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, 2002 COMMISSION FILE NO. 1-6663
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 on-going. 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
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on the Company's financial statements and its operations are being reported as
"results from operations of discontinued segments."
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 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 $240,000
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 2002, 2001 and
2000.
Universal had approximately 4,500 customers in 2002. No customer
accounted for more than 10% of consolidated net sales in 2002. Universal
believes that the loss of any one customer would not have a material adverse
effect on its business.
Universal purchases products from approximately 360 suppliers. In 2002,
two suppliers accounted for 49.1% 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.
2
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, 2002, the Company had 92 employees (excluding 3
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 Registrant's premises are suitable and adequate for their
intended use and are adequately covered by insurance. As of December 31, 2002,
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 2002.
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
3
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.
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 2002 and 2001. 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
-------- -------- -------- --------
2002
First Quarter $ 27/32 1/4 2 1/16 7/8
Second Quarter 1/2 9/32 1 15/16 1 5/8
Third Quarter 1/8 1/32 Not Available Not Available
Fourth Quarter 1/8 3/32 Not Available Not Available
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
(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.
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ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
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2002 2001 2000 1999 1998
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Sales $ 36,998,800 31,080,398 (1) 32,342,160 (1)(2) 16,592,423 (1)(3) -- (1)(3)
------------ ------------ ------------ ------------ ------------
Operating income (loss) 226,567 519,036 (58,036) 209,572 (993,541)
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing
operations (106,310) (1,610,810) (1,323,627) (118,492) 2,746,582 (4)
Income (loss) from operations
of discontinued segment 3,300,695 (5) (6,098,023) (2,977,916) 1,025,529 1,105,171
Income (loss) on disposal of
discontinued operation -- 106,509 (3,731,654) -- --
------------ ------------ ------------ ------------ ------------
Income (loss) on discontinued
operation 3,300,695 (5,991,514) (6,709,570) 1,025,529 1,105,171
Net income (loss) 3,194,385 (7,602,324) (8,033,197) 907,037 3,851,753 (4)
============ ============ ============ ============ ============
Income (loss) per common share:
Basic:
Continuing operations (0.07) (1.00) (0.86) (0.08) 1.90 (4)
Income (loss) on
discontinued operation 2.06 (3.74) (4.35) 0.68 0.76
------------ ------------ ------------ ------------ ------------
Net income (loss) per
common share (1.99) (4.74) (5.21) 0.60 2.66 (4)
============ ============ ============ ============ ============
Diluted:
Continuing operations (0.07) (1.00) (0.86) (0.08) 0.88
Income (loss) on
discontinued operation 2.06 (3.74) (4.35) 0.68 0.35
------------ ------------ ------------ ------------ ------------
Net income (loss) per
common share (1.99) (4.74) (5.21) 0.60 1.23
============ ============ ============ ============ ============
DECEMBER 31,
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2002 2001 2000 1999 1998
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Total assets $ 13,686,842 13,925,490 26,550,994 23,273,837 (3) 11,380,470
Current liabilities
Borrowings under
credit facility 10,350,889 (5) 7,929,576 9,096,294 7,573,761 (3) --
Other 3,953,063 (6) 9,659,183 (6) 12,876,360 3,647,396 (3) 600,091
Long-term liabilities, less
current obligations 64,775 213,001 852,286 351,141 (3) --
(1) Due to the discontinuance of operations in 2001, excludes sales from
Atlantic which were $24,561,972 $25,978,063, $25,666,531 and $25,233,909 in
2001, 2000, 1999 and 1998, respectively.
(2) Due to the discontinuance of operations in 2000, excludes sales from
Well-Bilt, which were $4,074,798, net of inter-company sales.
(3) In July 1999, Colonial acquired Universal. Prior to that, Colonial had no
sales from continuing operations.
(4) Includes a gain on sale of securities in 1998 of $2,101,853 and a gain on
land sale in 1998 of $826,797.
(5) The amounts shown in the table as "Borrowings under Credit Facility," as of
December 31, 2002, includes $2,500,000 which Colonial and Universal agreed
to pay to their lending bank in consideration of the bank releasing
Colonial and Universal from their guarantees to the bank of an additional
$3,300,695 of Atlantic's line of credit. The release from the $3,300,695 of
the guarantee resulted in the recognition of income from discontinued
operations in 2002. See "General Development of Business."
(6) Amount includes $219,007 of guaranteed liabilities of Atlantic, which the
Company continues to recognize, at cost. The Company believes that it is
not responsible for any liabilities 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 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
5
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
$5,452,104 and an allowance for doubtful accounts of $265,000 as of December 31,
2002. 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 amounting to $1,416,929 and $85,833 at
December 31, 2002, 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
6
cash flows and other factors to determine the fair value of the respective
assets and liabilities of the reporting unit. 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." 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, 2002, the Company
had a deferred tax valuation allowance of $12,727,209.
RESULTS OF OPERATIONS 2002-2001
The Company had a net income of $3,194,385 for the year ended December 31, 2002.
This compares with a net loss of $7,602,324 for the year ended December 31,
2001. The 2002 net income consists of $3,300,695 income from the discontinued
operations of Atlantic resulting from the settlement between Colonial, Universal
and Atlantic's lending bank relating to the release of Colonial and Universal
from $5,800,695 of guarantees of Atlantic's indebtedness in return for the
agreement for the Company to pay $2,500,000 to the Bank as a five year term
loan. The loss in 2001 primarily reflects a $6,098,023 loss from the
discontinued operations of Atlantic (now unconsolidated), and a net $106,509
recovery of a portion of the loss previously recognized on disposal of
Well-Bilt. The Well-Bilt recovery resulted from favorable settlements attained
on items accrued for at December 31, 2000. The Company had a loss from
continuing operations, before taxes of $69,143 in 2002, compared with income of
$46,978 in 2001.
