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, 1999 Commission File No. 1-6663
COLONIAL COMMERCIAL CORP.
---------------------------------------------------
(Exact Name of Company 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)
Company's Telephone Number, Including Area Code: 516-796-8400
------------
Indicate by check mark whether the Company (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 the Company 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 the Company's Common Stock and
Convertible Preferred Stock as of September 30, 1999.
Common Stock, par value $.05 per share - 1,520,313 shares Convertible
Preferred Stock, par value $.05 per share - 1,535,683 shares
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets as of
September 30,1999 (unaudited) and
December 31, 1998 1
Consolidated Statements of Income
Three Months ended September 30, 1999 and
1998 (unaudited) 2
Consolidated Statements of Income
Nine Months ended September 30, 1999 and
1998 (unaudited) 3
Consolidated Statements of Cash Flows for
the Nine Months ended September 30, 1999 and
1998 (unaudited) 4
Notes to Consolidated Financial Statements
(unaudited) 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
Item 1. Financial Statements
PART 1.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1999 and December 31,1998
<TABLE>
<CAPTION>
Assets 1999 1998
----------------- ----------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,520,126 5,001,881
Accounts receivable, net of allowance for doubtful accounts
of $923,427 in 1999 and $667,500 in 1998, respectively 11,617,124 8,571,701
Inventory 7,953,053 1,177,907
Notes receivable - current portion 158,035 158,035
Prepaid expenses and other assets 620,648 97,408
Deferred taxes 251,632 165,000
----------- -----------
Total current assets 22,120,618 15,171,932
Notes receivable, excluding current portion 237,052 316,069
Deferred taxes 3,737,694 335,000
Property and equipment, net 1,196,338 502,312
Excess of cost over fair value of net assets acquired and other
intangibles, net 303,608 --
----------- -----------
$27,595,310 16,325,313
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,033,696 1,090,135
Accrued liabilities 1,805,066 1,392,034
Income taxes payable 253,865 203,640
Borrowings under line of credit 6,890,397 2,049,268
Notes payable - current portion 754,666 18,677
----------- -----------
Total current liabilities 12,737,690 4,753,754
Notes payable, excluding current portion 2,665,599 39,858
Excess of acquired net assets over cost, net 639,912 724,611
----------- -----------
Total liabilities 16,043,201 5,518,223
----------- -----------
Stockholders' equity:
Convertible preferred stock, $.05 par value, liquidation preference of
$7,678,415 and $7,964,970 at September 30,1999 and December 31, 1998,
respectively. 2,468,860 shares authorized, 1,535,683 and 1,592,994 shares
issued and outstanding at September 30, 1999 and Deember 31, 1998,
respectively 76,784 79,650
Common stock, $.05 par value, 20,000,000 shares authorized,
1,520,363 and 1,463,052 shares issued at September 30, 1999 and
December 31, 1998, respectively 76,018 73,153
Additional paid-in capital 8,921,989 8,921,989
Retained earnings 2,477,318 1,732,298
----------- -----------
Total stockholders' equity 11,552,109 10,807,090
----------- -----------
Commitments and contingencies
$27,595,310 16,325,313
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Income
Three Months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Sales $ 14,728,837 6,467,564
Cost of sales 10,491,700 4,747,628
------------ ------------
Gross profit 4,237,137 1,719,936
Selling, general and administrative expenses, net 3,354,605 1,434,423
------------ ------------
Operating income 882,532 285,513
------------ ------------
Interest income 24,134 59,884
Other income 127,313 99,832
Interest expense (206,580) (44,236)
------------ ------------
Income before income taxes 827,399 400,993
Income taxes 304,907 57,000
------------ ------------
Net income $ 522,492 343,993
============ ============
Net income per common share:
Basic $ 0.34 0.24
------------ ------------
Diluted $ 0.17 0.11
------------ ------------
Weighted average shares outstanding:
Basic 1,517,814 1,456,544
Diluted 3,147,123 3,120,768
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Income
Nine Months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Sales $ 27,057,905 18,613,774
