SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 COMMISSION FILE NO. 1-6663
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COLONIAL COMMERCIAL CORP.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 11-2037182
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3601 HEMPSTEAD TURNPIKE, LEVITTOWN, NEW YORK 11756-1315
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 516-796-8400
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Securities Registered Pursuant to Section 12(b) of the Act:
TITLE OF CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.05 Per Share
CONVERTIBLE PREFERRED STOCK, PAR VALUE $.05 PER SHARE
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(Title of Class)
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 No X
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
The aggregate market value of voting and non-voting stock held by non-affiliates
of the Registrant was approximately $2,709 as of June 28, 2002.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
Registrant's best knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The number of shares outstanding of Registrant's Common Stock and Convertible
Preferred Stock as of November 11, 2003.
OUTSTANDING
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Common Stock $.05 par value 2,405,804
Convertible Preferred Stock $.05 par value 1,464,242
Documents Incorporated by Reference
None
PART I.
FORWARD-LOOKING STATEMENTS
This Report on Form 10-K contains forward-looking statements relating to such
matters as anticipated financial performance and business prospects. When used
in this Report, the words "anticipates," "expects," "believes," "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, the ability to
continue as a going concern, the availability of financing, the impact of the
bankruptcy of Atlantic on a go-forward basis, 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 1 BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Colonial Commercial Corp. (the "Company" or "Registrant" or "Colonial")
is a New York corporation, which was incorporated on October 28, 1964. Unless
otherwise indicated, the term "Registrant," "Company" or "Colonial" refers to
Colonial Commercial Corp. and its consolidated subsidiaries.
The Company's continuing operations are conducted through its
wholly-owned subsidiary, Universal Supply Group, Inc. ("Universal"). The
business operations of Universal are described below under "Narrative
Description of Business."
On July 1, 2002, Universal paid $670,981 to purchase certain accounts
receivable, inventory and other accessories from Goldman Associates of New York,
Inc. ("Goldman"), relating to Goldman's HVAC business in New Jersey and certain
areas of New York.
The Company disposed of its Well-Bilt door and doorframe manufacturing
segment in February 2001. A loss from operations of this segment of $3,212,152
and a $3,731,654 loss on disposal of this segment are reflected in the
consolidated statements of operations for the year ended December 31, 2000.
On January 28, 2002, Atlantic Hardware & Supply Corporation
("Atlantic"), a wholly-owned subsidiary of the Company, filed a voluntary
petition with the U. S. Bankruptcy Court for the Eastern District of New York to
reorganize under Chapter 11 of the U. S. Bankruptcy Code. As of the date of this
filing, the proceedings are still ongoing. Colonial and Universal are not part
of the Chapter 11 filing. The business of Atlantic is today conducted by one
employee whose sole function is to collect on accounts receivables for the
benefit of Atlantic's creditors, and the Company does not believe that Atlantic
will emerge from the reorganization with any value for the Company. The Company
does not exercise significant influence over Atlantic's operations and financial
activities. As of December 31, 2001, Atlantic has been deconsolidated on the
Company's financial statements and its operations are being reported as "results
from operations of discontinued segments."
1
On November 21, 2002, the Company and Universal were released from
their guarantees of the indebtedness (approximately $5.8 million) by Atlantic to
Colonial's and Atlantic's lending bank, in return for the agreement by the
Company and Universal to pay to the bank $2.5 million as a five-year term loan
under the Company's line of credit with the bank, or, if earlier, on demand by
the bank.
The Company's shares were delisted from the Nasdaq SmallCap Market in
June 2002 because (i) the Company failed to timely file its Form 10-Q for the
fiscal quarter ended March 31, 2002 and its Form 10-K for 2001, (ii) the market
value of its publicly held shares of common stock was less than the required $1
million, and (iii) the closing bid price of its common stock was less than $1
per share.
On June 25, 1999, the Company purchased all of the assets, subject to
all of the liabilities of Universal for approximately $10.9 million in cash. In
connection with the acquisition, Colonial entered into a $16 million secured
lending facility with the Bank. Colonial financed the acquisition with $4.0
million of existing cash and a $6.5 million borrowing under the new facility.
The borrowings were secured by substantially all of the assets of Universal and
Atlantic, as well as the corporate guarantee of the Company.
On September 30, 2003, Colonial, through its newly formed, wholly owned
subsidiary, RAL Purchasing Inc., purchased substantially all of the assets and
certain liabilities of RAL Supply Group, Inc. ("RAL"), for a purchase price of
$3,838,521. RAL is a distributor of heating and cooling equipment and high-end
plumbing fixtures with six locations, servicing Orange, Rockland, Ulster and
Sullivan counties in New York. In connection with this acquisition, Colonial's
limit on its credit facility was increased by $2,000,000 to $14,000,000.
On July 16, 2003, Colonial completed a private placement pursuant to
Regulation D of the Securities Exchange Act of 1933. Colonial raised $240,600
through the issuance of 802,000 shares of Common Stock at $0.30 per share, as
determined by the Board of Directors. The issuance of these additional shares
increased our outstanding shares by 26.1%. The stock was sold to officers and
directors of the Company and one private investor. The proceeds of the private
placement will be used for general working capital purposes.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company has one continuing industry segment - heating, ventilation
and air conditioning.
(c) NARRATIVE DESCRIPTION OF BUSINESS
HEATING, VENTILATION AND AIR CONDITIONING
The heating, ventilation and air conditioning segment, which accounts
for all of the Company's current net sales, operates as Universal. Universal is
a distributor of heating, ventilation and air conditioning equipment (HVAC) and
climate control systems. Universal's products are marketed primarily, in New
Jersey and New York, through nine locations, to HVAC contractors, who, in turn,
sell such products to residential, commercial and industrial customers. No
product accounted for 15% or more of consolidated revenues during 2001, 2000 and
1999.
Universal had approximately 4,200 customers in 2001. No customer
accounted for more than 10% of consolidated net sales in 2001. Universal
believes that the loss of any one customer would not have a material adverse
effect on its business.
2
Universal purchases products from approximately 330 suppliers. In 2001,
two suppliers accounted for 39% of Universal's purchases. The loss of one of
these suppliers could have a material adverse effect on its business for a
short-term period. Universal believes that the loss of any one of its other
suppliers would not have a material adverse effect on its business.
Universal competes primarily with other distributors in its
geographical region. Universal believes it is one of the largest HVAC
distributors in northern New Jersey, and that it maintains a competitive edge by
providing in-house training and technical field support to its customers.
OTHER MATTERS
As of December 31, 2001, the Registrant had 92 employees (excluding 50
Atlantic employees), of whom two were executive officers at its corporate
offices in Levittown, New York. The Company believes its employee relations are
satisfactory.
(d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The Company has no foreign operations and all sales, during the last
three years, are to customers located in the United States.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 3601 Hempstead
Turnpike, Levittown, New York 11756-1315, in leased premises (approximately
1,306 square feet).
Universal maintains an office and warehouse in Hawthorne, New
Jersey and additional warehouses in Bogota, Augusta, North Brunswick, Cedar
Knolls, Wharton and Rochelle Park, New Jersey and Long Island City and New
Hampton, New York, occupying approximately 166,000 square feet.
The Company's premises are suitable and adequate for their intended use
and are adequately covered by insurance. As of December 31, 2001, the Company
leases all its facilities.
ITEM 3. LEGAL PROCEEDINGS
See "General Development of Business" for information on a chapter 11
proceeding for Atlantic.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2001.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK, CONVERTIBLE PREFERRED
STOCK AND RELATED STOCKHOLDER MATTERS
(a) Price Range of Common Stock and Convertible Preferred Stock
The Company's shares were delisted from the Nasdaq SmallCap Market in
June 2002 because (i) the Company failed to timely file its Form 10-Q for the
fiscal quarter ended March 31, 2002 and its Form
3
10-K for 2001, (ii) the market value of its publicly held shares of common stock
was less than the required $1 million, and (iii) the closing bid price of its
common stock was less than $1 per share.
From July 11, 2002 through December 31, 2002, the Company's common
stock was traded on the Over the Counter (OTC) - Pink Sheets market. From
January 1, 2001 through June 9, 2002, the Company's common stock and convertible
preferred stock were traded on the Nasdaq small capitalization automated
quotation system. The following table sets forth the quarterly high and low bid
prices during 2001 and 2000. The quotations set forth below represent
inter-dealer quotations, which exclude retail markups, markdowns and commissions
and do not necessarily reflect actual transactions.
Common Stock Convertible Preferred Stock
High Low High Low
2001
First Quarter $ 3 1/2 1 1/2 3 1/2 1 5/16
Second Quarter 1 3/4 7/8 2 13/32 1
Third Quarter 1 25/32 13/16 2 13/32 1 1/8
Fourth Quarter 1 5/32 17/32 2 7/16 1 7/16
2000
First Quarter $ 6 3 1/4 5 1/2 3 1/4
Second Quarter 9 7/8 4 16 2 3/8
Third Quarter 6 3/16 4 3/8 6 1/4 3 17/32
Fourth Quarter 6 7/16 2 7/8 6 1/2 2 7/8
(b) Approximate number of common and convertible preferred stockholders:
Approximate Number of
Record Holders
Title of Class (As of November 11, 2003)
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Common stock par value $.05 per share 510
Convertible preferred stock par value $.05 per share 1,328
(c) Dividends
The Company does not contemplate common stock dividend payments in the
near future, and is restricted from paying any dividends under its credit
facility.
4
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
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2001 2000 1999 1998 1997
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Sales (1) $ 31,080,398 32,342,160 (2) 16,592,423 (3) -- --
Operating income (loss) 519,860 (58,036) 209,572 (993,541) (1,243,770)
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Income (loss) from continuing operations (1,610,810) (1,323,627) (118,492) 2,746,582 (4) 139,908 (4)
------------ ------------ ------------ ------------ ------------
Income (loss) from operations of
discontinued segment (6,098,023) (2,977,916) 1,025,529 1,105,171 532,448
Income (loss) on disposal of
discontinued operation 106,509 (3,731,654) -- -- --
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Income (loss) on discontinued operation (5,991,554) (6,709,570) 1,025,529 1,105,171 532,448
Net income (loss) $ (7,602,324) (8,033,197) 907,037 3,851,753 (4) 672,356 (4)
============ ============ ============ ============ ============
Income (loss) per common share (5):
Basic:
Continuing operations $ (1.00) (0.86) (0.08) 1.90 (4) 0.10 (4)
Loss on discontinued operation (3.74) (4.35) 0.68 0.76 0.38
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Net income (loss) per common share (4.74) (5.21) 0.60 2.66 (4) 0.48 (4)
============ ============ ============ ============ ============
Diluted:
Continuing operations (1.00) (0.86) (0.08) 0.88 0.04
Loss on discontinued operation (3.74) (4.35) 0.68 0.35 0.17
------------ ------------ ------------ ------------ ------------
Net income (loss) per common share (4.74) (5.21) 0.60 1.23 0.21
============ ============ ============ ============ ============
DECEMBER 31,
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2001 2000 1999 1998 1997
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Total assets $ 13,925,490 26,550,994 23,273,837 (3) 11,380,470 9,917,148
Current liabilities
Borrowings under credit facility $ 7,929,576 9,096,294 7,573,761 (3) -- --
Other 9,659,183 (6) 12,876,360 3,647,396 (3) 600,091 994,792
Long-term liabilities, less current
obligations 213,001 852,286 351,141 (3) -- --
(1) Due to the discontinued operations in 2001, excludes sales from Atlantic,
which were $24,561,972, $25,978,063, $25,666,531, $25,233,909 and
$22,642,783 in 2001, 2000, 1999, 1998 and 1997, respectively.
(2) Due to the discontinued operations in 2000, excludes sales from Well-Bilt,
which were $4,074,798, net of intercompany sales.
(3) In July 1999, Colonial acquired Universal. Prior to that, Colonial was a
holding corporation which had no sales from continuing operations.
(4) Includes a gain on sale of securities in 1998 and 1997 of $2,101,853 and
$238,033, respectively, and a gain on land sale in 1998 and 1997 of
$826,797 and $196,066, respectively.
(5) Per share data gives effect to a five-to-one reverse stock split that was
effective January 30, 1998.
(6) The Company continues to recognize, at cost, $219,007 of guaranteed
liabilities and $5,800,695 of guaranteed borrowings under a credit
facility of its unconsolidated subsidiary, Atlantic, which is in Chapter
11 bankruptcy. In November 2002, the Company settled its guarantee with
the lender for $2.5 million to be paid over five years. The Company
believes that it is not responsible for any liabilities of Atlantic beyond
the amount recorded.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
The accounting policies below are critical to the Company's business operations
and the understanding of results of operations. The Company's discussion and
analysis of its financial condition and results of
5
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities as the
date of the consolidated financial statements and the reported amount of revenue
and expenses during the reporting period. The Company bases its estimates on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of asset and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Revenue for the Company primarily consists of sales of heating, ventilation and
air conditioning equipment and climate control systems. The Company recognizes
revenue after it receives a purchase order with a fixed determinable price from
the customer and shipment of products has occurred, in accordance with the
shipping terms. There are no further obligations on the part of the Company
subsequent to revenue recognition, except for returns of defective product from
the Company's customers, which are covered under the manufacturer's warranty.
Credits for returns are not issued to the customer until such time as the
Company receives notification that a vendor credit from the manufacturer will be
issued for the product in question.
The Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. The
Company establishes and monitors the allowance for doubtful accounts based on
the credit risk of specific customers, customer concentrations, historical
trends and other information. The Company had gross accounts receivable of
$4,719,667 and an allowance for doubtful accounts of $253,000 as of December 31,
2001. Although the Company believes its allowance is sufficient, if the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances would be
required.
