SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K/A-1
AMENDMENT NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 25 , 1999
Colonial Commercial Corp.
(Exact name of Registrant as Specified in Charter)
New York 1-6663 11-2037182
(State of other Juris- (Commission File (IRS Employer
diction of Incorporation) Number) Identification No.)
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
------------------------------------------------
Former name or former address, if changed since last report.)
<PAGE>
The purpose of this Report is to amend Colonial Commercial Corp.
("Colonial") Current Report on Form 8-K dated July 8, 1999 relative to the
acquisition of Universal Supply Group, Inc. ("Universal"). This report amends
the information provided under Item 7(a) and 7(b).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements of Acquired Business
See the index at Page F-1 of this report for the
historical financial statements of Universal as of
and for the fiscal years ended March 31, 1999 and
1998.
(b) Pro Forma Financial Information
See index at Page F-1 of this report for the
unaudited pro forma financial information of the
Company as of March 31, 1999 and for the year ended
December 31, 1998 and the three months ended March
31, 1999.
(c ) Exhibits
23. Consent of KPMG LLP
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
COLONIAL COMMERCIAL CORP.
(Registrant)
/s/ James W. Stewart
--------------------
James W. Stewart
Chief Financial Officer
Dated: September 8, 1999
<PAGE>
COLONIAL COMMERCIAL CORP.Informama Financial Information
Index to Item 7(a) & (b) - Financial Statements and Pro Forma
Financial Information
--------------------------------------------------------------
Financial Statements of Acquired Business
Universal Supply Group, Inc.:
Independent Auditors' Report ................................. F-1
Balance Sheets as of March 31, 1999 and 1998 ................ F-2
Statements of Income and Retained Earnings for the Fiscal
Years Ended March 31, 1999 and 1998 .......................... F-3
Statements of Cash Flows for the Fiscal Years Ended
March 31, 1999 and 1998 ..................................... F-4
Notes to Financial Statements ................................ F-5
Pro Forma Financial Information:
Introduction ........................................... F-14
Pro Forma Consolidated Balance Sheet as of March 31, 1999 .... F-15
Pro Forma Consolidated Statements of Income for the Year
ended December 31, 1998 and the Three Months ended
March 31, 1999 ........................................... F-16
Notes to Pro Forma Consolidated Financial Statements ......... F-18
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Universal Supply Group, Inc.:
We have audited the accompanying balance sheets of Universal Supply Group, Inc.
(the Company) as of March 31, 1999 and 1998, and the related statements of
income and retained earnings and cash flows for each of the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Universal Supply Group, Inc. at
March 31, 1999 and 1998, and the results of its operations and cash flows for
each of the years then ended in conformity with generally accepted accounting
principles.
/S/ KPMG LLP
------------
June 25, 1999
Melville, New York
F-1
<PAGE>
UNIVERSAL SUPPLY GROUP, INC.
Balance Sheets
March 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
----------- ----------
Current assets:
<S> <C> <C>
Cash $ 70,230 1,004,679
Accounts receivable, net of allowance for doubtful
accounts of $200,000 and $141,000 at March 31, 1999
and 1998, respectively 3,252,361 2,365,116
Inventory 6,149,427 4,242,762
Prepaid expenses and other assets 197,135 91,045
Deferred taxes, net 90,961 77,200
----------- ----------
Total current assets 9,760,114 7,780,802
Property and equipment, net 100,900 100,638
Intangible assets 235,763 283,890
Cash surrender value - officers' life insurance 234,806 220,440
Other assets 51,290 70,724
----------- ----------
$10,382,873 8,456,494
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,646,397 1,325,164
Accrued liabilities 906,257 558,908
Current portion of notes payable 183,990 54,166
----------- ----------
Total current liabilities 2,736,644 1,938,238
----------- ----------
Notes payable, less current portion 434,610 79,167
Excess of acquired net assets over cost, net 127,686 --
----------- ----------
Total liabilities 3,298,940 2,017,405
----------- ----------
Stockholders' equity:
Common stock, at stated value, 100 shares authorized, 67.68
shares issued and outstanding at March 31, 1999 and 1998 53,500 53,500
Retained earnings 7,030,433 6,385,589
----------- ----------
Total stockholders' equity 7,083,933 6,439,089
----------- ----------
Commitments
$10,382,873 8,456,494
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
UNIVERSAL SUPPLY GROUP, INC.
