory that is located at various retail locations and is consigned to PKDM Holdings Inc., ("PKDM") the owner of the Company's former retail division. PKDM is responsible for purchasing this inventory at the Company's book value, as it is sold, plus any inventory remaining after the tenth anniversary of the transaction (January 2018).

 (4)

Earnings (Loss) Per Share

Options to purchase 314,000 and 344,000 shares of Class A common stock were outstanding at April 3, 2010 and April 4, 2009, respectively, but were not included in the computation of diluted earnings (loss) per share because the effect would have been anti-dilutive.

 (5)

Segment Information

The Company is organized based on the products and services it offers. The Company operates in two segments: quarry and manufacturing.

The quarry segment extracts granite from the ground and sells it to either the Company's manufacturing segment or to outside manufacturers, as well as to distributors in Europe and China. There was one quarry customer that represented approximately 18.2% and 20.8% of accounts receivable at April 3, 2010 and December 31, 2009, respectively.  These receivables were backed by irrevocable letters of credit.

The manufacturing segment's principal products are granite memorials and mausoleums used primarily in cemeteries and, to a lesser extent, specialized granite products for industrial applications.

Inter-segment revenues are accounted for as if the sales were to third parties. These are eliminated on consolidation in the statements of operations.

The following tables present unaudited segment information for the three month periods ended April 3, 2010 and April 4, 2009 (in thousands):

2010

Quarry

Manufacturing

Unallocated Corporate Overhead

Total

Total net revenues

$

4,285

$

3,889

$

-

$

8,174

Inter-segment net revenues

(663

)

-

-

(663)

Net revenues

3,622

3,889

-

7,511

Total gross (loss) profit

(349

)

443

-

94

Inter-segment gross profit

(2

)

2

-

-

Gross (loss) profit

(351

)

445

-

94

Selling, general and administrative expenses

593

929

687

2,209

Foreign exchange income

-

-

(84

)

(84)

Other income, net

(94

)

(94)

Loss before interest and taxes

$

(944

)

$

(484

)

$

(509

)

$

(1,937)

2009

Quarry

Manufacturing

Unallocated Corporate Overhead

Total

Total net revenues

$

3,416

$

2,814

$

-

$

6,230

Inter-segment net revenues

(292

)

-

-

(292)

Net revenues

3,124

2,814

-

5,938

Total gross (loss) profit

(225

)

104

-

(121)

Inter-segment gross profit

-

-

-

-

Gross (loss) profit

(225

)

104

-

(121)

Selling, general and administrative expenses

547

968

1,041

2,556

Effect of pension curtailment

-

-

95

95

Other income, net

-

-

(88)

(88)

Loss before interest and taxes

$

(772

)

$

(864

)

$

(1,048

)

$

(2,684)

Net revenues by geographic area, based on shipping destination, for the three months ended April 3, 2010 and April 4, 2009 are as follows (in thousands):

Three Months Ended

April 3, 2010

April 4, 2009

Net revenues:

  China

$

1,211

$

845

  Italy

207

5

  Other foreign countries   (excluding Canada)

59

75

1,477

925

  United States and Canada

6,034

5,013

Total net revenues

$

7,511

$

5,938

Net property, plant and equipment by geographic area are as follows (in thousands):

April 3, 2010

December 31, 2009

United States

$

26,618

$

26,232

Canada

4,449

4,327

$

31,067

$

30,559

Foreign Currency Translation

Unfunded Pension Liability

Investment Available for Sale

Accumulated Other Comprehensive Loss

Balance at December 31, 2009

$

3,028

$

(7,569)

$

(34)

$

(4,575)

Changes in 2010

321

-

30

351

Balance at April 3, 2010

$

3,349

(7,569)

(4)

(4,224)

Three Months Ended

April 3, 2010

April 4, 2009

Net loss

$

(2,092

)

$

(2,774)

Other comprehensive income (loss):

    Foreign currency translation adjustment

321

(97)

    Unrealized gain on investment in available for sale securities

30

26

    Pension related adjustment:

         Curtailment

-

1,503

         Pension liability adjustment, net of reclassification adjustment

-

2,517

 Comprehensive income (loss)

$

(1,741

)

$

1,175

 (7)

