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 March 31, 2001 Commission File No. 1-6663
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COLONIAL COMMERCIAL CORP.
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(Exact Name of Company as Specified in its Charter)
New York 11-2037182
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3601 Hempstead Turnpike, Levittown, New York 11756-1315
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(Address of Principal Executive Offices) (Zip Code)
Company's Telephone Number, Including Area Code: 516-796-8400
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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 __
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Indicate the number of shares outstanding of the Company's Common Stock and
Convertible Preferred Stock as of May 7, 2001.
Common Stock, par value $.05 per share - 1,603,659 shares
Convertible Preferred Stock, par value $.05 per share - 1,464,387 shares
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets as of
March 31, 2001 (unaudited) and
December 31, 2000 1
Consolidated Statements of Operations
Three Months Ended March 31, 2001
and 2000 (unaudited) 2
Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 2001
and 2000 (unaudited) 3
Notes to Consolidated Financial Statements
(unaudited) 4
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 9
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 9
Item 6 - Exhibits and Reports on Form 8-K 9
SIGNATURES
Item 1. Financial Statements
PART 1.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2001 and December 31, 2000
Assets 2001 2000
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(Unaudited)
Current assets:
Cash and cash equivalents $ 648,145 827,371
Accounts receivable, net of allowance for doubtful accounts
of $628,000 in 2001 and $757,000 in 2000, respectively 12,956,349 14,288,161
Inventory 10,349,676 9,360,042
Prepaid expenses and other current assets 636,921 725,283
Deferred taxes 30,940 30,940
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Total current assets 24,622,031 25,231,797
Deferred taxes 1,581,162 1,594,062
Property and equipment, net 1,928,305 2,012,099
Excess of cost over fair value of net assets acquired and other
intangibles, net 1,538,892 1,569,479
Investment securities 81,123 80,236
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$ 29,751,513 30,487,673
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 5,830,268 6,119,146
Accrued liabilities 2,051,563 1,941,180
Income taxes payable 65,225 19,000
Borrowings under credit facility 17,170,486 17,123,912
Notes payable - current portion 173,603 180,636
Net liabilities of discontinued operation -- 603,410
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Total current liabilities 25,291,145 25,987,284
Notes payable, excluding current portion 156,190 195,352
Excess of acquired net assets over cost, net 470,514 498,747
Deferred compensation 81,123 80,236
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Total liabilities 25,998,972 26,761,619
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Stockholders' equity:
Convertible preferred stock, $.05 par value, liquidation preference of
$7,332,180 and $7,332,255 at March 31, 2001 and December 31, 2000,
respectively. 2,468,860 shares authorized, 1,466,436 and 1,466,451 shares
issued and outstanding at March 31, 2001 and December 31, 2000,
respectively 73,322 73,322
Common stock, $.05 par value, 20,000,000 shares authorized,
1,601,610 and 1,601,595 shares issued and outstanding at
March 31, 2001 and December 31, 2000, respectively 80,081 80,081
Additional paid-in capital 8,966,513 8,966,513
Accumulated deficit (5,367,375) (5,393,862)
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Total stockholders' equity 3,752,541 3,726,054
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Commitments and contingencies
$ 29,751,513 30,487,673
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See accompanying notes to consolidated financial statements.
1
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months ended March 31, 2001 and 2000
(Unaudited)
2001 2000
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Net sales $ 13,702,367 11,604,330
Cost of sales 9,641,974 8,080,566
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Gross profit 4,060,393 3,523,764
Selling, general and administrative expenses, net 3,648,165 3,716,194
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Operating income (loss) 412,228 (192,430)
Interest income 4,683 23,148
Other income 39,867 14,440
Interest expense (366,391) (256,661)
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Income (loss) from continuing operations
before income taxes 90,387 (411,503)
Income taxes 63,900 (228,300)
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Income (loss) from continuing operations $ 26,487 (183,203)
Loss from operation of discontinued segment -- (157,896)
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Net income (loss) $ 26,487 (341,099)
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Income (loss) per common share:
Basic:
Continuing operations $ 0.02 (0.12)
Loss on discontinued operation -- (0.10)
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Net income (loss) per common share $ 0.02 (0.22)
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Diluted:
Continuing operations $ 0.01 (0.12)
Loss on discontinued operation -- (0.10)
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Net income (loss) per common share $ 0.01 (0.22)
============ ============
Weighted average shares outstanding:
Basic 1,601,595 1,523,216
Diluted 3,116,043 1,523,216
See accompanying notes to consolidated financial statements.
