SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1997 COMMISSION FILE NO. 1-6663
COLONIAL COMMERCIAL CORP.
(Exact Name of Registrant as Specified in its Charter)
NEW YORK 11-2037182
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
3601 HEMPSTEAD TURNPIKE, LEVITTOWN NEW YORK 11756-1315
------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 516-796-8400
------------
Indicate by check mark whether 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 Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No __
Indicate the number of shares outstanding of Registrant's Common Stock and
Convertible Preferred Stock as of September 30, 1997.
Common Stock, par value $.01 per share - 7,126,625 shares
Convertible Preferred Stock, par value $.01 per share - 8,359,760 shares
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets as of
September 30, 1997 (unaudited) and
December 31, 1996 1
Consolidated Statements of Operations
Three Months ended September 30, 1997 and
1996 (unaudited) 2
Consolidated Statements of Operations
Nine Months ended September 30, 1997 and
1996 (unaudited) 3
Consolidated Statements of Stockholders'
Equity as of September 30, 1997 (unaudited)
and December 31, 1996 4
Consolidated Statements of Cash Flows for
the Nine Months ended September 30, 1997 and
1996 (unaudited) 5
Notes to Consolidated Financial Statements
(unaudited) 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 9
Item 6 - Exhibits and Reports on Form 8-K 10
SIGNATURES 10
<PAGE>
PART 1.
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
ASSETS 1997 1996
------ ---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 522,941 1,322,533
Accounts receivable, net of allowance for
doubtful accounts of $440,125 in 1997 and
$306,400 in 1996 6,692,046 8,305,224
Inventory 1,085,527 1,705,747
Notes receivable - current portion 105,000 105,000
Prepaid expenses and other assets 86,120 82,292
------------ ------------
Total current assets 8,491,634 11,520,796
Notes receivable, excluding current portion 1,223,750 1,313,750
Investment in Monroc, Inc. 3,649,868 2,410,203
Property and equipment, net 209,619 126,972
Land held for sale 324,139 324,139
------------ ------------
13,899,010 15,695,860
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable 1,439,913 3,177,550
Accrued liabilities 971,216 1,094,335
Income taxes payable 123,619 137,000
Borrowings under line of credit 1,690,224 2,273,130
Notes payable - current portion 447,363 469,082
------------ ------------
Total current liabilities 4,672,335 7,151,097
Notes payable, excluding current portion -- 447,363
Excess of acquired net assets over cost 865,776 950,475
------------ ------------
Total liabilities 5,538,111 8,548,935
------------ ------------
Stockholders' equity:
Convertible preferred stock, $.01 par value liquidation preference $8,359,760
and $8,599,696 at September 30, 1997 and December 31, 1996, respectively,
12,344,300 shares authorized,8,359,760 and 8,599,696 shares issued and
outstanding at September 30, 1997 and
December 31, 1996,respectively 83,598 85,997
Common stock, $.01 par value, 40,000,000 shares
authorized,7,126,625 and 6,886,689 shares
issued and outstanding at September 30, 1997 and
December 31, 1996 71,266 68,867
Additional paid-in capital 9,023,669 9,023,669
Unrealized gain on investment security 2,218,068 760,203
Accumulated deficit (3,035,702) (2,791,811)
------------ ------------
Total stockholders' equity 8,360,899 7,146,925
------------ ------------
Commitments and contingencies
$ 13,899,010 15,695,860
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Operations
Three Months ended September 30, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Sales $ 4,681,882 5,876,926
Cost of sales 3,501,895 4,454,154
------------ ------------
Gross profit 1,179,987 1,422,772
------------ ------------
Selling, general and administrative
expenses, net 1,308,264 1,427,641
Write-off of deferred expenses for
abandoned acquisition 385,705 --
------------ ------------
Operating loss (513,982) (4,869)
------------ ------------
Interest income 11,293 18,016
Other income 168,411 1,643
Interest expense (74,857) (70,656)
------------ ------------
Loss before income taxes (409,135) (55,866)
Income taxes 10,000 15,000
------------ ------------
Net loss $ (419,135) (70,866)
============ ============
Net loss per common and
preferred share $ (.03) .00
============ ============
Common and preferred shares
outstanding 15,486,385 15,486,385
============ ============
See accompanying notes to consolidated financial statements.