Components of Net Periodic Benefit Cost

NON-UNION
PENSION BENEFITS

SALARY

CONTINUATION BENEFITS

OTHER POST-EMPLOYMENT

BENEFITS

April 3, 2010

April 4, 2009

April 3, 2010

April 4, 2009

April 3, 2010

April 4,

2009

Service cost

$

-

$

65

$

-

$

-

$

2

$

1

Interest cost

347

387

78

84

26

26

Expected return on plan assets

(379

) 

(318)

-

-

-

-

Amortization of prior service costs

-

32

20

28

15

12

Amortization of net actuarial loss

43

155

-

-

-

-

Effect of curtailment

-

95

-

-

-

-

Net periodic benefit cost

$

11

$

416

$

98

$

112

$

43

$

39

Effective March 31, 2009, the Company's defined benefit pension plan was amended by freezing membership and future benefits in the plan.  We recognized additional pension expense of $95,000 as the effect of the pension curtailment in the first quarter of 2009. Additionally, the defined benefit pension plan was revalued as of the date of the curtailment. The effect of the curtailment and re-measurement resulted in a decrease of the projected benefit obligation of $3.8 million and a decrease in the accumulated other comprehensive loss of $4.0 million.

The Company expects to contribute approximately $1.3 million to the defined benefit pension plan during 2010. No contribution was made during the quarter ended April 3, 2010 for 2010, however we contributed $98,000 in January 2010 for the 2009 plan year.

(8)

Recent Accounting Pronouncements

In February 2010, the FASB issued an amendment to certain recognition and disclosure requirements on subsequent events.  This amendment removed the requirement for a Securities and Exchange Commission filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements.  The adoption of this new guidance has been applied to the Company's consolidated financial statements and the Company has evaluated subsequent events through the date of issuance of the financial statements.

In January 2010, the FASB issued accounting guidance to enhance fair value measurement disclosures by requiring the reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reason for the transfers. Furthermore, activity in Level 3 fair value measurements should separately provide information about purchases, sales, issues and settlements rather than providing that information as one net number. These new disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, with the exception of the enhanced Level 3 disclosures, which are effective for interim and annual reporting periods beginning after December 15, 2010. The adoption of this guidance did not have a material impact on our financial position or results of operations.

(9)

Credit Facility

In October 2007, the Company entered into a new credit facility with its existing lenders, the CIT Group/Business Credit and Chittenden Trust Company (the "Lenders") that will expire in October 2012 and is secured by substantially all assets of the Company located in the United States.  The credit facility consists of an acquisition term loan line of credit of up to $30.0 million and a revolving credit facility of up to another $20.0 million based on eligible accounts receivable, inventory and certain fixed assets. Amounts outstanding were $-0- and $11,886,000 as of April 3, 2010 and $4,961,000 and $13,991,000 as of April 4, 2009 on the revolving credit facility and the term loan line of credit, respectively. Availability under the revolving credit facility was $10,206,000 as of April 3, 2010. The credit facility financing agreement places restrictions on our ability to, among other things, sell assets, participate in mergers, incur debt, pay dividends, make capital expenditures, repurchase stock and make investments or guarantees, without pre-approval by the Lenders.

Repayment Terms. As the aggregate unpaid principal balance of the outstanding term loan is less than $17,500,000, quarterly principal payments are no longer required. The principal balance is payable in full on the expiration date of the facility in October 2012.  The Company does have the right to make voluntary pre-payments on the term loan.  In the first quarter of 2010 our Canadian subsidiary borrowed $4 million on its term loan. The proceeds, net of the Canadian withholding tax, were used to pay $2 million on the term debt with the remainder used for working capital. The revolving credit facility is paid down daily with all proceeds received by the Company.

The Company is required to repay its term loan to the extent it sells certain assets collateralizing the loan. Accordingly, the Company has classified a portion of the term loan as a current liability based on the estimated proceeds of fixed assets classified as held for sale.

Minimum Fixed Charge Coverage Ratio. The facility requires the ratio of the sum of earnings before interest, taxes, depreciation and amortization (EBITDA), to the sum of income taxes paid, capital expenditures, interest and scheduled debt repayments be at least 1.10 for the trailing twelve-month period at the end of each quarter. Due to the non-cash impairment charges on the write-down of inventory and the corporate building we were in violation of the fixed charge coverage ratio covenant at December 31, 2008. We received a waiver of this covenant from the Lenders and amended the agreement as of March 30, 2009. The Company was in compliance with this covenant at April 3, 2010.

