SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2000 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 July 31, 2000.
Common Stock, par value $.05 per share - 1,529,020 shares
Convertible Preferred Stock, par value $.05 per share - 1,532,525 shares
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets as of
June 30,2000 (unaudited) and
December 31, 1999 1
Consolidated Statements of Operations
Three Months ended June 30, 2000 and
1999 (unaudited) 2
Consolidated Statements of Operations
Six Months ended June 30, 2000 and
1999 (unaudited) 3
Consolidated Statements of Cash Flows for
the Six Months ended June 30, 2000 and
1999 (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 1 - Legal Proceedings 12
Item 4 - Submission of Matters to a Vote of Security Holders 12
Item 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 13
<PAGE>
Item 1. Financial Statements
<TABLE>
<CAPTION>
PART 1.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
Assets 2000 1999
------ ---- ----
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,672,985 1,759,954
Accounts receivable, net of allowance for doubtful accounts
of $1,054,000 in 2000 and $828,000 in 1999, respectively 15,680,063 11,961,043
Inventory 10,033,470 8,126,981
Note receivable - current portion -- 316,069
Advances to BRS Products, Inc. -- 1,101,251
Prepaid expenses and other assets 1,020,221 755,267
Deferred taxes 829,000 498,000
----------- -----------
Total current assets 29,235,739 24,518,565
Deferred taxes 3,192,002 3,192,002
Property and equipment, net 4,499,773 1,502,028
Excess of cost over fair value of net assets acquired
and other intangibles, net 3,719,316 365,482
----------- -----------
$40,646,830 29,578,077
----------- -----------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 6,210,098 2,803,946
Accrued liabilities 1,477,086 2,111,311
Income taxes payable 66,292 40,393
Borrowings under credit facility 18,090,413 11,778,995
Notes payable - current portion 173,489 158,335
----------- -----------
Total current liabilities 26,017,378 16,892,980
Notes payable, excluding current portion 319,162 345,166
Obligations to former creditors of BRS Products, Inc. 2,821,719 --
Excess of acquired net assets over cost, net 555,213 611,679
----------- -----------
Total liabilities 29,713,472 17,849,825
----------- -----------
Stockholders' equity:
Convertible preferred stock, $.05 par value, liquidation
preference of $7,662,623 and $7,664,915 at June 30, 2000 and
December 31, 1999, respectively, 2,468,860 shares authorized,
1,532,525 and 1,532,983 shares issued and outstanding
at June 30, 2000 and December 31, 1999, respectively 76,626 76,649
Common stock, $.05 par value, 20,000,000 shares authorized
1,529,020 and 1,523,063 shares issued and outstanding
at June 30, 2000 and December 31, 1999, respectively 76,451 76,154
Additional paid-in capital 8,944,089 8,936,114
Retained earnings 1,836,192 2,639,335
----------- -----------
Total stockholders' equity 10,933,358 11,728,252
----------- -----------
Commitments and contingencies
$40,646,830 29,578,077
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements 1
<PAGE>
<TABLE>
<CAPTION>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Operations
Three Months ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
<S> <C> <C>
Sales $ 17,239,144 6,341,983
Cost of sales 12,455,682 4,645,408
------------ ----------
Gross profit 4,783,462 1,696,575
------------ ----------
Selling, general and administrative
expenses, net 4,922,629 1,571,335
------------ ----------
Operating income (loss) (139,167) 125,240
Interest income 18,442 57,651
Other income 5,153 1,369
Interest expense (418,472) (45,397)
------------ ----------
Income (loss) before income taxes (534,044) 138,863
Income tax expense (benefit) (72,000) 67,500
------------ ----------
Net income (loss) $ (462,044) 71,363
============ ==========
Net income (loss) per common share:
Basic $ (0.30) 0.05
============ ==========
Diluted $ (0.30) 0.02
============ ==========
Weighted average shares outstanding:
Basic 1,523,521 1,508,882
Diluted 1,523,521 3,150,989
</TABLE>
See accompanying notes to consolidated financial statements 2
<PAGE>
<TABLE>
<CAPTION>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Operations
Six Months ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
<S> <C> <C>
Sales $ 28,843,474 12,329,068
Cost of sales 20,536,248 8,914,379
------------ ----------
Gross profit 8,307,226 3,414,689
------------ ----------
Selling, general and administrative
expenses, net 8,791,929 3,060,933
------------ ----------
Operating income (loss) (484,703) 353,756
Interest income 41,589 124,644
Other income 24,987 3,835
Interest expense (685,016) (82,507)
------------ ----------
Income (loss) before income taxes (1,103,143) 399,728
Income tax expense (benefit) (300,000) 177,200
------------ ----------
Net income (loss) $ (803,143) 222,528
============ ==========
Net income (loss) per common share:
Basic $ (0.53) 0.15
============ ==========
Diluted $ (0.53) 0.07
============ ==========
Weighted average shares outstanding:
Basic 1,523,368 1,489,624
Diluted 1,523,368 3,138,230
</TABLE>
See accompanying notes to consolidated financial statements 3
<PAGE>
<TABLE>
<CAPTION>
COLONIAL COMMERCIAL CORP.