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<PAGE>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Operations
Nine Months ended September 30, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Sales $ 16,698,842 17,660,124
Cost of sales 12,608,120 13,219,138
------------ ------------
Gross profit 4,090,722 4,440,986
------------ ------------
Selling, general and administrative
expenses, net 4,096,172 4,286,932
Write-off of deferred expenses for
abandoned acquisition 385,705 --
------------ ------------
Operating income (loss) (391,155) 154,054
------------ ------------
Gain on sale of Monroc, Inc. stock 238,033 --
Interest income 35,493 87,853
Other income 171,156 9,134
Interest expense (227,418) (194,656)
------------ ------------
Income (loss) before income taxes (173,891) 56,385
Income taxes 70,000 90,000
------------ ------------
Net loss $ (243,891) (33,615)
============ ============
Net loss per common and preferred
share $ (.02) .00
============ ============
Common and preferred shares
outstanding 15,486,385 15,486,385
============ ============
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
COLONIAL COMMERCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Nine Months ended September 30, 1997 and 1996
(Unaudited)
NET UN-
CON- ADDI- REALIZED TOTAL
VERTIBLE TIONAL GAIN ON ACCU- STOCK-
PREFERRED COMMON PAID-IN INVEST MULATED HOLDERS'
STOCK STOCK CAPITAL SECURITY DEFICIT EQUITY
----- ----- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31,1995 $ 87,192 67,672 9,023,669 382,132 (3,339,486) 6,221,179
Conversion of
119,475 shares
of preferred
stock to common
stock (1,195) 1,195 -- -- -- --
Net income -- -- -- -- 547,675 547,675
Net unrealized
loss on invest-
ment security -- -- -- 378,071 -- 378,071
---------- ---------- ---------- ---------- ---------- ----------
Balances at
December 31,1996 85,997 68,867 9,023,669 760,203 (2,791,811) 7,146,925
Conversion of
239,936 shares
of preferred
stock to common
stock (2,399) 2,399 -- -- -- --
Net loss -- -- -- -- (243,891) (243,891)
Net unrealized
gain on invest-
ment security -- -- -- 1,457,865 -- 1,457,865
---------- ---------- ---------- ---------- ---------- ----------
Balances at
September 30,1997 $ 83,598 71,266 9,023,669 2,218,068 (3,035,702) 8,360,899
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Cash Flows
Nine Months ended September 30, 1997 and 1996
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
Reconciliation of net loss to net cash
used in operating activities:
Net loss $ (243,891) $ (33,615)
Adjustments to reconcile net loss to
cash used in operating activities:
Provision for allowance for doubtful accounts 202,500 168,750
Depreciation 51,274 45,409
Amortization of excess of acquired net assets
over cost (84,699) (87,541)
Gain on sale of Monroc, Inc. stock (238,033) --
Gain on disposal of fixed assets (6,988) --
Changes in assets and liabilities:
Accounts receivable 1,410,678 62,396
Inventory 620,220 (627,538)
Prepaid expenses and other assets (3,828) 98,956
Accounts payable (1,737,637) (182,323)
Accrued liabilities (123,119) (16,848)
Income taxes payable (13,381) --
----------- -----------
Net cash used in operating activities (166,904) (572,354)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of Monroc, Inc. stock 456,233 --
Payments received on notes receivable 90,000 467,500
Change in land held for sale -- 37,882
Proceeds from disposal of fixed asset 19,457 --
Additions to property and equipment (146,390) (69,728)
----------- -----------
Net cash provided by investing activities 419,300 435,654
----------- -----------
Cash flows from financing activities:
Payments on notes payable (469,082) (494,211)
Net borrowings under line of credit (582,906) (375,347)
----------- -----------
Net cash used in financing activities (1,051,988) (869,558)
----------- -----------
Decrease in cash and cash equivalents (799,592) (1,006,258)
Cash and cash equivalents - beginning of period 1,322,533 1,856,008
----------- -----------
Cash and cash equivalents - end of period $ 522,941 849,750
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and December 31, 1996
(Unaudited)
(1) The consolidated financial statements of Colonial Commercial Corp. and
subsidiaries (the Company), included herein have been prepared by the
Company and are unaudited; however, such information reflects all
adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement of the
financial position, results of operations, and cash flows for the interim
periods to which the report relates. The results of operations for the
period ended September 30, 1997 are not necessarily indicative of the
operating results which may be achieved for the full year.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's l996 Annual Report filed on Form 10-KSB.
(2) RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 consolidated
financial statements in order to conform to the 1997 presentation.
(3) SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental information relating to the consolidated
statements of cash flows:
NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
Cash paid during the period
for:
Interest $ 230,760 $ 196,393
Income taxes $ 154,417 $ 176,946
(4) EARNINGS PER SHARE
The Financial Accounting Standards Board has issued Statement 128,
"Earnings per Share" (Statement 128). Statement 128 establishes standards
for computing and presenting earnings per share (EPS). The Statement
simplifies the standards for computing EPS and makes them comparable to
international EPS standards. The provisions of Statement 128 are effective
for financial statements issued for periods ending after December 15,
1997, including interim periods. The Statement does not permit early
application and requires restatement of all prior period EPS data
presented. Adoption of Statement 128 will not affect the Company's
consolidated financial position or results of operations, however, the
impact on previously reported EPS data is currently unknown.