Statements of Income and Retained Earnings
Years ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Net sales $ 26,459,637 18,385,317
Cost of sales 18,718,709 13,206,126
------------ ----------
Gross profit 7,740,928 5,179,191
Selling, general and administrative expenses, net 6,870,386 4,527,883
------------ ----------
Operating income 870,542 651,308
------------ ----------
Other expenses (income):
Interest expense 91,574 11,952
Interest income (50,220) (19,916)
Other, net 25,061 (64,662)
------------ ----------
Other expenses (income) 66,415 (72,626)
Income before provision for income taxes 804,127 723,934
Provision for income taxes 73,308 102,985
------------ ----------
Net income 730,819 620,949
Retained earnings - beginning of year 6,385,589 6,163,815
Dividends (85,975) (399,175)
------------ ----------
Retained earnings - end of year $ 7,030,433 6,385,589
============ ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
UNIVERSAL SUPPLY GROUP, INC.
Statements of Cash Flows
Years ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 730,819 620,949
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization, net 90,623 105,338
Provision for allowance for doubtful accounts 177,131 58,800
Provision (benefit) for deferred income taxes (13,761) 61,524
Changes in assets and liabilities, net of effects of the
purchase of Amber Supply Co. Inc.:
Accounts receivable (1,064,376) (426,463)
Inventory (970,665) (570,582)
Prepaid expenses and other assets (101,022) (60,262)
Accounts payable 321,233 (92,439)
Accrued expenses 347,349 (25,245)
----------- ---------
Net cash used in operating activities (482,669) (328,380)
----------- ---------
Cash flows from investing activities:
Purchases of property and equipment (38,072) (24,220)
Payment for purchase of Amber Supply Co. Inc. (163,000) --
----------- ---------
Net cash used in investing activities (201,072) (24,220)
----------- ---------
Cash flows from financing activities:
Payments of notes payable (164,733) (45,833)
Payment of dividends (85,975) (399,175)
----------- ---------
Net cash used in financing activities (250,708) (445,008)
----------- ---------
Net decrease in cash (934,449) (797,608)
Cash at beginning of year 1,004,679 1,802,287
----------- ---------
Cash at end of year $ 70,230 1,004,679
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
UNIVERSAL SUPPLY GROUP, INC.
Notes to Financial Statements
March 31, 1999 and 1998
(1) Summary of Significant Accounting Policies and Practices
(a) Description of Business
Universal Supply Group, Inc. (the Company) is a distributor of
products and provider of services for heating, ventilation and air
conditioning (HVAC) contractors principally in Northern New Jersey
and Southern New York. Products include heating and air
conditioning equipment, controls, parts and accessories. Services
include temperature control system design and panel fabrication,
technical field support and technical training. The Company
operates in a single segment from seven locations in New Jersey
and New York.
(b) Basis of Presentation
In November 1998, December 1998 and February 1999, certain
entities controlled by the Company's stockholders were merged into
the Company in exchange for the issuance of an aggregate of 17.68
shares of the Company's common stock. These entities included
Universal of Hawthorne Co. Inc., Universal of Bergen Co., Inc.,
Universal of Sussex, Co., Inc., Uneco Inc., Universal Energy
Products, Inc. and Universal Supply - NY, Inc.
The mergers of these entities represent business combinations of
companies under common control and, accordingly, have been
accounted for at historical cost, in a manner similar to a pooling
of interests.
On June 25, 1999, effective June 30, 1999, all of the assets
subject to all of the liabilities of the Company were purchased by
Colonial Commercial Corp. (Colonial)(note 14).
(c) Cash Equivalents
The Company considers all highly liquid instruments purchased with
an original maturity of three months or less to be cash
equivalents. There were no cash equivalents at March 31, 1999 or
1998.