Cost of sales 19,406,079 13,731,857
------------ ------------
Gross profit 7,651,826 4,881,917
Selling, general and administrative expenses, net 6,415,538 4,291,917
------------ ------------
Operating income 1,236,288 590,000
------------ ------------
Gain on sale of Monroc, Inc. stock -- 2,101,853
Interest income 148,778 118,677
Other income 131,148 113,380
Interest expense (289,087) (163,651)
------------ ------------
Income before income taxes 1,227,127 2,760,259
Income taxes 482,107 232,000
------------ ------------
Net income $ 745,020 2,528,259
============ ============
Net income per common share:
Basic $ 0.50 1.75
------------ ------------
Diluted $ 0.24 0.80
------------ ------------
Weighted average shares outstanding:
Basic 1,499,021 1,441,550
Diluted 3,141,194 3,140,712
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
COLONIAL COMMERCIAL CORP.AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
Reconciliation of net income to net cash provided by operating activities:
<S> <C> <C>
Net income $ 745,020 2,528,259
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 126,224 73,119
Provision for allowance for doubtful accounts 180,000 190,249
Amortization of excess of acquired net assets over cost (84,699) (84,699)
Deferred tax provision 210,674 72,000
Gain on sale of Monroc, Inc. stock -- (2,101,853)
Changes in assets and liabilities, net of effects of the purchase of
Universal Supply Group, Inc.
Accounts receivable 576,623 335,173
Inventory (186,748) 62,915
Prepaid expenses and other assets (68,452) (2,194)
Accounts payable (110,017) (625,918)
Accrued liabilities (736,399) 12,873
Income taxes payable 50,225 8,807
----------- -----------
Net cash provided by operating activities 702,451 468,731
----------- -----------
Cash flows from investing activities:
Payment for acquisition of Universal Supply Group, Inc., net
of cash acquired (3,879,427) --
Proceeds from sale of Monroc, Inc. stock -- 3,533,653
Payments received on notes receivable 79,017 377,767
Additions to property and equipment (708,064) (146,447)
----------- -----------
Net cash provided by (used in) investing activities (4,508,474) 3,764,973
----------- -----------
Cash flows from financing activities:
Payments of notes payable (116,861) (447,363)
Net borrowings (repayments) under line of credit 441,129 (1,375,357)
Payments for purchase of treasury stock -- (86,003)
----------- -----------
Net cash provided by (used in) financing activities 324,268 (1,908,723)
----------- -----------
Increase (decrease) in cash and cash equivalents (3,481,755) 2,324,981
Cash and cash equivalents - beginning of period 5,001,881 1,240,986
----------- -----------
Cash and cash equivalents - end of period $ 1,520,126 3,565,967
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999 and December 31, 1998
(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 September 30, 1999 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 l998 Annual Report filed on Form 10-KSB.
(2) Business Acquisitions
---------------------
(a) On June 25, 1999, effective June 30, 1999, the Company purchased all the
assets, subject to all of the liabilities of Universal Supply Group, Inc.
(Universal), for $10,867,848 in cash (including direct acquisition expenses
and net of cash acquired). During the quarter ended September 30, 1999, an
additional $70,929 was paid to the previous owners of Universal pursuant to
the purchase agreement. Four million dollars of the purchase price was paid
from the Company's funds and the balance was financed through an asset based
loan secured by the assets of Universal. The acquisition was accounted for
under the purchase method of accounting. The purchase price has been
preliminarily allocated to the net assets acquired, based upon their
estimated fair values at the date of acquisition, pending final
determination of certain acquired balances. The excess of the cost over the
fair value of the net assets acquired, (as adjusted for the additional
$70,929 payment), amounting to approximately $81,947, is being amortized on
a straight-line basis over a twenty-year period. The fair value of the net
assets acquired has been included in the balance sheet as of June 30, 1999.
The results of operations of Universal have been included in the Company's
consolidated statement of income commencing July 1, 1999.