In 2001, the Company reported a loss from the discontinued operations of
Atlantic of $6,098,023. This loss 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. Effective
December 31, 2001, Atlantic's assets were written down to net realizable value
and Atlantic has been accounted for as an unconsolidated subsidiary. The lower
than normal gross margins were a result of additional costs incurred by Atlantic
in finalizing certain projects.
The Company's sales for the year ended December 31, 2002 were $36,998,800, or an
increase of $5,918,402 (19%) from the $31,080,398 in sales in 2001. This
increase primarily reflects approximately $2,500,000 in sales to other wholesale
distributors, as a result of the Goldman acquisition, favorable summer weather
conditions, increased market penetration, and a recovery from the adverse impact
of the September 11 events on 2001 sales. Meanwhile, gross margins decreased by
1.4% to 28.7% due to sales increases to other wholesale distributors on selected
products at lower gross margins, as well as overall product mix. Selling,
general and administrative expenses increased by $1,567,549, primarily
reflecting $572,506 of professional fees in connection with Atlantic's Chapter
11 bankruptcy filing, and increased direct and non-sales salaries of $354,974
and $336,726, respectively, principally due to new hires relating to the overall
increase in sales at Universal.
7
Interest expense decreased by $130,006, reflecting the effect of lower average
borrowings and a decrease in the prime rate. In consideration of the bank's
waiver of Atlantic's default, this decrease was offset in part by a one-point
increase in the Company's interest rate on its line of credit from January 2002
until November 2002. Other income increased by $55,933 due primarily to an
increase in finance charges on Universal's accounts receivable.
For 2002 the Company recorded a state tax provision of $37,167 and no federal
provision. This compares to 2001, when the Company recorded a deferred federal
tax expense of $1,564,429 and current and deferred state tax expense of $60,573
and $32,786, respectively.
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.
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.
8
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.
IMPACT OF CHANGING PRICES
To date, the Company was not materially affected by changing prices.
LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company had losses in 2001 and
2000 of $7,602,324 and $8,033,197, has a stockholders' deficit at December 31,
2002 of $681,885 and has a negative working capital of $2,751,820. In addition,
outstanding borrowings under its credit facility of $10,350,889 are due on
demand. If the bank were to demand repayment, the Company does not project that
it would have sufficient liquidity to make such a payment.
Management recognizes that the Company's ability to continue as a going concern
is dependent upon its ability to generate profits. 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 2000, Universal's sales have increased 14.4% or $4,656,640. Further sales
increases are anticipated in 2003 and beyond, due to additional product lines,
acquisitions 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.
At December 31, 2002, $2,490,000 of the Company's credit facility was payable
over a five year period. There can be no assurance that the Company will
generate sufficient liquidity to maintain its current operations. If the Company
continues to incur losses and/or if the outstanding borrowings under its credit
facility are demanded to be repaid and the Company was unsuccessful in obtaining
new financing, the Company would likely be required to seek bankruptcy court or
other protection from its creditors. These financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result, should the Company be unable to continue as a going concern.
9
As of December 31, 2002, the Company had $296,764 in cash and cash equivalents
compared with $576,514 at December 31, 2001.
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, 2002:
Payments due by Period
(In Thousands)
----------------------------------------------------------
Less Than Over
Total 1 Year 1-3 Years 4-5 Years 5 Years
----------------------------------------------------------
Operating leases $ 7,168 1,257 2,450 2,008 1,453
Compensation agreements 2,185 855 1,330 -- --
Notes payable 96 31 47 18 --
Line of credit 10,351 10,351 -- -- --
------- ------- ------- ------- -------
Totals $19,800 12,494 3,827 2,026 1,453
======= ======= ======= ======= =======
Net cash flows provided by operating activities in 2002 were $778,090 in
comparison to $297,248 in 2001. The 2002 increase in operating cash flows was
due primarily to a decrease in inventory and an increase in accrued liabilities,
offset by an increase in accounts receivable. The primary reason for the
decrease in inventory is an increase in inventory taken on consignment. The
increase in accrued liabilities is due primarily to accrued professional fees at
December 31, 2002 relating to the release by the Company's lending bank of a
guaranty by the Company and Universal of Atlantic's obligations to the lending
bank (see the discussion below regarding Atlantics' Chapter 11 filing). The
increase in accounts receivable primarily reflects the timing and increase in
sales in 2002.
Cash used in investing activities in 2002 of $840,917 was attributable to
$169,936 of additions to property and equipment relating to the on-going
operations of Universal and $670,981 used for the acquisition of certain assets
of Goldman described under "General Development of Business." Cash flows used in
investing activities during 2001 was $110,751, and consisted primarily of
leasehold improvements related to maintenance of Universal's facilities.
Cash flows used for financing activities in 2002 consisted of $138,236 in net
repayments on notes payable and $78,687 of net repayments on the Company's
credit facility. Cash flows used for financing activities in 2001 reflect
$1,166,718 of net repayments on the credit facility that were required because
of financial difficulties at Atlantic.
Net cash provided by discontinued operations in 2001 of $894,522 consists of
$1,497,932 provided by the operation and liquidation of Atlantic, offset by
$603,410 used for the disposal of Well-Bilt.
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 on-going. 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.
10
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. At December 31, 2002, the amount
of unused credit available under the facility was $1,649,111.
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.
11
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 consolidated 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.
