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, 1999 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, 1999.
Common Stock, par value $.05 per share - 1,515,815 shares
Convertible Preferred Stock, par value $.05 per share - 1,540,231 shares
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets as of
June 30,1999 (unaudited) and
December 31, 1998 1
Consolidated Statements of Income
Three Months ended June 30, 1999 and
1998 (unaudited) 2
Consolidated Statements of Income
Six Months ended June 30, 1999 and
1998 (unaudited) 3
Consolidated Statements of Cash Flows for
the Six Months ended June 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 10
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
PART 1.
Item 1. Financial Statements
- ------- --------------------
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
Assets 1999 1998
------ ---- ----
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,784,811 5,001,881
Accounts receivable, net of allowance for doubtful
accounts of $901,262 in 1999 and $453,906 in 1998 11,132,148 8,571,701
Inventory 7,927,466 1,177,907
Notes receivable - current portion 158,035 158,035
Prepaid expenses and other assets 547,241 97,408
Deferred taxes 251,632 165,000
------------ ----------
Total current assets 21,801,333 15,171,932
Notes receivable, excluding current portion 237,052 316,069
Deferred taxes 3,860,368 335,000
Property and equipment, net 754,188 502,312
Excess of cost over fair value of net assets
acquired and other intangibles, net 242,685 --
Other assets 78,798 --
------------ ----------
$ 26,974,424 16,325,313
============ ==========
Liabilities And Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 3,207,453 1,090,135
Accrued liabilities 2,169,818 1,392,034
Income taxes payable 90,157 203,640
Borrowings under line of credit 9,181,273 2,049,268
Notes payable - current portion 201,758 18,677
------------ ----------
Total current liabilities 14,850,459 4,753,754
Notes payable, excluding current portion 426,202 39,858
Excess of acquired net assets over cost, net 668,145 724,611
------------ ----------
Total liabilities 15,944,806 5,518,223
------------ ----------
Stockholders' equity:
Convertible preferred stock, $.05 par value,
liquidation preference of
$7,701,155 and $7,964,970 at June 30,1999
and December 31,1998, respectively
2,468,860 shares authorized, 1,540,231 and
1,592,994 shares issued and outstanding,
at June 30, 1999 and
December 31, 1998, respectively, 77,012 79,650
Common stock, $.05 par value, 20,000,000 shares
authorized, 1,515,815 and 1,463,052 shares issued
at June 30, 1999 and December 31, 1998, respectively, 75,791 73,153
Additional paid-in capital 8,921,989 8,921,989
Retained earnings 1,954,826 1,732,298
------------ ----------
Total stockholders' equity 11,029,618 10,807,090
------------ ----------
Commitments
$ 26,974,424 16,325,313
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Income
Three Months ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Sales $ 6,341,983 $ 7,063,558
Cost of sales 4,645,408 5,336,968
----------- -----------
Gross profit 1,696,575 1,726,590
----------- -----------
Selling, general and
administrative expenses, net 1,571,335 1,442,515
----------- -----------
Operating income 125,240 284,075
Gain on sale of Monroc, Inc. stock -- 2,101,853
Interest income 57,651 34,137
Other income 1,369 9,226
Interest expense (45,397) (61,471)
----------- -----------
Income before income taxes 138,863 2,367,820
Income taxes 67,500 136,000
----------- -----------
Net income $ 71,363 $ 2,231,820
=========== ===========
Net income per common share:
Basic $ .05 $ 1.55
----------- -----------
Diluted $ .02 $ .71
----------- -----------
Weighted average shares outstanding:
Basic 1,508,882 1,436,963
Diluted 3,150,989 3,154,514
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Income
Six Months ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Sales $ 12,329,068 $ 12,146,210
Cost of sales 8,914,379 8,984,229
------------ ------------
Gross profit 3,414,689 3,161,981
------------ ------------
Selling, general and
administrative expenses, net 3,060,933 2,857,494
------------ ------------
Operating income 353,756 304,487
Gain on sale of Monroc, Inc. stock -- 2,101,853
Interest income 124,644 58,793
