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, 1998 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 June 30, 1998.
Common Stock, par value $.05 per share - 1,451,908 shares
Convertible Preferred Stock, par value $.05 per share - 1,619,138 shares
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets as of
June 30,1998 (unaudited) and
December 31, 1997 1
Consolidated Statements of Operations
Three Months ended June 30, 1998 and
1997 (unaudited) 2
Consolidated Statements of Operations
Six Months ended June 30, 1998 and
1997 (unaudited) 3
Consolidated Statements of Cash Flows for
the Six Months ended June 30, 1998 and
1997 (unaudited) 4
Notes to Consolidated Financial Statements
(unaudited) 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 9
Item 4 - Submission of Matters to a Vote of Security Holders 9
Item 6 - Exhibits and Reports on Form 8-K 9
SIGNATURES 10
<PAGE>
PART 1.
Item 1. Financial Statements
- -----------------------------
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
Assets 1998 1997
------ ---- ----
(Unaudited)
Current assets:
<S> <C> <C>
Cash $ 3,998,385 1,240,986
Accounts receivable, net of allowance for doubtful
accounts of $453,906 in 1998 and $416,688 in 1997 7,665,539 7,904,353
Inventory 994,573 823,267
Notes receivable - current portion 278,035 278,035
Prepaid expenses and other assets 97,409 114,245
Investment in Monroc, Inc. -- 3,321,790
Land held for sale 174,226 174,226
Deferred taxes 234,000 306,000
------------ ------------
Total current assets 13,442,167 14,162,902
Notes receivable, excluding current portion 528,837 652,854
Property and equipment, net 397,806 344,701
------------ ------------
$ 14,368,810 15,160,457
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable 1,336,290 1,748,551
Accrued liabilities 1,044,442 1,075,218
Income taxes payable 137,781 112,606
Borrowings under line of credit 1,892,379 1,990,108
Notes payable - current portion -- 447,363
------------ ------------
Total current liabilities 4,410,892 5,373,846
Excess of acquired net assets over cost 781,077 837,543
------------ ------------
Total liabilities 5,191,969 6,211,389
------------ ------------
Stockholders' equity:
Convertible preferred stock, $.05 par value, liquidation
preference of $8,095,690 and $8,337,710
at June 30,1998 and December 31,1997, respectively
2,468,860 shares authorized, 1,619,138 and
1,667,542 shares issued and outstanding, at June 30, 1998 and
December 31, 1997, respectively, 80,957 83,377
Common stock, $.05 par value, 20,000,000 shares
authorized,1,466,478 and 1,429,735 shares issued
at June 30, 1998 and December 31, 1997, respectively,
1,451,908 and 1,429,735 shares outstanding
at June 30, 1998 and December 31, 1997, respectively 73,324 71,487
Additional paid-in capital 8,995,348 9,023,669
Accumulated other comprehensive income -- 1,889,990
Retained earnings (accumulated deficit) 64,811 (2,119,455)
Treasury stock, 14,570 common shares, at cost (37,599) --
------------ ------------
Total stockholders' equity 9,176,841 8,949,068
------------ ------------
Commitments and contingencies
$ 14,368,810 15,160,457
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Operations
Three Months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales $ 7,063,558 6,215,298
Cost of sales 5,336,968 4,707,390
----------- -----------
Gross profit 1,726,590 1,507,908
----------- -----------
Selling, general and
administrative expenses, net 1,442,515 1,393,167
----------- -----------
Operating income 284,075 114,741
Gain on sale of Monroc, Inc. stock 2,101,853 238,033
Interest income 34,137 11,023
Other income 9,226 1,472
Interest expense (61,471) (81,729)
----------- -----------
Income before income taxes 2,367,820 283,540
Income taxes 136,000 40,000
----------- -----------
Net income $ 2,231,820 243,540
=========== ===========
Net earnings per common share:
Basic $ 1.55 .17
----------- -----------
Diluted $ .71 .08
----------- -----------
Weighted average shares outstanding:
Basic 1,436,963 1,409,907
Diluted 3,154,514 3,171,243
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Operations
Six Months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales $ 12,146,210 12,016,960
Cost of sales 8,984,229 9,106,225
------------ ------------
Gross profit 3,161,981 2,910,735
------------ ------------