(d) Inventory
Inventory is stated at the lower of cost or market and consists
solely of finished goods. Cost is determined using the first-in,
first-out method.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation is
calculated on the straight-line method over the estimated useful
life of the assets. The useful lives of the assets are estimated
to range between three and fifteen years. Leasehold improvements
are amortized over the shorter of the lease term or estimated
useful lives of the assets.
F-5 (Continued)
<PAGE>
UNIVERSAL SUPPLY GROUP, INC.
Notes to Financial Statements
March 31, 1999 and 1998
(f) Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment
recognized is measured by the amount by which the carrying amount
of the assets exceeds their fair value. Assets to be disposed of
are reported at the lower of the carrying amount or fair value
less costs to sell.
The recoverability of the excess cost over fair value of assets
acquired is assessed by determining whether the amortization over
its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of
impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the
Company's average cost of funds. The assessment of the
recoverability of the excess cost over fair value of assets
acquired will be impacted if estimated future operating cash flows
are not achieved.
(g) Income Taxes
The Company and certain of its affiliates, with consent of its
stockholders, have elected to have their income taxed under
subchapter "S" of the Internal Revenue Code (IRC). During 1998,
the remaining affiliates elected to also have their income taxed
under subchapter "S" of the IRC. This election provides that, in
lieu of corporate Federal income taxes, the stockholders are taxed
on their proportionate share of the Company's taxable income. The
Company has not elected to have its income taxed under subchapter
"S" for state and local purposes.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
dates.
(h) Comprehensive Income
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income",
effective April 1, 1998. The Company has no items of other
comprehensive income and therefore, there is no difference between
the Company's comprehensive income and net income.
F-6 (Continued)
<PAGE>
UNIVERSAL SUPPLY GROUP, INC.
Notes to Financial Statements
March 31, 1999 and 1998
(i) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare
these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(2) Acquisition
In April 1998, the Company purchased certain assets of Amber Supply Co.
Inc. (Amber) for $813,000. Of the purchase price, $163,000 was paid at
closing. The remainder of the purchase price was paid by the issuance of
notes payable of $650,000. The assets acquired primarily consisted of
inventory, fixed assets and a non-competition agreement. The acquisition
was accounted for under the purchase method of accounting. The purchase
price was allocated to the assets acquired based upon their estimated
fair values at the date of acquisition. After writing off the values of
noncurrent assets, the purchase resulted in an excess of net assets
acquired over cost of $136,000, which is being amortized on a
straight-line basis over a fifteen-year period. The results of operations
of Amber have been included in the accompanying statements of income from
the date of acquisition. Unaudited pro forma results have not been
presented for 1998 as the information necessary to prepare such pro forma
information was not readily available to management of the Company. Sales
from Amber locations included in the statement of income for the year
ended March 31, 1999 were approximately $6,300,000. Due to the
integration of Amber's and the Company's operations, management is unable
to determine the amount of sales or operating profit that was incremental
to the Company due to the Amber acquisition.
(3) Property and Equipment
Property and equipment consisted of the following at March 31:
1999 1998
---- ----
Leasehold improvements $ 41,081 41,081
Automobiles 52,290 46,290
Machinery and equipment 85,026 69,526
Computer and office equipment 334,221 330,156
Furniture and fixtures 112,849 123,469
-------- -------
625,467 610,522
Less accumulated depreciation
and amortization 524,567 509,884
-------- -------
$100,900 100,638
======== =======
F-7 (Continued)
<PAGE>
UNIVERSAL SUPPLY GROUP, INC.
Notes to Financial Statements
March 31, 1999 and 1998
(4) Intangible Assets
Intangible assets consist of a non-competition agreement and the excess
cost over fair value of assets acquired which arose from a previous
acquisition. The excess cost over fair value of assets acquired is being
amortized on a straight-line basis over fifteen years. The
non-competition agreement is being amortized over the five-year life of
the agreement on a straight-line basis. Accumulated amortization was
$114,237 and $66,110 at March 31, 1999 and 1998, respectively.