Other income 3,835 13,548
Interest expense (82,507) (119,415)
------------ ------------
Income before income taxes 399,728 2,359,266
Income taxes 177,200 175,000
------------ ------------
Net income $ 222,528 $ 2,184,266
============ ============
Net income per common share:
Basic $ .15 $ 1.52
------------ ------------
Diluted $ .07 $ .69
------------ ------------
Weighted average shares outstanding:
Basic 1,489,624 1,434,052
Diluted 3,138,230 3,150,682
</TABLE>
-3-
<PAGE>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Cash Flows
Six Months ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
Reconciliation of net income to net cash provided by
(used in) operating activities:
<S> <C> <C>
Net income $ 222,528 $ 2,184,266
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Provision for allowance for doubtful accounts 120,000 140,000
Depreciation 62,856 48,693
Amortization of excess of acquired net assets
over cost (56,466) (56,466)
Deferred tax provision 88,000 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 1,121,599 98,814
Inventory (161,161) (171,306)
Prepaid expenses and other assets (73,844) 16,836
Accounts payable 63,744 (412,261)
Accrued liabilities (371,647) (30,776)
Income taxes payable (113,483) 25,175
----------- -----------
Net cash provided by (used in)
operating activities 902,126 (186,878)
----------- -----------
Cash flows from investing activities:
Payment for acquisition of Universal Supply Group
Inc., net of cash acquired (3,808,498) --
Proceeds from sale of Monroc, Inc. stock -- 3,533,653
Payments received on notes receivable 79,017 124,017
Additions to property and equipment (212,552) (101,798)
----------- -----------
Net cash provided by (used in)
investing activities (3,942,033) 3,555,872
----------- -----------
Cash flows from financing activities:
Payments on notes payable (9,168) (447,363)
Net repayments under line of credit (167,995) (97,729)
Payments for purchase of treasury stock -- (66,503)
----------- -----------
Net cash used in financing activities (177,163) (611,595)
----------- -----------
Increase (decrease) in cash (3,217,070) 2,757,399
Cash - beginning of period 5,001,881 1,240,986
----------- -----------
Cash - end of period $ 1,784,811 $ 3,998,385
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 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 June 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 Acquisition
--------------------
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). 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, amounting to approximately $11,018,
will be amortized on a straight-line basis over a twenty-year period. The
fair value of the net assets acquired have been included in the balance
sheet as of June 30, 1999. The results of operations of Universal will be
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 $ 14,890,097
Cash paid and other accrued
purchase price of $309,350 10,867,848
----------
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, which actually would have resulted had the acquisition occurred
the first day of the period indicated or which may result in the future.
(Unaudited)
Six Months Ended June 30,
1999 1998
---- ----
Sales $24,491,942 $22,423,649
Net Income 269,327 2,081,401
Net income per common share:
Basic $ .18 $ 1.45
Diluted $ .09 $ .66
Weighted average shares outstanding:
Basic 1,489,624 1,434,052
Diluted 3,138,230 3,150,682
(3) Supplemental Cash Flow Information
----------------------------------
The following is supplemental information relating to the consolidated
statements of cash flows:
Six Months Ended
June 30, 1999 June 30, 1998
------------- -------------
Cash paid during the period for:
Interest $ 80,335 $ 122,890
Income taxes $ 203,268 $ 94,208
-6-
<PAGE>
Non-Cash Transactions:
During the six month period of 1999, the Company retired 52,763 shares of
convertible preferred stock, which were converted to a similar number of
common shares. During the six month period of 1998, 36,743 shares of
convertible preferred stock, which were exchanged for a similar number of
common shares, were retired.
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 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 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.