Selling, general and
administrative expenses, net 2,857,494 2,787,908
------------ ------------
Operating income 304,487 122,827
Gain on sale of Monroc, Inc. stock 2,101,853 238,033
Interest income 58,793 24,200
Other income 13,548 2,745
Interest expense (119,415) (152,561)
------------ ------------
Income before income taxes 2,359,266 235,244
Income taxes 175,000 60,000
------------ ------------
Net income $ 2,184,266 175,244
============ ============
Net earnings per common share:
Basic $ 1.52 .13
------------ ------------
Diluted $ .69 .06
------------ ------------
Weighted average shares outstanding:
Basic 1,434,052 1,399,983
Diluted 3,150,682 3,169,353
</TABLE>
-3-
<PAGE>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Cash Flows
Six Months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
Reconciliation of net income to net cash
used in operating activities:
<S> <C> <C>
Net income $ 2,184,266 175,244
Adjustments to reconcile net income to cash
used in operating activities:
Provision for allowance for doubtful accounts 140,000 135,000
Depreciation 48,693 34,183
Amortization of excess of acquired net assets
over cost (56,466) (56,466)
Deferred tax provision 72,000 --
Gain on sale of Monroc, Inc. stock (2,101,853) (238,033)
Changes in assets and liabilities:
Accounts receivable 98,814 (169,707)
Inventory (171,306) 603,560
Prepaid expenses and other assets 16,836 (198,127)
Accounts payable (412,261) (1,272,445)
Accrued liabilities (30,776) (52,379)
Income taxes payable 25,175 856
----------- -----------
Net cash used in operating activities (186,878) (698,900)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of Monroc, Inc. stock 3,533,653 456,233
Payments received on notes receivable 124,017 45,000
Additions to property and equipment (101,798) (36,184)
----------- -----------
Net cash provided by investing activities 3,555,872 465,049
----------- -----------
Cash flows from financing activities:
Payments on notes payable (447,363) (469,082)
Net borrowings (repayments) under line of credit (97,729) 236,000
Payments for purchase of treasury stock (66,503) --
----------- -----------
Net cash used in financing activities (611,595) (233,082)
----------- -----------
Increase (decrease) in cash 2,757,399 (466,933)
Cash - beginning of period 1,240,986 1,322,533
----------- -----------
Cash - end of period $ 3,998,385 855,600
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998 and December 31, 1997
(Unaudited)
(1) Basis of Presentation
---------------------
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, 1998 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 l997 Annual Report filed on Form 10-KSB.
(2) Supplemental Cash Flow Information
----------------------------------
The following is supplemental information relating to the consolidated
statements of cash flows:
Six Months Ended
June 30, 1998 June 30, 1997
------------- -------------
Cash paid during the period for:
Interest $ 122,890 $ 149,058
Income taxes $ 94,208 $ 143,622
Non-Cash Transactions:
During the six month period of 1998, the Company retired 48,405 shares of
convertible preferred stock, 11,662 shares it acquired during the six month
period and 36,743 shares which were converted to a similar number of common
shares. During the six month period of 1997, 453 shares of convertible
preferred stock, which were exchanged for a similar number of common shares,
were retired.
(3) Investment in Monroc, Inc.
--------------------------
At December 31, 1997, the Company owned 328,071 shares of Monroc common
stock, which was classified as an available-for-sale security. The fair
value of the investment security was $3,321,790, which was comprised of a
cost basis of $1,431,800 and a gross unrealized holding gain of $1,889,990
at December 31, 1997, which was recorded as a separate component of
stockholders' equity.
-5-
<PAGE>
In June 1998, the Company sold all of its shares of Monroc common stock for
proceeds of $3,533,653 and realized a gain of $2,101,853. In connection with
the sale of shares, the Company recognized deferred tax expense of
approximately $72,000. The deferred tax expense represents a reversal of a
previously recorded deferred tax asset, which was recorded in 1997 for the
anticipated use of the Company's net operating loss carryforward.