(5) Accrued Liabilities
Accrued liabilities consisted of the following at March 31, 1999 and
1998:
1999 1998
-------- -------
Accrued wages $215,351 152,444
Accrued profit sharing contribution 147,009 164,571
Accrued vacation benefits 165,495 128,690
Accrued professional fees 180,000 --
Other accrued expenses 198,402 113,203
-------- -------
Total $906,257 558,908
======== =======
(6) Financing Arrangements
At March 31, 1999 and 1998, the Company had available a line of credit
with a financial institution for $1,750,000 and $750,000, respectively.
There were no amounts outstanding under the line of credit at March 31,
1999 or 1998. Borrowings under the line of credit are payable on demand
and bear interest at the higher of the federal funds rate plus 1/2%, or
the prime rate, which was 7.75% and 8.50% at March 31, 1999 and 1998,
respectively. The line of credit expires September 30, 1999. In addition,
in February 1999, an amended and restated negative pledge agreement was
executed, which prohibits the Company from allowing a lien or encumbrance
on, or security interest in, its assets, except for the liens and
security interests held by certain vendors (note 13). The borrowings
under the line of credit were guaranteed by the majority stockholders of
the Company at March 31, 1998. During 1999, the guarantee by the majority
stockholders of the Company was terminated.
Subsequent to March 31, 1999, the line of credit was terminated in
connection with the purchase of the Company by Colonial (note 14).
F-8 (Continued)
<PAGE>
UNIVERSAL SUPPLY GROUP, INC.
Notes to Financial Statements
March 31, 1999 and 1998
(7) Notes Payable
Notes payable consisted of the following at March 31, 1999 and 1998:
1999 1998
-------- --------
Noninterest-bearing note (a) $ 83,333 133,333
7% promissory note (b) 157,844 --
8% promissory note (c) 377,423 --
-------- --------
618,600 133,333
Less: current portion 183,990 54,166
-------- --------
$434,610 79,167
======== ========
(a) A $200,000 note was issued in connection with a previous
acquisition. Principal is payable in monthly installments of
$4,167 through October 2000. The note is guaranteed by the
majority stockholders of the Company. The note was not discounted
as management believes such discount was not material.
(b) A $200,000 unsecured note was issued in connection with the
acquisition of Amber (note 2). Principal and interest are payable
in monthly installments of approximately $4,790 through April
2002.
(c) A $450,000 unsecured note was issued in connection with the
acquisition of Amber (note 2). Principal and interest are payable
in monthly installments of approximately $9,125 through April
2003.
The aggregate annual maturities of notes payable are as follows:
2000 $ 183,990
2001 165,157
2002 151,241
2003 109,148
2004 9,064
----------
Total $ 618,600
==========
F-9 (Continued)
<PAGE>
UNIVERSAL SUPPLY GROUP, INC.
Notes to Financial Statements
March 31, 1999 and 1998
(8) Income Taxes
The Company has elected to have its income taxed under Subchapter "S" of
the IRC and therefore, is only liable for certain state and local income
taxes. The provision (benefit) for income taxes attributable to income is
comprised of:
1999 1998
------------------------------ -----------------------------
State and State and
Federal local Total Federal local Total
------- ----- ----- ------- ----- -----
Current $ - 87,069 87,069 (25,672) 67,133 41,461
Deferred - (13,761) (13,761) 49,494 12,030 61,524
------ ------- ------- ------- ------ -------
$ - 73,308 73,308 23,822 79,163 102,985
====== ======= ======= ======= ====== =======
In 1998, the Company's federal deferred tax assets of approximately
$49,500 were written off to expense as they were no longer deemed
recoverable as a result of certain affiliates of the Company having
approved elections to be treated as subchapter "S" corporations. Such
affiliates were subsequently merged into the Company (note 1(b)).
Income tax expense for 1999 and 1998 differed from amounts computed by
applying the U.S. Federal income tax rate of 34% to pre-tax income
principally because the Company is not liable for Federal taxes.
The tax effects of temporary differences that give rise to significant
portions of state and local deferred tax assets at March 31, 1999 and
1998 are presented below.