In connection with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 14,961,026
Cash paid and other accrued
purchase price of $309,350 10,938,777
----------
Fair value of liabilities assumed $ 4,022,249
----------
-5-
<PAGE>
Universal's primary business is the distribution of heating, ventilation,
air conditioning and climate controls. Universal's products are marketed
primarily to heating, ventilation and air conditioning (HVAC) contractors,
which, in turn, sell such products to residential and commercial/industrial
customers. In addition to its approximately 500 different product lines,
Universal also provides technical field support, in-house training and
climate control consultation for engineers and installers. Universal is
headquartered in Hawthorne, New Jersey and has six operating locations in
New Jersey and one in New York.
The following unaudited pro forma summary presents information as if the
acquisition had occurred at the beginning of each period. The pro forma
information contains adjustments for interest on acquisition financing and
amortization of the excess cost over the fair value of net assets acquired.
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations, that actually would have resulted had the acquisition occurred
on the first day of the period indicated or that may result in the future.
(Unaudited)
Nine Months Ended September 30,
1999 1998
---- ----
Sales $ 40,220,779 $ 35,468,389
Net Income 614,619 2,494,985
Net income per common share:
Basic $ .41 $ 1.73
Diluted $ .20 $ .79
Weighted average shares outstanding:
Basic 1,499,021 1,441,550
Diluted 3,141,194 3,140,712
(b) On October 15, 1999, Universal Supply Group, Inc. ("Universal")
purchased all of the accounts receivable, inventory, fixed assets, trade
names and customer lists of Ramsco, Inc. for approximately $221,000 in cash.
The transaction was accounted for as a purchase and, accordingly, the cost
of the acquisition was allocated to the net assets acquired, based upon
their estimated fair values. The excess of cost over the fair value of net
assets amounted to approximately $150,000 and will be amortized over a
fifteen-year period. Pro forma results of operations were not provided as
their effects on the consolidated results of operations were not material.
In connection with the acquisition, Universal entered into a five-year
employment agreement and a non-competition agreement with the former owner.
Universal also entered into a new five-year lease with the landlord of the
former owner's premises.
-6-
<PAGE>
(3) Supplemental Cash Flow Information
----------------------------------
The following is supplemental information relating to the consolidated
statements of cash flows:
Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Cash paid during the period for:
Interest $ 286,906 $ 174,628
Income taxes $ 294,214 $ 154,386
Non-Cash Transactions:
During the nine-month period of 1999, the Company retired 57,311 shares of
convertible preferred stock, which were converted to a similar number of
common shares. During the nine-month period of 1998, 65,080 shares of
convertible preferred stock were retired, 15,662 shares the Company acquired
during the nine-month period and 49,418 shares that were converted to a
similar number of common shares.
During the quarter ended September 30, 1999, the Company converted
$2,900,000 of its borrowing under its line of credit to a term loan (note
4).
On June 25, 1999, the Company acquired the net assets of Universal (note 2).
Debt financed in connection with the acquisition was $6,750,000 (note 4).
(4) Bank Financing
--------------
In June 1999, the Company entered into a loan and security agreement with
a financial institution for a $16,000,000 line of credit. Borrowings under
the line of credit and term loan 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 on 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 is in effect until June 24, 2002, unless
demand for payment is made by the financial institution and is automatically
renewed from year to year thereafter. The loan and security agreement
contains a number of covenants relating to the financial condition of the
Company and its business operations. The Company borrowed $7,300,000 to
finance the acquisition and refinance assumed debt of Universal. During the
quarter ended September 30, 1999, the Company converted $2,900,000 of
borrowings under its line of credit to a term loan maturing June 2004. At
September 30, 1999, $2,900,000 was outstanding under the term loan and is
included in notes payable on the accompanying consolidated balance sheet.