Consolidated Statements of Cash Flows
Six Months ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities:
<S> <C> <C>
Net income (loss) (803,143) 222,528
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Deferred tax expense (benefit) (331,000) 88,000
Provision for allowance for doubtful accounts 209,480 120,000
Depreciation 231,827 62,856
Amortization of excess of cost over fair value of net
assets acquired and other intangibles 76,288 --
Amortization of excess of acquired net assets
over cost (56,466) (56,466)
Changes in assets and liabilities, net of effects of
the purchase of Well-Bilt Steel Products, Inc.:
Accounts receivable (2,882,707) 1,121,599
Inventory (1,780,345) (161,161)
Prepaid expenses and other assets (122,361) (73,844)
Accounts payable 3,189,497 63,744
Accrued liabilities (636,153) (371,647)
Income taxes payable 24,699 (113,483)
---------- ----------
Net cash provided by (used in) operating activities (2,880,384) 902,126
---------- ----------
Cash flows from investing activities:
Purchase of licensing agreement (22,000) --
Payment for acquisition of Universal Supply Group, Inc.,
net of cash acquired -- (3,808,498)
Acquisition of Well-Bilt Steel Products, Inc.,
net of cash acquired (474,788) --
Payments received on notes receivable 316,069 79,017
Additions to property and equipment (1,848,535) (212,552)
Advances to BRS Products, Inc. (1,223,481) --
---------- ----------
Net cash used in investing activities (3,252,735) (3,942,033)
---------- ----------
Cash flows from financing activities:
Payments on notes payable (52,375) (9,168)
Payments of obligations of former creditors of
BRS Products, Inc. (221,142) --
Net borrowings (repayments) under credit facility 6,311,418 (167,995)
Proceeds from the exercise of employee stock options 8,249 --
---------- ----------
Net cash provided by (used in) financing activities 6,046,150 (177,163)
---------- ----------
Increase (decrease) in cash and cash equivalents (86,969) (3,217,070)
Cash and cash equivalents - beginning of period 1,759,954 5,001,881
---------- ----------
Cash and cash equivalents - end of period $ 1,672,985 1,784,811
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements. 4
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
(Unaudited)
(1) The consolidated financial statements of Colonial Commercial Corp. and
subsidiaries (the "Company"), included herein have been prepared by the
Company and are unaudited; however, such information reflects all adjust-
ments (consisting solely of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation 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, 2000 are not necessarily indicative of the operating results that
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 l999 Annual Report filed on Form 10-KSB.