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
12
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
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 all borrowings under its credit facility bear interest based
on the prime rate plus 0.5%, except for the $2.5 million term loan, which bears
interest at a rate of prime plus 2.5%. A hypothetical 10% adverse change in such
rates would reduce the pre-tax earnings and cash flow for the year ended
December 31, 2002 by approximately $54,000 over a one-year period, assuming the
borrowing level remains consistent with the outstanding borrowings as of
December 31, 2002. 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, 2002 and 2001
Consolidated statements of operations for the years ended December 31,
2002, 2001 and 2000
Consolidated statements of stockholders' equity (deficit) for the years
ended December 31, 2002, 2001 and 2000
Consolidated statements of cash flows for the years ended December 31,
2002, 2001 and 2000
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, 2002 and 2001, 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, 2002. 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, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in note 1(c) to the
financial statements, the Company had losses in 2001 and 2000, has stockholders'
deficit at December 31, 2002 and has negative working capital. In addition,
outstanding borrowings under its credit facility are due on demand. If the bank
were to demand repayment, the Company does not project that it would have
sufficient liquidity to make such a payment. In addition, as discussed in note
2(b), 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. These circumstances raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in note 1(c). The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
As discussed in note 1(i) to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" as of January 1, 2002.
/s/ KPMG LLP
-------------------
Melville, New York
October 2, 2003
15
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2002 and 2001
Assets 2002 2001
------------ ------------
Current assets:
Cash $ 296,764 576,514
Accounts receivable, net of allowance for doubtful accounts
of $265,000 in 2002 and $253,000 in 2001, respectively 5,186,893 4,466,667
Inventory 5,730,224 6,314,546
Prepaid expenses and other current assets 338,251 376,838
------------ ------------
Total current assets 11,552,132 11,734,565
Property and equipment, net 631,948 622,790
Goodwill 1,416,929 1,316,929
Other intangibles 85,833 128,700
Restricted investment securities -- 122,506
------------ ------------
$ 13,686,842 13,925,490
============ ============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 2,446,886 2,422,802
Accrued liabilities 1,216,051 1,047,188
Income taxes payable 40,230 26,086
Borrowings under credit facility 10,350,889 7,929,576
Investment in unconsolidated subsidiary in bankruptcy,
carried at cost 219,007 219,007
Guaranteed borrowings of unconsolidated subsidiary in bankruptcy -- 5,800,695
Notes payable - current portion 30,889 143,405
------------ ------------
Total current liabilities 14,303,952 17,588,759
Notes payable, excluding current portion 64,775 90,495
Deferred compensation -- 122,506
------------ ------------
Total liabilities 14,368,727 17,801,760
------------ ------------
Stockholders' equity (deficit):
Convertible preferred stock, $.05 par value, liquidation preference of
$7,321,260 and $7,321,430 at December 31, 2002 and 2001, respectively,
2,468,860 shares authorized, 1,464,252 and 1,464,286 shares issued and
outstanding at December 31, 2002 and 2001, respectively 73,213 73,214
Common stock, $.05 par value, 20,000,000 shares
authorized, 1,603,794 and 1,603,760 shares issued and
outstanding at December 31, 2002 and 2001, respectively 80,190 80,189
Additional paid-in capital 8,966,513 8,966,513
Accumulated deficit (9,801,801) (12,996,186)
------------ ------------
Total stockholders' deficit (681,885) (3,876,270)
------------ ------------
Commitments and contingencies
$ 13,686,842 13,925,490
============ ============
See accompanying notes to consolidated financial statements
F-1
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2002, 2001 and 2000
2002 2001 2000
------------ ------------ ------------
Sales $ 36,998,800 31,080,398 32,342,160
Cost of sales 26,379,504 21,735,358 22,984,470
------------ ------------ ------------
Gross profit 10,619,296 9,345,040 9,357,690
Selling, general and administrative expenses, net 10,392,729 8,825,180 9,415,726
------------ ------------ ------------
Operating income (loss) 226,567 519,860 (58,036)
Interest income 1,939 10,706 168,329
Other income 285,971 230,038 221,651
Interest expense (583,620) (713,626) (795,571)
------------ ------------ ------------
Loss from continuing operations
before income taxes (69,143) 46,978 (463,627)
Income taxes 37,167 1,657,788 860,000
------------ ------------ ------------
Loss from continuing operations $ (106,310) (1,610,810) (1,323,627)
Discontinued operation (note 2(b)):
Net income (loss) from operations of discontinued segments 3,300,695 (6,098,023) (2,977,916)
Loss on disposal of discontinued operation -- -- (3,731,654)
Recovery of loss on disposal of discontinued operation -- 106,509 --
------------ ------------ ------------
Income (loss) on discontinued operation 3,300,695 (5,991,514) (6,709,570)
------------ ------------ ------------
Net income (loss) $ 3,194,385 (7,602,324) (8,033,197)
============ ============ ============
Loss per common share:
Basic:
Income (loss) from continuing operations $ (0.07) (1.00) (0.86)
Income (loss) on discontinued operation 2.06 (3.74) (4.35)
------------ ------------ ------------
Net income (loss) per common share $ 1.99 (4.74) (5.21)
============ ============ ============
Diluted:
Income (loss) from continuing operations $ (0.07) (1.00) (0.86)
Income (loss) on discontinued operation 2.06 (3.74) (4.35)
------------ ------------ ------------
Net income (loss) per common share $ 1.99 (4.74) (5.21)
============ ============ ============
Weighted average shares outstanding:
Basic 1,603,777 1,603,178 1,542,712
Diluted 1,603,777 1,603,178 1,542,712
See accompanying notes to consolidated financial statements.