-7-
<PAGE>
(5) Comprehensive Income
--------------------
The Company's total comprehensive income was as follows:
Nine Months Ended Three Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Net income $745,020 $ 2,528,259 $ 522,492 $ 343,993
Other comprehensive income:
Unrealized holding gains
arising during period - 211,863 - -
Less: reclassification
adjustment for gains
realized in net income - (2,101,853) - -
-------- ----------- --------- ----------
Total comprehensive income $745,020 $ 638,269 $ 522,492 $ 343,993
======== =========== ========= ==========
(6) Net Earnings Per Common Share
-----------------------------
A reconciliation between the numerators and denominators of the basic and
diluted earnings per common share calculations is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (numerator) $ 745,020 $2,528,259 $ 522,492 $ 343,993
Weighted average common shares
(denominator for basic
earnings per share) 1,499,021 1,441,550 1,517,814 1,456,544
Effect of dilutive securities:
Convertible preferred stock 1,557,025 1,641,762 1,538,232 1,611,834
Employee stock options 85,147 57,400 91,077 52,390
---------- ---------- ---------- ---------
Weighted average common and
potential common shares
outstanding (denominator for
diluted earnings per share) 3,141,194 3,140,712 3,147,123 3,120,768
========= ========== ========= =========
Basic earnings per
share $.50 $1.75 $.34 $.24
=== ==== === ===
Diluted earnings per
share $.24 $ .80 $.17 $.11
=== === === ===
</TABLE>
-8-
(7) Industry Segments
-----------------
The Company has three reportable segments: (1) door hardware and
doors, (2)heating, ventilating and air conditioning (HVAC) (effective July
1, 1999) and (3) investing activities. Summarized financial information
for each of the Company's three business segments for the nine and three
months ended September 30,1999 and 1998 follows. The financial data for
the nine and three months ended September 30, 1998 have been reclassified
to reflect the quarterly allocations of management fees and interest
expense.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 1999
Door Un- Consoli-
hardware Investing allocated dated
and doors HVAC activities amount Eliminations totals
--------- ------ ------------- ------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 7,297,471 7,431,366 -- -- -- 14,728,837
============ ============ ============ ============= ========== ============
Operating
income (loss) 637,669(a) 383,794(a) (138,931)(a) -- -- 882,532
Other income 1,502 26,843 98,968 -- -- 127,313
Interest
income -- -- 39,024 -- (14,890)(b) 24,134
Interest
expense (58,970) (162,500) -- -- 14,890 (b) (206,580)
------------ ------------ ------------ ------------- ---------- ------------
Income (loss)
before income
taxes 580,201 248,137 (939) -- -- 827,399
============ ============ ============ ============= ========== ============
Net income
(loss) 495,201 225,804 (939) (197,574)(c) -- 522,492
============ ============ ============ ============= ========== ============
NINE MONTHS ENDED
SEPTEMBER 30, 1999
Door Un- Consoli-
hardware Investing allocated dated
and doors HVAC activities amount Eliminations totals
--------- ------ ------------- ------- ------------ ------
Revenues $ 19,626,539 7,431,366 -- -- -- 27,057,905
------------ ============ ============ ============= ========== ============
Operating
income (loss) 1,389,189(a) 383,794(a) (536,695)(a) -- -- 1,236,288
Other income 4,953 26,843 99,352 -- -- 131,148
------------
Interest
income -- -- 228,304 -- (79,526)(b) 148,778
Interest
expense (206,113) (162,500) -- -- 79,526 (b) (289,087)
------------ ------------ ------------ ------------- ---------- ------------
Income (loss)
before income
taxes 1,188,029 248,137 (209,039) -- -- 1,227,127
============ ============ ============ ============= ========== ============
Net income
(loss) 1,019,029 225,804 (209,039) (290,774)(c) -- 745,020
============ ============ ============ ============= ========== ============
Total assets $ 10,511,269 11,451,072 8,503,393 3,989,326 (d) (6,859,750)(e 27,595,310
============ ============ ============ ============= ---------- ============
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 1998
Door Un- Consoli-
hardware Investing allocated dated
