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 SEPTEMBER 30, 2000 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
Incorporation or Organization) Number)
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 November 2, 2000.
Common Stock, par value $.05 per share - 1,582,595 shares
Convertible Preferred Stock, par value $.05 per share - 1,485,451 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, 2000 (unaudited) and
December 31, 1999 1
Consolidated Statements of Operations
Three Months Ended September 30, 2000
and 1999 (unaudited) 2
Consolidated Statements of Operations
Nine Months Ended September 30, 2000
and 1999 (unaudited) 3
Consolidated Statements of Cash Flows for
the Nine Months Ended September 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 11
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 14
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURES 15
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PART 1.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2000 and December 31,1999
Assets
2000 1999
----------- ------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,032,874 1,759,954
Accounts receivable, net of allowance for doubtful accounts
of $1,031,000 in 2000 and $828,000 in 1999, respectively 15,299,957 11,961,043
Inventory 10,820,287 8,126,981
Notes receivable - current portion -- 316,069
Advances to BRS Products, Inc. -- 1,101,251
Prepaid expenses and other assets 636,037 755,267
Deferred taxes 498,000 498,000
----------- -----------
Total current assets 28,287,155 24,518,565
Deferred taxes 3,192,002 3,192,002
Property and equipment, net 4,772,944 1,502,028
Excess of cost over fair value of net assets acquired and other
intangibles, net 3,766,757 365,482
----------- -----------
$40,018,858 29,578,077
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 7,854,909 2,803,946
Accrued liabilities 1,456,857 2,111,311
Income taxes payable 57,867 40,393
Borrowings under credit facility 17,334,168 11,778,995
Notes payable - current portion 173,874 158,335
Obligations to former creditors of BRS Products, Inc.-current portion 503,747 --
----------- -----------
Total current liabilities 27,381,422 16,892,980
Notes payable, excluding current portion 245,738 345,166
Obligations to former creditors of BRS Products, Inc., excluding
current portion 1,917,349 --
Excess of acquired net assets over cost, net 526,980 611,679
----------- -----------
Total liabilities 30,071,489 17,849,825
----------- -----------
Stockholders' equity:
Convertible preferred stock, $.05 par value, liquidation preference of
$7,479,985 and $7,664,915 at September 30,2000 and December 31, 1999,
respectively. 2,468,860 shares authorized, 1,495,997 and 1,532,983 shares
issued and outstanding at September 30, 2000 and December 31, 1999,
respectively 74,800 76,649
Common stock, $.05 par value, 20,000,000 shares authorized,
1,572,049 and 1,523,063 shares issued at September 30, 2000 and
December 31, 1999, respectively 78,602 76,154
Additional paid-in capital 8,966,514 8,936,114
Retained earnings 827,453 2,639,335
----------- -----------
Total stockholders' equity 9,947,369 11,728,252
----------- -----------
Commitments and contingencies
$ 40,018,858 29,578,077
============ ===========
See accompanying notes to consolidated financial statements. 1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months ended September 30, 2000 and 1999
(Unaudited)
2000 1999
------------ ------------
<S> <C> <C>
Sales $ 16,198,793 14,728,837
Cost of sales 11,965,418 10,491,700
------------ ------------
Gross profit 4,233,375 4,237,137
Selling, general and administrative expenses, net 4,564,719 3,354,605
------------ ------------
Operating income (loss) (331,344) 882,532
------------ ------------
Interest income 10,438 24,134
Other income 147,245 127,313
Interest expense (473,490) (206,580)
------------ ------------
Income (loss) before income taxes (647,151) 827,399
Income taxes 361,588 304,907
------------ ------------
Net income (loss) $ (1,008,739) 522,492
============ ============
Net income (loss) per common share:
Basic $ (0.65) 0.34
------------ ------------
Diluted $ (0.65) 0.17
------------ ------------
Weighted average shares outstanding:
Basic 1,542,030 1,517,814
Diluted 1,542,030 3,147,123
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Income
Nine Months ended September 30, 2000 and 1999
(Unaudited)
2000 1999
----------- ------------
<S> <C> <C>
Sales $ 45,042,267 27,057,905