(2) BUSINESS ACQUISITION
--------------------
On March 24, 2000, the Company acquired all of the stock of Well-Bilt Steel
Products, Inc.("Well-Bilt") (formerly BRS Products, Inc. ("BRS")). Well-Bilt
is a manufacturer of hollow metal doors and frames. On February 8, 2000, the
bankruptcy court confirmed BRS' plan of reorganization with the effective
date to be the date that BRS vacated its Hoboken, New Jersey facility. On
March 24,2000, BRS vacated its New Jersey facility and, in accordance with
the plan of reorganization, the Company made its required minimum capital
contribution of $800,000 and funded an unsecured creditors' trust in the
amount of $105,000. The Company is required to make an additional $400,000
capital contribution on or before the first anniversary of the effective
date and to make four (4) equal annual installments of $67,500 to the
unsecured creditors' trust on the first four anniversaries of the effective
date. The acquisition has been accounted for under the purchase method of
accounting. The purchase price has been preliminarily allocated to the fair
value of the net liabilities assumed at the date of the acquisition, pending
final determination of certain acquired assets and liabilities. In
particular, the Company has not finalized the impact of the acquisition on
the Company's combined projected future taxable income and, accordingly, no
determination has been made as to the amount, if any, of deferred tax asset
that will be recognized in the final allocation of the purchase price. The
excess of cost over the fair value of net liabilities assumed, prior to the
final allocation, is estimated to be approximately $3,379,000. The excess
cost over the fair value of net liabilities assumed will be amortized on a
straight-line basis over a twenty-year period. The results of operations of
Well-Bilt have been included in the Company's consolidated statement of
operations commencing March 24, 2000. Pro forma results of operations for
the three and six month periods ended June 30, 1999 and June 30,2000 were
not provided as the information to prepare such pro forma results was not
readily available.
-5-
<PAGE>
In connection with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 6,653,230
Cash paid (including advances of
$2,324,732) and amounts accrued 3,384,094
---------
Fair value of liabilities assumed $ 3,269,136
=========
(3) SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
The following is supplemental information relating to the consolidated
statements of cash flows:
Six Months Ended
June 30, 2000 June 30, 1999
------------- -------------
Cash paid during the period for:
Interest $ 704,210 $ 80,335
Income taxes $ 86,234 $ 203,268
During the six months ended June 30, 2000 and 1999, the Company retired 458
and 52,763 shares, respectively, of convertible preferred stock, which were
converted to a similar number of common shares.
(4) COMPREHENSIVE INCOME
--------------------
The Company has no items of other comprehensive income; therefore, there is
no difference between the Company's comprehensive income (loss) and net
income (loss) for the periods presented.
(5) NET INCOME (LOSS) PER COMMON SHARE
----------------------------------
A reconciliation between the numerators and denominators of the basic and
diluted income (loss) per common share is as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) (numerator) $ (803,143) $ 222,528 $ (462,044) $ 71,363
========== ========== ========== ==========
Weighted average common shares
(denominator for basic
income per share) 1,523,368 1,489,624 1,523,521 1,508,882
Effect of dilutive securities:
Convertible preferred stock -- 1,566,422 -- 1,547,164
Employee stock options -- 82,184 -- 94,943
---------- ---------- ---------- ----------
Weighted average common and
potential common shares
outstanding (denominator for
diluted income per share) 1,523,368 3,138,230 1,523,521 3,150,989
========== ========== ========== ==========
Basic income per share $ (.53) $ .15 $ (.30) $ .05
========== ========== ========== ==========
Diluted income per share $ (.53) $ .07 $ (.30) $ .02
========== ========== ========== ==========
</TABLE>
-6-
<PAGE>
Employee stock options totaling 301,800 for the quarter and six
months ended June 30, 2000 were not included in the net income
(loss) per common share calculation because their effect would have
been anti-dilutive. There were no anti-dilutive stock options for
the quarter or six months ended June 30, 1999.
(6) INDUSTRY SEGMENTS
-----------------
The Company has three reportable segments: (1) door hardware and door
distribution (previously referred to as door hardware and doors), (2) door
and doorframe manufacturing (effective March 24, 2000), and (3) heating,
ventilating and air conditioning ("HVAC") (effective July 1, 1999).
Summarized financial information for each of the Company's segments for
the three and six months ended June 30, 2000 and 1999 follows.