The Company writes down its inventories for estimated slow moving and obsolete
goods equal to the difference between the carrying value of the inventory and
the estimated market value, based upon assumptions about future demand and
market conditions. A significant sudden increase in the demand for the Company's
products could result in a short-term increase in the cost of inventory
purchases, while a significant decrease in demand could result in an increase in
the amount of excess inventory quantities on-hand. Additionally, the Company's
estimates of future product demand may prove to be inaccurate, in which case the
Company may have understated or overstated the write-down required for excess
and obsolete inventory. In the future, if the Company's inventory is determined
to be overvalued, it would be required to recognize such costs in its cost of
goods sold at the time of such determination. Likewise, if the Company does not
properly estimate the lower of cost or market of its inventory and it is
therefore determined to be undervalued, it may have over-reported its cost of
goods sold in previous periods, and would be required to recognize such
additional operating income at the time of sale. Therefore, although the Company
makes every effort to ensure the accuracy of its forecasts of future product
demand, any significant unanticipated changes in demand could have a significant
impact on the value of the Company's inventory and its reported operating
results.
Goodwill and other intangible assets of $1,316,929 and $128,700, respectively,
consist of assets, arising from acquisitions. The Company adopted Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets,"
(Statement No. 142) effective January 1, 2002. Under Statement No. 142, goodwill
and intangible assets with indefinite lives are no longer amortized, but are
reviewed at least annually for impairment. In assessing the recoverability of
the Company's goodwill and other intangible assets, the Company must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets and liabilities of the reporting unit.
6
Upon adoption and again as a result of the Company's annual impairment test,
there was no indication of impairment for goodwill acquired in prior business
combinations. If the Company's estimates or their related assumptions change in
the future, the Company may be required to record impairment charges related to
its goodwill.
The Company has accounted for, and currently accounts for, income taxes in
accordance with Statement 109, "Accounting for Income Taxes" (Statement 109).
This Statement establishes financial accounting and reporting standards for the
effects of income taxes that result from an enterprise's activities during the
current and preceding years. It requires an asset and liability approach for
financial accounting and reporting of income taxes. The realization of future
tax benefits of deductible temporary differences and operating loss or tax
credit carryforwards will depend on whether the Company will have sufficient
taxable income of an appropriate character within the carryback and carryforward
period permitted by the tax law to allow for utilization of the deductible
amounts and carryforwards. Without sufficient taxable income to offset the
deductible amounts and carryforwards, the related tax benefits will expire
unused.
The Company evaluates both positive and negative evidence in making a
determination as to whether it is more likely than not that all, or some
portion, of the deferred tax asset will not be realized. As of December 31,
2001, the Company had a deferred tax valuation allowance of $14,356,465, which
fully reserved its deferred tax asset.
RESULTS OF OPERATIONS 2001-2000
The Company's net loss for the year ended December 31, 2001 was $7,602,324. The
net loss for 2001 primarily reflect a $6,098,023 loss from the discontinued
operations of Atlantic, a net $106,509 recovery of a portion of the loss
previously recognized on disposal of Well-Bilt, and a $1,625,002 non-cash
deferred tax expense. The Well-Bilt recovery resulted from favorable settlements
attained on items accrued for at December 31, 2000. This compares to the year
ended December 31, 2000, when the Company recorded a net loss of $8,033,197. The
2000 loss reflects a net loss of $6,943,806 from the discontinued operation and
disposal of Well-Bilt, offset by $234,236 in discontinued operations from
Atlantic. The Company had income from continuing operations before taxes of
$46,978 in 2001, compared with a loss of $463,627 in 2000.
During the year ended December 31, 2000, the Company acquired and discontinued
the operations of Well-Bilt which resulted in the net loss from the discontinued
operations and disposal of Well-Bilt, as discussed above.
The Company had a net loss from the discontinued operations of Atlantic of
$6,098,023 for the year ended December 31, 2001, compared to net income from
discontinued operations of Atlantic of $234,236. The loss in 2001 was primarily
due to a decrease in gross margins of 6.1% or $1,498,280, as well as $3,306,582
and $1,033,045 of write downs recorded to accounts receivable and fixed assets,
respectively, in order to reduce them both to their net realizable value. See
"General Development of Business" for information on Atlantic's Chapter 11
bankruptcy filing. The lower than normal gross margins were a result of
additional costs incurred by Atlantic in finalizing certain projects.
Universal sales decreased $1,261,762 to $31,080,398 principally due to
unfavorable summer weather conditions and a general construction slow down that
followed September 11th. During the same period, gross margins increased 1.1% to
30.1% due to product mix. Selling, general and administrative expenses in 2001
decreased $590,546 to $8,825,180 as a result of various cost cutting strategies
implemented in 2001.
7
Interest expense was $713,626 compared to $795,571 as a result of decreased
borrowings and prime rate decreases. Other income increased by $8,387 primarily
because of an increase in finance charges collected on Universal's accounts
receivable due to late payments. Interest income decreased by $157,623 due to
lower average invested cash balances.
The Company had a deferred Federal tax expense of $1,564,429 and current and
deferred state tax expense of $60,573 and $32,786, respectively, in 2001. This
compares with $860,000 in the 2000 income statement, which included a federal
deferred tax expense of $858,000 and a current state tax provision of $2,000.
The increase in tax expense was primarily the result of recording a full
valuation allowance on deferred tax assets.
RESULTS OF OPERATIONS 2000-1999
The Company disposed of its Well-Bilt door and doorframe manufacturing segment
in February 2001. A loss from operations of this discontinued segment of
$3,212,152 and a $3,731,654 loss on disposal of this discontinued segment are
reflected in the consolidated statements of operations for the year ended
December 31, 2000.
The Company reported a net loss of $8,033,197 for the year ended December 31,
2000, primarily due to the $6,943,806 of Well-Bilt related losses offset by
$234,236 of income from Atlantic, which was discontinued in 2001. This compares
with net income of $907,037 for the year ended December 31, 1999, which included
$1,025,529 of income from Atlantic. The Company had a loss from continuing
operations before taxes of $463,627 in 2000, compared with income of $192,258 in
1999.
The Company reported net income from the discontinued operations of Atlantic of
$234,236 for the year ended December 31, 2000, as compared to $1,025,529 in
1999. This decrease was primarily due to a decrease in its gross profits of
$345,329, as well as an increase in its selling, general and administrative
expenses of $259,781. Atlantic's gross profits decreased, despite an increase in
its sales of $311,532, as a result of a decrease in gross margins of 1.7% caused
by cost overruns on certain larger projects. The increase in selling, general
and administrative expenses was principally due to increased health insurance
claims and depreciation expense relating to its new computer system.
The $15,749,737 sales increase over 1999 resulted primarily from the inclusion
of Universal operations only for the six months after Universal was acquired in
July of that year. Meanwhile, gross margins remained relatively steady,
increasing by only 0.2% to 28.9%. Selling, general and administrative expenses,
net increased $4,858,454, principally due to Universal's increased expenses of
$4,648,676, as 1999 only included six months of results. Universal's selling,
general and administrative expense, as a percentage of sales, increased by three
percentage points, principally due to an overall effort towards growth in its
design control systems business.
Universal's interest expense increased $457,511. Universal's borrowing level
remained relatively consistent throughout 2000; the 1999 amounts reflect
borrowings only from and after the acquisition date. Interest income decreased
$4,585 due to lower average invested cash balances resulting from the Company's
investment in Universal and Well-Bilt. Other income increased by $73,819 largely
due to Universal's credit card program and accounts receivable credit program.
8
During 2000, the Company has provided for state taxes of $2,000 for income from
Universal, as well as a net deferred tax expense of $858,000 resulting from an
increase to the valuation allowance on deferred tax assets at December 31, 2000.
During 1999, the Company provided for state taxes of $96,439, principally for
income from Universal, as well as $214,311 of federal taxes, $211,998 of which
represented a deferred tax expense resulting from an increase to the valuation
allowance on deferred tax assets at December 31, 1999.
IMPACT OF CHANGING PRICES
To date, the Company was not materially affected by changing prices.
LIQUIDITY AND CAPITAL RESOURCES
The Company has discontinued the operations that generated the losses in 2001
and 2000. In addition, as a result of implementing various cost cutting
strategies in 2001 and 2002, the corporate office realized a reduction in
expenses in 2002 of $578,726, or 45%, as compared to 2000. Universal has taken
various cost cutting measures, including the use of consignment inventory, which
results in lower average borrowings, and; therefore, lower interest expense to
the Company. Furthermore, since 2001, Universal's sales have increased 19.0% or
$5,918,402 in 2002. Further sales increases are anticipated in 2003 and beyond,
due to additional product lines and exclusive geographical locations granted to
Universal. As of June 30, 2003, the Company was in compliance with all financial
covenants of the restated lending agreement relating to its credit facility. The
Company does not anticipate that demand for payment will be made, as long as
Universal continues to be profitable and remains in compliance with the lending
agreement. Universal has had increases in sales in four of the past five years
and has consistently generated operating profits.
The Company expects to meet its liquidity needs going forward through a
combination of cash from operations, amounts available under its credit facility
and the issuance of stock through a private placement. On July 16, 2003,
Colonial completed a private placement pursuant to Regulation D of the
Securities Exchange Act of 1933. Colonial raised $240,600 through the issuance
of 802,000 shares of Common Stock at $0.30 per share, as determined by the Board
of Directors. The issuance of these additional shares increased our outstanding
shares by 26.1%. The stock was sold to officers and directors of the Company and
one private investor. The proceeds of the private placement will be used for
general working capital purposes.
As of December 31, 2001, the Company had $576,514 in cash and cash equivalents
compared with $803,012 at December 31, 2000.
The following table represents certain contractual commitments associated with
operating agreements, obligations to financial institutions and other long-term
debt obligations as of December 31, 2001:
Payments due by Period
(In Thousands)
----------------------------------------------------------
Less Than Over
Total 1 Year 1-3 Years 4-5 Years 5 Years
----------------------------------------------------------
Operating Leases $ 8,303 1,136 2,493 2,254 2,420
Compensation Agreements 2,540 855 1,485 200 --
Notes Payable 234 143 81 10 --
Guaranteed Borrowings 5,801 5,801 -- -- --
Line of Credit 7,930 7,930 -- -- --
-------- ------- ------- ------- -------
Totals $ 24,808 15,865 4,059 2,464 2,420
======== ======= ======= ======== =======
9
Cash flows provided by operating activities were $297,248 in 2001, as compared
to net cash provided by operating activities of $408,130 in 2000. The net cash
provided by operations in 2001 was primarily due to a decrease in inventory,
offset by a decrease in accounts payable and accrued expenses, as well as a
decrease in accounts receivable. The decrease in inventory primarily reflects an
increase in inventory taken on consignment beginning in November 2001. Accounts
payable also decreased because of the consignment inventory, but that decrease
was somewhat offset by an increase in payables because the Company's combined
availability decreased at the end of 2001, due to financial difficulties at
Atlantic.
Cash flow used in investing activities during the 2001 year of $110,751, was
primarily for Universal. Cash flow used in investing activities during 2000 was
a net of $316,489 and primarily reflects $469,260 used for additions to property
and equipment, principally computer software acquisition and installation costs
at Universal, and $141,298 used for the acquisition of Universal, offset by
$316,069 of payments received on notes receivable.
Cash flows used for financing activities in 2001 primarily reflects the
$1,166,718 of net repayments on the credit facility, that were required because
of financial difficulties at Atlantic. Cash provided by financing in 2000
primarily reflects $1,126,533 of net borrowings on the credit facility, used
mainly to fund the operations of Universal.
The net cash provided by discontinued operations in 2001 of $894,522 is made up
of $1,497,932 provided by the operation and liquidation of Atlantic offset by
$603,410 of cash used for the disposal of Well-Bilt. The net cash used for
discontinued operations in 2000 of $1,726,266 was the net result of cash inflows
of $5,201,384 from Atlantic's net borrowings on the credit facility, offset by
$5,081,111 of net cash used for the acquisition and operation of Well-Bilt and
$1,846,539 used for the operations of Atlantic.
On January 28, 2002, Atlantic, a wholly-owned subsidiary of the Company, filed a
voluntary petition with the U. S. Bankruptcy Court for the Eastern District of
New York to reorganize under Chapter 11 of the U. S. Bankruptcy Code. As of the
date of this filing, the proceedings are still ongoing. Colonial and its other
operations are not part of the Chapter 11 filing. The business of Atlantic is
today conducted by one employee whose sole function is to collect on accounts
receivables for the benefit of Atlantic's creditors, and the Company does not
believe that Atlantic will emerge from the reorganization with any value for the
Company.
On November 21, 2002, the Company and Universal were released from their
guarantees of the indebtedness (approximately $5,800,000) by Atlantic to
Colonial's and Atlantic's lending bank, in return for the agreement by the
Company and Universal to pay to the bank $2,500,000 as a five-year term loan
under the Company's line of credit with the bank, or, if earlier, on demand by
the bank.
As part of this settlement, the Company and its lending bank amended the
Company's credit facility with the lending bank. The amended facility permits a
total of $12,000,000 in borrowings, including a $373,000 term loan payable in
monthly installments over eighteen months, the $2,500,000 term loan mentioned
above, and additional borrowings on a revolving basis against eligible accounts
receivable and inventory. The interest rate under the facility is at prime +
..5%, except that the interest rate on the $2,500,000 term loan is at prime plus
2.5%. The facility expires November 21, 2005, but all loans are payable upon
demand by the bank, and, accordingly, have been classified as short-term in the
accompanying consolidated balance sheets. All loans are secured by the assets of
the Company, as well as a pledge of all of the outstanding stock of Universal.