Cost of sales 32,638,965 19,406,079
------------ ------------
Gross profit 12,403,302 7,651,826
Selling, general and administrative expenses, net 13,219,349 6,415,538
------------ ------------
Operating income (loss) (816,047) 1,236,288
------------ ------------
Interest income 52,027 148,778
Other income 172,233 131,148
Interest expense (1,158,507) (289,087)
------------ ------------
Income (loss) before income taxes (1,750,294) 1,227,127
Income taxes 61,588 482,107
------------ ------------
Net income (loss) $ (1,811,882) 745,020
============ ============
Net income (loss) per common share:
Basic $ (1.18) 0.50
------------ ------------
------------
Diluted $ (1.18) 0.24
------------ ------------
Weighted average shares outstanding:
Basic 1,529,589 1,499,021
Diluted 1,529,589 3,141,194
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
COLONIAL COMMERCIAL CORP.AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months ended September 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) $(1,811,882) 745,020
Adjustments to reconcile net income (loss) to cash provided by
(used in) operating activities:
Depreciation and amortization 394,964 126,224
Provision for allowance for doubtful accounts 309,744 180,000
Amortization of excess of cost over fair value of net assets
acquired and other intangibles 138,124 --
Amortization of excess of acquired net assets over cost (84,699) (84,699)
Deferred tax provision -- 210,674
Changes in assets and liabilities, net of effects
of the purchase of Well-Bilt Steel Products, Inc.:
Accounts receivable (2,602,865) 576,623
Inventory (2,567,162) (186,748)
Prepaid expenses and other assets 261,823 (68,452)
Accounts payable 4,834,307 (110,017)
Accrued liabilities (749,367) (736,399)
Income taxes payable 17,474 50,225
----------- -----------
Net cash provided by (used in) operating activities (1,859,539) 702,451
----------- -----------
Cash flows from investing activities:
Purchase of licensing agreement (22,000) --
Payment for acquisition of Universal Supply Group, Inc., net
of cash acquired (141,299) (3,879,427)
Acquisition of Well-Bilt Steel Products, Inc. net of cash acquired (515,979) --
Payments received on notes receivable 316,069 79,017
Additions to property and equipment (2,284,844) (708,064)
Advances to BRS Products, Inc. (1,223,481) --
----------- -----------
Net cash used in investing activities (3,871,534) (4,508,474)
----------- -----------
Cash flows from financing activities:
Payments of notes payable (125,414) (116,861)
Payments of obligations to former creditors of BRS Products,Inc (456,765) --
Net borrowings under credit facility 5,555,173 441,129
Proceeds from the exercise of employee stock options 30,999 --
----------- -----------
Net cash provided by financing activities 5,003,993 324,268
----------- -----------
Decrease in cash and cash equivalents (727,080) (3,481,755)
Cash and cash equivalents - beginning of period 1,759,954 5,001,881
----------- -----------
Cash and cash equivalents - end of period $ 1,032,874 1,520,126
=========== ===========
See accompanying notes to consolidated financial statements.
4
</TABLE>
<PAGE>
<PAGE>
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
September 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 September 30, 2000 are
not necessarily indicative of the operating results that may be
achieved for the full year.
Certain reclassifications have been made to the nine months ended
September 30, 2000 information to conform with the current quarter
presentation.
Certain information and footnote disclosures, normally included in
con- solidated 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 1999 Annual Report filed on
Form 10-KSB.
(2) BUSINESS ACQUISITIONS
(a) 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 reorganiza- tion 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. During the
quarter ended September 30, 2000, Well-Bilt
-5-
<PAGE>
recorded a net decrease of $42,113 to the preliminary excess cost
over the fair value of net liabilities assumed principally for
adjustments to certain liabilities assumed.
The preliminary excess of cost over the fair value of net liabilities
assumed, prior to the final allocation, is estimated to be
approximately $3,376,000. 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 nine month periods ended September 30, 1999 and September
30, 2000 were not provided as the information to prepare such pro
forma results was not readily available.