(5) Comprehensive Income
--------------------
The Company's total comprehensive income was as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 222,528 $ 2,184,266 $ 71,363 2,231,820
Other comprehensive income:
Unrealized holding gains
arising during period -- 211,863 -- 109,248
Less: reclassification
adjustment for gains
realized in net income -- (2,101,853) -- (2,101,853)
----------- ----------- ----------- -----------
Total comprehensive income $ 222,528 $ 294,276 $ 71,363 239,215
=========== =========== =========== ===========
</TABLE>
-7-
(6) NET INCOME PER COMMON SHARE
A reconciliation between the numerators and denominators of the basic
and diluted income per common share is as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (numerator) $ 222,528 $2,184,266 $ 71,363 $2,231,820
========== ========== ========== ==========
Weighted average common shares
(denominator for basic
income per share) 1,489,624 1,434,052 1,508,882 1,436,963
Effect of dilutive securities:
Convertible preferred stock 1,566,422 1,656,725 1,547,164 1,647,315
Employee stock options 82,184 59,905 94,943 70,236
---------- ---------- ---------- ----------
Weighted average common and
potential common shares
outstanding (denominator for
diluted income per share) 3,138,230 3,150,682 3,150,989 3,154,514
========== ========== ========== ==========
Basic income per share $ .15 $ 1.52 $ .05 1.55
========== ========== ========== ==========
Diluted income per share $ .07 $ .69 $ .02 .71
========== ========== ========== ==========
</TABLE>
(7) Industry Segments
------------------
The Company has three reportable segments: (1) door hardware and doors,
(2) heating, ventilating and air conditioning (HVAC) (effective June 30, 1999)
and (3) investing activities. Summarized financial information for each of the
Company's three business segments for the six and three months ended June 30,
1999 and 1998 follows. The financial data for the six and three months ended
June 30, 1998 have been reclassified to reflect the quarterly allocations of
management fees and interest expense.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1999
Door Un- Consoli-
hardware Investing allocated dated
and doors Hvac Activities Amount Eliminations Totals
--------- ------ ------------- ------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenues $6,341,983 -- -- -- -- 6,341,983
========== ========== ========== ============= ========== ==========
Operating
income (loss) 339,626(a) -- (214,386)(a) -- -- 125,240
Other income 1,370 -- (1) -- -- 1,369
Interest
income -- -- 81,473 -- (23,822)(b) 57,651
Interest
expense 69,219 -- -- -- (23,822)(b) 45,397
---------- ---------- ---------- ------------- ---------- ----------
Income (loss)
before income
taxes 271,777 -- (132,914) -- -- 138,863
========== ========== ========== ============= ========== ==========
Net income
(loss) 236,777 -- (132,914) (32,500)(c) -- 71,363
========== ========== ========== ============= ========== ==========
Total assets $9,542,747 11,438,121 8,336,095 4,112,000(d)(6,454,539)(e) 26,974,424
========== ========== ========== ============= ========== ==========
</TABLE>
-8-
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999
Door Un- Consoli-
hardware Investing allocated dated
and doors Hvac Activities Amount Eliminations Totals
--------- ------ ------------- ------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenues $12,329,068 -- -- -- -- 12,329,068
=========== =========== ============= =============== =========== ===========
Operating
income (loss) 751,520(a) -- (397,764)(a) -- -- 353,756
Other income 3,451 -- 384 -- -- 3,835
Interest
income -- -- 189,280 -- (64,636)(b) 124,644
Interest
expense 147,143 -- -- -- (64,636)(b) 82,507
----------- ----------- ------------- --------------- ----------- -----------
Income (loss)
before income
taxes 607,828 -- (208,100) -- -- 399,728
=========== =========== ============= =============== =========== ===========
Net income
(loss) 523,828 -- (208,100) (93,200)(c) -- 222,528
=========== =========== ============= =============== =========== ===========
Total assets $ 9,542,747 11,438,121 8,336,095 4,112,000 (d) (6,454,539)(e) 26,974,424
============ =========== ============= =============== =========== ===========
THREE MONTHS ENDED
JUNE 30, 1998
Door Un- Consoli-
hardware Investing allocated dated
and doors Activities Amount Eliminations Totals
--------- ------------ ------- ------------ ------
Revenues $ 7,063,558 -- -- -- 7,063,558
=========== ============ ========= =========== ===========
Operating
income (loss) 528,104(a) (244,029)(a) -- -- 284,075
Gain on sale of
Monroc stock -- 2,101,853 -- -- 2,101,853
Other income 2,313 6,913 -- -- 9,226
Interest
income -- 53,131 -- (18,994)(b) 34,137
Interest
expense 80,456 -- -- (18,994)(b) 61,471
----------- ------------- --------- ----------- -----------
Income (loss)
before
income taxes 449,952 1,917,868 -- -- 2,367,820
=========== ============= ========= =========== ===========
Net income
loss) 385,952 1,917,868 (72,000)(c) -- 2,231,820