The facility contains covenants relating to the financial condition of the
Company and its business operations, and, among other things, restricts the
payment of dividends and capital expenditures.
10
At December 31, 2001, amounts outstanding under the credit facility were
$7,929,576, of which $583,000 represents amounts under a term loan, payable in
28 remaining equal monthly installments of approximately $21,000. Although the
term loan is payable over 28 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 principal repayment.
On September 30, 2003, Colonial, through its newly formed, wholly owned
subsidiary, RAL Purchasing, Inc., purchased substantially all of the assets and
certain liabilities of RAL Supply Group, Inc. ("RAL"). The purchase price of
$3,838,521 was in the form of $2,447,061 of cash paid to the seller at the time
of purchase, with the remaining $1,391,460 in the form of liabilities assumed by
RAL Purchasing, Inc. The $2,447,061 of cash paid at the time of purchase was
funded by $2,147,061 of borrowings on the Company's credit facility and 5-year,
9% notes issued by RAL Purchasing, Inc. to a third party in the amount of
$300,000. The 5-year notes are guaranteed by Universal. Colonial's limit on its
credit facility was increased by $2,000,000 to $14,000,000, as a result of the
acquisition.
In connection with this acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 3,838,521
Cash paid $ 2,447,061
Fair value of liabilities assumed $ 1,391,460
RAL is a distributor of heating and cooling equipment and high-end plumbing
fixtures with six locations, servicing Orange, Rockland, Ulster and Sullivan
counties in New York. Four locations have showrooms. RAL's products are marketed
primarily to contractors, consumers, builders and the commercial sector.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 143, "Accounting for Asset Retirement Obligations". Statement 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. The Company is required to adopt Statement 143, on
January 1, 2003. Adoption of Statement 143 did not have a material impact on the
Company's consolidated operations or financial position.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". Statement 146 will spread out the
reporting of expenses related to restructurings initiated after 2002, because
commitment to a plan to exit an activity or dispose of long-lived assets will no
longer be enough to record a liability for the anticipated costs. Instead, exit
and disposal costs are to be recorded when they are "incurred" and can be
measured at fair value, and they will subsequently adjust the recorded liability
for changes in estimated cash flows. The Company adopted Statement 146 on
January 1, 2003. Adoption of Statement 146 did not have an impact on the
Company's consolidates results of operations or its financial position.
11
In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. Statement No. 148 provides
alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based employee compensation as originally
provided by the FASB issued Statement No. 123, Accounting for Stock-Based
Compensation. Additionally, Statement No. 148 amends the disclosure requirements
of Statement No. 123 in both annual and interim financial statements. The
disclosure requirements have been adopted as of the period ended December 31,
2002. The Company intends to continue to apply the intrinsic value method of
accounting for stock-based employee compensation. The adoption of this
pronouncement will not have any impact on the Company's consolidated financial
position or results of operations.
In November 2002, the FASB issued FASB interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that
upon issuance of guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 will be effective for any guarantees that are
issued or modified after December 31, 2002. The adoption of FIN 45 did not have
an impact on the Company's consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an interpretation of ARB No. 51".
FIN 46 addresses the consolidation by business enterprises of variable interest
entities, as defined in the Interpretation. FIN 46 is effective for all new
variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied for the first interim period beginning
after June 15, 2003. The Company does not believe that the adoption of FIN 46
will have any impact on the Company's consolidated financial statements.
In April 2003, the FASB issued Statement No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." Statement No.
149 amends and clarifies the accounting guidance on derivative instruments
(including certain derivative instruments embedded in other contracts) and
hedging activities that fall within the scope of Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities." Statement No. 149 is
effective for all contracts entered into or modified after June 30, 2003, with
certain exceptions, and for hedging relationships designated after June 30,
2003. The guidance is to be applied prospectively. The adoption of this
pronouncement will not have any impact on the Company's financial position and
results of operations.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
Statement No. 150 changes the accounting guidance for certain financial
instruments that, under previous guidance, could be classified as equity or
"mezzanine" equity by now requiring those instruments to be classified as
liabilities (or assets in some circumstances) in the statement of financial
position. Further, Statement No. 150 requires disclosure regarding the terms of
those instruments and settlement alternatives. Statement No. 150 is generally
effective for all financial instruments entered into or modified after May 31,
2002 and is otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of this pronouncement will not have
any impact on the Company's financial position and results of operations.
In January 1, 2003 the Company adopted the FASB's Emerging Issue Task
Force (EITF) Issue No. 02-16 "Accounting by a Reseller for Cash Consideration
Received from a Vendor" ("EITF 02-16"). The consensus reached by the EITF
addressed the accounting for "Cash Consideration" (which includes slotting fees,
cooperative advertising payments, etc.). The consensus of the EITF establishes
an overall presumption that the cash received from vendors is a reduction in the
12
price of vendor's products and should be recognized accordingly as a reduction
in the cost of sales at the time the related inventory is sold. Some
consideration could be characterized as a reduction of expense if the cash
received represents a reimbursement of specific, incremental, identifiable costs
incurred by the retailer to sell the vendor's products. The Company is in the
process of assessing the impact, if any, of adopting EITF 02-16.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's pre-tax earnings and cash flows are exposed to changes in interest
rates as borrowings under its credit facility bear interest based on the prime
rate plus 1%. A hypothetical 10% adverse change in such rates would reduce the
pre-tax earnings and cash flow for the year ended December 31, 2001 by
approximately $54,000 over a one-year period, assuming the borrowing level
remains consistent with the outstanding borrowings as of December 31, 2001. The
fair value of the borrowings under the credit facility is not 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.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Independent Auditors' Report on consolidated financial statements and schedule
Consolidated financial statements:
Consolidated balance sheets as of December 31, 2001 and 2000
Consolidated statements of operations for the years ended December 31,
2001, 2000 and 1999
Consolidated statements of stockholders' equity (deficit) for the years
ended December 31, 2001, 2000 and 1999
Consolidated statements of cash flows for the years ended December 31,
2001, 2000 and 1999
Notes to consolidated financial statements
Independent Auditors' Report on Schedule
Schedule:
II - Valuation and qualifying accounts
All other schedules are omitted because they are not required or the
information required is given in the consolidated financial statements
or notes thereto.
14
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Colonial Commercial Corp.:
We have audited the accompanying consolidated balance sheets of
Colonial Commercial Corp. and subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the years in the three-year period ended
December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Colonial
Commercial Corp. and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in note 2(a), Atlantic Hardware & Supply Corporation
("Atlantic"), a wholly-owned subsidiary of the Company, filed for reorganization
under Chapter 11 of the United States Bankruptcy Code on January 28, 2002. The
financial results of Atlantic have been deconsolidated and the Company accounts
for Atlantic using the cost method.
/s/ KPMG LLP
-------------------
Melville, New York
October 2, 2003
15
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2001 and 2000
Assets 2001 2000
------------ ------------
Current assets:
Cash and cash equivalents $ 576,514 803,012
Accounts receivable, net of allowance for doubtful accounts
of $253,000 in 2001 and $248,000 in 2000, respectively 4,466,667 4,262,309
Inventory 6,314,546 7,576,445
Prepaid expenses and other current assets 376,838 484,213
Deferred taxes -- 30,940
------------ ------------
Total current assets 11,734,565 13,156,919
Deferred taxes -- 1,594,062
Property and equipment, net 622,790 652,936
Goodwill 1,316,929 1,394,812
Other intangibles 128,700 174,667
Investment in unconsolidated subsidiary, in bankruptcy,
carried at cost -- 9,497,362
Restricted investment securities 122,506 80,236
------------ ------------
$ 13,925,490 26,550,994
============ ============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 2,422,802 3,221,015
Accrued liabilities 1,047,188 1,465,873
Income taxes payable 26,086 1,000
Borrowings under credit facility 7,929,576 9,096,294
Investment in unconsolidated subsidiary in bankruptcy,
carried at cost 219,007 --
Guaranteed borrowings of unconsolidated subsidiary in bankruptcy 5,800,695 8,027,618
Notes payable - current portion 143,405 160,854
------------ ------------
Total current liabilities 17,588,759 21,972,654
Net liabilities of discontinued operations -- 603,410
Notes payable, excluding current portion 90,495 195,352
Excess of acquired net assets over cost, net -- (26,712)
Deferred compensation 122,506 80,236
------------ ------------
Total liabilities 17,801,760 22,824,940
------------ ------------
Stockholders' equity (deficit):
Convertible preferred stock, $.05 par value, liquidation
preference of $7,321,430 and $7,332,255 at December
31, 2001 and 2000, respectively, 2,468,860 shares
authorized, 1,464,286 and 1,466,451 shares issued and
outstanding at December 31, 2001 and 2000, respectively 73,214 73,322
Common stock, $.05 par value, 20,000,000 shares
authorized, 1,603,760 and 1,601,595 shares issued and
outstanding at December 31, 2001 and 2000, respectively 80,189 80,081
Additional paid-in capital 8,966,513 8,966,513
Accumulated deficit (12,996,186) (5,393,862)
------------ ------------
Total stockholders' equity (deficit) (3,876,270) 3,726,054
------------ ------------
Commitments and contingencies
$ 13,925,490 26,550,994
============ ============
See accompanying notes to consolidated financial statements
F-1
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
------------ ------------ ------------
Sales $ 31,080,398 32,342,160 16,592,423
Cost of sales 21,735,358 22,984,470 11,825,579
------------ ------------ ------------
Gross profit 9,345,040 9,357,690 4,766,844
Selling, general and administrative expenses 8,825,180 9,415,726 4,557,272
------------ ------------ ------------
Operating income (loss) 519,860 (58,036) 209,572
Interest income 10,706 168,329 172,914
Other income 230,038 221,651 147,832
Interest expense (713,626) (795,571) (338,060)
------------ ------------ ------------
Income (loss) from continuing operations
before income taxes 46,978 (463,627) 192,258
Income taxes 1,657,788 860,000 310,750
------------ ------------ ------------
Loss from continuing operations $ (1,610,810) (1,323,627) (118,492)
Discontinued operations (note 2(a)):
Net income (loss) from operations of discontinued
segments (6,098,023) (2,977,916) 1,025,529
Loss on disposal of discontinued operation -- (3,731,654) --
Recovery of loss on disposal of discontinued operation 106,509 -- --
------------ ------------ ------------
Loss on discontinued operation (5,991,514) (6,709,570) 1,025,529
------------ ------------ ------------
Net income (loss) $ (7,602,324) (8,033,197) 907,037
============ ============ ============
Income (loss) per common share:
Basic:
Loss from continuing operations $ (1.00) (0.86) (0.08)
Income (loss) on discontinued operation (3.74) (4.35) 0.68
------------ ------------ ------------
Net income (loss) per common share $ (4.74) (5.21) 0.60
============ ============ ============
Diluted:
Loss from continuing operations $ (1.00) (0.86) (0.08)
Income (loss) on discontinued operation (3.74) (4.35) 0.68
------------ ------------ ------------
Net income (loss) per common share $ (4.74) (5.21) 0.60
============ ============ ============
Weighted average shares outstanding:
Basic 1,603,178 1,542,712 1,504,356
Diluted 1,603,178 1,542,712 1,504,356
See accompanying notes to consolidated financial statements
F-2
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 2001, 2000 and 1999
Number of
shares
------------------------------ Retained
Convertible Convertible Additional Earnings Total
Preferred Common Preferred Common Paid-In (Accumulated Stockholders'
Stock Stock Stock Stock Capital Deficit) Equity (Deficit)
------------------------------ ---------- ------- ---------- ------------ ---------------
Balances at December 31, 1998 1,592,994 1,463,052 $ 79,650 73,153 8,921,989 1,732,298 $ 10,807,090
Net income -- -- -- -- -- 907,037 907,037
Conversion of shares of
preferred stock to
common stock (60,011) 60,011 (3,001) 3,001 -- -- --
Options issued to
legal counsel -- -- -- -- 14,125 -- 14,125
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balances at December 31, 1999 1,532,983 1,523,063 76,649 76,154 8,936,114 2,639,335 11,728,252
Net loss -- -- -- -- -- (8,033,197) (8,033,197)
Conversion of shares of
preferred stock to
common stock (66,532) 66,532 (3,327) 3,327 -- -- --
Options exercised -- 12,000 -- 600 30,399 -- 30,999
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balances at December 31, 2000 1,466,451 1,601,595 73,322 80,081 8,966,513 (5,393,862) 3,726,054
Net loss -- -- -- -- -- (7,602,324) (7,602,324)
Conversion of shares of
preferred stock to
common stock (2,165) 2,165 (108) 108 -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balances at
December 31, 2001 1,464,286 1,603,760 $ 73,214 80,189 8,966,513 (12,996,186) $ (3,876,270)
============ ============ ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-3
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
----------------- ----------------- -----------------
Cash flows from operating activities:
Net (loss) income $(7,602,324) (8,033,197) 907,037
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Loss (income) from discontinued operation 5,991,514 6,709,570 (1,025,529)
Deferred tax expense 1,625,002 858,000 211,998
Provision for doubtful accounts 57,589 85,554 99,255
Issuance of stock options -- -- 14,125
Depreciation 154,590 126,415 29,267
Amortization of intangibles 128,650 134,301 23,132
Amortization of excess of fair value of acquired net
assets over cost 26,712 -- --
Changes in assets and liabilities, net of the effects
of acquisitions:
Accounts receivable (261,947) (205,426) (378,557)
Inventory 1,261,899 (746,214) (228,859)
Prepaid expenses and other current assets 107,375 (95,604) 253,805
Accounts payable (798,213) 1,610,692 (368,254)
Investment securities - trading (42,270) (54,480) (25,756)
Accrued liabilities (418,685) 3,432 (209,742)
Income taxes payable 25,086 (39,393) (36,947)
Deferred compensation 42,270 54,480 25,756
----------- ----------- -----------
Net cash provided by (used in) operating activities 297,248 408,130 (709,269)
----------- ----------- -----------
Cash flows from investing activities:
Payment for acquisition of Universal -- (141,298) (3,879,427)
Payment for acquisition of Ramsco, Inc. -- -- (224,063)
Purchase of licensing agreement (4,800) (22,000) --
Payments on notes receivable -- 316,069 158,034
Additions to property and equipment (105,951) (469,260) (195,514)
Costs incurred with respect to planned acquisition -- -- (159,541)
----------- ----------- -----------
Net cash used in investing activities (110,751) (316,489) (4,300,511)
----------- ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) on notes payable (140,799) (148,943) 1,652,033
Net borrowings (repayments) under credit facility (1,166,718) 1,126,533 (1,097,239)
Exercise of employee stock options -- 30,999 --
----------- ----------- -----------
Net cash (used in) provided by financing activities (1,307,517) 1,008,589 554,794
----------- ----------- -----------
Net cash provided by (used in) discontinued operations 894,522 (1,726,266) 1,499,998
----------- ----------- -----------
Decrease in cash and cash equivalents (226,498) (626,036) (2,954,988)
Cash and cash equivalents - beginning of period 803,012 1,429,048 4,384,034
----------- ----------- -----------
Cash and cash equivalents - end of period $ 576,514 803,012 1,429,046
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-4
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) DESCRIPTION OF BUSINESS
Colonial Commercial Corp., (the Company), through its operating subsidiary,
Universal Supply Group, Inc. (Universal), is a distributor of heating,
ventilation and air conditioning (HVAC) and climate control products to
building contractors and architectural firms. The Company's products
are marketed primarily to HVAC contractors, which, in turn, sell such
products to residential and commercial/industrial customers. The
Company's customers are located in the United States, primarily in
Southern New York and Northern New Jersey. The Company's other
subsidiary, Atlantic Hardware & Supply Corporation ("Atlantic"), has
filed for reorganization under chapter 11 of the United States
Bankruptcy Code. See Note 2 for more information on discontinued
operations.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(c) REVENUE RECOGNITION
Revenue is recognized when the earnings process is complete, generally
upon shipment of products in accordance with shipping terms. There are
no further obligations on the part of the Company subsequent to
revenue recognition, except for returns of defective product from the
Company's customers, which are covered under the manufacturer's
warranty. Credits for returns are not issued to the customer until
such time as the Company receives notification that a vendor credit
from the manufacturer will be issued for the product in question. The
Company does not provide a warranty on products sold, rather the
warranty is provided by the manufacturer.