1999 1998
-------- -------
Deferred tax assets:
Accounts receivable, due to allowance for
doubtful accounts $18,017 11,064
Inventory valuation reserve 36,000 24,358
Inventory costs capitalized for tax purposes 22,952 10,562
Accrued liabilities not currently tax deductible 14,895 9,767
Intangibles, due to differences in amortization 4,200 2,100
Other -- 23,923
------- ------
Total gross deferred tax assets 96,064 81,774
Deferred tax liabilities:
Property and equipment, due to differences in
depreciation (5,103) (4,574)
------- ------
Net deferred tax assets $90,961 77,200
======= ======
F-10 (Continued)
<PAGE>
UNIVERSAL SUPPLY GROUP, INC.
Notes to Financial Statements
March 31, 1999 and 1998
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income and tax planning strategies in making this assessment. Based upon
the level of historical income and projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes it is more likely than not that the Company will realize the
benefits of these deductible differences. The amount of the deferred tax
assets considered realizable, however, could be reduced in the near term
if estimates of future taxable income during the carryforward period are
not realized. In order to fully realize the net deferred tax assets, the
Company will need to generate future taxable income of approximately
$1,010,000. Taxable income for 1999 and 1998 was approximately $1,140,000
and $742,000, respectively.
(9) Employee Benefit Plans
The Company has three defined contribution plans, one of which is a
401(k) plan, which cover substantially all employees. Participants in the
401(k) plan may contribute a percentage of compensation, but not in
excess of the maximum allowed under the IRC. The Board of Directors can
authorize discretionary contributions to the other two plans. In
addition, the 401(k) plan allows for a 3% matching contribution. In 1999
and 1998 the Board of Directors authorized $178,547 and $177,200,
respectively, of such contributions to the plans.
(10) Supplemental Cash Flow Information
The following is supplemental information relating to the statements of
cash flows:
1999 1998
-------- -------
Cash paid during the year for:
Interest $ 91,574 11,952
======== ======
Income taxes $ 71,120 69,084
======== ======
In connection with the acquisition of certain assets of Amber, the
Company issued notes payable of $650,000 (note 2).
F-11 (Continued)
<PAGE>
UNIVERSAL SUPPLY GROUP, INC.
Notes to Financial Statements
March 31, 1999 and 1998
(11) Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107, "Disclosure about
Fair Value of Financial Instruments", defines the fair value of a
financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. The carrying
value of all financial instruments classified as current assets or
liabilities with the exception of the notes payable, is deemed to
approximate fair value, because of the short maturities of these
instruments.
The carrying value of the notes payable approximates fair value as the
interest rates are comparable to the rates currently offered by local
lending institutions for loans of similar terms and maturities to
companies with comparable credit risk.
(12) Business and Credit Concentrations
During 1999 and 1998, three vendors accounted for approximately 41% and
35% of the Company's annual purchases, respectively. In 1999 and 1998,
five customers accounted for approximately 10% of net sales. At March 31,
1999, four customers had accounts receivable balances, which in the
aggregate, represented approximately 15% of the total net receivable
balance. The Company estimates an allowance for doubtful accounts based
on the creditworthiness of its customers as well as general economic
conditions. Consequently, an adverse change in those factors could affect
the Company's estimate of its bad debts. The Company as a policy does not
require collateral from its customers.
(13) Commitments
(a) Lease Obligations
At March 31, 1999, the Company was obligated under non-cancelable
leases for automobile and warehouse facilities for minimum annual
rental payments as follows:
2000 $ 292,387
2001 124,436
2002 75,619
---------
Total $ 492,442
=========
Rental expense for the above-mentioned operating lease agreements
and other month-to-month leases approximated $701,804 and $438,310
for 1999 and 1998, respectively.
F-12 (Continued)
<PAGE>
UNIVERSAL SUPPLY GROUP, INC.
Notes to Financial Statements
March 31, 1999 and 1998
The Company leases certain facilities from certain of its
stockholders. Rent expense for 1999 and 1998 on such leases
amounted to approximately $377,000 and $368,000, respectively. The
leases generally had one year terms. Those that expired subsequent
to July 31, 1998 have been renewed on a month-to-month basis. The
remainder of the leases are operating leases. Included in the
above table, is $24,900 in 2000 representing minimum annual rental
payments on these related party leases.
(b) Security Interest
Certain vendors hold liens and security interests in the Company's
accounts receivable and inventory of approximately $1,500,000 as
of March 31, 1999.