2
COLONIAL COMMERCIAL CORP.AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months ended March 31, 2001 and 2000
(Unaudited)
2001 2000
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Reconciliation of net income (loss) to net cash used in operating activities:
Net income (loss) $ 26,487 (341,099)
Adjustments to reconcile net income (loss) to cash used in
operating activities:
Loss from discontinued operations -- 157,895
Deferred tax expense (benefit) 12,900 (188,000)
Provision for allowance for doubtful accounts 84,541 104,657
Depreciation 127,275 89,402
Amortization of intangibles 35,387 13,959
Amortization of excess of net assets over cost (28,233) (28,233)
Changes in assets and liabilities, net of effects
of the purchase of Well-Bilt Steel Products, Inc.:
Accounts receivable 1,247,271 1,163,737
Inventory (989,634) (2,273,106)
Prepaid expenses and other current assets 88,362 (144,414)
Accounts payable (288,878) 945,073
Investment securities - trading (887) --
Accrued liabilities 110,383 (343,552)
Income taxes payable 46,225 (15,586)
Deferred compensation 887 --
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Net cash provided by (used in) operating activities 472,086 (859,267)
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Cash flows from investing activities:
Purchase of licensing agreements (4,800) (22,000)
Payments received on notes receivable -- 316,069
Additions to property and equipment (43,481) (355,889)
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Net cash used in investing activities (48,281) (61,820)
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Cash flows from financing activities:
Payments of notes payable (46,195) (40,042)
Net borrowings (repayments) under credit facility 46,574 3,230,884
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Net cash provided by financing activities 379 3,190,842
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Net cash used in discontinued operation (603,410) (1,934,011)
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Increase (decrease) in cash and cash equivalents (179,226) 335,744
Cash and cash equivalents - beginning of period 827,371 1,759,954
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Cash and cash equivalents - end of period $ 648,145 2,095,698
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See accompanying notes to consolidated financial statements.
3
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
March 31, 2001 and December 31, 2000
(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
adjustments (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 March 31, 2001 are not necessarily
indicative of the operating results that may be achieved for the full
year.
Certain reclassifications have been made to the three months ended
March 31, 2000 information to conform to the current quarter
presentation. The results of operations for the three months ended
March 31, 2000 have been restated to reflect the discontinued operation
of Well-Bilt Steel Products, Inc. that was accounted for as of December
31, 2000.
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 2000 Annual Report filed on Form
10-K.
(2) Supplemental Cash Flow Information
The following is supplemental information relating to the consolidated
statements of cash flows:
Three Months Ended
March 31,2001 March 31, 2000
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Cash paid during the period for:
Interest $ 366,391 $ 282,462
Income taxes $ 7,700 $ 86,382
During the three months ended March 31, 2001 and 2000, the Company
retired 15 and 458 shares, respectively, of convertible preferred
stock, which were converted to a similar number of common shares.
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(3) 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.
(4) 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:
Three Months Ended March 31,
2001 2000
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Net income (loss) numerator $ 26,487 (341,099)
========== ==========
Weighted average common
shares (denominator for
basic income per share) 1,601,595 1,523,216
Effect of dilutive securities:
Convertible preferred stock 1,466,451 --
Employee stock options 47,997 --
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Weighted average common
and potential common
shares outstanding
(denominator for diluted
income per share) 3,116,043 1,523,216
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Basic income (loss) per share $ 0.02 (0.22)
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Diluted income (loss) per share $ 0.01 (0.22)
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Employee stock options totaling 158,800 and 291,000 for the three
months ended March 31, 2001 and 2000, respectively, were not included
in the net income per share calculation because their effect would have
been anti-dilutive.
(5) Industry Segments
The Company has two reportable segments: (1) door hardware and door
distribution and (2) HVAC. Summarized financial information for each of
the Company's segments for the three months ended March 31, 2001 and
2000 follows:
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THREE MONTHS ENDED
MARCH 31, 2001
Door hardware
and door Corporate and Consolidated
distribution HVAC unallocated Eliminations totals
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Net sales $ 7,098,191 6,604,176 -- -- 13,702,367
Operating
income (loss) 694,591 (60,760) (221,603) -- 412,228
Interest expense 179,666 186,725 -- -- 366,391
Income (loss)
before income
taxes 452,525 (270,018) (92,120) -- 90,387
Income (loss)
from continuing
operations, net
of tax 314,525(a) (270,018)(a) (18,020)(a)(c) -- 26,487
Total assets 18,699,956 16,465,753 9,751,950(b) (15,166,146)(d) 29,751,513
THREE MONTHS ENDED
MARCH 31, 2000
Door hardware
and door Corporate and Consolidated
distribution HVAC unallocated Eliminations totals
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Net sales $ 4,336,499 7,267,831 -- -- 11,604,330
Operating
income (loss) (52,283) 137,392 (277,539) -- (192,430)
Interest expense 86,190 186,425 -- (15,954)(e) 256,661
Income (loss)
before income
taxes (206,776) (96,373) (113,777) -- (416,926)
Income (loss)
from continuing
operations, net
of tax (169,022)(a) (88,105)(a) 73,924(a)(c) -- (183,203)
Total assets 16,611,002 16,691,871 12,281,853(b) (9,401,373)(d) 36,183,353
(a) Includes an allocation from corporate to each of the door hardware and
door distribution and HVAC segments of $62,400 in 2001 and 2000, based
on management's estimate of costs incurred by corporate on behalf of
the door hardware and door distribution and HVAC segments.