=========== ============= ========= =========== ===========
Total assets 9,216,371 7,555,853 234,000 (d) (2,637,414) 14,368,810
=========== ============= ========= =========== ===========
SIX MONTHS ENDED
JUNE 30, 1998
Door Un- Consoli-
hardware Investing allocated dated
and doors Activities Amount Eliminations Totals
--------- ------------- ------- ------------ ------
Revenues $12,146,210 -- -- -- 12,146,210
=========== ============== =========== =========== ===========
Operating
income (loss) 752,273(a) (447,786)(a) -- -- 304,487
Gain on sale of
Monroc stock -- 2,101,853 -- -- 2,101,853
Other income 2,885 10,663 -- -- 13,548
Interest
income -- 96,571 -- (37,778)(b) 58,793
Interest
expense 157,193 -- -- (37,778)(b) 119,415
----------- ---------- ---------- ----------- -----------
Income (loss)
before
income taxes 597,965 1,761,301 -- -- 2,359,266
=========== ========== =========== =========== ===========
Net income
(loss) 494,965 1,761,301 (72,000)(c) -- 2,184,266
=========== ============= ========== =========== ===========
Total assets $ 9,216,371 7,555,501 234,000 (d) (2,637,062)(e) 14,368,810
=========== =============== ========== =========== ===========
</TABLE>
-9-
<PAGE>
(a) Includes an allocation from the investing segment to the door hardware
and doors segment of $75,000 and $60,000 in the six months ended June
30, 1999 and 1998, respectively and $37,500 and $30,000 in the three
months ended June 30, 1999 and 1998, respectively, based on
management's estimate of costs incurred by the investing segment on
behalf of the door hardware and doors 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.
ITEM 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results
-------------------------------
Results of Operations - Three Months Ended
June 30, 1999 and 1998
Registrant reported net income of $71,363 for the second quarter of
1999, which includes $236,777 of net income from Atlantic Hardware and Supply
Corporation ("Atlantic"), as compared to net income of $2,231,820 for the second
quarter of l998, which included $385,952 of net income from Atlantic and a
$2,101,853 gain on the sale of Monroc, Inc. common stock.
Sales decreased $721,575(10.2%) to $6,341,983 in the 1999 period due
to the timing of delivery on contracts. Gross margins increased 2.4 percentage
points due to changes in product mix and purchase discounts realized in the 1999
period. Selling, general and administrative expenses, net, increased $128,820
principally due to costs associated with the relocation of Atlantic's
headquarters, as well as compensation and commissions. Interest expense
decreased $16,074 due to lower borrowings at lower rates. Interest income
increased $23,514 due to greater cash balances invested due to the 1998 sale of
available-for-sale securities and land sales. During the second quarter of 1999,
the Company provided for federal and state taxes at an effective tax rate of
49%. During the second quarter of 1998, the Company provided for state income
taxes associated with the income from Atlantic, as well as deferred tax expense
resulting from the realized gain on the sale of available-for-sale securities
due to the use of a previously unrecognized federal net operating loss
carryforward.
Results of Operations - Six Months Ended
June 30, 1999 and 1998
Registrant reported net income of $222,528 for the first half of 1999,
which principally reflects $523,828 of net income from Atlantic Hardware and
Supply Corporation ("Atlantic"), as compared to net income of $2,184,266 for the
first half of 1998, which included $494,965 of net income from Atlantic and a
$2,101,853 gain on the sale of Monroc, Inc. common stock.
-10-
<PAGE>
Sales increased $182,858(1.5%) to $12,329,068 in the 1999 period
compared to sales of $12,146,210 in the 1998 period. Atlantic's sales backlog
has increased $789,000 to $12,653,000 since December 31, 1998. The June 30, 1999
backlog has increased $2,016,000 from June 30, 1998.
Gross margins increased 1.7 percentage points primarily as a result
of changes in product mix and purchase discounts realized in the 1999 period.
Selling, general and administrative expenses, net increased $203,439 principally
due to costs associated with the relocation of Atlantic's headquarters, as well
as compensation and commissions. As a percentage of sales, selling, general and
administrative expenses increased 1.3 percentage points. Interest expense
decreased $36,908 principally due to lower borrowings on Atlantic's revolving
line of credit at lower rates. Interest income increased $65,851 due to greater
cash balances invested due to the 1998 sale of available-for-sale securities and
a land sale. During the first half of 1999, the Company provided for federal and
state taxes at an effective tax rate of 44%. During the first half of 1998, the
Company provided for state income taxes associated with the income from
Atlantic, as well as deferred tax expense resulting from the realized gain on
the sale of available-for-sale securities due to the use of a previously
unrecognized federal net operating loss carryforward.