and doors activities amount Eliminations totals
--------- ---------- ------ ------------ ------
<S> <C> <C> <C> <C> <C>
Revenues $ 6,467,564 -- -- -- 6,467,654
============ ============ =========== ========== ============
Operating
income (loss) 487,876(a) (202,363)(a) -- -- 285,513
Gain on sale of
Monroc stock -- -- -- -- --
------------
Other income 876 98,956 -- -- 99,832
Interest
income -- 87,536 -- (27,652)(b) 59,884
Interest
expense (71,888) -- -- 27,652 (b) (44,236)
------------ ------------ ----------- ---------- ------------
Income (loss)
before
income taxes 416,864 (15,871) -- -- 400,993
============ ============ =========== ========== ============
Net income
(loss) 359,864 (15,871) -- -- 343,993
============ ============ =========== ========== ============
NINE MONTHS ENDED
SEPTEMBER 30, 1998
Door Un- Consoli-
hardware Investing allocated dated
and doors activities amount Eliminations totals
--------- ---------- ------ ------------ ------
Revenues $ 18,613,774 -- -- -- 18,613,774
============ ============ =========== ========== ============
Operating
income (loss) 1,240,152(a) (650,152)(a) -- -- 590,000
------------
Gain on sale of
Monroc stock -- 2,101,853 -- -- 2,101,853
------------
Other income 3,761 109,619 -- -- 113,380
Interest
income -- 184,108 -- (65,431)(b) 118,677
Interest
expense (229,082) -- -- 65,431 (b) (163,651)
------------ ------------ ----------- ---------- ------------
Income (loss)
before
income taxes 1,014,831 1,745,428 -- -- 2,760,259
============ ============ =========== ========== ------------
Net income
(loss) 854,831 1,745,428 (72,000)(c) -- 2,528,259
================== ============ ============ ----------- ========== ------------
Total assets $ 8,721,692 7,284,658 234,000 (d) (3,039,284)(e) 13,201,066
============ ============ =========== ========== ============
<FN>
(a) Includes an allocation from the investing segment to the door hardware
and doors segment of $112,500 and $90,000 in the nine months ended
September 30, 1999 and 1998, respectively and $37,500 and $30,000 in
the three months ended September 30, 1999 and 1998, respectively, and
$62,400 to the HVAC segment for the nine months and three months ended
September 30, 1999, based on management's estimate of costs incurred by
the investing segment on behalf of the door hardware and doors segment
and HVAC segment.
(b) Represents elimination of interest charged on intercompany borrowings.
(c) Represents deferred tax expense and alternative minimum taxes that are
not allocated to a segment.
(d) Represents deferred tax assets that are not allocated to a segment.
(e) Represents elimination of intercompany receivable and the investing
activities' initial cash investment in the door hardware and doors and
HVAC segments.
</FN>
</TABLE>
-10-
<PAGE>
(8) Contingencies
-------------
During September 1999, Atlantic Hardware and Supply Corp. ("Atlantic")
guaranteed payment of certain accounts receivable of BRS Products, Inc.
("BRS") to BRS' factor. BRS, a supplier to Atlantic, is a manufacturer of
hollow metal doors and frames located in Hoboken, New Jersey. As of
November 10, 1999, there was $77,282 of BRS' accounts receivable
outstanding guaranteed by Atlantic.
On October 28, 1999 BRS filed a petition for Chapter 11 bankruptcy.
Atlantic agreed to provide debtor-in-possession financing to BRS in the
form of a $750,000 revolving line of credit on eligible accounts receivable
and a $320,000 term loan. The financing agreement is secured by a super
priority lien on all of BRS' post-petition assets and a secured lien on all
of its pre-petition assets. As of November 10, 1999, there was $119,377
outstanding on the revolving line of credit and $240,000 outstanding on the
term loan.
Item 2. Management's Discussion and Analysis of
- ------- ---------------------------------------
Financial Condition and Results
-------------------------------
Results of Operations - Three Months Ended
September 30, 1999 and 1998
The Company reported net income of $522,492 for the third quarter of
1999, which included $495,201 of net income from Atlantic and $225,804 of net
income from Universal as compared with net income of $343,993 for the third
quarter of 1998, which included $359,864 of net income from Atlantic. Universal
was acquired effective July 1, 1999.