(d) CASH EQUIVALENTS
The Company considers all highly liquid investment instruments with an
original maturity of three months or less to be cash equivalents.
There were no cash equivalents at December 31, 2001 or December 31,
2000.
16
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(e) INVENTORY
Inventory is stated at the lower of cost or market and consists solely of
finished goods. Cost is determined using the first-in, first-out
method.
All costs of shipping inventory, which include costs to ship inventory
from the Company's vendors and to the Company's customers, are
included in selling, general and administrative expenses. Such costs
approximated $209,975, $259,403 and $84,026 for the years ended
December 31, 2001, 2000 and 1999, respectively.
(f) INVESTMENT SECURITIES
The Company maintains investments in equity securities as trading
securities, which have been classified as trading securities for the
deferred compensation plan (note 14(b)). Trading securities are bought
and held principally for the purposes of selling them in the near
term. Trading securities are recorded at fair value. Unrealized
holding gains and losses on trading securities are included in
earnings. Dividend and interest income are recognized when earned.
(g) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of the assets
as follows:
Computer hardware and software 5 years
Office and warehouse equipment 5 years
Furniture and fixtures 5 years
Automobiles 3-5 years
Leasehold improvements are amortized over the shorter of the lease term or
the estimated useful life of the asset.
(h) INTANGIBLE ASSETS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (Statement) No. 141, "Business
Combinations," and Statement No. 142, "Goodwill and Other Intangible
Assets". Statement 141 requires companies to account for acquisitions
using the purchase method and establishes criteria to be used in
determining whether acquired intangible assets are to be recorded
separately from goodwill. Statement 141 requires that the Company evaluate
its existing intangible
17
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
assets and goodwill that were acquired in a prior purchase business
combination, and make any necessary reclassifications, in order to
conform with the new criteria in Statement 141 for recognition apart
form goodwill. Implementation of Statement 141 did not have an impact
on the Company's financial position and results of operations.
Statement 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but rather will be tested for
impairment at least annually. Statement 142 also requires that
intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values
and reviewed for impairment, in accordance with Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." Upon
adoption of Statement 142, the Company was required to perform an
assessment of whether there is an indication that goodwill was
impaired as of the date of adoption. To accomplish this, the Company
had to identify its reporting units and determine the carrying value
of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those
reporting units as of the date of adoption. The Company adopted the
provisions of Statement 142 effective January 1, 2002 and,
accordingly, has ceased the amortization of the goodwill acquired in
prior business combinations. Upon adoption and again as a result of
the Company's annual impairment test, there was no indication of
impairment for goodwill acquired in prior business combinations.
As required by the adoption of Statement No. 142, the Company also
reassessed the useful lives and residual values of all acquired
intangible assets to make any necessary amortization period
adjustments. Based upon that assessment, no adjustments were made to
the amortization period of residual values of other intangible assets.
The cost of other intangible assets are amortized on a straight-line
basis over their respective lives.
As of December 31, 2001 and December 31, 2000, the Company had intangible
assets, subject to amortization of $236,467 and $253,667,
respectively, and related accumulated amortization of $107,767 and
$79,000, respectively, which pertained primarily to covenants not to
compete. Amortization expense for intangible assets subject to
amortization amounted to approximately $47,200 and $58,200 for the
years ended December 31, 2001 and 2000, respectively. The estimated
aggregate amortization expense for each of the five succeeding years
ending December 31, 2006 amounts to approximately $42,900, $41,700,
$26,700, $11,700 and $5,800 in 2002, 2003, 2004, 2005 and 2006,
respectively.
As of December 31, 2001 and 2000 the Company had unamortized goodwill in
the amount of $1,316,929 and $1,394,812, respectively.
18
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(i) STOCK OPTION PLAN
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations, including FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, an Interpretation
of APB Opinion No.25, issued in March 2000, to account for its
fixed-plan stock options. Under this method, compensation expense is
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. Statement No. 123,
"Accounting for Stock-Based Compensation," established accounting and
disclosure requirements using a fair-value-based method of accounting
for stock-based employee compensation plans. As allowed by Statement
No. 123, the Company has elected to continue to apply the intrinsic
value-based method of accounting described above, and has adopted only
the disclosure requirements of Statement No. 123. The following table
illustrated the effect on net income if the fair-value-based method
had been applied to all outstanding and unvested awards in each
period.
2001 2000 1999
----------- ----------- -----------
Net loss, as reported $(7,602,324) (8,033,197) 907,037
Add: Stock-based employee compensation
expense included in reported net loss -- -- --
Deduct: Total stock-based employee
compensation determined under fair-
value-based method for all awards $ (22,164) (22,164) (22,164)
----------- ----------- -----------
Pro forma $(7,624,488) (8,055,361) 884,873
=========== =========== ===========
Basic and diluted net loss
per common share
As reported $ (4.74) (5.21) 0.60
Pro forma $ (4.76) (5.22) 0.59
In calculating the above stock-based employee compensation determined
under fair-value based method for all awards granted in 1999, the
Company utilized the following assumptions; expected volatility of
86.5%, expected life of 10 years, risk free interest rate of 6.2% and
dividend yield of 0%.
19
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(j) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(k) REVERSE STOCK SPLIT
On January 30, 1998, the Company made effective a five-to-one reverse
stock split, which shareholders approved on January 13, 1998. All
references in the consolidated financial statements referring to
shares, share prices, per share amounts and stock plans were adjusted
retroactively for the five-to-one reverse stock split and the increase
in authorized common stock.
(l) NET INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per share excludes any dilution. It is based upon the
weighted average number of common shares outstanding during the
period. Dilutive earnings per share reflects the potential dilution
that would occur if securities or other contracts to issue common
stock were exercised or converted into common stock. Dilutive net loss
per common share for fiscal 2001, 2000 and 1999 is the same as basic
net loss per common share due to the antidilutive effect of the
assumed conversion of preferred shares and exercise of stock options.
(m) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF
Statement No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," provides a single accounting model for long-lived
assets to be disposed of. Statement No. 144 also changes the criteria
for classifying an asset as held for sale and broadens the scope of
businesses to be disposed of that qualify for reporting as
discontinued operations and changes the timing of recognizing losses
on such operations. The Company adopted Statement No 144 on January 1,
2002. The adoption of Statement No. 144 did not affect the Company's
consolidated and combined financial statements.
20
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In accordance with Statement No. 144 long-lived assets, such as property,
plant and equipment, and purchased intangibles subject to
amortization, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be generated by
the asset If the carrying amount of an asset exceeds its estimated
undiscounted future cash flows, an impairment charge is recognized by
the amount by which the carrying amount of the asset exceeds the fair
value of the asset. Assets to be disposed of would be separately
presented in the balance sheet and reported at the lower of the
carrying amount or fair value less costs to sell, and are no longer
depreciated. The assets and liabilities of a disposed group classified
as held for sale would be presented separately in the appropriate
asset and liability sections of the balance sheet.
Prior to the adoption of Statement No. 144, the Company accounted for
long-lived assets in accordance with Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed Of."
(n) COMPREHENSIVE INCOME (LOSS)
TheCompany has no items of other comprehensive income (loss); therefore,
there is no difference between the Company's comprehensive income
(loss) and net income (loss) for the periods presented.
(o) USE OF ESTIMATES
The preparation of the financial statements, in accordance with
accounting principles generally accepted in the United States of
America, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(p) RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 and 2000 consolidated
financial statements in order to conform them to the 2001
presentation. As of December 31, 2001, Atlantic has been
deconsolidated and the Company's 100% investment in Atlantic's common
stock is being carried at cost, as the Company is no longer able to
21
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
exercise significant influence over Atlantic's operations and
financial activities. In addition, Atlantic's results of operations
for 2001 are being reported as "results from operations of
discontinued segments." The Company's statements of operations and
cash flows for 2000 and 1999 have been restated to conform to this
presentation.
(q) ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
InJune 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations". Statement 143 addresses financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs.
It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived asset,
except for certain obligations of lessees. The Company is required to
adopt Statement 143, on January 1, 2003. Adoption of Statement 143 did
not have a material impact on the Company's consolidated operations or
financial position.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". Statement 146 will
spread out the reporting of expenses related to restructurings
initiated after 2002, because commitment to a plan to exit an
activity or dispose of long-lived assets will no longer be enough to
record a liability for the anticipated costs. Instead, exit and
disposal costs are to be recorded when they are "incurred" and can be
measured at fair value, and they will subsequently adjust the
recorded liability for changes in estimated cash flows. The Company
adopted Statement 146 on January 1, 2003. Adoption of Statement 146
did not have an impact on the Company's consolidates results of
operations or its financial position.
In December 2002, the FASB issued Statement No. 148, Accounting for
Stock- Based Compensation-Transition and Disclosure. Statement No. 148
provides alternative methods of transition for a voluntary change to
the fair value method of accounting for stock-based employee
compensation as originally provided by the FASB issued Statement No.
123, Accounting for Stock-Based Compensation. Additionally, Statement
No. 148 amends the disclosure requirements of Statement No. 123 in
both annual and interim financial statements. The disclosure
requirements have been adopted as of the period ended December 31,
2002. The Company intends to continue to apply the intrinsic value
method of accounting for stock-based employee compensation. The
adoption of this pronouncement will not have any impact on the
Company's consolidated financial position or results of operations.
22
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In November 2002, the FASB issued FASB interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
FIN 45 requires that upon issuance of guarantee, a guarantor must
recognize a liability for the fair value of an obligation assumed
under a guarantee. FIN 45 also requires additional disclosures by a
guarantor in its interim and annual financial statements about the
obligations associated with guarantees issued. The recognition
provisions of FIN 45 will be effective for any guarantees that are
issued or modified after December 31, 2002. The adoption of FIN 45 did
not have an impact on the Company's consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an interpretation of ARB
No. 51". FIN 46 addresses the consolidation by business enterprises of
variable interest entities, as defined in the Interpretation. FIN 46
is effective for all new variable interest entities created or
acquired after January 31, 2003. For variable interest entities
created or acquired prior to February 1, 2003, the provisions of FIN
46 must be applied for the first interim period beginning after June
15, 2003. The Company does not believe that the adoption of FIN 46
will have any impact on the Company's consolidated financial
statements.
In April 2003, the FASB issued Statement No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." Statement No.
149 amends and clarifies the accounting guidance on derivative
instruments (including certain derivative instruments embedded in
other contracts) and hedging activities that fall within the scope of
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." Statement No. 149 is effective for all contracts entered
into or modified after June 30, 2003, with certain exceptions, and for
hedging relationships designated after June 30, 2003. The guidance is
to be applied prospectively. The adoption of this pronouncement will
not have any impact on the Company's financial position and results of
operations.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." Statement No. 150 changes the accounting guidance for certain
financial instruments that, under previous guidance, could be
classified as equity or "mezzanine" equity by now requiring those
instruments to be classified as liabilities (or assets in some
circumstances) in the statement of financial position. Further,
Statement No. 150 requires disclosure regarding the terms of those
instruments and settlement alternatives. Statement No. 150 is
generally effective for all financial instruments entered into or
modified after May 31, 2002 and is otherwise effective at the
beginning of the first interim period
23
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
beginning after June 15, 2003. The adoption of this pronouncement
will not have any impact on the Company's financial position and
results of operations.