Upon the completion of the acquisition of Well-Bilt (note 2), the Company
changed the composition of its reportable segments. The segment previously
reported as investing activities is no longer operating in that capacity,
but rather only represents corporate headquarters. As such, previously
reported segment information has been restated to conform to this new
presentation.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 2000
Door hardware Door and
and door doorframe Corporate and Consolidated
distribution manufacturing HVAC unallocated Eliminations totals
------------- ------------- ---- ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 7,504,475 1,885,958 8,651,089 -- ( 802,378)(f) 17,239,144
Operating income
(loss) 599,236(a) (793,671)(a) 297,020(a) (241,752)(a) -- (139,167)
Other income
(loss) (126) (10,095) 15,374 -- -- 5,153
Interest income 62,384 -- 406 35,451 (79,799)(b) 18,442
Interest expense 193,830 98,710 205,731 -- (79,799)(b) 418,472
Income (loss)
before income
taxes 467,664 (902,476) 107,069 (206,301) -- (534,044)
Net income
(loss) 356,402 (902,776) 94,131 (9,801)(c) -- (462,044)
Total assets 16,024,280 8,309,431 13,692,526 12,451,320 (d) (9,830,727)(e) 40,646,830
============ ============ ============ ============ ============ ============
SIX MONTHS ENDED
JUNE 30, 2000
Door hardware Door and
and door doorframe Corporate and Consolidated
distribution manufacturing HVAC unallocated Eliminations totals
------------- ------------- ---- ------------ ------------ -----
Revenues $11,840,974 1,891,380 15,918,920 -- (807,800)(f) 28,843,474
Operating income
(loss) 479,131(a) (941,355)(a) 372,012(a) (394,491)(a) -- (484,703)
Other income
(loss) (607) (4,701) 30,045 250 -- 24,987
Interest income 72,267 795 74,163 (105,636)(b) 41,589
Interest expense 289,903 108,593 392,156 -- (105,636)(b) 685,016
Income (loss)
before income
taxes 260,888 (1,054,649) 10,696 (320,078) -- (1,103,143)
Net income
(loss) 181,958 (1,055,249) 6,026 64,122(c) -- (803,143)
Total assets 16,024,280 8,309,431 13,692,526 12,451,320(d) (9,830,727)(e) 40,646,830
========== ============ ========== ========== ============ ===========
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1999
Door Consolidated
hardware Corporate Dated
and door HVAC unallocated Eiminations Totals
distribution
-------- ---- ----------- ----------- ------
<S> <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 -- (165,414)(c) -- 71,363
Total assets $ 9,542,747 11,438,121 12,448,095(d) (6,454,539)(e) 26,974,424
----------- =========== =========== =========== ===========
SIX MONTHS ENDED
JUNE 30, 1999
Door Consolidated
hardware Corporate Dated
and door HVAC unallocated Eiminations Totals
distribution
-------- ---- ----------- ----------- ------
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 -- (301,300)(c) -- 222,528
Total assets $ 9,542,747 11,438,121 12,448,095(d) (6,454,539)(e) 26,974,424
=========== =========== =========== =========== ===========
<FN>
(a) Includes an allocation from corporate to each of the door hardware and
door distribution and HVAC segments of $124,800 and $75,000 in the six
months ended June 30, 2000 and 1999, respectively and $62,400 and $37,500
in the three months ended June 30, 2000 and 1999, respectively, based on
management's estimate of costs incurred by corporate on behalf of the door
hardware and door distribution and HVAC segments. No allocation was made
to the door and doorframe manufacturing segment, as an allocation of costs
incurred by corporate on behalf of the door and doorframe manufacturing
segment has not been made.
(b) Represents elimination of interest charged on intercompany borrowings.
(c) Includes $(331,000) and $93,200 of deferred tax expense (benefit) in the
six months ended June 30, 2000 and 1999, respectively and $(143,000)and
$32,500 in the three months ended June 30, 2000 and 1999, respectively,
that is not allocated to any of the segments.
(d) Includes $4,021,002 and $4,112,000 in the six months and three months
ended June 30, 2000 and 1999, respectively of deferred tax assets that are
not allocated to any segment.
-8-
<PAGE>
(e) Represents elimination of intercompany receivable and the investment in
the door hardware and door distribution segment, door and doorframe
manufacturing segment and HVAC segment.
(f) Represents elimination of intersegment sales, which are priced at market.
</FN>
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
------- -----------------------------------------------------------------------
Results of Operations - Three Months Ended June 30, 2000 and 1999
Registrant reported a net loss of $462,044 for the second quarter of 2000,
which includes $356,402 of net income from Atlantic Hardware and Supply
Corporation ("Atlantic"), $94,131 of net income from Universal Supply Group,
Inc. ("Universal") and $902,776 of net loss from Well-Bilt Steel Products, Inc.