Total Liabilities to Net Worth Ratio. The credit facility also requires that the ratio of our total liabilities to net worth (the "Leverage Ratio") not exceed 2.25 for the first two quarters of 2009 and 2.00 for the remainder of the term of the loan. The Leverage Ratio excludes from the calculation the change in tangible net worth directly resulting from the Company's compliance with changes in accounting for pensions of $6.0 million.  As of April 3, 2010, we were in compliance with the Leverage Ratio covenant.

Canadian Facility. The Company's Canadian subsidiary has a line of credit agreement with the Royal Bank of Canada that is renewable annually. Under the terms of this agreement, a maximum of $2.5 million CDN may be advanced based on eligible accounts receivable, eligible inventory, and tangible fixed assets.  The line of credit bears interest at the Canadian prime rate plus 0.5%.  There was $-0- outstanding as of April 3, 2010 and April 4, 2009, respectively.

The Canadian subsidiary also has a non-revolving term loan with the Royal Bank of Canada which cannot exceed $4 million CDN bearing interest at the Canadian prime rate plus 0.95%. There was $3.9 million and $-0- outstanding as of April 3, 2010 and April 4, 2009, respectively. The effective rate was 3.20% as of April 3, 2010.

(10)

Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2006 or Canadian tax authorities for years before 2004. However, even though the tax years are closed the tax attributes may remain open to adjustment.

Income tax benefits in the first quarters of 2010 and 2009 result primarily from losses at our Canadian subsidiary. Tax benefits are calculated based on the estimated annual effective Canadian tax rate of 31% for 2010 and 2009.  

In 2005, the Company adjusted its valuation allowance to fully reserve for the entire net U.S. deferred tax asset. At each subsequent period, including at the end of the first quarter of 2010, we reached a similar conclusion, therefore we have continued to fully reserve for the entire net U.S. deferred tax asset. We will continue to assess the valuation allowance on a regular basis and may reduce the valuation allowance if and/or when the Company has taxable income from its U.S. operations.

As of April 3, 2010 and December 31, 2009, the Company recorded no unrecognized tax benefits or liabilities related to uncertain tax positions.

(11)

Intangible Assets and Goodwill

We test goodwill for impairment annually and when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Goodwill is tested for impairment using a two-step process. The first step is to determine if there is an impairment based on the estimated fair value of the quarry reporting unit compared to its carrying value and the second step, if necessary, is to determine the amount of the impairment. In the first quarter of 2010, we performed our annual assessment for the quarry reporting unit. We calculated the fair value of the quarry reporting unit based on the estimated expected discounted future cash flows. Based on this analysis we concluded that there was no indication of impairment as of April 3, 2010, although there can be no assurance that goodwill will not become impaired in future periods.

(12)

Fair Value Measurements

The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the short-term nature of these instruments. Investment securities are carried at fair value using level one inputs. The long-term and short-term debt instruments bear interest at variable rates, which at April 3, 2010 and December 31, 2009 we estimated to be at market.

The assets in our pension plan are Separate Investment Accounts and their fair value is based on unit values and not net asset values. Unit values are calculated based on observable net asset values of the underlying investment and are considered Level 2 inputs.

(13)

Regulatory Matters

The U.S. Mine Safety and Health Administration (MSHA) issued citations to one of our subsidiaries, Pennsylvania Granite, asserting various violations and assessed fines totaling approximately $280,000.  The Company disagrees with the validity of these violations and how they are characterized. We are appealing the citations. Based on experience of our legal counsel in settling similar assessments and available historical MSHA settlement data, we estimate our final exposure will be no greater than $125,000.

(14)

Assets Held For Sale

As of April 3, 2010 and December 31, 2009, the Company held various assets for sale, which were no longer being used in production, totaling $758,000.  These assets have been classified as current assets held for sale.  The estimated sales prices for the assets are expected to exceed the carrying values therefore no impairments were recognized.  Accordingly, $758,000 has been reclassified from the term loan to current maturities of long term debt since the company is required to apply the proceeds from the sale of these assets, when they are sold, against the term loan.