F-2
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 2002, 2001 and 2000
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, 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)
Net income -- -- -- -- -- 3,194,385 3,194,385
Conversion of shares of
preferred stock to
common stock (34) 34 (1) 1 -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balances at December 31, 2002 1,464,252 1,603,794 $ 73,213 80,190 8,966,513 (9,801,801) $ (681,885)
============ ============ ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-3
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2002, 2001 and 2000
2002 2001 2000
----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 3,194,385 (7,602,324) (8,033,197)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss (income) from discontinued operation (3,300,695) 5,991,514 6,709,570
Deferred tax expense -- 1,625,002 858,000
Provision for doubtful accounts 111,339 57,589 85,554
Depreciation 160,778 154,590 126,415
Amortization of intangibles 42,867 128,650 134,301
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 (328,923) (261,947) (205,426)
Inventory 652,661 1,261,899 (746,214)
Prepaid expenses and other current assets 38,587 107,375 (95,604)
Accounts payable 24,084 (798,213) 1,610,692
Investment securities - trading 122,506 (42,270) (54,480)
Accrued liabilities 168,863 (418,685) 3,432
Income taxes payable 14,144 25,086 (39,393)
Deferred compensation (122,506) 42,270 54,480
----------- ----------- -----------
Net cash provided by operating activities 778,090 297,248 408,130
----------- ----------- -----------
Cash flows from investing activities:
Payment for acquisition of Universal -- -- (141,298)
Payment for acquisition of Goldman Associates (670,981) -- --
Purchase of licensing agreement -- (4,800) (22,000)
Payments on notes receivable -- -- 316,069
Additions to property and equipment (169,936) (105,951) (469,260)
----------- ----------- -----------
Net cash used in investing activities (840,917) (110,751) (316,489)
----------- ----------- -----------
Cash flows from financing activities:
Net repayments on notes payable (138,236) (140,799) (148,943)
Net (repayments) borrowings under credit facility (78,687) (1,166,718) 1,126,533
Exercise of employee stock options -- -- 30,999
----------- ----------- -----------
Net cash (used in) provided by financing activities (216,923) (1,307,517) 1,008,589
----------- ----------- -----------
Net cash provided by (used in) discontinued operation -- 894,522 (1,726,266)
----------- ----------- -----------
Decrease in cash and cash equivalents (279,750) (226,498) (626,036)
Cash and cash equivalents - beginning of period 576,514 803,012 1,429,048
----------- ----------- -----------
Cash and cash equivalents - end of period $ 296,764 576,514 803,012
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-4
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
(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) GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company had
losses in 2001 and 2000 of $7,602,324 and $8,033,197, has a
stockholders' deficit at December 31, 2002 of $681,885 and has a
negative working capital of $2,751,820. In addition, outstanding
borrowings under its credit facility of $10,350,889 are due on demand.
If the bank were to demand repayment, the Company does not project
that it would have sufficient liquidity to make such a payment.
Management recognizes that the Company's ability to continue as a going
concern is dependent upon its ability to generate profits. 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 2000, Universal's sales have increased 14.4% or $4,656,640.
Further sales increases are anticipated in 2003 and beyond, due to
additional product lines, acquisitions 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
16
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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.
At December 31, 2002, $2,490,000 of the Company's credit facility was
payable over a five year period. There can be no assurance that the
Company will generate sufficient liquidity to maintain its current
operations. If the Company continues to incur losses and/or if the
outstanding borrowings under its credit facility are demanded to be
repaid and the Company was unsuccessful in obtaining new financing,
the Company would likely be required to seek bankruptcy court or other
protection from its creditors. These financial statements do not
include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and
classification of liabilities that might result, should the Company be
unable to continue as a going concern.
(d) 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.
(e) 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, 2002 or 2001.
(f) 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 $291,089, $209,975 and $259,403 for the years ended
December 31, 2002, 2001 and 2000, respectively.
17
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(g) INVESTMENT SECURITIES
The Company maintains investments in its equity securities, which have
been classified as trading securities, for the deferred compensation
plan (note 13(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.
(h) 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.
(i) 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 assets and goodwill that were
acquired in a prior purchase business combination, and make any
necessary reclassifica- tions, in order to conform with the new
criteria in Statement 141 for recognition apart from 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
18
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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, 2002 and December 31, 2001, the Company had intangible
assets, subject to amortization of $231,667 and $236,467,
respectively, and related accumulated amortization of $145,834 and
$107,767, respectively, which pertained primarily to covenants not to
compete. Amortization expense for intangible assets subject to
amortization amounted to approximately $42,900 and $47,200 for the
years ended December 31, 2002 and 2001, respectively. The estimated
aggregate amortization expense for each of the four succeeding years
ending December 31, 2006 amounts to approximately $41,700, $26,700,
$11,700 and $5,800 in 2003, 2004, 2005 and 2006, respectively.
As of December 31, 2002 and 2001, the Company had unamortized goodwill in
the amount of $1,416,929 and $1,316,929, respectively. The $100,000
increase is due to the Goldman acquisition (see Note 2(a)).