(14) Subsequent Event
On June 25, 1999, effective June 30, 1999, Colonial purchased all of the
assets subject to all of the liabilities of the Company. In connection
with the acquisition, the Company's line of credit (note 6) was
refinanced. Borrowings under the new credit facility bear interest at the
prime rate or at the Company's option 250 basis points over the
applicable LIBOR rate. The credit facility allows the Company to borrow
against eligible accounts receivable and inventory under a formula basis
and up to $3,000,000 on a five-year term loan to be amortized in equal
monthly installments to June 2004. Borrowings under the facility are
secured by accounts receivable, inventory and fixtures and equipment.
Monthly interest and principal payments are based upon monthly accounts
receivable collections, as defined. The loan and security agreement
contains a number of covenants relating to the financial condition of the
Company and its business operations.
F-13 (Continued)
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma consolidated financial statements were prepared
to illustrate the estimated effects of ( i ) Colonial's acquisition of Universal
Supply Group, Inc. ("Universal") accounted for under the purchase method of
accounting, (ii) the borrowing of approximately $6,973,000 under a line of
credit which provides for aggregate borrowings based upon eligible assets of up
to $16,000,000, and (iii) the use of proceeds from the line of credit, as
described in the notes to the unaudited pro forma consolidated financial
statements (collectively, the "Pro Forma Transactions"). The unaudited pro forma
consolidated balance sheet combines Colonial's March 31, 1999 consolidated
balance sheet with Universal's March 31, 1999 balance sheet and gives effect to
the Pro Forma Transactions as if they had occurred on March 31, 1999, the last
day of Colonial's most recently completed quarter. The unaudited pro forma
consolidated statement of income for the year ended December 31, 1998 combines
Colonial's historical results for the year ended December 31, 1998 and
Universal's historical results for the year ended March 31, 1999, giving effect
to the Pro Forma Transactions as if they had occurred as of January 1, 1998, the
first day of Colonial's most recently completed year-end. The unaudited pro
forma consolidated statement of income for the three months ended March 31, 1999
combines Colonial's historical results for the quarter ended March 31, 1999 and
Universal's historical results for the three months ended March 31, 1999 also
giving effect to the Pro Forma Transactions as if they occurred as of January 1,
1998. Colonial's most recently completed year-end was December 31, 1998, the
most recently completed fiscal year of Universal ended on March 31, 1999.
The unaudited pro forma consolidated financial statements were prepared
utilizing the accounting principles of the respective entities as outlined in
each entity's historical financial statements. The pro forma adjustments are
based upon available information and certain assumptions that Colonial believes
are reasonable under the circumstances. The unaudited pro forma consolidated
financial statements do not purport to be indicative of the operating results or
financial position that would have been achieved had the acquisition taken place
on the dates indicated or the results that may be obtained in the future.
The pro forma consolidated statements are based on, and should be read
in conjunction with, the audited financial statements, including the notes
thereto, of Colonial and Universal.
The audited financial statements of Universal as of and for the years
ended March 31, 1999 and 1998 are included herein.
F-14
<PAGE>
COLONIAL COMMERCIAL CORP.