In connection with the acquisition (after giving effect to the
adjustments noted above), liabilities were assumed as follows:
Fair value of assets acquired $6,650,339
Cash paid (including advances of
$2,324,732) and amounts accrued 3,384,094
----------
Fair value of liabilities assumed $3,266,245
==========
(b) During the quarter ended September 30, 2000, an additional $141,299
was paid to the previous owners of Universal Supply Group, Inc.
(Universal) for the final purchase price adjustment pursuant to the
purchase agreement effective June 30, 1999.
(3) SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental information relating to the
consolidated statements of cash flows:
Nine Months Ended
SEPTEMBER 30,2000 SEPTEMBER 30, 1999
----------------- ------------------
Cash paid during the period for:
Interest $1,141,859 $ 286,906
Income taxes $ 98,695 $ 294,214
During the nine months ended September 30, 2000 and 1999, the Company
retired 36,986 and 57,311 shares, respectively, of convertible
preferred stock, which were converted to a similar number of common
shares.
During the nine months ended September 30, 2000, notes payable of
$41,525 were incurred for the purchase of automobiles.
-6-
<PAGE>
The amounts previously reflected as advances to BRS Products, Inc. on
the accompanying consolidated balance sheet as of December 31, 1999,
as well as additional advances made subsequent to December 31, 1999,
have been treated as part of the purchase price of Well-Bilt and
allocated to assets acquired and liabilities assumed.
(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>
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) numerator $(1,811,882) 745,020 (1,008,739) 522,492
=========== =========== =========== ===========
Weighted average common
shares (denominator for
basic income per share) 1,529,589 1,499,021 1,542,030 1,517,814
Effect of dilutive securities:
Convertible preferred stock -- 1,557,025 -- 1,538,232
Employee stock options -- 85,148 -- 91,077
----------- ----------- ----------- -----------
Weighted average common
and potential common
shares outstanding
(denominator for diluted
income per share) 1,529,589 3,141,194 1,542,030 3,147,123
=========== =========== =========== ===========
Basic income (loss) per share $ (1.18) $ .50 $ (.65) $ .34
=========== =========== =========== ===========
Diluted income (loss) per
share $ (1.18) $ .24 $ (.65) $ .17
=========== =========== =========== ===========
</TABLE>
-7-
<PAGE>
Employee stock options totaling 289,800 and 294,200 for the three and
nine months ended September 30, 2000, respectively, were not included
in the net income per share calculation because their effect would
have been anti-dilutive. Employee stock options totaling 129,500 and
43,167 for the three and nine months ended September 30, 1999,
respectively, were not included in the net income per share
calculation because their effect would have been anti-dilutive.
(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 nine months ended September 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
SEPTEMBER 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 $ 7,324,856 1,896,103 7,732,986 -- (755,152)(f) 16,198,793
============ ============ ============ ============ ============ ============
Operating
income
(loss) 331,446 (a) (616,312) (a) 181,704(a) (228,182)(a) -- (331,344)
Other income -- -- 51,689 95,556 -- 147,245
Interest income 129,559 -- -- 45,573 (164,694)(b) 10,438
Interest expense (281,145) (149,547) (207,492) -- 164,694(b) (473,490)
Income (loss)
before income
taxes 179,860 (765,859) 25,901 (87,053) -- (647,151)
============ ============ ============ ============ ============ ============
Net income
(loss) 103,790 (766,159) 15,643 (362,013)(c) -- (1,008,739)
============ ============ ============ ============ ============ ============
Total assets $ 21,193,597 8,694,446 17,183,693 12,047,278(d) (19,100,156)(e) 40,018,858
============ ============ ============ ============ ============ ============
</TABLE>
-8-
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 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 $ 19,165,830 3,787,483 23,651,906 -- (1,562,952)(f) 45,042,267
============ ============ ============ ============== ============ ============
Operating
income
(loss) 810,578(a) (1,557,667)(a) 553,716(a) (622,674)(a) -- (816,047)