The following table shows the results of operations as if Statement No. 142
was applied in prior years:
For the years ended December 31,
2002 2001 2000
------------- ------------- -------------
Net income (loss) as reported $ 3,194,385 $ (7,602,324) $ (8,033,197)
Deduct: negative goodwill amortization, net -- (35,050) (36,797)
Adjusted net loss $ 3,194,385 $ (7,637,374) $ (8,069,994)
============= ============= =============
Income (loss) per share - basic net
income (loss), as reported $ 1.99 $ (4.74) $ (5.21)
Negative goodwill amortization, net -- (0.02) (0.02)
------------- ------------- -------------
Adjusted net income (loss) $ 1.99 $ (4.76) $ (5.23)
============= ============= =============
Income (loss) per share - diluted net
income (loss), as reported $ 1.99 $ (4.74) $ (5.21)
Negative goodwill amortization, net -- (0.02) (0.02)
------------- ------------- -------------
Adjusted net income (loss) $ 1.99 $ (4.76) $ (5.23)
============= ============= =============
(j) 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.
19
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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.
2002 2001 2000
---- ---- ----
Net income (loss), as reported $3,194,385 (7,602,324) (8,033,197)
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 $ 3,172,221 (7,624,488) (8,055,361)
=========== =========== ===========
Basic net income (loss)
per common share
As reported $ 1.99 (4.74) (5.21)
Pro forma $ 1.98 (4.76) (5.22)
Diluted net income (loss)
per common share
As reported $ 1.99 (4.74) (5.21)
Pro forma $ 1.98 (4.74) (5.21)
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%.
(k) 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.
20
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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 2002, 2001 and 2000 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.
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)
The Company 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.
21
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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 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 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 the year
ended December 31, 2000 have been restated to conform to this
presentation.
(q) ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 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
consolidated results of operations or its financial position.
22
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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
23
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 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) BUSINESS ACQUISITIONS AND DISCONTINUED OPERATIONS
(a) 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.
(b) 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 does not exercise significant influence over
Atlantic's operations and financial activities, and, accordingly, as of
December 31, 2001, Atlantic has been unconsolidated on 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 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
24
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 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 $3,300,000 difference between the
total amount previously 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.
The Company's investment in Atlantic's common stock is being
recognized at a cost, value of $219,007 of guaranteed liabilities as
of December 31, 2002. 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. Colonial will continue
to recognize the $219,007 of guaranteed liabilities of Atlantic until
they are extinguished by Atlantic's bankruptcy proceedings or
otherwise.
Since the Company is treating Atlantic as an unconsolidated
subsidiary, Atlantic is being carried at cost on the Company's books.
As such, the Company has not reflected any of Atlantic's 2002
financial activity in its consolidated financial statements, except
for the $3,300,695 release of guarantee, as stated above. The
following summarized financial information for the deconsolidated
subsidiary, Atlantic, includes the actual 2002 activity:
For the years ended December 31,
2002 2001 2000
---------- ----------- -----------
Net sales $2,700,174 $24,561,972 25,978,063
Net (loss) (1,712,197) (6,098,023) 234,236
December 31,
2002 2001
----------- -----------
Current assets (primarily accounts receivable and inventory) $ 1,920,563 3,352,197
Non-current assets (primarily property and equipment) -- 57,510
Current liabilities (primarily accounts payable, accrued liabilities (3,487,946) (3,628,714)
Guaranteed borrowings under credit facility -- (5,800,695)
----------- -----------
Net (liabilities) assets of deconsolidated subsidiary $(1,567,383) (6,019,702)
=========== ===========
25
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(c) 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)
============
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.
26
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) INVESTMENT SECURITIES
As of December 31, 2001, the Company's investment securities consist
of $122,506 of mutual funds that were held in connection with the
deferred compensation plan (the plan) (note 13). 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.
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
2002 2001
--------- ---------
Computer hardware and software $ 419,030 390,411
Furniture and fixtures 97,643 68,555
Leasehold improvements 333,033 290,110
Automobiles 238,809 176,473
--------- ---------
1,088,515 925,549
Less accumulated depreciation
and amortization 456,567 302,759
--------- ---------
$ 631,948 622,790
========= =========
Computer hardware and software include approximately $325,659 and
$323,619 of costs as of December 31, 2002 and 2001, 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.
(5) 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
27
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
contains covenants relating to the financial condition of the Company
and its business operations, and restricts the payment of dividends and
capital expenditures.
At December 31, 2002, amounts outstanding under the credit facility
were $10,350,889, of which (i) $331,000 represents a term loan payable
in 16 remaining equal monthly installments of approximately $21,000,
and (ii) $2,490,000 represents a separate term loan payable in 59
remaining monthly installments of agreed amounts under an amortization
schedule. Although the term loans are payable over specified periods,
16 and 59 months respectively, the Bank can demand payment at any time.
At December 31, 2002, the amount of the unused available credit was
$1,649,111. The interest rate on the $2,490,000 term loan was 6.75% as
of December 31, 2002. The interest rates on the remaining credit
facility, as of December 31, 2002 and 2001, were 4.75% and 5.75%,
respectively.
(6) NOTES PAYABLE
(a) Notes payable consist of the following at December 31:
2002 2001
-------- --------
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
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
Term note payable to a bank in 60 monthly principal
and interest installments of $347, bearing
interest at .9% 8,320 12,480
Term note payable to a bank in 60 monthly
principal and interest installments of $346, bearing
interest at .9% 8,651 12,802
Term note payable to a bank in 60 monthly
principal and interest installments of $346, bearing
interest at .9% 8,999 13,152
Term note payable to a bank in 48 monthly
principal and interest installments of $435, bearing
interest at 5.9% 12,166 17,380
Term note payable to a bank in 60 monthly
principal and interest installments of $392, bearing
interest at 3.9% 16,464 21,168
Term note payable to a bank in 60 monthly
principal only installments of $354 20,532 --
28
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Term note payable to a bank in 60 monthly
principal only installments of $354. 20,532 --
-------- --------
95,664 233,900
Less current installments 30,889 143,405
-------- --------
$ 64,775 90,495
======== ========
Maturities of notes payable are as follows:
2003 30,889
2004 30,887
2005 15,990
2006 10,858
2007 7,040
--------
95,664
Less current installments 30,889
--------
$ 64,775
========
(b) Included in accrued liabilities at December 31, 2002 and 2001 is
approximately $91,885 and $186,362, 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, 2002, 2001 and 2000, $94,477, $93,923 and
$95,557, 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.