In January 1, 2003 the Company adopted the FASB's Emerging Issue Task
Force (EITF) Issue No. 02-16 "Accounting by a Reseller for Cash
Consideration Received from a Vendor" ("EITF 02-16"). The consensus
reached by the EITF addressed the accounting for "Cash Consideration"
(which includes slotting fees, cooperative advertising payments,
etc.). The consensus of the EITF establishes an overall presumption
that the cash received from vendors is a reduction in the price of
vendor's products and should be recognized accordingly as a reduction
in the cost of sales at the time the related inventory is sold. Some
consideration could be characterized as a reduction of expense if the
cash received represents a reimbursement of specific, incremental,
identifiable costs incurred by the retailer to sell the vendor's
products. The Company is in the process of assessing the impact, if
any, of adopting EITF 02-16.
(2) DISCONTINUED OPERATIONS, CHAPTER 11 REORGANIZATION AND BUSINESS ACQUISITIONS
(a) On January 28, 2002, Atlantic, a wholly-owned subsidiary of the
Company, filed a voluntary petition with the U. S. Bankruptcy Court for
the Eastern District of New York to reorganize under Chapter 11 of the
U. S. Bankruptcy Code. As of the date of this filing, the proceeding is
still on-going. Neither Colonial, nor Universal, is part of the Chapter
11 filing. The business of Atlantic is today conducted by one employee
whose sole function is to collect on accounts receivables for the
benefit of Atlantic's creditors, and the Company does not believe that
Atlantic will emerge from the reorganization with any value for the
Company. The Company was authorized by its Board to carry out the
Chapter 11 filing in December 2001 and since they no longer exercise
significant influence over Atlantic's operations and financial
activities as of December 31, 2001, Atlantic has been unconsolidated in
the Company's financial statements and its operations are being
reported as "results from operations of discontinued segments." The
Company's balance sheet as of December 31, 2000 and its statements of
operations and statements of cash flows for 2000 and 1999 include
certain reclassifications in order to conform to this presentation. The
losses from operations of Atlantic for the year ended December 31, 2001
and for the period up to January 28, 2002, the date of filing for
Chapter 11, were $5,553,904 and $544,119, respectively. These losses
total $6,098,023 and were reported as a net loss from operation of a
discontinued operation at December 31, 2001. This loss includes
$3,439,366 of net losses recorded as a result of writing down
Atlantic's assets to their net realizable value in order to arrive at
the appropriate cost value of the Company's investment in Atlantic.
Atlantic's sales totaled $24,561,972
24
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
for the year ended December 31, 2001 and for the period up to January
28, 2002 and are not included in sales as reported in the consolidated
statement of operations. A tax benefit from the loss from operations of
discontinued segment has not been recorded as one is not expected to be
realized.
On November 21, 2002, the Company and Universal were released from
their guarantees of the indebtedness (approximately $5,800,000) of
Atlantic by Atlantic's lending bank, in return for the agreement by the
Company and Universal to pay to the bank $2,500,000 as a five-year term
loan under the Company's line of credit with the bank, or, if earlier,
on demand by the bank.
The Company's investment in Atlantic's common stock is being recognized
at cost, $219,007 of guaranteed liabilities and $5,800,695 of
guaranteed borrowings under a credit facility as of December 31, 2001.
In November 2002, the Company settled its guarantee with the lender for
$2,500,000 to be paid over five years. The Company has recognized
liabilities of Atlantic only to the extent such liabilities are
guaranteed by the Company because the Company believes that it is not
responsible for any other liabilities of Atlantic as Atlantic's
creditors will be able to look only to Atlantic's assets for recovery.
The Company will continue to recognize the $219,007 of guaranteed
liabilities of Atlantic until they are extinguished by Atlantic's
bankruptcy proceedings or otherwise.
Summarized financial information for the deconsolidated subsidiary
is as follows:
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------
2001 2000 1999
------------ ------------ -----------
Net sales $ 24,561,972 25,978,063 25,666,531
Net (loss) income (6,098,023) 234,236 1,025,529
============ ============ ===========
DECEMBER 31,
2001 2000
----------- -----------
Current assets (primarily accounts receivable and inventory) $ 3,352,197 12,074,878
Non-current assets (primarily property and equipment) 57,510 1,359,163
Current liabilities (primarily accounts payable, accrued liabilities) (3,628,714) (3,411,220)
Unconsolidated subsidiary's guaranteed borrowings credit facility (5,800,695) (8,027,618)
Noncurrent liabilities - negative goodwill -- (525,459)
------------ ------------
Net (liabilities) assets of deconsolidated subsidiary $ (6,019,702) 1,469,744
============ ============
25
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(b) The Company acquired its now discontinued Well-Bilt door and doorframe
manufacturing segment in March 2000 and disposed of Well-Bilt in
February 2001. A loss from operations of this segment of $3,212,152
and a $3,731,654 loss on disposal of this segment are reflected in the
consolidated statements of operations for the year ended December 31,
2000.
In connection with the initial acquisition of Well-Bilt, liabilities
were assumed as follows:
Fair value of assets acquired $ 6,665,786
Cash paid (including advances of $2,324,732) and
amounts accrued 3,384,094
-----------
Fair value of liabilities assumed $ 3,281,692
===========
The results of operations for Well-Bilt, since its acquisition in
March 2000, have been shown as a discontinued operation in the
consolidated financial statements as of and for the year ended
December 31, 2000. The loss from operations of Well-Bilt for the year
ended December 31, 2000 and for the period up to the measurement date,
January 12, 2001, was $3,212,152. The loss on the disposition of the
segment was $3,731,654, which includes a provision of $141,722 for
operating losses incurred during the phase- out period. The results of
the discontinued operation do not reflect any management fees or
interest expense allocated by corporate. The loss from operations of
Well-Bilt includes $321,355 of interest on borrowings under the credit
facility by Atlantic to fund Well-Bilt's operations. The interest was
calculated based upon the applicable interest rate under the credit
facility. Atlantic retained certain assets, including inventory of
approximately $369,000, and certain liabilities of approximately
$1,284,000. Well-Bilt's net sales, excluding sales to affiliated
subsidiaries, were $4,074,798 for the period of March 24, 2000 through
January 12, 2001, and $53,205 from January 12, 2001 through the
disposal date of February 1, 2001. These amounts are not included in
net sales as reported in the consolidated statement of income (loss).
A tax benefit from the loss from operations of discontinued segment
and the loss on the disposition has not been recorded as one is not
expected to be realized. Pro forma financial information relating to
the disposition of Well-Bilt is not presented because the disposition
is fully reflected in the financial statements as of and for the year
ended December 31, 2000.
Summarized information for the discontinued operation is as follows:
For the period from March 24, 2000 through
December 31, 2000
-----------------
Net sales $4,074,798
Net loss (3,212,152)
==========
26
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
During the second half of 2001, the Company, which had guaranteed
certain liabilities of Well-Bilt, was able to reach favorable
settlements on certain guarantees. As a result, the Company recorded
a $106,509 net reduction of the loss on disposal of discontinued
segment recorded at December 31, 2000.
(c) On June 25, 1999, effective June 30, 1999, the Company purchased all
the assets, subject to all of the liabilities of Universal Supply
Group, Inc. (Universal), for $10,867,848 in cash (including direct
acquisition expenses and net of cash acquired). During the quarters
ended September 30, 2000 and 1999, an additional $141,298 and $70,929,
respectively, was paid to the previous owners of Universal, pursuant
to the purchase agreement. $4,000,000 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. In connection with this
acquisition, the Company entered into a secured lending facility,
(note (7)). The acquisition was accounted for under the purchase
method of accounting. The allocation of the purchase price to the net
assets acquired has been completed. Included in such allocation was
the recognition of a deferred tax asset of $3,700,000 as a result of
the Company's projection of future taxable income of the combined
company. The excess of the cost over the fair value of the net assets
acquired was increased and the deferred tax asset was reduced by
$1,175,000 during the fourth quarter ended December 31, 2000 to
reflect an additional purchase price adjustment. The excess of the
cost over the fair value of the net assets acquired has also been
adjusted for the aforementioned additional $141,298 and $70,929
payments, as well as the reversal of a $75,000 contingent liability
during the quarter ended December 31, 1999. The adjusted excess of
cost over fair value of net assets acquired amounting to $1,324,698,
is being amortized on a straight-line basis over a twenty-year period.
Other acquired intangibles consists of three non-competition
agreements that amounted to $231,667. The results of operations of
Universal have been included in the Company's consolidated statements
of income (loss) commencing July 1, 1999.
In connection with the acquisition, liabilities were assumed as
follows:
Fair value of assets acquired $14,961,026
Cash paid and other accrued purchase
price of $309,350 10,938,777
-----------
Fair value of liabilities assumed $ 4,022,249
===========
The following unaudited pro forma summary incorporates the historical
results of operations of the purchased business adjusted for interest
on acquisition financing, reduction of interest income, amortization
of the excess cost over the fair value of the net assets acquired and
other intangibles and tax expense, as if the acquisition had taken
27
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
place on January 1, 1998. These pro forma results of operations have
been prepared for comparative purposes only and do not purport to be
indicative of the results of operations that actually would have
resulted had the acquisition occurred on the first day of the year
indicated, or that may result in the future.
(Unaudited)
For the year ended
December 31, 1999
------------------
Sales $ 55,421,828
Net income 895,937
Net income per common share:
Basic .60
Diluted .29
Weighted average shares
outstanding:
Basic 1,504,356
Diluted 3,136,017
(d) On October 15, 1999, the Company purchased all of the accounts
receivable, inventory, fixed assets, trade names and customer lists of
Ramsco, Inc. for approximately $225,000 in cash. The transaction was
accounted for as a purchase and, accordingly, the cost of the
acquisition was allocated to the assets acquired, based upon their
estimated fair values. The excess of cost over the fair value of
assets acquired amounted to approximately $150,000 and is being
amortized over a fifteen-year period. Pro forma results of operations
were not provided as their effects on the consolidated results of
operations would not have been material.
(3) SUBSEQUENT EVENTS
(a) Nasdaq
The Company's shares were delisted from the Nasdaq SmallCap Market in
June 2002 because (i) the Company failed to timely file its Form 10-Q
for the fiscal quarter ended March 31, 2002 and its Form 10-K for 2001,
(ii) the market value of its publicly held shares of common stock was
less than the required $1 million, and (iii) the closing bid price of
its common stock was less than $1 per share.
28
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(b) Goldman Acquisition
In July 2002, Universal paid $670,981 to acquire certain accounts
receivable, inventory and other accessories from Goldman Associates of New York,
Inc. ("Goldman"), relating to Goldman's HVAC business in New Jersey and certain
areas of New York. $570,981 of the purchase price was allocated to the above
listed assets at their estimated fair values. The remaining $100,000 was
recorded as goodwill and will be tested annually for impairment under the
provisions of Statement 142. Pro forma results of operations are not provided as
the information is not material to the consolidated financial statements.
(c) Release Of Guarantees
On November 21, 2002, the Company and Universal were released from their
guarantees of the indebtedness (approximately $5,800,000) by Atlantic to
Colonial's and Atlantic's lending bank, in return for the agreement by the
Company and Universal to pay to the bank $2,500,000 as a five-year term loan
under the Company's line of credit with the bank, or, if earlier, on demand by
the bank. The $3,300,000 difference between the total amount guaranteed
($5,800,000) and the amount the Company and Universal agreed to pay ($2,500,000)
is reflected in the Company's 2002 statement of operations as income from the
operations of discontinued segments.
(d) Private Placement
On July 16, 2003, the Company completed a private placement,
pursuant to Regulation D of the Securities Exchange Act of 1933. The Company
raised $240,600 through the issuance of 802,000 shares of Common Stock at $0.30
per share. The stock was sold to officers and directors of the Company and one
private investor. The proceeds of the private placement will be used for general
working capital purposes. The stock cannot be sold, transferred or otherwise
disposed of, unless subsequently registered under the Securities Act of 1933 and
applicable state securities or Blue Sky laws, or pursuant to an exemption from
such registration, which is available at the time of desired sale, and will bear
a legend to that effect.
(e) RAL Acquisition
On September 30, 2003, RAL Purchasing, Inc., a newly formed, wholly
owned subsidiary of Colonial, purchased substantially all of the assets and
certain liabilities of RAL Supply Group, Inc. ("RAL") for a price of $3,838,521.
$2,447,061 of the purchase price was paid in cash to the seller at the time of
purchase. The remaining $1,391,460 was in the form of liabilities assumed by RAL
Purchasing, Inc. The cash paid at the time of purchase was funded as follows:
29
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Borrowings on Colonial's credit facility $ 2,147,061
5-Year unsecured notes issued by RAL
Purchasing, Inc. to a third party, at annual rate of 9% $ 300,000
------------
Total outlay $ 2,447,061
============
In connection with this acquisition, Colonial's limit on its credit
facility was increased by $2,000,000 to $14,000,000. All borrowings
under the credit facility are secured by substantially all of the
assets of RAL and Universal. In addition, the 5-year notes are
guaranteed by Universal.
As a result of this acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 3,838,521
Cash paid $ 2,447,061
------------
Fair value of liabilities assumed $ 1,391,460
============
RAL is a distributor of heating and cooling equipment and high-end
plumbing fixtures with six locations, servicing Orange, Rockland,
Ulster and Sullivan counties in New York. Four locations have
showrooms. RAL's products are marketed primarily to contractors,
consumers, builders and the commercial sector. Initial purchase price
allocations are not yet available as the acquisition was recently
completed. The results of operations of RAL will be included in the
consolidated results from the date of acquisition.