Sales increased $8,261,273 (128%) to $14,728,837, due to sales of
Universal of $7,431,366, which was acquired effective July 1, 1999 and increased
sales at Atlantic of $829,907 (12.8%) due to continued strength in construction
activity in Atlantic's markets, particularly the New York metropolitan area.
Selling, general and administrative expenses, net increased $1,920,182
principally due to $1,846,067 relating to Universal, variable costs associated
with increased sales at Atlantic and costs related to the relocation of
Atlantic's headquarters. Atlantic's selling and administrative expense as a
percentage of sales did not significantly change. Interest expense increased
$162,344, principally due to increased borrowings relating to the Universal
acquisition. Interest income decreased $35,750 due to lower average invested
cash resulting from the Company's investment in Universal. Other income
increased $27,481 largely due to service fees generated by Universal's credit
card program and accounts receivable credit programs. During the third quarter
of 1999, the Company provided for federal and state taxes at an effective tax
rate of 36.9%, whereas during the third quarter of 1998, the Company provided
for current state income taxes associated with the income from Atlantic.
-11-
<PAGE>
Results of Operations - Nine Months Ended
September 30, 1999 and 1998
The Company reported net income of $745,020 for the nine months ended
September 30, 1999, which included $1,019,029 of net income from Atlantic and
$225,804 of net income from Universal, as compared with net income of $2,528,259
for the nine months ended September 30, 1998, which included $1,014,831 of net
income from Atlantic and a $2,101,853 gain on sale of available-for-sale
securities. Universal was acquired effective July 1, 1999.
Sales increased $8,444,131 (45%) to $27,057,905, principally due to
sales from Universal ($7,431,366), which was acquired effective July 1, 1999 and
increased sales at Atlantic of $1,012,765 (5.4%), due to continued strength in
construction activity in Atlantic's markets, particularly in the New York
metropolitan area. Selling, general and administrative expenses,
net increased $2,123,621, principally due to $1,846,067 of expenses relating to
Universal, variable costs associated with increased sales at Atlantic and costs
related to the relocation of Atlantic's headquarters. Atlantic's selling and
administrative expense, as a percentage of sales, did not significantly change.
Interest expense increased $125,436, principally due to increased borrowings
related to the Universal acquisition. Interest income decreased $30,101 due to
lower average invested cash resulting from the Company's investment in
Universal. Other income increased $17,768 largely due to service fees generated
by Universal's credit card program and accounts receivable credit programs.
During the nine months of 1999, the Company provided for federal and state taxes
at an effective tax rate of 39.3%, whereas during the nine months of 1998, the
Company 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 Company's holdings of the common stock of Monroc, Inc.
The Company 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 and the operating results of Atlantic and Universal.
Liquidity and Capital Resources
As of September 30, l999, the Company had $1,520,126 in cash and cash
equivalents compared with $5,001,881 at December 31, 1998.
Cash flow provided by operations during the nine months of 1999
improved in comparison to the nine months of 1998 from $468,731 to $702,451
primarily due to improved operating income.
Cash flows used in investing activities during the nine months of
1999 of $4,508,474 were primarily due to $3,879,427, net of cash acquired, used
for the acquisition of Universal and $708,064 for additions to property and
equipment, principally leasehold improvements, to Atlantic's new headquarters
and the relocation of one of Universal's facilities.
Cash flows provided by financing activities during the nine months of
1999 of $324,268 were from borrowings on the line of credit of $441,129, net of
$116,861 of payments made on notes payable.
-12-
<PAGE>
In connection with the acquisition of Universal, the Company entered
into a loan and security agreement with a financial institution for a
$16,000,000 line of credit. Borrowings under the line of credit and term loan
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. During the quarter ended September 30, 1999, the
Company converted $2,900,000 of its borrowing under its line of credit to a term
loan. 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 is in effect until June 24, 2002, unless demand for payment
is made by the financial institution, and is automatically renewed from year to
year thereafter. The loan and security agreement contains a number of covenants
relating to the financial condition of the Company and its business operations.