(15)

Subsequent Events

On May 6, 2010, the Company's Board of Directors received an unsolicited proposal from Swenson Granite Company, LLC ("Swenson") to purchase all outstanding shares of the Company's common stock, including shares underlying vested options, for a purchase price of $4.38 per share in cash.  The acquisition proposed by Swenson is conditioned on lender due diligence, negotiation of a definitive structure and terms to be set forth in a definitive acquisition agreement with the Company, and Swenson obtaining financing for the transaction in an amount sufficient to fund the purchase price and the ongoing operations of the two companies.  The acquisition proposal also states that Swenson seeks to structure the transaction so that the value of the Company's assets can be "stepped up" to fair market value to the extent possible under the Internal Revenue Code.  There can be no assurance as to whether such a step-up can be achieved.  Accordingly, the Company's Board of Directors cautioned investors that an inability to achieve such a step-up could result in a reduction of Swenson's proposed $4.38 per share price.

Kurt M. Swenson, the Chairman of Swenson and non-executive Chairman of Rock of Ages, together with his brother, Kevin Swenson and Robert Pope, President and Chief Executive Officer of Swenson, own approximately 74% of Swenson and approximately 29% of all outstanding shares of common stock of the Company, and control approximately 70% of the voting power of all outstanding capital stock of the Company.  According to the proposal letter, as part of the transaction, Kurt Swenson, Kevin Swenson and Robert Pope would exchange all of their 2,173,364 Class B shares of the Company for additional interests in Swenson.

The Board of Directors of the Company has formed a special committee of independent directors (the "Committee") which has retained financial advisors and legal counsel, and is in the process of evaluating the proposal from Swenson and will determine how to proceed in the best interests of Rock of Ages' shareholders.  The Company's shareholders and others considering trading in its securities have been cautioned that no decisions had been made by the Committee or the Board of Directors as to the Company's response to the proposal or actions it may consider in light of the proposal. See Item 1A - "Risk Factors" of this Form 10-Q.

 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Rock of Ages is an integrated quarrier and manufacturer of granite and products manufactured from granite. During the first quarter of 2010, we had two business segments:  quarry and manufacturing. The quarry division sells granite blocks to the manufacturing division and to outside manufacturers, as well as to customers outside North America. The manufacturing division's principal products are granite memorials and mausoleums used primarily in cemeteries. It also manufactures specialized granite products for industrial applications.

Historically, the Company's operations have experienced certain seasonal patterns. Generally, our net sales have been highest in the second or third quarter and lowest in the first quarter of each year due primarily to weather. Cemeteries in northern areas generally do not accept granite memorials during winter months when the ground is frozen because they cannot be properly set under those conditions. In addition, we either close or reduce the operations of our Vermont and Canadian quarries during these months because of increased operating costs attributable to adverse weather conditions. As a result, we have historically incurred a significant net loss during the first three months of each calendar year.

In the first quarter of 2010 revenues in our quarry division increased 16% from the same period last year mainly due to increased export sales of Bethel White. However, the gross loss increased $126,000 from the same period last year.  SG&A expenses increased 9% or $46,000 mainly due to increased sales convention and bad debt expenses.  The quarry operating loss increased by $172,000 over the same period last year.

Revenue in our manufacturing division was $1.1 million higher in the first quarter of 2010 than the same period last year. The increase in manufacturing shipments is in part due to a higher beginning backlog to start the year. We also had more than double the mausoleum/feature monuments shipments in this quarter compared to the same period last year. As a result the gross profit for the first quarter of 2010 was $341,000 higher than the same period last year. SG&A expenses decreased by $39,000 compared to last year. The manufacturing operating loss was $380,000 lower than last year's first quarter.

Critical Accounting Policies

General

Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements.

Our critical accounting policies are as follows:  revenue recognition, impairment of long-lived assets, valuation of deferred tax assets, accounting for pensions and other post-employment benefits and valuation of inventory. There have been no material changes in the Company's critical accounting policies or changes in the methodology applied by management for critical accounting policies from what was previously disclosed in our most recent Form 10-K.

Three Months Ended

April 3, 2010

April 4, 2009

Net Revenues:

                Quarry

48.2%

52.6%

                Manufacturing

51.8%

47.4%

                    Total net revenues

100.0%

100.0%

Gross Profit (Loss):

                Quarry

(9.7%

)

(7.2%

)

                Manufacturing

11.4%

3.7%

                     Total gross profit (loss)

1.3%

(2.0%

)

Operating Expenses:

Selling, general and administrative expenses:

                Quarry

16.4%

17.5%

                Manufacturing

23.9%

34.4%

                Corporate overhead

9.1%

17.5%

                Effect of pension curtailment

-

1.6%

                Other income, net

(1.3%

)

(1.5%

)