(4) INVESTMENT SECURITIES
As of December 31, 2001 and 2000, the Company's investment securities
consist of $122,506 and $80,236, respectively, of mutual funds that
are held in connection with the deferred compensation plan (note 14).
As was allowed under the plan, the Company terminated the plan during
2002. The assets of the plan were paid out to the plan participants.
(5) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
30
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2001 2000
-------- --------
Computer hardware and software $390,411 386,354
Furniture and fixtures 68,555 68,555
Leasehold improvements 290,110 216,877
Automobiles 176,473 136,693
-------- --------
925,549 808,479
Less accumulated depreciation
and amortization 302,759 155,543
-------- --------
$622,790 652,936
======== ========
Computer hardware and software include approximately $323,619 and $320,102
of costs as of December 31, 2001 and 2000, respectively, related to
the acquisition and installation of management information systems for
internal use. The computer software costs are being amortized on a
straight-line basis over a period of five years.
(6) FINANCING ARRANGEMENTS
On November 21, 2002, the Company and Universal were released from their
guarantees of the indebtedness (approximately $5,800,000) by Atlantic
to Colonial's and Atlantic's lending bank, in return for the agreement
by the Company and Universal to pay to the bank $2,500,000 as a
five-year term loan under the Company's line of credit with the bank,
or, if earlier, on demand by the bank.
As part of this settlement, the Company and its lending bank amended the
Company's credit facility with the lending bank. The amended facility
permits a total of $12,000,000 in borrowings, including a $373,000
term loan payable in monthly installments over eighteen months, the
$2,500,000 term loan mentioned above, and additional borrowings on a
revolving basis against eligible accounts receivable and inventory.
The interest rate under the facility is at prime plus 0.5%, except
that interest rate on the $2,500,000 term loan is at prime plus 2.5%.
The facility expires November 21, 2005, but all loans are in any event
due at any time on demand by the bank, and, accordingly, have been
classified as short-term in the accompanying consolidated balance
sheets. All loans are secured by the assets of the Company, as well as
a pledge of all of the outstanding stock of Universal. The facility
contains covenants relating to the financial condition of the Company
and its business operations, and restricts the payment of dividends
and capital expenditures.
31
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
At December 31, 2001, amounts outstanding under the credit facility were
$7,929,576, of which $583,000 represents amounts under term loan,
payable in 28 remaining equal monthly installments of approximately
$21,000. Although the term loan is payable over 28 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 principal repayment. The interest rates as
of December 31, 2001 and 2000 were 5.75% and 9.50%, respectively.
(7) NOTES PAYABLE
(a) Notes payable consist of the following at December 31:
2001 2000
---- ----
Term note payable to a former owner of acquired
business in 60 monthly principal and interest
installments of $9,125, bearing interest at 8.0% $138,037 $232,349
Term note payable to a former owner of acquired
business in 60 monthly principal and interest
installments of $4,790, bearing interest at 7.0% 18,881 72,958
Term note payable to a bank in 60 monthly principal
and interest installments of $347, bearing
interest at .9% 12,480 16,640
Term note payable to a bank in 60 monthly
principal and interest installments of $346, bearing
interest at .9% 12,802 16,953
Term note payable to a bank in 60 monthly
principal and interest installments of $346, bearing
interest at .9% 13,152 17,306
Term note payable to a bank in 48 monthly
principal and interest installments of $435, bearing
interest at 5.9%. 17,380 --
Term note payable to a bank in 60 monthly
principal and interest installments of $392, bearing
interest at 3.9%. 21,168 --
------ -------
233,900 356,206
Less current installments 143,405 160,854
------- -------
$90,495 195,352
======= =======
32
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Maturities of notes payable are as follows:
2002 $ 143,405
2003 58,277
2004 22,382
2005 7,484
2006 2,352
-----------
233,900
Less current installments 143,405
-----------
$ 90,495
===========
(b) Included in accrued liabilities at December 31, 2001 and 2000 is
approximately $186,362 and $280,285, respectively, of unclaimed
payments on notes payable to creditors, pursuant to a 1983
reorganization plan. The last payment on such notes was made in
January 1998. During the years ended December 31, 2001, 2000 and 1999,
$93,923, $95,557 and $97,630, respectively, of the unclaimed payments
were recorded as other income in the accompanying consolidated
statements of operations since, in accordance with the opinion of
counsel, it is more likely than not that the Company is entitled to
these payments.
(8) CAPITAL STOCK
Each share of the Company's preferred stock is convertible into one share
of the Company's common stock. Preferred stockholders will be entitled
to a dividend, based upon a formula, when and if, any dividends are
declared on the Company's common stock. The preferred stock is
redeemable, at the option of the Company, at $7.50 per share.
The voting rights of the common stockholders and preferred stockholders
are based upon the number of shares of convertible preferred stock
outstanding. If 1,250,000 or more shares of preferred stock are
outstanding five of the nine directors are elected by the common
stockholders and the remainder by the preferred stockholders. If more
than 600,000 but less than 1,250,000 preferred shares are outstanding,
six of the nine directors are elected by common stockholders. If
600,000 or less preferred shares are outstanding, all nine directors
are elected by common stockholders. A majority of the directors
elected by preferred stockholders and a majority of the directors
elected by the common stockholders are required to approve certain
transactions, including, but not limited to, incurring certain
indebtedness, merger, consolidation or liquidation of the Company, and
the redemption of common stock. Preferred and common directors vote
together on all other matters.
33
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
At December 31, 2001, there were 2,794,286 shares of common stock
reserved for conversion of preferred stock and for the exercise of
stock options (note 9).
(9) STOCK OPTIONS
In June 1996, the Company adopted the 1996 Stock Option Plan (the 1996
Plan) pursuant to which, as amended, the Company's Board of Directors
may grant up to 1,200,000 options until December 31, 2005 to key
employees and other persons who render service (non-employees) to the
Company. Under the 1996 Plan, the options can be either incentive or
nonqualified. The rate at which the options become exercisable is
determined by the Board of Directors at the time of grant. The
exercise price of the incentive stock options may not be less than the
fair market value of the Company's common stock on the date of grant.
The exercise price of the nonqualified stock options may not be less
than 85% of the fair market value of the Company's common stock on the
date of grant.
At December 31, 2001, a total of 202,000 options were outstanding under
the 1996 Stock Option Plan and 131,000 options were outstanding under
the Company's 1986 Stock Option Plan, which expired on December 31,
1995.
In April 1999, pursuant to the 1996 plan, options to purchase 129,500
shares of common stock were granted to certain employees at $3.50 per
share, which equaled the fair market value of the shares at the date
of grant. The options were immediately exercisable and expire in April
2009. In June 1999, pursuant to the 1996 Plan, options to purchase
54,000 shares of common stock were granted to certain employees at
$3.75 per share, which equaled the fair market value of the shares at
the date of grant. The options vest over a five-year period and expire
in June 2009. In June 1999, pursuant to the 1996 Plan, nonqualified
options to purchase 5,000 shares of common stock were granted to
outside legal counsel of the Company at $3.21 per share. Accordingly,
the Company recognized approximately $14,000 in professional fee
expense, which represents an estimate of the fair value of the options
issued, in the accompanying 1999 consolidated statement of operations.
The options were immediately exercisable and expire in June 2009.
In April 1998, pursuant to the 1996 Plan, options to purchase 2,000
shares of common stock were granted to certain employees at $2.50 per
share, which equaled the fair market value of the shares at the date
of grant. The options were immediately exercisable and expire in March
2008.
Changes in options outstanding are as follows:
34
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Shares Subject Weighted Average
to Option Exercise Price
----------------------------- ------------ ------------
Balance at December 31, 1998 156,500 1.57
Granted 188,500 3.56
----------------------------- ------------ ------------
Balance at December 31, 1999 345,000 2.66
Exercised (12,000) 2.58
Balance at December 31, 2000 333,000 2.66
----------------------------- ------------ ------------
Balance at December 31, 2001 333,000 2.66
----------------------------- ------------ ------------
Options exercisable at
December 31, 2001 300,600 2.55
----------------------------- ------------ ------------
At December 31, 2001 and 2000, the range of exercise prices of
outstanding options was $1.25-$3.75 per share. At December 31, 2001
and 2000, the weighted average remaining contractual lives of
outstanding options were approximately five and six years,
respectively.
The per share weighted average fair value of stock options granted during
1999 was $3.28 , on the dates of grant using the Black Scholes option
pricing model with the following weighted average assumptions:
Risk-free
Date of Expected Expected Interest Dividend
Grant Volatility Life (Years) Rate (%) Yield (%)
------ ---------- ----------- -------- --------
1999 4/1/99 112% 10 5.27% 0%
6/9/99 88% 10 5.87% 0%
6/25/99 87% 10 6.02% 0%
The following table summarizes information about stock options at December
31, 2001:
Options Exercisable
-------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Range of Remaining Exercise Exercise
Exercise Prices Shares Contractual Life Price Shares Price
----------------- ------ ---------------- -------- ------ ---------
$1.25 51,000 1.05 $1.25 51,000 $1.25
1.26-2.50 100,000 1.96 1.74 100,000 1.74
2.51-3.75 182,000 7.32 3.57 149,600 3.53
------- ---- ---- ------- ----
Total 333,000 4.75 2.66 300,600 2.55
======= ==== ==== ======= ====
35
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) 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:
2001 2000 1999
----------- ----------- -----------
Net income (loss) (numerator) $(7,602,324) (8,033,197) 907,037
=========== =========== ===========
Weighted average common shares
(denominator for basic income
(loss) per share) 1,603,178 1,542,712 1,504,356
Effect of dilutive securities:
Convertible preferred stock -- -- --
Employee stock options -- -- --
----------- ----------- -----------
Weighted average common and
potential common shares
outstanding (denominator for
Diluted income (loss) per 1,603,178 1,542,712 1,504,356
========== ========= =========
share)
Basic net income (loss) per share $ (4.74) (5.21) .60
==== ==== ===
Diluted net income (loss) per share (4.74) (5.21) .60
==== ==== ===
Diluted net income (loss) per share was calculated in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (Statement
128). As such, employee stock options totaling 297,900, 329,000, and
275,375 for the years ended December 31, 2001, 2000 and 1999,
respectively, were not included in the income (loss) per share
calculation. Convertible preferred stock totaling 1,464,868, 1,518,793 and
1,551,690 for the years ended December 31, 2001, 2000 and 1999,
respectively, were not included in the loss per share calculation because
their effect would have been antidilutive.
(11) INCOME TAXES
The provision for income taxes attributable to continuing operations and
discontinued operations:
36
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2001 2000 1999
----- ---- ----
State State State
and and and
Federal Local Total Federal Local Total Federal Local Total
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Current $ -- 32,786 32,786 -- 2,000 2,000 2,313 96,439 98,752
Deferred 1,564,429 60,573 1,625,002 858,000 -- 858,000 211,998 -- 211,998
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Tax Expense on
Continuing
Operations 1,564,429 93,359 1,657,778 858,000 2,000 860,000 214,311 96,439 310,750
Tax Expense on
Discontinued
Operations -- -- -- 32,000 18,000 32,000 298,000 74,028 298,000
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Tax Expense $1,564,429 93,359 1,657,778 890,000 20,000 892,000 512,311 170,467 608,750
========== ========== ========== ========== ========== ========== ========== ========== ==========
A reconciliation of the provision for income taxes computed at the Federal
statutory rate to the reported provision for income taxes on continuing
operations follows:
2001 2000 1999
---- ---- ----
Tax provision at Federal
statutory rate $ 15,973 34.0% (157,633) 34.0% 65,368 34.0%
State income taxes, net of
federal benefit 61,617 131.2% 1,320 -0.3% 63,650 33.1%
Change in valuation allowance for
deferred tax assets 1,570,965 3344.0% 1,010,236 -217.9% 342,627 178.2%
Adjustment to estimated utilization
of net operating loss carryforwards -- -- 58,520 -12.6% (97,851) -50.9%
Permanent differences 2,693 5.7% (87,918) 19.0% (28,658) -14.9%
Other 6,540 13.9% 35,475 -7.7% (34,386) -17.9%
---------- ---------- ---------- ---------- ---------- ----------
Total tax expense on continuing
operations $1,657,788 3528.9% 860,000 -185.5% 310,750 161.6%
========== ========== ========== ========== =========== ==========
The components of deferred income tax expense (benefit) on continuing operations
are as follows:
2001 2000 1999
---------- ---------- ----------
Deferred tax expense (benefit), exclusive of
the effects of the other components listed below $ -- (1,920,661) 167,371
Increase (decrease) in beginning-of-the-year
balance of the valuation allowance for
deferred tax assets 1,625,002 2,778,661 143,379
---------- ---------- ----------
$1,625,002 858,000 310,750
========== ========== ==========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at December 31, 2001 and 2000 are presented below.
37
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2001 2000
------------ ------------
Deferred tax assets:
Federal net operating loss carryforwards $ 13,289,441 11,403,180
State net operating loss carryforwards 524,707 178,044
Allowance for doubtful accounts receivable 29,797 27,596
Inventory 3,458 7,223
Additional costs inventoried for tax purposes 204,381 252,259
Alternative minimum tax credit carryforward 113,156 113,156
Value of unconsolidated subsidiary in bankruptcy 190,934 254,792
Other 591 2,324
------------ ------------
Total gross deferred tax assets 14,356,465 12,238,574
Less valuation allowance (14,356,465) (10,613,572)
------------ ------------
Net deferred tax assets $ -- 1,625,002
============ ============
At December 31, 2001, the valuation allowance was determined by estimating the
recoverability of the deferred tax assets. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. In
making this assessment, the ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income and tax planning
strategies in making this assessment. Based upon the level of historical
income and projections for future taxable income over the periods in which
the deferred tax assets are deductible, management believes it is more likely
than not that the Company will not realize the benefits of these deductible
differences at December 31, 2001.