(7) 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.
29
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
At December 31, 2002, there were 2,685,252 shares of common stock
reserved for conversion of preferred stock and for the exercise of
stock options (note 8).
(8) 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, 2002, a total of 182,000 options were outstanding under
the 1996 Stock Option Plan and 51,000 options were outstanding under
the Company's 1986 Stock Option Plan, which expired on December 31,
1995.
Changes in options outstanding are as follows:
Shares Subject Weighted Average
to Option Exercise Price
-------------- ---------------------
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
Cancelled (30,000) 2.30
Expired (70,000) 1.50
------------------------------------------- ------------- ---------------------
Balance at December 31, 2002 233,000 3.06
------------------------------------------- ------------- ---------------------
Options exercisable at December
31, 2002 211,400 2.99
------------------------------------------- ------------- ---------------------
At December 31, 2002 and 2001, the range of exercise prices of
outstanding options was $1.25-$3.75 per share. At December 31, 2002 and
2001, the weighted average remaining contractual lives of outstanding
options were approximately five and five years, respectively.
The following table summarizes information about stock options at December
31, 2002:
30
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 0.05 $1.25 51,000 $1.25
2.51-3.75 182,000 6.32 3.57 160,400 3.54
------- ---- ---- ------- ----
Total 233,000 4.95 3.06 211,400 2.99
======= ==== ==== ======= ====
(9) NET LOSS PER COMMON SHARE
A reconciliation between the numerators and denominators of the basic
and diluted income (loss) per common share is as follows:
2002 2001 2000
---------- ---------- ----------
Net loss (numerator) $3,194,385 (7,602,324) (8,033,197)
========== ========== ==========
Weighted average common shares
(denominator for basic income
(loss) per share) 1,603,777 1,603,178 1,542,712
Effect of dilutive securities:
Convertible preferred stock -- -- --
Employee stock options -- -- --
---------- ---------- ----------
Weighted average common and
potential common shares
outstanding (denominator for
diluted income (loss) per
share) 1,603,777 1,603,178 1,542,712
========== ========== ==========
Basic net income (loss) per share $ 1.99 (4.74) (5.21)
========== ========== ==========
Diluted net income (loss) per share 1.99 (4.74) (5.21)
========== ========== ==========
Employee stock options totaling 263,700, 252,400 and 329,000 for the
years ended December 31, 2002, 2001 and 2000, respectively, were not
included in the net income (loss) per share calculation because their
effect would have been antidilutive. Convertible preferred stock
totaling 1,464,269, 1,464,868 and 1,518,793 for the years ended
December 31, 2002, 2001 and 2000, respectively, were not included in
the net loss per share because their effect would have been
antidilutive.
(10) INCOME TAXES
The provision for income taxes attributable to continuing operations and
discontinued operations:
31
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2002 2001 2000
----- ----- -----
State State State
and and and
Federal Local Total Federal Local Total Federal Local Total
-------------------------------------------------------------------------------------------------------
Current $ -- 37,167 37,167 -- 32,786 32,786 -- 2,000 2,000
Deferred -- -- -- 1,564,429 60,573 1,625,002 858,000 -- 858,000
--------- --------- -------- --------- -------- --------- --------- --------- ---------
Tax Expense
on Continuing
Operations -- 37,167 37,167 1,564,429 93,359 1,657,778 858,000 2,000 860,000
Tax Expense
on Discontinued
Operations -- -- -- -- -- -- 32,000 18,000 32,000
--------- --------- -------- --------- -------- --------- --------- --------- ---------
Total Tax Expense $ -- 37,167 37,167 1,564,429 93,359 1,657,778 890,000 20,000 892,000
========= ========= ======== ========= ======== ========= ========= ========= =========
A reconciliation of the provision for income taxes attributable to
income (loss) on continuing operations computed at the Federal
statutory rate to the reported provision for income taxes follows:
2002 2001 2000
---- ---- ----
Tax provision at Federal
statutory rate $ (23,509) 34.0% 15,973 34.0% (157,633) 34.0 %
State income taxes, net of
federal benefit 24,530 (35.5)% 61,617 131.2% 1,320 (0.3)%
Change in valuation allowance for
deferred tax assets 26,202 (37.9)% 1,570,965 3344.0% 1,010,236 (217.9)%
Adjustment to estimated utilization
of net operating loss carryforwards -- -- -- -- 58,520 (12.6)%
Permanent differences 9,944 (14.4)% 2,693 5.7% (87,918) 19.0 %
Other -- -- 6,540 13.9% 35,475 (7.7)%
---------- ---------- ---------- ---------- ---------- ----------
Total $ 37,167 (53.8)% 1,657,788 3528.8% 860,000 (185.5)%
========== ========== ========== ========== ========== ==========
The components of deferred income tax expense (benefit) on continuing
operations attributable to income (loss) on continuing operations are
as follows:
2002 2001 2000
---- ---- ----
Deferred tax expense (benefit), exclusive of
the effects of the other components listed below $ (1,382) 3,082 (1,920,661)
Increase (decrease) in beginning-of-the-year
balance of the valuation allowance for
deferred tax assets 29,793 1,625,002 2,778,661
Generation of continuing operations net operating loss
carryforward (31,175) (3,082) --
---------- ---------- ----------
-- $ 1,625,002 858,000
========== ========== ==========
32
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 2002 and 2001 are
presented below.