                Foreign exchange income

(1.1%

)

-

                      Total operating expenses

27.0%

43.2%

Loss before interest expense and income taxes

(25.8%

)

(45.2%

)

Interest expense

3.9%

3.5%

Loss before income taxes

(29.7%

)

(48.7%

)

Income tax benefit

(1.8%

)

(2.0%

)

Net loss

(27.9%

)

(46.7%

)

Three Months Ended April 3, 2010 Compared to Three Months Ended April 4, 2009

On a consolidated basis for the three-month period ended April 3, 2010, compared to the three-month period ended April 4, 2009, revenue increased 26%, gross profit increased 178% and total operating expenses decreased 21%.  The Company reported a net loss of $2.1 million in the first quarter of 2010 compared with a loss of $2.8 million for the first quarter of 2009.

Quarry Segment Analysis

Revenue in our quarry division for the three-month period ended April 3, 2010 of $3.6 million was up 16% from the three-month period ended April 4, 2009, of $3.1 million. The increase was in part due to higher export sales to China and Italy and increased sales in our Stanstead quarry due to the purchase of the Polycor quarry in 2009. The quarry operating loss increased 22% or $172,000 over the same period last year.  

The gross loss increased in the period mainly due to increased manpower in the quarries.  Our two Vermont quarries that are normally shutdown during the period had crews working throughout the winter and our Salisbury quarry also had increased manpower. There is a lot of demand for our export stone and we want to build up a supply of inventory in order to meet that demand.  

SG&A expenses increased 9% or $46,000 due to increased convention and bad debt expenses.  These increases were somewhat offset by decreases in pension and office expenses.

Manufacturing Segment Analysis

Revenue in our manufacturing division for the three-month period ended April 3, 2010 increased 38% or $1,075,000 from the three-month period ended April 4, 2009, due in part to a higher backlog to begin the year. Due to the increased backlog, we decreased the winter layoff period for the manufacturing production personnel and were able to ship more monuments and higher end mausoleum/feature memorials.     

Gross profit dollars from the manufacturing division increased 328% or $341,000 and gross profit as a percentage of manufacturing revenue increased by approximately 8% for the three-month period ended April 3, 2010 compared to the three-month period ended April 4, 2009. These increases were primarily due to the higher beginning backlog. 

SG&A costs for the three-month period ended April 3, 2010 for the manufacturing division decreased $39,000 or 4% compared to the three-month period ended April 4, 2009. This decrease is due primarily to the decrease in pension expense due to the freezing of the defined benefit plan in the prior year.

Consolidated Items

Corporate overhead, consisting of operating costs not directly related to an operating segment, decreased 34%, or $354,000, for the three-month period ended April 3, 2010 compared to the three-month period ended April 4, 2009 due in part to the Company freezing the defined benefit plan in the prior period, discussed below, and reduced audit and franchise tax fees. 

Other income, which includes rental income from non-operating properties, was up 7%, or $6,000, in the first quarter of 2010.

Effective March 31, 2009 the Company's defined benefit pension plan was amended by freezing membership and future benefits in the plan. Accordingly, we recognized an additional pension expense of $95,000 as the effect of the pension curtailment in the first quarter of 2009.

Net interest expense increased $88,000, or 43%, for the three-month period ended April 3, 2010 compared to the three-month period ended April 4, 2009. On March 30, 2009, we reached a definitive agreement with our lenders on the conditions of the grant of a waiver from compliance with certain covenants contained in our Amended and Restated Financing Agreement. In consideration of the consents and waivers the unused line fee went from .25% to .50% and the existing interest rate pricing grid was changed and interest rates increased approximately 3%. These higher rates increased our interest expense in the period over the prior period despite having a decreased level of debt.   

Income tax benefit was $139,000 for the three-month period ended April 3, 2010, compared to $116,000 for the same three-month period in 2009. The tax benefit reported in both periods was primarily due to our Canadian subsidiary and is more in 2010 than 2009 due to a larger first quarter loss in our Canadian subsidiary in 2010 and the effect of the decrease in the exchange rate. During the first quarter of both years we continued to fully reserve against all our U.S. deferred tax assets.  

Liquidity and Capital Resources

Historically, we have met our short-term liquidity requirements primarily from cash generated by operating activities and periodic borrowings under the commercial credit facilities described below. Our $50 million credit facility with our Lenders was renewed on October 24, 2007 for a term of five years.