(4) Comprehensive Income
--------------------
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement requires that all items recognized under accounting standards as
components of comprehensive income be reported in an annual financial
statement that is displayed with the same prominence as other annual
financial statements. For example, other comprehensive income may include
foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on marketable securities
classified as available-for-sale. The Company's only item of other
comprehensive income is the net change in unrealized gain on
available-for-sale securities. The accumulated other comprehensive income of
$1,889,990 at December 31, 1997 on the accompanying consolidated balance
sheets is the unrealized gain on the Company's investment security. Annual
financial statements for prior periods will be reclassified, as required.
The Company's total comprehensive income was as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 2,184,266 175,244 2,231,820 243,540
Other comprehensive income:
Unrealized holding gains
arising during period 211,863 1,039,678 109,248 1,134,196
Less: reclassification
adjustment for gains
realized in net income (2,101,853) (238,033) (2,101,853) (238,033)
----------- ----------- ----------- -----------
Total comprehensive income $ 294,276 976,889 239,215 1,139,703
=========== =========== =========== ===========
</TABLE>
(5) Net Earnings Per Common Share
-----------------------------
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" (Statement 128). Statement 128 replaces the
calculation of primary and fully diluted earnings per share, with basic and
diluted earnings per share. Prior periods have been restated to conform to
the Statement 128 requirements. A reconciliation between the numerators and
denominators of the basic and diluted earnings per common share is as
follows:
-6-
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (numerator) $2,184,266 175,244 2,231,820 243,540
========== ========== ========== ==========
Weighted average common shares
(denominator for basic
earnings per share) 1,434,052 1,399,983 1,436,963 1,409,907
Effect of dilutive securities:
Convertible preferred stock 1,656,725 1,698,693 1,647,315 1,687,370
Employee stock options 59,905 70,677 70,236 73,966
---------- ---------- ---------- ----------
Weighted average common and
potential common shares
outstanding (denominator for
diluted earnings per share) 3,150,682 3,169,353 3,154,514 3,171,243
========== ========== ========== ==========
Basic earnings per share $1.52 .13 1.55 .17
==== === ==== ===
Diluted earnings per share $ .69 .06 .71 .08
=== === === ===
</TABLE>
Item 2. Management's Discussion and Analysis of
- ------------------------------------------------
Financial Condition and Results
-------------------------------
Results of Operations - Three Months Ended
June 30, 1998 and 1997
Registrant reported net income of $2,231,820 for the second quarter of
1998, which includes $434,946 of net income from Atlantic Hardware and Supply
Corporation ("Atlantic") and a $2,101,853 gain on the sale of Monroc, Inc.
("Monroc") common stock, as compared to net income of $243,540 for the second
quarter of l997, which included $222,959 of net income from Atlantic and a
$238,033 gain on the sale of Monroc, Inc. common stock.
Sales increased $848,260(14%) to $7,063,558 in the 1998 period due to the
timing of delivery on contracts. Selling, general and administrative expenses
net, increased $49,348. Interest expense decreased $20,258. The Registrant has
provided for current state income taxes associated with the income from
Atlantic, as well as deferred tax expense resulting from the realized gain on
the sale of the common stock of Monroc.
-7-
<PAGE>
Results of Operations - Six Months Ended
June 30, 1998 and 1996
Registrant reported net income of $2,184,266 for the first half of 1998,
which principally reflects $592,743 of net income from Atlantic Hardware and
Supply Corporation ("Atlantic") and a $2,101,853 gain on the sale of Monroc,
Inc. common stock, as compared to net income of $175,244 for the second half of
1997, which included $340,046 of net income from Atlantic.
Sales increased $129,250(1%) to $12,146,210 in the 1998 period compared to
sales of $12,016,960 in the 1997 period. Atlantic's sales backlog has increased
$1,766,000 to $10,637,000 since December 31, 1997. The June 30, 1998 backlog has
increased $81,000 from June 30, 1997.
Gross margins improved primarily as a result of changes in product mix.
Selling, general and administrative expense increased $69,586. Interest expense
decreased $33,146 principally due to lower borrowings on Atlantic's revolving
line of credit. The Registrant has provided for current state income taxes
associated with the income from Atlantic, as well as deferred tax expense
resulting from the realized gain on the sale of the common stock of Monroc.
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.