2002 2001
---- ----
Deferred tax assets:
Federal net operating loss carryforwards $ 12,191,239 $ 13,289,441
State net operating loss carryforwards 178,529 524,707
Allowance for doubtful accounts receivable 34,608 29,797
Inventory -- 3,458
Additional costs inventoried for tax purposes 304,697 204,381
Value of unconsolidated subsidiary in bankruptcy -- 190,934
Alternative minimum tax credit carryforward 113,156 113,156
Other -- 591
------------ ------------
Total gross deferred tax assets 12,822,229 14,356,465
Less valuation allowance (12,727,209) (14,356,465)
------------ ------------
Deferred tax assets, net 95,020 --
------------ ------------
Deferred tax liabilities:
Goodwill (87,377) --
Depreciation (7,643) --
------------ ------------
Gross deferred tax liabilities (95,020) --
------------ ------------
Net deferred tax asset (liability) -- --
============ ============
At December 31, 2002, 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, 2002.
During the years ended December 31, 2002 and 2001, the valuation
allowance was increased (decreased) by approximately $(1,629,256) and
$3,742,893, respectively in order to reflect the net deferred tax asset
deemed recoverable, based upon projections of future taxable income.
At December 31, 2002, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $35,856,586. Varying
amounts of the net operating loss carryforwards will expire from 2004
through 2021.
33
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
EXPIRATION YEAR NET OPERATING LOSSES
--------------- --------------------
2004 $ 8,743,614
2005 8,245,078
2006 4,810,981
2007 4,944,884
2008 414,691
2020 5,959,802
2021 2,737,536
---------
$ 35,856,586
None of the net operating loss carryforwards will expire if not
utilized during 2003. During 2002, the Company utilized approximately
$3,300,000 of its net operating loss carryforwards. 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.
(11) 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.
(12) SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental information relating to the consolidated
statements of cash flows:
2002 2001 2000
Cash paid during the years for:
Interest $ 511,324 643,708 795,571
========= ========= =========
Income taxes $ 23,024 7,700 48,195
========= ========= =========
Non-cash transactions:
During 2002, 2001 and 2000, 34, 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. 20
34
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) EMPLOYEE BENEFIT PLANS
(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 2002, 2001 and 2000,
$111,793, $102,000 and $99,000, 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 was 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 provided 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 was not intended to be a qualified plan under the provisions of
the Internal Revenue Code. All compensation deferred under the plan was
held by the Company in an investment trust, which was considered an
asset of the Company. The investments, which amounted to $122,506 at
December 31, 2001, have been classified as trading securities and are
included in investment securities on the accompanying consolidated
balance sheet as of December 31, 2001. The return on these underlying
investments determined the amount of earnings credited to the
employees. As was allowed under the plan, the Company terminated the
plan during 2002. The proceeds of the plan investments were paid out to
the plan participants. The deferred compensation liability is reflected
as a long-term liability on the accompanying consolidated balance
sheets as of December 31, 2001.
(14) BUSINESS AND CREDIT CONCENTRATIONS
Universal purchases products from approximately 360 suppliers. In 2002,
two suppliers accounted for 49.1% 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 2001, two suppliers accounted for 39% of
Universal's purchases.
(15) COMMITMENTS
(a) COMPENSATION
The Company has employment contracts with two officers and various
employees with remaining terms ranging from two to three years. The
amounts due by the Company, per these contracts, are $855,000, $880,000
and $450,000 in the years ended December 31, 2003, 2004 and 2005,
respectively. These commitments do not include amounts that may be
earned as a bonus.
35
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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 $1,153,867, $1,034,605 and
$907,134 for the years ended December 31, 2002, 2001 and 2000,
respectively. At December 31, 2002, future minimum lease payments in
the aggregate and for each of the five succeeding years are as follows:
2003 $ 1,256,846
2004 1,236,459
2005 1,213,578
2006 1,040,840
2007 967,287
Thereafter 1,452,726
-----------
Total $ 7,167,736
===========
(16) SUBSEQUENT EVENTS
(a) 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.
(b) 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:
36
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.
37
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(17) QUARTERLY RESULTS (UNAUDITED)
The following table sets forth selected unaudited quarterly financial
data of the Company for the years ended December 31, 2002 and 2001:
QUARTER ENDED
-----------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31,
---------- ---------- ---------- ---------
(Dollars in thousand, except per share data)
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)
======== ========= ========= =========
2002
Net sales 7,231 9,173 10,592 10,003
Gross profit 2,211 2,645 2,901 2,862
Income (loss) from continuing operations (189) (48) 142 (11)
Income (loss) on discontinued operation -- -- -- 3,300
-------- --------- --------- ---------
Net income (loss) (189) (48) 142 3,289
======== ========= ========= =========
Income (loss) per common share:
Basic:
Continuing operations (0.12) (0.03) 0.09 (0.01)
Income (loss) on discontinued operations -- -- -- 2.06
-------- --------- --------- ---------
Net loss (0.12) (0.03) 0.09 2.05
======== ========= ========= =========
Diluted:
Continuing operations (0.12) (0.03) 0.05 (0.01)
Income (loss) on discontinued operations -- -- -- 2.06
-------- --------- --------- ---------
Net loss (0.12) (0.03) 0.05 2.05
======== ========= ========= =========
38
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, 2002
and 2001, 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, 2002, which are included in the Company's 2002 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 2002 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. The audit
report on the consolidated financial statements of Colonial Commercial Corp.
and subsidiaries referred to above contains an explanatory paragraph that
states that the Company has had losses in 2002, 2001 and 2000 has
stockholders' deficit at December 31, 2002 and has negative working capital.