(b) Includes $1,625,002 and $3,878,002 as of March 31, 2001 and 2000,
respectively, of deferred tax assets that are not allocated to any
segment.
(c) Includes ($74,100) and ($188,000) of deferred tax benefit for the
three months ended March 31, 2001 and 2000, respectively, that is not
allocated to any segment.
(d) Represents elimination of intercompany receivable, and the investment
in the door hardware and door distribution segment and the HVAC
segment.
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(e) Represents elimination of interest charged to Atlantic on intercompany
borrowings during fiscal 2000. Beginning with the quarter ended March
31, 2001, the Company no longer charges interest to Atlantic on
intercompany borrowings. The Company does not charge interest on
intercompany borrowings to Universal.
Item 2. Management's Discussion and Analysis of Financial Condition and 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
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.
Results of Operations - Three Months Ended March 31, 2001 and 2000
The Company reported a net profit of $26,487 for the first quarter of
2001, which includes net income of $314,525 from Atlantic Hardware and Supply
Corporation ("Atlantic") and a net loss of $270,018 from Universal Supply Group,
Inc. ("Universal"), as compared to net loss of $341,099 for the first quarter of
2000, which included $169,022 of net loss from Atlantic, $88,105 of net loss
from Universal and $157,895 of net loss from the discontinued operations of
Well-Bilt Steel Products ("Well-Bilt").
Sales increased $2,098,037 (18.1%) to $13,702,367 as compared to the
prior year's quarter, principally due to increased sales at Atlantic of
$2,761,692 (63.7%) offset by a decrease in sales at Universal of $663,655
(9.1%). Sales increased at Atlantic due to the timing of shipments from its
backlog of confirmed contracts. Atlantic's backlog of firm contracts decreased
$1,500,000 to $11,500,000 from December 31, 2000 and $3,700,000 from March 31,
2000 due to timing of shipments during the first quarter of the 2001-year.
Universal's sales declined due to the uncertainty of economic conditions in its
geographical region, principally New Jersey.
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Selling, general and administrative expenses, net, decreased $68,029
(1.8%) due to a net reduction of various operating expenses including the
reversal of an accrual for Atlantic's year 2000 discretionary profit sharing
plan contribution, based upon management's recent decision not to make the
contribution.
Interest expense increased $109,730 principally due to increased
borrowings relating to the acquisition and operation of Well-Bilt in the year
2000. Other income increased due to increased finance charges collected on
Universal's accounts receivable.
During the first quarter of 2001, the Company provided for an estimated
federal tax expense as well as a state tax expense aggregating $63,900. The
state tax expense is associated with the taxable income of Atlantic. During the
2000 quarter, the Company provided for a federal and state tax benefit of
$228,000.
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Liquidity and Capital Resources
As of March 31, 2001, the Company had $648,145 in cash and cash
equivalents compared with $827,371 at December 31, 2000.
Cash flows provided by operations was $472,086 during the three months
ended March 31, 2001. Accounts receivable declined due to a decrease in sales at
Universal and increased collections at Atlantic. Inventory increased as a result
of the stage of completion of Atlantic's current contracts and the purchase of a
large volume of air conditioners and related accessories by Universal in
preparation for the upcoming summer season. Accounts payable also decreased due
to the Company's concentrated efforts at Atlantic to pay the outstanding
payables to vendors.
Cash flows used in investing activities of $48,281 during the three
months ended March 31, 2001 were primarily due to $43,481 for the purchase of
property and equipment.
Net cash used in discontinued operation of $603,410 for the quarter
ended March 31, 2001 reflects the results of the disposal of Well-Bilt. Net cash
used of $1,934,011 for the quarter ended March 31, 2000 reflects the acquisition
and operating losses of Well-Bilt.
At March 31, 2001, amounts outstanding under the credit facility were
$17,170,486 of which $2,829,000 represents amounts under a term loan, payable in
60 equal monthly installments of $76,500. Although the term loan is payable over
60 months, the Bank can demand payment at any time. As monthly repayments are
made on the term loan, the available line of credit portion of the facility
increases by the amount of the principal repayment. At March 31, 2001, the
amount of unused available credit was $829,514.
The Company believes that the remaining credit available under the
credit facility is sufficient to finance its current operating needs, however,
the Company's ability to finance future growth in operations or non-operating
activities through the credit facility is limited.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
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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, plus 1%. A hypothetical 10% adverse change in such rates would
reduce pre-tax earnings and cash flow by approximately $155,000 over a one-year
period, assuming the borrowing level remains consistent with the outstanding
borrowings as of March 31, 2001. 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 6. Exhibits and Reports on Form 8-K -
(a) Reports on Form 8-K. During the three months ended March 31, 2001,
the Registrant filed a report on Form 8-K dated February 1, 2001 relative to the
disposition of Well-Bilt Steel Products, Inc.
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: May 15, 2001 COLONIAL COMMERCIAL CORP.
/s/ Bernard Korn
Bernard Korn,
Chairman of the Board and President
/s/ James W. Stewart
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James W. Stewart,
Executive Vice President and Treasurer
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