Unaudited Pro Forma Consolidated Balance Sheet
As of March 31, 1999
<TABLE>
<CAPTION>
_______Historical______ Pro Forma
Colonial Universal Adjustments Pro Forma
Assets
Current assets:
<S> <C> <C> <C> <C>
Cash $ 4,225,348 70,230 (4,086,522)A 209,056
Accounts receivables, net 7,456,666 3,252,361 -- 10,709,027
Inventory 1,078,183 6,149,427 -- 7,227,610
Notes receivable-current portion 158,035 -- -- 158,035
Prepaid expenses and other assets 92,446 197,135 -- 289,581
Deferred taxes 165,000 90,961 (90,961)B --
-- -- 91,000 C 256,000
----------- ---------- --------- -----------
Total current assets 13,175,678 9,760,114 (4,086,483) 18,849,309
Notes receivable, excluding
current portion 316,069 -- -- 316,069
Deferred taxes 278,000 -- 3,609,000 C 3,887,000
Property and equipment, net 532,682 100,900 -- 633,582
Other intangible assets -- 88,958 150,000 D 238,958
Cash surrender value-officers'
life insurance -- 234,806 -- 234,806
Goodwill -- 146,805 (146,805)B --
235,497 E 235,497
Other assets -- 51,290 -- 51,290
----------- ---------- ---------- ----------
Total assets $14,302,429 10,382,873 (238,791) 24,446,511
=========== ========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 831,606 1,646,397 -- 2,478,003
Accrued liabilities 1,023,839 906,257 -- 1,930,096
Income taxes payable 217,309 -- -- 217,309
Borrowings under line of credit 521,049 -- 6,972,828 F 7,493,877
Notes payable-current portion 19,022 183,990 -- 203,012
----------- ---------- ---------- ----------
Total current liabilities 2,612,825 2,736,644 6,972,828 12,322,297
Notes payable, excluding current
portion 34,971 434,610 -- 469,581
Negative goodwill 696,378 127,686 (127,686)B 696,378
----------- ---------- ---------- ----------
Total liabilities 3,344,174 3,298,940 6,845,142 13,488,256
Stockholders' equity:
Convertible preferred stock 77,952 -- -- 77,952
Common stock 74,851 53,500 (53,500)G 74,851
Additional paid in capital 8,921,989 -- -- 8,921,989
Retained earnings 1,883,463 7,030,433 (7,030,433)G 1,883,463
----------- ---------- ---------- ----------
Total stockholders' equity 10,958,255 7,083,933 (7,083,933) 10,958,255
----------- ---------- ---------- ----------
Total liabilities and stockholders' equity $14,302,429 10,382,873 (238,791) 24,446,511
=========== ========== ========== ==========
</TABLE>
F-15
<PAGE>
COLONIAL COMMERCIAL CORP.
Pro Forma Consolidated Statement of Income
For The Year Ended December 31, 1998
<TABLE>
<CAPTION>
_______Historical____
Colonial Universal
for the for the
Calendar Fiscal
Year Ended Year Ended
December March Pro Forma
31, 1998 31, 1999 Adjustments Pro Forma
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 25,233,909 26,459,637 -- 51,693,546
Cost of sales 18,557,769 18,718,709 -- 37,276,478
------------ ---------- -------- ----------
Gross profit 6,676,140 7,740,928 -- 14,417,068
General and administrative 5,769,507 6,870,386 39,174 H 12,679,067
------------ ---------- -------- ----------
Operating income 906,633 870,542 (39,174) 1,738,001
Other income (expense), net 114,899 (25,061) -- 89,838
Interest income 181,206 50,220 (82,161)I 149,265
Gain on land sale 826,797 -- -- 826,797
Gain on sale of Monroc, Inc. stock 2,101,853 -- -- 2,101,853
Interest expense (200,283) (91,574) (586,415)J (878,272)
------------ ---------- -------- ----------
Income before
income taxes 3,931,105 804,127 (707,750) 4,027,482
Income taxes 79,352 73,308 132,762 K 285,422
------------ ---------- -------- ----------
Net income $ 3,851,753 730,819 (840,512) 3,742,060
============ ========== ======== ==========
Net earnings per common share
Basic $ 2.66 -- -- 2.59
Diluted $ 1.23 -- -- 1.19
Weighted average shares outstanding
Basic 1,446,354 -- -- 1,446,354
Diluted 3,134,617 -- -- 3,134,617
</TABLE>
F-16
<PAGE>
COLONIAL COMMERCIAL CORP.