In addition, outstanding borrowings under its credit facility are due on
demand. If the bank were to demand repayment, the Company does not project
that it would have sufficient liquidity to make such a payment. In addition,
as discussed in note 2(b), 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. These
circumstances raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 1(c). The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. Also, our
report refers to a change in the accounting for goodwill and other intangible
assets.
/S/ KPMG LLP
------------------
KPMG LLP
Melville, New York
October 2, 2003
39
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, 2002
Allowance for doubtful accounts $253,156 111,339 19,592 (a) (118,876) (b) 265,211
======== ======== ========== ============= ========
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
======== ======== ========== ============= ========
(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.
40
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, 2002
through December 31, 2002, all executive officers, directors and greater than
10% beneficial owners, complied with Section 16(a) filing requirements.
41
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
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, 2002 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 $194,734 for the year ended December 31,
2002.
STOCK OPTIONS
During 2002, no stock options were granted to the Company's employees,
including the executive officers.
42
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
EXECUTIVE COMPENSATION
The following table sets forth information about compensation paid or
accrued by the Company during the fiscal years ended December 31, 2002, 2001 and
2000 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 ($) Options #
--------------------------- ------ ---------- -------- ---------
Bernard Korn 2002 200,000 -- --
Chairman of the Board, 2001 221,154 -- --
President, Chief Executive 2000 250,000 -- --
Officer and Director
James W. Stewart 2002 130,329 -- --
Executive Vice President, 2001 167,967 -- --
Treasurer, Secretary 2000 200,000 -- --
and Director
William Pagano 2002 200,000 194,734 --
President, Universal Supply 2001 200,000 147,640 --
Group, Inc. 2000 200,000 128,523 --
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the value of
unexercised stock options at the end of the 2002 fiscal year for the persons
named in the Summary Compensation Table.
Value of
Number of Unexercised
Unexercised In-The-Money
Shares Options at Options at
Acquired On Value Fiscal Year-End Fiscal Year-End
Exercise Realized Exercisable/ Exercisable/
(#) ($) Unexercisable Unexercisable
----------- -------- --------------- ---------------
UNEXERCISABLE
Bernard Korn 0 0 87,000/0 0/0
James W. Stewart 0 0 45,000/0 0/0
William Pagano 0 0 12,000/20,000 0/0
43
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.
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 $26,000 for fees for
professional services rendered to the Company and its subsidiaries during 2002.
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 $2,000.
44
Performance Graph
Comparison of Five Year Cumulative Return*
Among Colonial Commercial Corp.
the NASDAQ Stock Market (U.S.) Index and The Russell 2000 Index
12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
Colonial Commercial Corp. 100.00 123.33 173.33 170.03 38.93 5.33
NASDAQ Stock Market (U.S.) 100.00 140.99 261.48 157.42 124.89 86.34
Russell 2000 100.00 97.45 118.17 114.60 117.45 93.39
* $100 invested on 12/31/97 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, 1997 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, 2002.
45
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.
46
(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
(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.
47
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 2002.
(c) Exhibits
48
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)
(iii) Amendment No. 3 dated October 29,
2002 to Employment Agreement
dated as of January 1, 1998 between
Registrant and Bernard Korn Yes
(iv) Amendment No. 4 dated October 29,
2002 to Employment Agreement
dated as of January 1, 1998
between Registrant and Bernard Korn Yes
(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)
(ii) Second Amendment dated October
29, 2002 to Employment Agreement
dated as of January 1, 2000 between
Registrant and James W. Stewart Yes
(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)
49
Incorporated by
Filed Reference From
Herewith Form Date Exhibit
-------- ---- ---- ---------------
(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)
(iv) Demand Note dated June 24,
1999 between LaSalle Bank
National Association and
Colonial Commercial Sub Corp. 8-K 7/8/99 10(a)(v)
(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. 10-K 12/31/01 10(e)(vi)
(vii) Securities Pledge Agreement
dated November 21, 2002, made by the
Registrant, in favor of LaSalle
Bank National Association, re:
Universal Supply Group, Inc. 10-K 12/31/01 10(e)(vii)
(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)
50
Incorporated by
Filed Reference From
Herewith Form Date Exhibit
-------- ---- ---- ---------------
(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)
(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. 10-K 12/31/01 10(g)
(h) Agreement of Purchase and Sale of
Assets dated July 1, 2002 between
Goldman Associates of New York, Inc.
and Universal Supply Group, Inc. Yes
(i) Private Placement Purchase Agreement
dated June 30, 2003 by and among
Colonial Commercial Corp. and the
persons who are counterparts to the
Agreement as "Investors" Yes
(j) Asset Purchase Agreement
dated September 5, 2003, for
the purchase of certain assets,
subject to certain liabilities
of RAL Supply Group, Inc., by RAL
Purchasing Corp., a wholly owned
subsidiary of Colonial Commercial Corp. Yes
(k) RAL Closing Statement dated
September 30,2003. Yes
11 Statement re computation of per
share earnings (loss) (not filed since
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 Code of Ethics for Registrant's Financial
Officers Yes
99.2 Affidavit, dated January 28, 2002, in
Support of Atlantic's Petition for Relief
under chapter 11 of the U. S. Bankruptcy
Code 10-K 12/31/01 99.3
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
51