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, and the operating results of Atlantic and Universal.
Liquidity and Capital Resources
As of June 30, l999, the Registrant had $1,784,811 in cash and cash
equivalents, compared to $5,001,881 at December 31,
1998.
Cash flows provided by operations during the six months of 1999
improved in comparison to the six months of 1998 principally due to the
reduction of accounts receivable.
Cash flows used in investing activities during the six months of 1999
of $3,942,033 were primarily due to $3,808,498, net of cash acquired, used for
the acquisition of Universal and for $212,552 of additions to property and
equipment.
Cash flows used in financing activities during the six months of 1999
of $177,163 were due to payments made on notes of $9,168 and repayments on the
line of credit of $167,995.
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 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 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
-11-
<PAGE>
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.
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 its 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 latter half 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 is in 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 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 expects to incur internal staff cost 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, which
updating is independent of the Year 2000 compliance, the costs to be incurred in
addressing the Year 2000 issue are not expected to have a material impact on the
Company's business, results of operations, financial condition or liquidity. The
Company has established a contingency plan to address potential non-compliance
of the third parties with whom it does business or the possible failure or
non-completion of the internal systems upgrade. The contingency plan includes
the training of employees on the use of alternative procedures and a possible
increase in inventory levels in the latter half of 1999.
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 disclosure on forward-looking statements.
Recent Accounting Pronouncements
The Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("Statement
133"). Statement 133 established accounting and reporting standards for
derivative instruments, including those embedded in other contracts and for
hedging activities. Statement 133, as amended, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. Early application of
all the provisions of this Statement is encouraged but is permitted only as of
the beginning of any fiscal quarter that
-12-
<PAGE>
begins after issuance of this Statement. Management of the Company does not
believe that the implementation of Statement 133 will have a significant impact
on its financial position or results of operations.
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Annual Meeting of Shareholders on June 9, 1999.
(c) On June 9, 1999, the Preferred shareholders elected William Koon,
Donald K. MacNeill, Ronald Miller and Jack Rose as Preferred Stock directors of
the Company, and the Common shareholders 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 LLP as the independent public accountants for the Company for
the fiscal year ending December 31, 1999.
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 706,293 - 13,231
Ronald Miller 706,504 - 13,020
Jack Rose 705,936 - 13,588
Donald K. MacNeill 706,390 - 13,135
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 1,234,274 - 12,421
Bernard Korn 1,234,114 - 12,581
Paul Selden 1,234,274 - 12,421
James W. Stewart 1,234,274 - 12,421
Carl L. Sussman 1,234,274 - 12,421
To ratify the selection of KPMG
LLP as independent public
accountants of the Company
for the fiscal year ending
December 31, 1999. 1,939,264 6,234 20,721
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Exhibit 27. Financial Data Schedule June 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.
-13-
<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 16,1999 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
-14-
<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-01-1999
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,784,811
<SECURITIES> 0
<RECEIVABLES> 12,033,410
<ALLOWANCES> 902,262
<INVENTORY> 7,927,466
<CURRENT-ASSETS> 21,801,333
<PP&E> 1,090,553
<DEPRECIATION> 336,365
<TOTAL-ASSETS> 26,974,424
<CURRENT-LIABILITIES> 14,850,459
<BONDS> 0
0
77,012
<COMMON> 75,791
<OTHER-SE> 10,876,815
<TOTAL-LIABILITY-AND-EQUITY> 26,974,424
<SALES> 12,329,068
<TOTAL-REVENUES> 12,329,068
<CGS> 8,914,379
<TOTAL-COSTS> 8,914,379
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120,000
<INTEREST-EXPENSE> 82,507
<INCOME-PRETAX> 399,728
<INCOME-TAX> 177,200
<INCOME-CONTINUING> 222,528
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 222,528
<EPS-BASIC> .15
<EPS-DILUTED> .07
</TABLE>
