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 June 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
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(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 June 30, 1997.
Common Stock, par value $.01 per share - 7,113,138 shares
Convertible Preferred Stock, par value $.01 per share - 8,373,247 shares
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets as of
June 30, 1997 (unaudited) and
December 31, 1996 1
Consolidated Statements of Income
Three Months ended June 30, 1997 and
1996 (unaudited) 2
Consolidated Statements of Income
Six Months ended June 30, 1997 and
1996 (unaudited) 3
Consolidated Statements of Stockholders'
Equity as of June 30, 1997 (Unaudited)
and December 31, 1996 4
Consolidated Statements of Cash Flows for
the Six Months ended June 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
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<TABLE>
<CAPTION>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996
ASSETS 1997 1996
------ ---- ----
(Unaudited)
<S> <C> <C>
Current Assets:
Cash And cash equivalents $ 855,600 1,322,533
Accounts receivable, net of allowance for
doubtful accounts of $397,690 in 1997 and
$317,250 in 1996 8,000,517 8,305,224
Inventory 1,102,187 1,705,747
Notes receivable - current portion 105,000 105,000
Prepaid Expenses And Other Assets 280,419 82,292
---------- ----------
Total current assets 10,343,723 11,520,796
Notes receivable, excluding current portion 1,268,750 1,313,750
Investment in Monroc, inc. 2,993,648 2,410,203
Property and equipment, net 128,973 126,972
Land held for sale 324,139 324,139
--------- ---------
15,059,233 15,695,860
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable 1,905,105 3,177,550
Accrued liabilities 1,041,956 1,094,335
Income taxes payable 137,856 137,000
Borrowings under line of credit 2,509,130 2,273,130
Notes payable - current portion 447,363 469,082
--------- ---------
Total current liabilities 6,041,410 7,151,097
Notes payable, excluding current portion - 447,363
Excess of acquired net assets over cost 894,009 950,475
--------- ---------
Total liabilities 6,935,419 8,548,935
--------- ---------
Stockholders' equity:
Convertible preferred stock, $.01 par value
liquidation preference $8,373,247
and $8,599,696 at June 30, 1996
and December 31, 1996, respectively,
12,344,300 shares authorized, 8,373,247
and 8,599,696 shares issued and
outstanding at June 30, 1997 and
December 31, 1996, respectively 83,733 85,997
Common Stock, $.01 par value, 40,000,000 shares
authorized, 7,113,138 and 6,886,689 shares
issued and outstanding at June 30, 1997 and
December 31, 1996 71,131 68,867
Additional paid-in capital 9,023,669 9,023,669
Unrealized gain on investment security 1,561,848 760,203
Accumulated deficit (2,616,567) (2,791,811)
---------- ----------
Total stockholders' equity 8,123,814 7,146,925
---------- ----------
Commitments and contingencies
$15,059,233 15,695,860
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
<TABLE>
<CAPTION>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Income
Three Months ended June 30, 1997 And 1996
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
Sales $ 6,215,298 6,471,533
Cost of sales 4,707,390 4,803,094
------------- ------------
Gross profit 1,507,908 1,668,439
------------- ------------
Selling, general and administrative, net 1,393,167 1,491,754
------------- ------------
Operating income 114,741 176,685
Gain on sale of Monroc, inc. stock 238,033 -
Interest income 11,023 39,366
Other income 1,472 6,132
Interest expense (81,729) (64,183)
-------------- ------------
Income before income taxes 283,540 158,000
Income taxes 40,000 60,000
------------- ------------
Net income $ 243,540 98,000
============= =============
Net income per common and preferred
share $ .02 .01
============= =============
Common and preferred shares
outstanding 15,486,385 15,486,385
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Income
Six Months ended June 30, 1997 And 1996
(UNAUDITED)
1997 1996
---- ----
<S> <C> <C>
Sales $ 12,016,960 11,783,198
Cost of sales 9,106,225 8,764,984
------------ ------------
Gross profit 2,910,735 3,018,214
------------ ------------
Selling, general and administrative, net 2,787,908 2,859,291
------------ ------------
Operating income 122,827 158,923
Gain on sale of Monroc stock 238,033 --
Interest income 24,200 69,837
Other income 2,745 7,491
Interest expense (152,561) (124,000)
------------ ------------
Income before income taxes 235,244 112,251
Income taxes 60,000 75,000
------------ ------------
Net income $ 175,244 37,251
============ ============
Net income per common and
Preferred share $ .01 .00
============ ============
Common and preferred shares
outstanding 15,486,385 15,486,385
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
COLONIAL COMMERCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Six Months ended June 30, 1997 and 1996
(Unaudited)
NET UN-
CON- REALIZED TOTAL
VERTIBLE ADDITIONAL GAIN ON ACCU- STOCK-
PREFERRED COMMON PAID-IN INVESTMENT 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
gain 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
226,449 shares
of preferred
stock to common
stock (2,264) 2,264 - - - -
Net income - - - - 175,244 175,244
Net unrealized
gain on invest-
ment security - - - 801,645 - 801,645
-------- -------- --------- -------- ---------- ---------
Balances at
June 30, 1997 $ 83,733 71,131 9,023,669 1,561,848 (2,616,567) 8,123,814
====== ======= ========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED STATEMENTS.