During the years ended December 31, 2001 and 2000, the valuation allowance was
increased by approximately $3,742,893 and $2,778,661, respectively. Of the
increase in the valuation allowance for 2000, $1,175,000 was a result of an
adjustment to the excess of cost over fair value of net assets acquired in
connection with the purchase of Universal (note 2c).
At December 31, 2001, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $39,086,591. Varying amounts of
the net operating loss carryforwards will expire from 2002 through 2021.
EXPIRATION YEAR NET OPERATING LOSSES
--------------- --------------------
2002 $ 1,994,190
2004 9,979,429
2005 8,245,078
2006 4,810,981
2007 4,944,884
2028 414,691
2020 5,959,802
2021 2,737,536
------------
$ 39,086,591
============
38
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
During 2000, the Company utilized none of its net operating loss carryforwards
and approximately $2,439,784 expired. The projected utilization of the net
operating loss carryforwards has been substantially reduced as a result of
certain annual limitations and it may be further limited to utilization
against the future earnings of the subsidiary that sustained the loss. If
certain substantial changes in ownership occur, there would be a further
annual limitation on the amount of tax carryforwards that can be utilized in
the future. The Company also has alternative minimum tax credits of $113,156
which will not expire.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement No.107, "Disclosure about Fair Value of Financial Instruments,"
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing
parties. The carrying value of all financial instruments classified as
current assets or liabilities is deemed to approximate fair value, with the
exception of the notes payable, because of the short maturity of these
instruments.
The notes payable approximate fair value as the interest rates are comparable to
rates currently offered by local lending institutions for loans of similar
terms to companies with comparable credit risk.
(13) SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental information relating to the consolidated
statements of cash flows:
2001 2000 1999
-------- -------- --------
Cash paid during the years for:
Interest $643,708 795,571 338,536
======== ======== ========
Income taxes $ 7,700 48,195 69,338
======== ======== ========
Non-cash transactions:
During 2001 and 2000, 2,165 and 66,532 shares, respectively, of convertible
preferred stock were converted to a similar number of common shares.
During 2001 and 2000, notes payable of $18,493 and $41,525, respectively,
were incurred for the purchase of automobiles.
(14) EMPLOYEE BENEFIT PLANS
39
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(a) 401(K) PLAN
The Company has a 401(k) plan, which covers substantially all employees of the
Company's subsidiary Universal. Participants in the 401(k) plans may
contribute a percentage of compensation, but not in excess of the maximum
allowed under the Internal Revenue Code. The Universal 401(k) plan provides
for matching contributions. In 2001, 2000 and 1999, $102,000, $99,000 and
$43,000, respectively, of matching contributions were made to the Universal
401(k) plan.
(b) DEFERRED COMPENSATION PLAN
During fiscal 1999, Universal adopted a Deferred Compensation Plan (the Plan)
for a select group of management employees. The Plan is intended to provide
certain executives with supplemental retirement benefits, as well as to
permit the deferral of more of their compensation than they are permitted to
defer under the 401(k) plan. The plan provides for a contribution equal to 5%
of a participant's compensation to be made to the plan for those participants
who are employed as of December 31. The plan is not intended to be a
qualified plan under the provisions of the Internal Revenue Code. All
compensation deferred under the plan is held by the Company in an investment
trust, which is considered an asset of the Company. The investments, which
amounted to $122,506 and $80,236 at December 31, 2001 and 2000, respectively,
have been classified as trading securities and are included in investment
securities on the accompanying consolidated balance sheets as of December 31,
2001 and 2000. The return on these underlying investments will determine the
amount of earnings credited to the employees. The Company has the option of
amending or terminating the plan at any time. The deferred compensation
liability is reflected as a long- term liability on the accompanying
consolidated balance sheets as of December 31, 2001 and 2000.
The Company terminated the plan during 2002. The proceeds of the plan
investments were paid out to the plan participants.
(15) BUSINESS AND CREDIT CONCENTRATIONS
Universal purchases products from approximately 330 suppliers. In 2001, two
suppliers accounted for 39% of Universal's purchases. The loss of one of
these suppliers could have a material adverse effect upon its business for a
short-term period. Universal believes that the loss of any one of its other
suppliers would not have a material adverse effect upon its business. In
2000, two suppliers accounted for 33% of Universal's purchases.
(16) COMMITMENTS
40
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(a) COMPENSATION
The Company has employment contracts with two officers and various employees
with remaining terms ranging from two to four years. The amounts due by the
Company, per these contracts, are $855,000, $855,000, $630,000 and $200,000
in the years ended December 31, 2002, 2003, 2004 and 2005, respectively.
These commitments do not include amounts that may be earned as a bonus.
(b)LEASES
The Company is obligated under operating leases for warehouse, office facilities
and certain office equipment. Rental expense, including real estate taxes,
amounted to approximately $1,034,605, $907,134 and $425,477 for the years
ended December 31, 2001, 2000 and 1999, respectively. At December 31, 2001,
future minimum lease payments in the aggregate and for each of the five
succeeding years are as follows:
2002 $1,135,502
2003 1,256,846
2004 1,236,459
2005 1,213,578
2006 1,040,840
Thereafter 2,420,013
----------
Total $8,303,238
==========
(17) Quarterly Results (unaudited)
The following table sets forth selected unaudited quarterly financial data of
the Company for the years ended December 31, 2001 and 2000. Such unaudited
quarterly financial data has been restated from the quarterly data previously
reported by the Company to reflect Atlantic as a discontinued operation (see
Note 2 for further information on discontinued operations).
41
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
QUARTER ENDED
-----------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31,
---------- ---------- ---------- ---------
(Dollars in thousand, except per share data)
2000
Net sales $ 7,268 8,651 7,733 8,690
Gross profit 2,221 2,481 2,272 2,384
Income (loss) from continuing operations (14) 84 (347) (1,047)
Loss on discontinued operation (327) (546) (662) (5,174)
--------- --------- -------- --------
Net loss (341) (462) (1,009) (6,221)
========= ========= ======== ========
Income (loss) per common share:
Basic:
Continuing operations (0.01) 0.06 (0.22) (0.68)
Loss on discontinued operation (0.21) (0.36) (0.43) (3.35)
--------- --------- -------- --------
Net loss (0.22) (0.30) (0.65) (4.03)
========= ========= ======== ========
Diluted:
Continuing operations (0.01) 0.03 (0.22) (0.68)
Loss on discontinued operation (0.21) (0.17) (0.43) (3.35)
--------- --------- -------- --------
Net loss (0.22) (0.14) (0.65) (4.03)
========= ========= ======== ========
2001
Net sales 6,604 7.676 7,895 8,905
Gross profit 2,021 2,317 2,368 2,639
Income (loss) from continuing operations (288) (29) 76 (1,370)
Income (loss) on discontinued operation 315 44 (492) (5,859)
--------- --------- -------- --------
Net income (loss) 27 15 (416) (7,229)
========= ========= ======== ========
Income (loss) per common share:
Basic:
Continuing operations (0.18) (0.02) 0.05 (0.86)
Income (loss) on discontinued operations 0.20 0.03 (0.31) (3.65)
--------- --------- -------- --------
Net loss 0.02 0.01 (0.26) (4.51)
========= ========= ======== ========
Diluted:
Continuing operations (0.18) (0.02) 0.02 (0.86)
Income (loss) on discontinued operations 0.20 0.03 (0.16) (3.65)
--------- --------- -------- --------
Net loss 0.02 0.01 (0.14) (4.51)
========= ========= ======== ========
42
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Colonial Commercial Corp.:
Under the date of October 2, 2003, we reported on the consolidated balance
sheets of Colonial Commercial Corp. and subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the years in the three-year period
ended December 31, 2001, which are included in the Company's 2001 annual
report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule in the 2001 annual report on Form 10-K. This
consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole presents
fairly, in all material respects, the information set forth therein.
/S/ KPMG LLP
-------------
KPMG LLP
Melville, New York
October 2, 2003
43
Schedule II
Colonial Commercial Corp. and Subsidiaries
Schedule of Valuation and Qualifying Accounts
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Year Expenses Accounts Deductions End of Year
------------ --------- ---------- -------- ---------- -----------
For the year ended December 31, 2001
Allowance for doubtful accounts $ 247,646 57,589 22,458 (a) (74,537)(b) 253,156
========= ========= ========= ========= =========
For the year ended December 31, 2000
Allowance for doubtful accounts $ 227,920 85,554 79,320 (a) (145,148)(b) 247,646
========= ========= ========= ========= =========
For the year ended December 31, 1999
Allowance for doubtful accounts $ -- 68,229 222,098 (c) (62,407)(b) 227,920
========= ========= ========= ========= =========
(a) Comprised primarily accounts that were previously charged against the
allowance, and have since been collected.
(b) Comprised primarily uncollected accounts charged against the allowance.
(c) $207,008 of this amount represents the recording of the opening balance of
Universal Supply Group, Inc. as of July 1, 1999
44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the Registrant's directors and executive
officers are listed below, along with a brief account of their business
experience during the last five years. Officers are appointed annually by the
Board of Directors at its first meeting following the Annual Meeting of
Stockholders and from time to time at the pleasure of the Board. There are no
family relationships among these directors or officers, nor any arrangement or
understanding between any such directors or officers and any other person
pursuant to which any of such officers were selected as executive officers.
Business Experience Year First Elected
Name Age During Past Five Years as Director
Common Stock Directors:
Gerald S. Deutsch ** 66 Certified Public Accountant and Attorney 1988
Bernard Korn * 78 Chairman of the Board, President and 1964
Chief Executive Officer of the Company
Carl L. Sussman 78 Private Investor 1964
James W. Stewart * 57 Executive Vice President, Treasurer and
Secretary of the Company 1982
Convertible Preferred
Stock Directors:
Jack Rose 84 Private Investor 1983
Ronald Miller 59 Attorney at Law 1983
William Koon 73 President, Lord's Enterprises, 1983
Grain Merchants
William Pagano * 63 President of Universal Supply Group, Inc. 2001
* Executive Officers of the Company ** Mr. Deutsch resigned as a director on
June 19, 2003.
There are no other significant employees who would need to be included
in this item.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company believes that during the period from January 1, 2001
through December 31, 2001, all executive officers, directors and greater than
10% beneficial owners complied with Section 16(a) filing requirements.
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a Compensation Committee or any other
committee of the Board of Directors performing equivalent functions. Decisions
regarding compensation of executive officers of the Company are made by the
45
Board of Directors. Three of the company's executive officers, Bernard Korn,
James W. Stewart and William Pagano, are directors of the Company. Each of these
individuals participated in deliberations of the Board during the fiscal year
ended December 31, 2001 concerning executive officer compensation, except that
they abstained from deliberations and voting regarding their own compensation.
BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION
As required by the rules established by the Securities and Exchange
Commission, the Board of Directors has prepared the following report on the
compensation policies of the Board of Directors applicable to the Company's
executive officers.
The Company's executive compensation policies and programs are designed
to retain talented executives and motivate them to achieve business objectives
that will enhance stockholder value. The Company's compensation program for
executives consists of three elements:
- a base salary,
- a performance-based annual bonus, and
- periodic grants of stock options.
BASE SALARY
The salaries for the executive officers are designed to retain
qualified and dedicated executive officers. The Board of Directors reviews
salary recommendations made by the Company's Chief Executive Officer (CEO), and
evaluates individual responsibility levels, performance and length of service.
ANNUAL BONUS
Bonus compensation provides the Company with a means of rewarding
performance, based upon the attainment of corporate profitability during the
year. Mr. Pagano receives annual bonuses based on a percentage of earnings of
his subsidiary. He received a bonus of $147,640 for the year ended December 31,
2001.
STOCK OPTIONS
During 2001, no stock options were granted to the Company's employees,
including the executive officers.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
The CEO's compensation was determined on the basis of the same factors
utilized to compensate other executives.
The Board of Directors
Bernard Korn (Chairman) James W. Stewart
Gerald S. Deutsch William Koon
Ronald Miller Jack Rose
Carl L. Sussman William Pagano
46
EXECUTIVE COMPENSATION
The following table sets forth information about compensation paid or
accrued by the Company during the fiscal years ended December 31, 2001, 2000 and
1999 to Bernard Korn, James W. Stewart and William Pagano, the only officers of
the Company and its subsidiaries whose compensation exceeded $100,000 (the
"Named Officers").
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Stock
Name and Principal Position Year Salary ($) Bonus ($) Options #
--------------------------- ------ ---------- -------- ---------
Bernard Korn 2001 221,154 - -
Chairman of the Board, 2000 250,000 - -
President, Chief Executive 1999 250,000 - 25,000
Officer and Director
James W. Stewart 2001 167,967 - -
Executive Vice President, 2000 200,000 - -
Treasurer, Secretary 1999 150,000 25,000 25,000
and Director
William Pagano 2001 200,000 147,640 -
President, Universal Supply 2000 200,000 128,523 -
Group, Inc. 1999 100,000 100,122 20,000
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the value of
unexercised stock options at the end of the 2001 fiscal year for the persons
named in the Summary Compensation Table.
Value of
Number of Unexercised
Unexercised In-The-Money
Shares Options at Options at
Acquired On Value Fiscal Year-End Fiscal Year-End
Exercise Realized Exercisable/ Exercisable/
(#) ($) Unexercisable Unexercisable
----------- -------- --------------- ---------------
Bernard Korn 0 0 87,000/0 0/0
James W. Stewart 0 0 45,000/0 0/0
William Pagano 0 0 8,000/20,000 0/0
Mr. Korn is employed pursuant to an employment agreement (the
"Agreement"), expiring December 31, 2005, at an annual compensation of $250,000.