Other income
(expense) (607) (4,701) 81,734 95,807 -- 172,233
Interest income 201,825 -- 795 119,736 (270,329)(b) 52,027
Interest expense (571,048) (258,140) (599,648) -- 270,329(b) (1,158,507)
------------ ------------ ------------ --------------- ----------- ------------
Income (loss)
before income
taxes 440,748 (1,820,508) 36,597 (407,131) -- (1,750,294)
============ ============ ============ ============== ============ ============
Net income
(loss) 285,748 (1,821,408) 21,669 (297,891)(c) -- (1,811,882)
============ ============ ============ ============== ============ ============
Total assets $ 21,193,597 8,694,446 17,183,693 12,047,278 (d) (19,100,156)(e) 40,018,858
============ ============ ============ ============== ============ ============
THREE MONTHS ENDED
SEPTEMBER 30, 2000
Door hardware
and door Corporate and Consolidated
distribution HVAC unallocated Eliminations totals
------------- ---- ------------- -------------- -----
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) 322,201 149,030 51,261(c) -- 522,492
============ ============ ============ ============ ============
Total assets $ 10,511,269 15,074,298 14,505,916 (d) (12,496,173)(e) 27,595,310
============ ============ ============ ============ ============
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
Door hardware
and door Corporate and Consolidated
distribution HVAC unallocated Eliminations totals
------------- ---- ------------- -------------- -----
<S> <C> <C> <C> <C> <C>
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) 684,029 149,030 (88,039)(c) -- 745,020
============ ============ ============== ============ ============
Total assets $ 10,511,269 15,074,298 14,505,916 (d) (12,496,173)(e) 27,595,310
============ ============ ============== ============ ============
<FN>
(a) Includes an allocation from corporate to each of the door hardware and door
distribution and HVAC segments of $187,200 and $112,500 in the nine months
ended September 30, 2000 and 1999, respectively and $62,400 and $37,500 in
the three months ended September 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 $0 and $290,774 of deferred tax expense in the nine months ended
September 30, 2000 and 1999, respectively, and $331,000 and $197,574 in the
three months ended September 30, 2000 and 1999, respectively that is not
allocated to any of the segments.
(d) Includes $3,690,002 and $3,989,326 as of September 30, 2000 and 1999,
respectively, of deferred tax assets that are not allocated to any segment.
(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>
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
Results of Operations - Three Months Ended September 30, 2000 and 1999
Registrant reported a net loss of $1,008,739 for the third quarter of
2000, which includes $103,790 of net income from Atlantic Hardware and Supply
Corporation ("Atlantic"), $15,643 of net income from Universal Supply Group,
Inc. ("Universal") and $766,159 of net loss from Well-Bilt Steel Products, Inc.
("Well-Bilt") (acquired effective March 24, 2000), as compared to net income of
$522,492 for the third quarter of 1999, which included $322,201 of net income
from Atlantic and $149,030 of net income from Universal.
Sales increased $1,469,956 to $16,198,793 principally due to an
increase in Universal's sales of $301,620 to $7,732,986 and sales of Well-Bilt
of $1,140,951 (net of $755,152 of sales to Atlantic). Universal's air
conditioning sales for the third quarter of 2000 were impacted by the fact that
the weather in the Northeast region, this past summer was cooler than the prior
year. Atlantic's sales for the third quarter of 2000 of $7,324,856 approximated
the prior year's third quarter sales; however, Atlantic's backlog at September
30, 2000 increased $555,000 as compared with last year's same period.
Selling, general and administrative expenses net, increased
$1,210,114 from last year principally due to expenses relating to Well-Bilt
($718,238) and an increase in expenses for Universal ($244,371) and Atlantic
($133,353). Universal's increased expenses were primarily due to strategic
staffing additions as part of an overall effort towards growth in its design
control systems business. Atlantic's increased expenses were due primarily to
increased health insurance claims and depreciation expense relating to its
new computer system.