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<PAGE>
<TABLE>
<CAPTION>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Cash Flows
Six Months ended June 30, 1997 and 1996
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
Reconciliation of net income to net cash
used in operating activities:
Net income $ 175,244 37,251
Adjustments to reconcile net income to cash
provided by used in operating activities:
Provision for allowance for doubtful accounts 135,000 112,500
Depreciation 34,183 27,557
Amortization of excess of acquired net assets
over cost (56,466) (59,308)
Gain on sale of monroc, inc. stock (238,033) -
Changes in assets and liabilities:
Accounts receivable 169,707 (226,541)
Inventory 603,560 (777,100)
Prepaid expenses and other assets (198,127) 81,710
Accounts payable (1,272,445) (212,346)
Accrued liabilities (52,379) (37,160)
Income taxes payable 856 -
----------- -----------
Net cash used in operating activities (698,900) (1,053,437)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of Monroc, Inc. stock 456,233 -
Payments received on notes receivable 45,000 422,500
Change in land held for sale - 37,882
Additions to property and equipment (36,184) (42,734)
----------- -----------
Net cash provided by investing activities 465,049 417,648
Cash flows from financing activities:
Payments on notes payable (469,082) (494,211)
Net borrowings under line of credit 236,000 99,159
----------- -----------
Net cash used in financing activities (233,082) (395,052)
----------- -----------
Decrease in cash and cash equivalents (466,933) (1,030,841)
Cash and cash equivalents - beginning of period 1,322,533 1,856,008
----------- -----------
Cash and cash equivalents - end of period $ 855,600 825,167
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 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 June 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:
Six Months Ended
June 30, 1997 June 30, 1996
------------- -------------
Cash Paid During The Period
for:
Interest $149,058 $ 125,599
Income taxes $143,622 $ -0-
(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 June 30, 1997 was $2,993,648 comprised of a cost basis of
$1,431,850 and a gross unrealized holding gain of $1,561,848.
(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 $140,000 at June 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 June 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 June 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
June 30, 1997 and 1996
Registrant reported net income of $243,540 for the second quarter of
l997, which principally reflects $222,959 of net income from Atlantic and
$238,033 of gain on the sale of Monroc, Inc. common stock, as compared to net
income of $98,000 for the second quarter of l996, which included $297,121 of net
income from Atlantic.
Sales decreased $256,235 (4%) to $6,215,298 in the l997 period compared
to sales of $6,471,533 in the l996 period. Atlantic's sales backlog has
increased $135,000 during the second quarter 1997 to $9,435,000 as compared to a
$360,000 decrease during the second quarter 1996.
Gross profit percentage decreased during the 1997 period from 25.8% to
24.3% (1.5%). This decrease, together with the reduction in sales, resulted in a
$160,531 decrease in gross profits during the 1997 period. This decrease is
principally attributable to aggressive competition in the New York market.
Selling, general and administrative expenses decreased $98,587. Interest
expense increased $17,546 principally due to 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 June 30,
1997 was $2,993,648 comprised of a cost basis of $1,431,850 and a gross
unrealized holding gain of $1,561,848.
Results of Operations - Six Months Ended
June 30, 1997 and 1996
Registrant reported net income of $175,244 for the first half of 1997,
which principally reflects $340,046 of net income from Atlantic Hardware and
Supply Corporation ("Atlantic") and $238,033 of gain on the sale of Monroc, Inc.
common stock, as compared to net income of $37,251 for the first half of l996,
which included $371,034 of net income from Atlantic.
Sales increased $233,762 (2%) to $12,016,960 in the l997 period compared
to sales of $11,783,198 in the 1996 period. Atlantic's sales backlog has
decreased $195,000 to $9,435,000 since December 31, 1996. The June 30, 1997
backlog has decreased $2,085,000 from June 30, 1996 principally due to unusually
large orders included in the June 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 profit percentage decreased during the 1997 period 25.6% to 24.2%
(1.4%). This decrease was only partially offset by an increase in sales
resulting in a $107,479 decrease in gross profits. This decrease is principally
attributable to aggressive competition in the New York market.
Selling, general and administrative expense decreased $71,383. Interest
expense increased $28,561 principally due to the Atlantic operations.
-8-
In its effort to acquire U.S. Computer Group, Inc., the Registrant is
still in the process of arranging adequate financing for U.S. Computer Group,
Inc.'s operations. 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 June 30, l997, the Registrant had $855,600 in cash and cash
equivalents compared to $825,167 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 their 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 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
-9-
<PAGE>
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 six months ended June 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: August 14, l997 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> 6-MOS
<PERIOD-START> JAN-01-1997
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 855,600
<SECURITIES> 0
<RECEIVABLES> 8,398,207
<ALLOWANCES> 397,690
<INVENTORY> 1,102,187
<CURRENT-ASSETS> 10,343,723
<PP&E> 288,086
<DEPRECIATION> 159,113
<TOTAL-ASSETS> 15,059,233
<CURRENT-LIABILITIES> 6,041,410
<BONDS> 0
0
83,733
<COMMON> 71,131
<OTHER-SE> 7,968,950
<TOTAL-LIABILITY-AND-EQUITY> 15,059,233
<SALES> 12,016,960
<TOTAL-REVENUES> 12,016,960
<CGS> 9,106,225
<TOTAL-COSTS> 9,106,225
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 135,000
<INTEREST-EXPENSE> 152,561
<INCOME-PRETAX> 235,244
<INCOME-TAX> 60,000
<INCOME-CONTINUING> 175,244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 175,244
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