The Company borrowed $7,300,000 to finance the acquisition and refinance assumed
debt of Universal.
During September 1999 Atlantic Hardware and Supply Corp. ("Atlantic")
guaranteed payment of certain accounts receivable of BRS Products, Inc. ("BRS")
to its factor. BRS, a supplier to Atlantic, is a manufacturer of hollow metal
doors and frames located in Hoboken, New Jersey. As of November 10, 1999, there
was $77,282 of BRS' accounts receivable outstanding guaranteed by Atlantic.
On October 28, 1999 BRS filed a petition for Chapter 11 bankruptcy.
Atlantic agreed to provide debtor-in-possession financing to BRS in the form of
a $750,000 revolving line of credit on eligible accounts receivable and a
$320,000 term loan. The financing agreement is secured by a super priority lien
on all of BRS' post-petition assets and a secured lien on all of its
pre-petition assets. As of November 10, 1999, there was $119,377 outstanding on
the revolving line of credit and $240,000 outstanding on the term loan.
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 and
Universal, and notes receivable.
Year 2000 Date Conversion
The year 2000 issue affects computer systems, equipment and other
systems that have time-sensitive programs that may not properly recognize the
year 2000.
The Company's computer systems are currently being upgraded and, upon
completion in the fourth quarter of 1999, they are expected to be Year 2000
compliant. At this time, management believes that the Company does not have any
internal critical Year 2000 issues that it cannot remedy.
Management continues the process of surveying third parties with whom
it has a material relationship primarily through written correspondence.
Management is relying upon the response of these third parties in its assessment
of Year 2000 readiness. Although the Company does not have significant data
communications
-13-
<PAGE>
with its customers, suppliers, financial institutions and others, management
cannot be certain as to the Year 2000 readiness of these third parties or the
impact that any non-compliance on their part may have on the Company's business,
results of operations, financial condition or liquidity.
The Company has incurred internal staff cost, as well as consulting
and other expenses, in preparing for the Year 2000. Because the Company has
replaced a significant portion of its computer hardware in recent years and is
currently updating its software, the costs incurred in addressing the Year 2000
issue have not had a material impact on the Company's business, results of
operations, financial condition or liquidity.
The above comments on the Year 2000 issue contain forward-looking
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and resources that should be read in conjunction with
the following disclosure on forward-looking statements.
Forward-Looking Statements
This report contains forward-looking statements relating to such
matters as anticipated financial performance and business prospects. When used
in this report, the words "anticipates," "expect," "may", "intend" and similar
expressions are intended to be among the statements that identify
forward-looking statements. From time to time, the Company may also publish
forward-looking statements. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. Forward-looking
statements involve risks and uncertainties, including, but not limited to, the
consummation of certain events referred to in this report, technological
changes, competitive factors, maintaining customer and vendor relationships,
inventory obsolescence and availability, and other risks detailed in the
Company's periodic filings with the Securities and Exchange Commission, which
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements.
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133." SFAS 137 amends SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," which was issued in June 1998. SFAS 137
defers the effective date of SFAS 133 to all fiscal quarters of fiscal years
beginning after June 15, 2000. Earlier application is permitted. SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Management of the Company does not believe the
implementation of SFAS 133 will have a significant impact on its financial
position and results of operations.
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits - Exhibit 27. Financial Data Schedule September 30,1999.
(b) Reports on Form 8-K - The Registrant filed a report on Form 8-K
dated July 8, 1999, which reported the Registrant's acquisition of
the assets and business of Universal Supply Group, Inc. on June
25, 1999.
Report on Form 8-K/A-1 - The Registrant filed a report on Form 8-K/A-1
dated September 8,1999, which amended the Company's report on Form 8-K
dated July 8, 1999 relative to the acquisition of Universal Supply
Group, Inc. on June 25, 1999.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 15, 1999 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
-15-
<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
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-START> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,520,126
<SECURITIES> 0
<RECEIVABLES> 12,540,551
<ALLOWANCES> 923,427
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<CGS> 19,406,079
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