("Well-Bilt")(acquired effective March 24, 2000), as compared to net income of
$71,363 for the second quarter of 1999, which included $236,777 of net income
from Atlantic.
Sales increased $10,897,161 to $17,239,144 principally due to Universal's
sales of $8,651,089 (acquired June 30, 1999), an increase in sales of Atlantic
of $1,162,492 and sales of Well-Bilt of $1,083,580 (net of $802,378 of sales to
Atlantic). Atlantic's confirmed order backlog of $13,900,000 is an increase of
$1,247,000 from June 30, 1999. Well-Bilt has a backlog of $8,000,000 as of June
30, 2000.
Selling, general and administrative expenses, net, increased $3,351,294 from
last year principally due to expenses relating to Universal ($2,121,170) and
Well-Bilt ($1,001,571). A portion of Well-Bilt's expenses was related to
start-up costs associated with the establishment of its relocated manufacturing
facilities. Universal's expenses included approximately $140,000 of start-up
expenses related to the expansion of its control systems business, and the
opening of a new sales and distribution office in Long Island City, New York.
Interest expense increased $373,075 due to increased borrowings related to
Universal and the acquisition and financing of Well-Bilt. Interest income
decreased $39,209 due to lower average invested cash balances resulting from the
Company's investment in Universal and Well-Bilt. During the June 30, 2000
quarter, the Company provided for an income tax benefit at an effective rate of
13.5%, as compared to a provision for income taxes at an effective tax rate of
48.6% in the comparable 1999 quarter. The tax benefit recorded in the second
quarter of 2000 includes the effect of a change in the estimated annual federal
tax rate from 34% estimated during the first quarter of 2000, to 28%,
representing management's current estimated annual federal tax rate for 2000.
Management anticipates that the federal tax benefit recorded in the quarter
ended June 30, 2000 will be realized during the balance of the year as the
operations return to profitability.
Results of Operations - Six Months Ended June 30, 2000
Registrant reported a net loss of $803,143 for the first half of 2000, which
includes $181,958 of net income from Atlantic, $6,026 of net income from
Universal and $1,055,249 of net loss from Well-Bilt(acquired effective March 24,
2000), as compared to net income of $222,528 for the first half of 1999, which
included $523,828 of net income from Atlantic.
-9-
<PAGE>
Sales increased $16,514,406 to $28,843,474 principally due to Universal's
sales of $15,918,920 (acquired June 30, 1999), Well-Bilt's sales of $1,083,580
(net of sales to Atlantic of $807,800) offset by a reduction in sales of
Atlantic of $488,094. Well-Bilt did not commence production until the third week
in April 2000, upon acquisition by the Company, due to the relocation of its
manufacturing facilities. Atlantic's reduction in sales was due to the timing of
shipments from its backlog of firm contracts.
Selling, general and administrative expenses, net, increased $5,730,996 from
last year principally due to expenses relating to Universal ($4,204,357) and
Well-Bilt ($1,154,677). A portion of Well-Bilt's expenses was related to
start-up costs associated with the establishment of its relocated manufacturing
facilities. Universal's expenses included approximately $250,000 of start-up
expenses related to the expansion of its control systems business, and the
opening of a new sales and distribution office in Long Island City, New York.
Interest expense increased $602,509 due to increased borrowings related to
Universal and the acquisition and financing of Well-Bilt. Interest income
decreased $83,055 due to lower average invested cash balances resulting from the
Company's investment in Universal and Well-Bilt. Other income increased $21,152
largely due to service fees generated by Universal's credit card program and
accounts receivable credit programs. During the first half of the year 2000, the
Company recorded a federal tax benefit at the estimated annual effective tax
rate of 28%, which is offset by a provision for state taxes. During the first
half of 1999, the Company provided for a provision for federal and state taxes
at an effective rate of 44.3%. Management anticipates that the tax benefit
recorded in the six months ended June 30, 2000 will be realized during the
balance of the year as the operations return to profitability.
The results of the six months ended June 30, 2000 are not
indicative of the results expected for the entire year. Management expects that
the Company will be profitable by the end of the year. Additional start-up
expenses at Well-Bilt and Universal are anticipated in the second six months.