Interest expense increased $266,910 due to increased borrowings
related to Universal and the acquisition and financing of Well-Bilt. Interest
income decreased $13,696 due to lower average invested cash balances resulting
from the Company's investment in Universal and Well-Bilt. The Company does not
expect to recover the $331,000 of tax benefit recorded in the first half of
2000; therefore, a tax provision has been booked in the third quarter of 2000 to
reverse that benefit.
-11-
<PAGE>
Results of Operations - Nine Months Ended September 30, 2000 and 1999
Registrant reported a net loss of $1,811,882 for the nine months
ended September 30, 2000, which includes $285,748 of net income from Atlantic,
$21,669 of net income from Universal and $1,821,408 of net loss from Well-Bilt,
as compared to net income of $745,020 for the nine months ended September 30,
1999, which included $684,029 of net income from Atlantic and $149,030 of net
income from Universal.
Sales increased by $17,984,362 to $45,042,267 principally due to
Universal's sales during the first half of 2000 of $15,918,920, as Universal was
acquired effective June 30, 1999, and sales of Well-Bilt of $2,224,531 (net of
$1,562,952 of sales to Atlantic). Atlantic's sales decreased year-to-date by
$460,709, as compared to the nine months ended September 30, 1999, due to timing
of shipments, as evidenced by its increased backlog. Atlantic's confirmed order
backlog as of September 30, 2000 of $14,426,000 is an increase of $3,951,000
from September 30, 1999. Well-Bilt has a backlog of $8,098,000 as of September
30, 2000.
Selling, general and administrative expenses net, increased
$6,803,811 from last year due primarily to Universal's expenses for the first
half of 2000 of $4,204,357, and expenses for the nine months ended September 30,
2000 relating to Well-Bilt of $1,735,617. 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. Atlantic's expenses increased year-to-date by $333,987, compared to the
nine months ended September 30, 1999, due primarily to increased employee health
insurance claims, and depreciation expense relating to its new computer
system.
Interest expense increased $869,420 due to increased borrowings
related to Universal and the acquisition and financing of Well-Bilt. Interest
income decreased $96,751 due to lower average invested cash balances resulting
from the Company's investment in Universal and Well-Bilt.
During the nine months ended September 30, 2000, the Company provided
for state income taxes in the amount of $62,000 and has not recorded a benefit
for the federal tax loss generated, as it is not expected to be recoverable at
this time. During the nine months ended September 30, 1999, the Company provided
for a provision for federal and state taxes at an effective rate of 39.3%.
-12-
<PAGE>
Liquidity and Capital Resources
As of September 30, 2000, the Company had $1,032,874 in cash and cash
equivalents compared with $1,759,954 at December 31, 1999.
Cash flows used in operations ($1,859,539) during the nine months
ended September 30, 2000 were primarily a result of the loss from operations,
principally due to the startup operations of Well-Bilt.
Cash flows used in investing activities of $3,871,534 during the nine
months ended September 30, 2000 were primarily due to $1,739,460 for the advance
to, and the acquisition of, Well-Bilt and $2,284,844 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 nine months
ended September 30, 2000 of $5,003,993 were primarily from net borrowings on a
credit facility due to additional working capital needs during the nine 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. The Company is presently seeking additional
financing to reduce short term borrowing and allow Well-Bilt to purchase
additional equipment to increase its production and product mix, in an effort to
increase gross profits.
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.
-13-
<PAGE>
During the quarter ended September 30, 2000, the Company implemented
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 from July 1, 2000. Implementation of the FASB
interpretation did not have an impact on the Company's financial position,
results of operations or liquidity.
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
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.
ITEM 3. 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 $165,000 over a one-year period,
assuming the borrowing level remains consistent with the outstanding borrowings
as of September 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.
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 6. Exhibits and Reports on Form 8-K -
(a) Exhibits - Exhibit 27. Financial Data Schedule September 30, 2000
(b) Reports on Form 8-K. During the three months ended September 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 undersigned thereunto duly authorized.
Dated: November 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
-15-
<PAGE>