In the event of Mr. Korn's death, the Agreement provides for continued
compensation payments for a period of one year. In the event of Mr. Korn's
disability, he will receive compensation for the balance of the term of the
Agreement at the rate of compensation then in effect. Mr. Korn voluntarily
agreed to a $50,000 per annum salary reduction on June 7, 2001 and another
$50,000 on February 24, 2003.
47
Mr. Stewart is employed pursuant to an employment agreement expiring
December 31, 2004 at a compensation of $200,000 per annum for the year 2001,
$225,000 per annum for the years 2002 and 2003 and $250,000 per annum for the
year 2004. Mr. Stewart's agreement also provides for annual incentive
compensation, based on increases in pre-tax income from a base period of the
year ended December 31, 1999. Mr. Stewart voluntarily agreed to a $50,000 per
annum salary reduction on March 1, 2001 and another $75,000 on February 24,
2003.
Mr. Pagano is employed pursuant to an employment agreement expiring on
December 31, 2005 at a compensation of $200,000 per annum. The agreement also
provides for additional incentive compensation based on a percentage of
earnings, as defined, of Universal Supply Group, Inc.
DIRECTORS' COMPENSATION
The Company paid Mr. Deutsch an aggregate of $27,385 for fees for
professional services rendered to the Company and its subsidiaries during 2001.
Members of the Board of Directors, other than those employed by the
Company or its subsidiaries, receive a fee of $1,000 for each meeting of the
Board attended, limited to $4,000 per annum, in addition to an annual retainer
of $8,000.
48
Performance Graph
Comparison of Five Year Cumulative Return*
Among Colonial Commercial Corp.
the NASDAQ Stock Market (U.S.) Index and The Russell 2000 Index
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
Colonial Commercial Corp. 100.00 54.55 67.27 94.55 92.74 21.24
NASDAQ Stock Market (U.S.) 100.00 122.49 172.70 320.29 192.82 152.97
Russell 2000 100.00 122.36 119.25 144.60 140.23 143.71
* $100 invested on 12/31/96 in stock or index,
including reinvestment of dividends.
Fiscal year ending December 31.
The annual changes for the five-year period are based on the assumption
that $100 had been invested on December 31, 1996 and that all dividends were
reinvested. The total cumulative dollar returns shown on the graph represent the
value that such investments would have had on December 31, 2001.
49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of November 11, 2003, information
with respect to equity ownership by directors of the Company, holders of over 5%
of a class of stock and of directors and officers of the Company as a group.
Common Stock** Convertible Preferred Stock
Amount and Amount and
Nature of Nature of
Name of Beneficial Beneficial Percent Beneficial Percent
Owner Ownership* of Class Ownership of Class
-------------------------------------------------------------------------------------------------------
Gerald S. Deutsch 12,900 (1) (2) (3) -- --
William Koon 23,082 (4) (2) (3) 11,259 (3)
Bernard Korn 342,561 (5) (2) 13.13% 119,694 8.17%
Ronald H. Miller 12,000 (2) (3) 3,696 (6) (3)
William Pagano 385,640 (2) 14.79% -- --
Jack Rose 156,196 (8) (2) 5.99% 48,371 3.30%
James W. Stewart 149,000 (2) 5.71% -- --
Carl L. Sussman 111,507 (7) (2) 4.28% -- --
Richard Rozzi 399,365 15.31% -- --
Rita C. Folger 265,325 (9) 10.17% 61 (3)
All directors and
officers as a group 1,192,886 45.73% 183,020 12.50%
The beneficial owners listed above have all given a business address of 3601
Hempstead Turnpike, Levittown, New York 11756.
* For the purposes of this table, "Beneficial Ownership" is defined as set forth
in rule 13d-3 under the Securities Exchange Act of 1934, as amended. Except as
set forth in the following notes, each person listed in the table has sole
voting and sole investment power with respect to the shares of Common Stock
listed in the table.
** The shares of Common Stock listed in the table do not reflect the conversion
of the Company's Convertible Preferred Stock. If all of such Convertible
Preferred Stock were to be converted, the percentage of ownership of Messrs.
Korn, Rose, Stewart, Pagano, Rozzi, Ms. Folger and all directors and officers as
a group would be 11.35%, 5.02%, 3.66%, 9.47%, 9.81%, 6.52% and 33.78%,
respectively.
(1) Includes 1,500 shares of Common Stock owned by Mr. Deutsch's wife, of which
shares Mr. Deutsch disclaims beneficial ownership. Mr. Deutsch resigned as a
director on June 19, 2003.
50
(2) Includes 87,000, 45,000, 12,000 and 6,500 common shares subject to options
which are exercisable within 60 days held by Messrs. Korn, Stewart, Pagano and
Deutsch, respectively, and 12,000 common shares, subject to options, which are
exercisable within 60 days held by each of Messrs. Sussman, Koon, Rose and
Miller and 198,500 common shares subject to options, which are exercisable
within 60 days held by all directors and officers as a group.
(3) Messrs. Deutsch, Miller and Koon, as well as Ms. Folger, each are the
beneficial owners of less than one percent of the Company's outstanding
securities, excluding securities held by, or for the account of, the Company or
its subsidiaries, plus securities deemed outstanding pursuant to Rule
13d-(3)-(d)(1) of the Exchange Act. As a result, their respective percentages of
ownership have not been disclosed.
(4) Includes 10,600 shares of Common Stock and 5,000 shares of Convertible
Preferred Stock owned by Mr. Koon's wife, of which shares Mr. Koon disclaims
beneficial ownership.
(5) If only Mr. Korn were to convert his Convertible Preferred Stock, his
percentage of ownership of Common Stock would be 16.94%.
(6) Includes 2,803 shares of Convertible Preferred Stock owned by Mr. Miller's
wife, of which shares Mr. Miller disclaims beneficial ownership.
(7) Includes 44,507 shares of Common Stock owned jointly by Mr. Sussman and his
wife.
(8) If only Mr. Rose were to convert his Convertible Preferred Stock, his
percentage of ownership of Common Stock would be 7.70%.
(9) Ms. Folger is the wife of Oscar Folger, the Company's legal counsel. Mr.
Folger has disavowed beneficial ownership of his wife's shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 14. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's senior management is responsible for establishing and
maintaining a system of disclosure controls and procedures (as defined in Rule
13a-14 and 15d-14 under the Securities Exchange Act of 1934 (the "Exchange
Act")) designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported as specified in the Securities and
Exchange Commission's rules and forms. disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports that it files
or submits under the Act is accumulated and communicated to the issuer's
management, including its principal executive officer or officers and principal
financial officer or officers, or persons performing similar functions, as
appropriate to allow them to make informed decisions regarding required
disclosure.
51
The Company has evaluated the effectiveness of the design and operation
of its disclosure controls and procedures under the supervision of and with the
participation of management, including the Chief Executive Officer and Chief
Financial Officer within 90 days prior to the filing date of this report, Based
on that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are effective in alerting
them to material information required to be included in our periodic Securities
and Exchange Commission filings.
(b) CHANGES IN INTERNAL CONTROLS
Subsequent to that evaluation, there have been no significant changes
in our internal controls or other factors that could significantly affect these
controls after such evaluation.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) See Index to Consolidated Financial Statements and Schedule included
elsewhere herein.
(b) No reports on Form 8-K were filed during the fourth quarter of 2001.
(c) Exhibits
52
Incorporated by
Filed Reference From
Herewith Form Date Exhibit
-------- ---- ---- ---------------
3 (a) Certificate of Incorporation of
Registrant 8-K 1/5/83 1
(i ) Certificate of Amendment of
the Certificate of Incorporation
Re: Authorized Common and
Convertible Preferred Shares
(b) By-Laws of Registrant 8-K 1/5/83 1
10 (a) Employment Agreement dated as of
January 1, 1998 between Registrant
and Bernard Korn 10-KSB 3/31/99 10(a)
(i) Amendment No. 1 dated April 1,
1999 to Employment Agreement
dated as of January 1, 1998
between Registrant and
Bernard Korn 10-K 4/9/01 10(a)(i)
(ii) Amendment No. 2 dated April 1,
2000 to Employment Agreement
dated as of January 1, 1998
between Registrant and
Bernard Korn 10-K 4/9/01 10(a)(ii)
(b) Employment Agreement dated as of
January 1, 2000 between Registrant
and James W. Stewart 10-KSB 3/31/99 10(b)
(i) First Amendment dated
September 15, 2000 to Employ-
Agreement dated as of January
1, 2000 between Registrant and
James W. Stewart 10-K 4/9/01 10(b)(i)
(c) 1986 Stock Option Plan 10-K 3/30/88 10(c)(ii)
(d) 1996 Stock Option Plan S-8 10/2/97 28 B
(e) Purchase agreement dated March,
25, 1999 for business and assets
subject to certain liabilities of
Universal Supply Group, Inc. 10-KSB 12/31/98 10(g)
(i) Amendment No. 1 dated June
25, 1999 to Purchase Agreement
dated March 25, 1999 8-K 7/8/99 10(a)(ii)
(ii) Employment agreement dated
June 25, 1999 between Universal
Supply Group, Inc. and
William Pagano 8-K 7/8/99 10(a)(iii)
(iii) Loan and Security Agreement
dated June 24, 1999 between
LaSalle Bank National Associa-
tion and Universal Supply
Group, Inc. 8-K 7/8/99 10(a)(iv)
53
Incorporated by
Filed Reference From
Herewith Form Date Exhibit
-------- ---- ---- ---------------
(iv) Demand Note dated June 24,
1999 between LaSalle Bank
National Association and
Colonial Commercial Sub 8-K 7/8/99 10(a)(v)
Corp.
(v) Guaranty of all liabilities and
Security Agreement of Colonial
Commercial Sub Corp. by
Colonial Commercial Corp. to
LaSalle Bank National Associa-
tion dated June 24, 1999 8-K 7/8/99 10(a)(vi)
(vi) Waiver and Tenth Amendment, dated
November 21, 2002 to the
Loan and Security Agreement, as
of June 24, 1999, between LaSalle
Bank National Association and
Universal Supply Group, Inc. Yes
(vii) Securities Pledge Agreement
dated November 21, 2002, made by the
Registrant, in favor of LaSalle
Bank National Association, re:
Universal Supply Group, Inc. Yes
(f) Certain documents related to
Well-Bilt Steel Products, Inc.:
(i) Reaffirmation Agreement,
General Release Consent and
Acknowledgement of Commercial
Reasonableness of Private Sale
dated February 1, 2001, between
Atlantic Hardware & Supply
Corporation, Universal Supply
Group, Inc., Colonial Commercial
Corp., and the secured lender 8-K 2/15/01 10(a)(i)
(ii) Reaffirmation Agreement, General Release
Consent and Acknowledgement of Commercial
Reasonableness of Private Sale dated February 1,
2001 between Well-Bilt Steel Products
Inc. and the secured lender 8-K 2/15/01 10(a)(ii)
(iii) Foreclosure Agreement dated February 1, 2001
between Independent Steel Products, LLC the
secured lender, Atlantic Hardware & Supply
Corporation, Universal Supply Group, Inc.
and Well-Bilt Steel Products, Inc. 8-K 2/15/01 10(a)(iii)
54
Incorporated by
Filed Reference From
Herewith Form Date Exhibit
-------- ---- ---- ---------------
(iv) Bill of Sale and Assignment dated
February 1, 2001 made by the
secured lender in favor of
Independent Steel Products, LLC 8-K 2/15/01 10(a)(iv)
(g) Inventory Control Agreement re:
Universal Supply Group, Inc. taking in
Inventory on a Consignment basis,
dated August 9, 2001, between Douglas-
Guardian Services Corporation,
Universal Supply Group, Inc. and
GMC Sales Corp. Yes
11 Statement re computation of per share
earnings (loss) (not filed since
re-computations are readily apparent
from the consolidated financial
statements)
21 Subsidiaries of Registrant Yes
23 Consent of Independent Accountants Yes
31.1 Certification of Chief Executive Officer
Pursuant to Rule 15d-14 of the Securities
and Exchange Act of 1934, as amended, as
Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 Yes
31.2 Certification of Chief Financial Officer
Pursuant to Rule 15d-14 of the Securities
and Exchange Act of 1934, as amended, as
Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 Yes
32-1 Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 Yes
32-2 Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 Yes
99.1 Affidavit, dated January 28, 2002, in
Support of Atlantic's Petition for Relief
under chapter 11 of the U. S. Bankruptcy
Code Yes
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
COLONIAL COMMERCIAL CORP.
(Registrant)
By: /S/ BERNARD KORN
-----------------------
Bernard Korn, President
By: /S/ JAMES W. STEWART
--------------------------
James W. Stewart
Treasurer, Chief Financial
and Accounting Officer
Dated: November 14, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been duly signed below on November 14, 2003 by the following persons on
behalf of the Registrant and in the capacities indicated:
By: /S/ BERNARD KORN
-----------------------------------
Bernard Korn, President & Director
By: /S/ JAMES W. STEWART
-----------------------------------
Executive Vice President, Treasurer
and Secretary/Director
By: /S/ WILLIAM KOON
-----------------------------------
William Koon, Director
By: /S/ RONALD MILLER
-----------------------------------
Ronald Miller, Director
By: /S/ WILLIAM PAGANO
-----------------------------------
William Pagano, Director
By: /S/ JACK ROSE
-----------------------------------
Jack Rose, Director
By: /S/ CARL L. SUSSMAN
-----------------------------------
Carl L. Sussman, Director
56