The expenses incurred for Universal's expanded control systems business during
the first half of this year should have the effect of increasing earnings in the
second half of the year.
Liquidity and Capital Resources
As of June 30,2000, the Registrant had $1,672,985 in cash and cash
equivalents, compared with $1,759,954 at December 31, 1999.
Cash flows used in operations ($2,880,384) during the six months
ended June 30,2000 were primarily a result of the loss from operations,
principally due to the startup operations of Well-Bilt, and an increase in
accounts receivable and inventory due to increased sales.
-10-
<PAGE>
Cash flows used in investing activities of $3,252,735 during the
six months ended June 30, 2000 were primarily due to $1,698,269 for the advance
to and the acquisition of Well-Bilt and $1,848,535 for the purchase of property
and equipment, principally at Well-Bilt, offset by the prepayment of the Breskel
note in the amount of $316,069.
Cash flows provided by financing activities during the six months
ended June 30, 2000 of $6,046,150 were primarily from net borrowings on a credit
facility due to additional working capital needs during the six months,
principally to finance increased accounts receivable and inventory, advances to
BRS prior to the acquisition on March 24, 2000 and equipment purchases and
leasehold improvements for Well-Bilt's relocated manufacturing facility.
The Company believes that its cash and credit facility is adequate
for its present operations and that additional credit is available should it be
required.
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 the first fiscal quarter 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. In June 2000, SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an amendment of
FASB Statement 133", was issued, which amended certain provisions of SFAS 133.
Management of the Company does not believe that the implementation of SFAS 133,
as amended, will have a significant impact on its financial position and results
of operations.
In March 2000, the FASB issued FASB Interpretation No. 44 "Accounting for
Certain Transactions Involving Stock Compensation" an interpretation of
Accounting Principles Board Opinion No. 25 (Opinion 25). This interpretation
clarifies the application of Opinion 25 for certain issues. The effects of
applying this interpretation are required to be recognized on a prospective
basis generally from July 1, 2000. While management has not determined the
impact of this interpretation, it is not expected to be material to the
Company's results of operations.
Forward-looking Statements
--------------------------
This report on Form 10-Q contains forward-looking statements relating to such
matters as anticipated financial performance and business prospects. When used
in this report, the words, "anticipates", "expects", "may", "intends" and
similar expressions are intended to be among the statements that identify
forward-looking statements. From time to time, the Company may also publish
-11-
<PAGE>
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.
Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company's pre-tax earnings and cash flow are exposed to changes in interest
rates as borrowings under its credit facility bear interest at the prime rate or
at the Company's option, 250 basis points over the applicable LIBOR rate. A
hypothetical 10% adverse change in such rates would reduce pre-tax earnings and
cash flow by approximately $199,000 over a one-year period, assuming the
borrowing level remains consistent with the outstanding borrowings as of June
30,2000. The fair value of the borrowings under the credit facility is not
significantly affected by changes in market interest rates.
The Company's remaining interest-bearing obligations are at fixed rates of
interest and as such do not expose pre-tax earnings and cash flows to changes in
market interest rates. The change in fair value of the Company's fixed rate
obligations resulting from a hypothetical 10% adverse change in interest rates
would not be material.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
--------------------------
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
(a) Annual Meeting of Shareholders on June 7, 2000.
(b) On June 7, 2000, 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, 2000.
-12-
<PAGE>
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 745,004 - 10,988
Ronald Miller 742,832 - 13,160
Jack Rose 744,788 - 11,204
Donald K. MacNeill 745,465 - 10,527
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 1,148,564 - 7,965
Bernard Korn 1,148,544 - 7,985
Paul Selden 1,148,564 - 7,965
James W. Stewart 1,148,564 - 7,965
Carl L. Sussman 1,148,564 - 7,965
To ratify the selection of KPMG
LLP as independent public
accountants of the Company
for the fiscal year ending
December 31, 2000. 1,891,846 7,411 13,264
Item 6. Exhibits and Reports On Form 8-K
-----------------------------------------
(a) Exhibits - Exhibit 27. Financial Data Schedule June 30,2000.
(b) Reports on Form 8-K - During the three months ended June 30,
2000, the Registrant did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
under-signed thereunto duly authorized.
Dated: August 14,2000 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
-13-
<PAGE>