-6-
<PAGE>
(5) INVESTMENT IN MONROC, INC.
At December 31, 1996, the Company owned 378,071 shares of Monroc common
stock, which was classified as an available-for-sale security. The
Company's interest in Monroc constituted 8.5% of total outstanding shares
at December 31, 1996 and the fair value of the investment security was
$2,410,203 comprised of a cost basis of $1,650,000 and a gross unrealized
holding gain of $760,203, which was recorded as a separate component of
stockholders' equity.
On June 20, 1997, the Company sold 50,000 shares of Monroc common stock
for proceeds of $456,233. The Company realized a gain of $238,033 on this
transaction. The fair value of the 328,071 remaining shares of Monroc
common stock at September 30, 1997 was $3,649,868 comprised of a cost
basis of $1,431,800 and a gross unrealized holding gain of $2,218,068.
(6) NOTES RECEIVABLE
Included in notes receivable is a $1,000,000 unsecured note, which was not
paid in accordance with the contractual terms of the note agreement, which
required payment to be made on December 31, 1995. The Company instituted
an action against the debtors for summary judgment and the debtors
instituted an action against the Company to declare the note unenforceable
and for $3 million in punitive damages. In June 1996, the Company's motion
for summary judgment was denied and its action was consolidated with the
debtors' action. In September 1996, the Company filed an appeal of the
action denying summary judgment.
In April 1997, the Appellate Division of the Supreme Court of the State of
New York reversed the lower court decision and ordered that the Company be
granted summary judgment on the $1,000,000 promissory note, together with
interest and costs, which approximate $124,000 at September 30, 1997. The
Company is aggressively pursuing collection of the judgment and costs.
The impact of the final resolution of this matter on the Company's results
of operations or liquidity in a particular reporting period cannot be
estimated. Management is of the opinion; however, that the ultimate
outcome of this matter will not have a material adverse effect on the
company's consolidated financial position. The Company has not recorded an
allowance against this note at September 30, 1997 as management is of the
opinion that the Company will obtain assets pursuant to the judgment and
the expected future cash flows from the sale of such assets will be at
least equal to the amount of the note. However, any amount the Company
will ultimately realize upon the final resolution of this matter could
differ materially in the near term from the $1 million recorded on the
accompanying consolidated balance sheet due to the availability of assets,
as well as the cash flows obtained upon the sale of such assets. The note
receivable is classified as a long-term asset as of September 30, 1997,
due to the uncertainty as to when the matter will be resolved.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------------------------------------------------
FINANCIAL CONDITION AND RESULTS
-------------------------------
RESULTS OF OPERATIONS - THREE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
Registrant reported a net loss of $419,135 for the third quarter of
1997, which includes $12,454 of net income from Atlantic Hardware and Supply
Corporation ("Atlantic"), as compared to a net loss of $70,866 for the third
quarter of l996, which included $75,360 of net income from
Atlantic.
Sales decreased $1,195,044 (20%) to $4,681,882 in the l997 period
compared to sales of $5,876,926 in the 1996 period. The September 30, 1997
backlog was $9,905,000 as compared to $12,790,000 at September 30, 1996
principally due to unusually large orders included in the September 30, 1996
backlog, which Atlantic anticipated being unable to replace in this period, due
to a temporary decrease in the availability of larger projects in the New York
metropolitan area.
Gross profits decreased $242,785 principally due to the decrease in
sales which was only partially offset by a 1% increase in the gross profit
percentage to 25.2% resulting from changes in product mix.
Selling, general and administrative expense decreased $119,337 due to
cost reductions made in response to lower sales. Write-off of deferred expenses
for abandoned acquisition relates to the Registrant's recently terminated effort
to acquire US Computer Group, Inc. Other income includes approximately $150,000
of unclaimed payments made on the Registrant's 6% notes. The reversion back to
the Registrant of these unclaimed payments has been made in accordance with the
terms of the indenture and opinion of counsel. Interest expense increased $4,201
because of slightly higher average borrowings.
RESULTS OF OPERATIONS - NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
Registrant reported a net loss of $243,891 for the nine months of
l997, which includes $352,499 of net income from Atlantic, as compared to a net
loss of $33,615 for the nine months of l996, which included $446,396 of net
income from Atlantic.
Sales decreased $961,282 (5%) to $16,698,842 in the l997 period
compared to sales of $17,660,124 in the l996 period. The sales decrease is
principally due to aggressive competition in the New York and New Jersey markets
and a reduced amount of larger projects in these markets.
Gross profit percentage decreased during the 1997 period from 25.1%
to 24.5%. This decrease, together with the reduction in sales, resulted in a
$350,264 decrease in gross profits during the 1997 period. This decrease is
principally attributable to aggressive competition in the New York market and
changes in product mix.
Selling, general and administrative expenses decreased $196,760, due
to cost reductions implemented because of the anticipated decrease in sales.