Liquidity and Capital Resources
As of June 30, l998, the Registrant had $3,998,385 in cash compared to
$1,240,986 at December 31, 1997. Such improvement in cash position is
principally attributed to the proceeds from the sale of Monroc common stock.
Cash flows used in operations during the six months 1998 improved in
comparison to the six months 1997 principally due to increased operating income,
a smaller reduction in accounts payable and increased collections of accounts
receivable, which were partially offset by an increase in inventory.
Cash flows used in financing activities during the six months of 1998 of
$611,595 were due to payments made on notes of $447,363, repayments on the line
of credit of $97,729 and payments of $66,503 to acquire treasury stock.
The Company believes that its cash is adequate for its present operations
and that additional credit is available should it be required. The Company's
resources consist primarily of cash, investment in Atlantic, notes receivable
and land held for sale. The Company believes the carrying value of its land held
for sale is less than its market value.
-8-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
(a) Annual Meeting of Shareholders on June 10, 1998.
(c) On June 10, 1998, the Preferred stockholders elected William Koon,
Donald K. MacNeill, Ronald Miller and Jack Rose as Preferred Stock Directors of
the Company, and the Common stockholders elected Gerald S. Deutsch, Bernard
Korn, James W. Stewart, Paul Selden and Carl L. Sussman as Common Stock
Directors. The Common and Preferred shareholders voted in favor of a resolution
appointing KPMG Peat Marwick as the independent public accountants for the
Company for the fiscal year ending December 31, 1998.
PROPOSAL FOR AGAINST ABSTAINED
-------- --- ------- ---------
For the Preferred Shareholders to
elect William Koon, Ronald Miller,
Jack Rose and Donald K. MacNeill as
Preferred Stock directors:
William Koon 902,950 - 14,990
Ronald Miller 912,577 - 5,364
Jack Rose 912,357 - 5,583
Donald K. MacNeill 912,599 - 5,342
For the Common Shareholders to
elect Gerald S. Deutsch, Bernard
Korn, Paul Selden, James W. Stewart
and Carl L. Sussman as Common Stock
directors:
Gerald S. Deutsch 983,181 - 16,280
Bernard Korn 983,847 - 15,614
Paul Selden 983,907 - 15,554
James W. Stewart 983,847 - 15,614
Carl L. Sussman 983,767 - 15,694
To ratify the selection of KPMG
Peat Marwick LLP as independent
public accountants of the Company
for the fiscal year ending
December 31, 1998. 1,880,011 13,078 24,433
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits - Exhibit 27. Financial Data Schedule June 30,1998
Exhibit 27.397 Restated Financial Data Schedule June 30, 1997
(b) Reports on Form 8-K - During the three months ended June 30,l998, the
Registrant did not file any reports on Form 8-K.
-9-
<PAGE>
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 6, 1998 COLONIAL COMMERCIAL CORP.
/s/ Bernard Korn
----------------
Bernard Korn, Chairman
of the Board and President
/s/ James W. Stewart
--------------------
James W. Stewart
Executive Vice President
and Treasurer
-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-01-1998
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,998,385
<SECURITIES> 0
<RECEIVABLES> 8,119,445
<ALLOWANCES> 453,906
<INVENTORY> 994,573
<CURRENT-ASSETS> 13,442,167
<PP&E> 633,048
<DEPRECIATION> 235,242
<TOTAL-ASSETS> 14,368,810
<CURRENT-LIABILITIES> 4,410,892
<BONDS> 0
0
80,957
<COMMON> 73,324
<OTHER-SE> 9,022,560
<TOTAL-LIABILITY-AND-EQUITY> 14,368,810
<SALES> 12,146,210
<TOTAL-REVENUES> 12,146,210
<CGS> 8,984,229
<TOTAL-COSTS> 8,984,229
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 140,000
<INTEREST-EXPENSE> 119,415
<INCOME-PRETAX> 2,359,266
<INCOME-TAX> 175,000
<INCOME-CONTINUING> 2,184,266
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,184,266
<EPS-PRIMARY> 1.52
<EPS-DILUTED> .69
</TABLE>
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 FORM 10-QSB AS RESTATED IN ACCORDANCE WITH FASB 128, WHICH WAS ADOPTED
DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<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> .13
<EPS-DILUTED> .06
</TABLE>