Pro Forma Consolidated Statement of Income
for the Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
_______ Historical_____
Colonial Universal
For the For the
Quarter Quarter
Ended March Ended March Pro Forma
31, 1999 31, 1999 Adjustments Pro Forma
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 5,987,085 6,234,926 -- 12,222,011
Cost of sales 4,268,971 4,186,944 -- 8,455,915
----------- --------- -------- ----------
Gross profit 1,718,114 2,047,982 -- 3,766,096
General and administrative 1,489,598 1,823,290 9,793 H 3,322,681
----------- --------- -------- ----------
Operating income 228,516 224,692 (9,793) 443,415
Other income (expense), net 2,465 79,144 -- 81,609
Interest income 66,994 -- (44,460)H 22,534
Interest expense (37,110) (32,837) (146,604)J (216,551)
----------- --------- -------- ----------
Income before
income taxes 260,865 270,999 (200,857) 331,007
Income taxes 109,700 24,390 6,308 K 140,398
----------- --------- -------- ----------
Net income $ 151,165 246,609 (207,165) 190,609
=========== ========= ======== ==========
Net earnings per common share
$ .10 -- -- 0.13
Basic
Diluted $ .05 -- -- 0.06
Weighted average shares
outstanding
Basic 1,470,367 -- -- 1,470,367
Diluted 3,125,471 -- -- 3,125,471
</TABLE>
F-17
<PAGE>
COLONIAL COMMERCIAL CORP.
Notes to Pro Forma Consolidated Financial Statements
A. To reflect cash paid for a portion of the purchase price.
B. To reflect elimination of the carrying value of Universal's deferred
tax assets, goodwill and negative goodwill.
C. To reflect estimated net deferred tax assets arising from purchase.
D. To reflect estimated fair market value of non-compete agreements
issued to former stockholders of Universal.
E. To reflect the excess of acquisition cost over the estimated fair
value of net assets acquired (goodwill). The purchase price,
purchase price allocation and financing of the transaction are
summarized as follows:
Purchase price paid as:
Cash $ 4,000,000
Direct acquisition costs 86,522
Borrowing under line of credit 6,972,828
-----------
Total purchase price paid $11,059,350
===========
Allocated to:
Historical book value of
Universal Supply Group, Inc.'s
assets and liabilities $7,083,933
Adjustments to reflect assets and liabilities at fair value:
Deferred tax asset 3,700,000
Non-compete agreement 150,000
Universal's goodwill (146,805)
Universal's negative goodwill 127,686
Universal's deferred
tax assets (90,961)
-----------
Total allocation 10,823,853
-----------
Goodwill $ 235,497
===========
F. To reflect borrowing under line of credit to finance the remaining cash
portion of the purchase.
G. To reflect the elimination of the stockholders' equity accounts of
Universal.
F-18
<PAGE>
H. To reflect the elimination of Universal's historical amortization of
goodwill and negative goodwill and reflect Colonial's amortization of
goodwill on its acquisition of Universal, which will be amortized over
a twenty-year period, and its amortization of the non-compete agreement
over a five-year period.
I. To reflect the loss of interest income generated from the cash that was
used to purchase the net assets of Universal.
J. To reflect the interest expense on the borrowing to finance a portion
of the purchase price of Universal. The interest expense was calculated
based on the weighted average prime rate for the year ended December
31, 1998 and quarter ended March 31, 1999 (8.41%), which is the rate on
the credit facility obtained to finance the remainder of the cash
purchase price. A change of 1/8% in the incremental rate would affect
interest expense by $8,716 for the calendar year and $2,179 for the
quarter.
K. To reflect the federal income tax effect of Universal's taxable income, as
well as increased interest expense, changes in amortization expense and
the decrease of interest income. (Note that Universal was not subject to
Federal income tax for the periods presented as it had elected to have its
income taxed under Subchapter "S" of the Internal Revenue Code.) For the
year ended December 31, 1998, this adjustment also reflects additional
deferred tax expense on the 1998 historical taxable income of Colonial due
to the recording of the deferred tax asset arising from the acquisition of
Universal.
F-19
<PAGE>
INDEX TO EXHIBITS
Filed Incorporated by Reference From
Exhibit Herewith Form Date Exhibit
23. Consent of Independent
Accountants Yes
Independent Auditors' Consent
The Board of Directors
Colonial Commercial Corp.:
We consent to the inclusion in Form 8-K/A-1 of Colonial Commercial Corp. dated
September 8, 1999 of our report dated June 25, 1999, with respect to the balance
sheets of Universal Supply Group, Inc. as of March 31, 1999 and 1998, and the
related statements of income and retained earnings and cash flows for the years
then ended.
/S/ KPMG LLP
------------
Melville, New York
September 8, 1999