Write-off of deferred expenses for abandoned acquisition relates to the
Registrant's recently terminated effort to acquire US Computer Group, Inc. Other
income includes approximately $150,000 of unclaimed payments made on the
Registrant's 6% notes. The reversion back to the Registrant of these unclaimed
payments has been made in
-8-
<PAGE>
accordance with the terms of the indenture and opinion of counsel. Interest
expense increased $32,762 principally due to higher average borrowing as a
result of higher average receivable balances in the Atlantic operations.
On June 20, 1997, the Company sold 50,000 shares of Monroc common
stock for proceeds of $456,233 realizing a gain of $238,033 on the transaction.
The fair value of the 328,071 remaining shares of Monroc common stock at
September 30, 1997 was $3,649,868 comprised of a cost basis of $1,431,800 and a
gross unrealized holding gain of $2,218,068.
The Registrant continues to seek the acquisition of or merger with
privately held companies which businesses generate a recurring stream of income.
Reported earnings in the near term will be affected by the timing and the size
of any new acquisitions, the timing of additional land sales and the operating
results of Atlantic.
The Registrant has provided for income taxes primarily as a result of
state income taxes associated with the income from Atlantic.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, l997, the Registrant had $522,941 in cash and
cash equivalents compared to $1,322,533 at December 31, 1996.
A $1,000,000 note receivable due December 31, 1995 remains unpaid.
The Company was awarded a judgment in connection with this note in the legal
proceeding, as described in Note 6 to the consolidated financial statements. The
Company anticipates payment of the note as a result of the judgment, however,
cannot estimate when such payment will be made. The delay in payment of the note
has not negatively impacted the Company's present operations or liquidity and is
not anticipated to adversely affect future operations or liquidity.
The Registrant believes that its cash and cash equivalents are
adequate for its present operations and that additional credit is available
should it be required. The Company's line of credit related to Atlantic's
operations was increased from $2,500,000 to $3,500,000 in May 1997. The
Company's capital resources consist primarily of cash and cash equivalents,
notes receivable, land held for sale and its investment in Atlantic and Monroc,
Inc. The Company believes the carrying value of its land held for sale is less
than its market value.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
In January 1996, The Company demanded payment of its $1,000,000 note receivable
from Breskel Associates. On January 11, 1996, Breskel Associates, Wilbur Breslin
and the Estate of Robert Frankel instituted an action against the Company and
Bernard Korn, who is a director and chief executive officer of the Company, to
declare the note unenforceable and for $3,000,000 in punitive damages. On
January 16, 1996, the Company instituted an action against Breskel Associates,
Wilbur Breslin and Estate of Robert Frankel for summary judgment to enforce
payment of the note. Both actions
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<PAGE>
were brought in the Supreme Court of the State of New York, County of Nassau. In
March 1996, a written understanding to restructure the terms of the note was
reached, which provided for collateral and scheduled principal payments
beginning in April 1996. The restructuring of the note was not consummated and
the Company pursued its legal action to obtain summary judgment. On June 27,
1996, the Company's motion for summary judgment was denied and the Company's
action was consolidated with the action instituted by Breskel and the other
plaintiffs (the consolidated action). On September 26, 1996, the Company filed
an appeal of the decision denying summary judgment and summary judgment was
granted in favor of the Company on April 28, 1997. There is no pending
litigation against the Company related to this matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits - Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K - During the nine months ended September
30, l997, the Registrant did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
under-signed thereunto duly authorized.
Dated: November 10, 1997 COLONIAL COMMERCIAL CORP.
/s/ Bernard Korn
Bernard Korn, Chairman
of the Board and President
/s/ James W. Stewart
James W. Stewart
Executive Vice President,
Treasurer and Secretary
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000021828
<NAME> COLONIAL COMMERCIAL CORP.
<S> <C>
<PERIOD-TYPE> 9-MOS
<PERIOD-START> JAN-01-1997
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 522,941
<SECURITIES> 0
<RECEIVABLES> 7,132,171
<ALLOWANCES> 440,125
<INVENTORY> 1,085,527
<CURRENT-ASSETS> 8,491,634
<PP&E> 376,913
<DEPRECIATION> 167,294
<TOTAL-ASSETS> 13,899,010
<CURRENT-LIABILITIES> 4,672,335
<BONDS> 0
0
83,598
<COMMON> 71,266
<OTHER-SE> 8,206,035
<TOTAL-LIABILITY-AND-EQUITY> 13,899,010
<SALES> 16,698,842
<TOTAL-REVENUES> 16,698,842
<CGS> 12,608,120
<TOTAL-COSTS> 12,608,120
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 202,500
<INTEREST-EXPENSE> 227,418
<INCOME-PRETAX> (173,891)
<INCOME-TAX> 70,000
<INCOME-CONTINUING> (243,891)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (243,891)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
