ý
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
||
For
the quarterly period ended September
30, 2006
|
||
OR
|
||
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
||
For
the transition period from ________________ to
________________
|
New
York
|
11-2037182
|
|||
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|||
275
Wagaraw Road, Hawthorne, New Jersey
|
07506
|
|||
(Address
of principal executive offices)
|
(Zip
Code)
|
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer x
|
Class
|
Outstanding
at November 1, 2006
|
|
Common
Stock, $.05 par value per share
|
4,593,579
shares
|
|
Convertible
Preferred Stock, $.05 par value per share
|
467,601
shares
|
COLONIAL
COMMERCIAL CORP. AND
SUBSIDIARIES
|
||||
CONTENTS
|
||||
PART
I.
|
FINANCIAL
INFORMATION
|
|||
Item
1.
|
Financial
Statements
|
Page
|
||
1
|
||||
2
|
||||
3
|
||||
4
|
||||
5
|
||||
Item
2.
|
13
|
|||
Item
3.
|
18
|
|||
Item
4.
|
18
|
|||
PART
II.
|
OTHER
INFORMATION
|
|||
Item
1.
|
19
|
|||
Item
4.
|
19
|
|||
Item
6.
|
20
|
PART
I. FINANCIAL INFORMATION
|
|||||||
Item
1. Financial Statements
|
|||||||
COLONIAL
COMMERCIAL CORP. AND SUBSIDIARIES
|
|||||||
Condensed
Consolidated Balance Sheets
|
|||||||
September
30,
2006
|
December
31,
2005
|
||||||
(Unaudited)
|
|||||||
Assets
|
|||||||
Current
assets:
|
|||||||
Cash
|
$
|
790,174
|
$
|
613,456
|
|||
Accounts
receivable, net of allowance for doubtful accounts of $215,757
in 2006 and
$185,971 in 2005
|
9,379,331
|
8,489,717
|
|||||
Inventory
|
14,123,645
|
12,214,261
|
|||||
Prepaid
expenses and other current assets
|
1,256,986
|
1,066,658
|
|||||
Deferred
tax asset - current portion
|
637,500
|
637,500
|
|||||
Total
current assets
|
26,187,636
|
23,021,592
|
|||||
Property
and equipment
|
1,598,782
|
1,669,484
|
|||||
Goodwill
|
1,628,133
|
1,628,133
|
|||||
Other
intangibles
|
4,000
|
11,334
|
|||||
Other
assets - noncurrent
|
118,052
|
135,832
|
|||||
Deferred
tax asset - noncurrent
|
1,071,000
|
1,071,000
|
|||||
Total
assets
|
$
|
30,607,603
|
$
|
27,537,375
|
|||
Liabilities
and Stockholders' Equity
|
|||||||
Current
liabilities:
|
|||||||
Trade
payables
|
$
|
6,723,810
|
$
|
5,991,946
|
|||
Accrued
liabilities
|
2,005,860
|
2,047,159
|
|||||
Income
taxes payable
|
12,666
|
12,772
|
|||||
Borrowings
under credit facility - revolving credit
|
13,712,099
|
11,183,008
|
|||||
Borrowings
under credit facility - term loan/overadvance
|
-
|
562,977
|
|||||
Notes
payable - current portion; includes related party notes of $30,000
in 2006
and $60,389 in 2005
|
136,594
|
165,112
|
|||||
Total
current liabilities
|
22,591,029
|
19,962,974
|
|||||
Notes
payable, excluding current portion; includes related party notes
of
$1,028,750 in 2006 and $1,000,625 in 2005
|
1,386,816
|
1,400,834
|
|||||
Total
liabilities
|
23,977,845
|
21,363,808
|
|||||
Commitments
and contingencies
|
|||||||
Stockholders'
equity:
|
|||||||
Redeemable
convertible preferred stock, $.05 par value, 2,500,000 shares authorized,
467,601 in 2006 and 484,721 in 2005 shares issued and outstanding,
liquidation
preference of $2,338,005 in 2006 and $2,423,605 in 2005
|
23,380
|
24,236
|
|||||
Common
stock, $.05 par value, 20,000,000 shares authorized, 4,593,579
in 2006
and
4,544,459 in 2005 shares issued and outstanding
|
229,679
|
227,223
|
|||||
Additional
paid-in capital
|
10,633,259
|
10,626,859
|
|||||
Accumulated
deficit
|
(4,256,560
|
)
|
(4,704,751
|
)
|
|||
Total
stockholders' equity
|
6,629,758
|
6,173,567
|
|||||
Total
liabilities and stockholders’equity
|
$
|
30,607,603
|
$
|
27,537,375
|
COLONIAL
COMMERCIAL CORP. AND SUBSIDIARIES
|
|||||||
Condensed
Consolidated Statements of Operations
|
|||||||
(Unaudited)
|
|||||||
For
The Three Months Ended
September
30,
|
|||||||
2006
|
2005
|
||||||
Sales
|
$
|
19,217,556
|
$
|
17,377,655
|
|||
Cost
of sales
|
13,504,230
|
12,285,200
|
|||||
Gross
profit
|
5,713,326
|
5,092,455
|
|||||
Selling,
general and administrative expenses, net
|
4,857,533
|
4,449,626
|
|||||
Operating
income
|
855,793
|
642,829
|
|||||
Other
income
|
63,707
|
63,546
|
|||||
Interest
expense, net; includes related party interest of $26,431 in 2006
and
$23,684 in 2005
|
(359,214
|
)
|
(269,897
|
)
|
|||
Income
before income taxes
|
560,286
|
436,478
|
|||||
Income
tax expense (benefit)
|
30,839
|
(582,141
|
)
|
||||
Net
Income
|
$
|
529,447
|
$
|
1,018,619
|
|||
Income
per common share:
|
|||||||
Basic
|
$
|
0.12
|
$
|
0.24
|
|||
Diluted
|
$
|
0.10
|
$
|
0.19
|
|||
Weighted
average shares outstanding:
|
|||||||
Basic
|
4,592,968
|
4,300,270
|
|||||
Diluted
|
5,301,782
|
5,296,133
|
For
The Nine Months Ended
September
30,
|
|||||||
2006
|
2005
|
||||||
Sales
|
$
|
52,257,581
|
$
|
48,226,815
|
|||
Cost
of sales
|
36,516,555
|
33,749,170
|
|||||
Gross
profit
|
15,741,026
|
14,477,645
|
|||||
Selling,
general and administrative expenses, net
|
14,407,601
|
13,068,688
|
|||||
Operating
income
|
1,333,425
|
1,408,957
|
|||||
Other
income
|
192,963
|
213,282
|
|||||
Interest
expense, net; includes related party interest of $77,825 in 2006
and
$68,225 in 2005
|
(995,116
|
)
|
(763,788
|
)
|
|||
Income
before income taxes
|
531,272
|
858,451
|
|||||
Income
tax expense (benefit)
|
83,081
|
(481,417
|
)
|
||||
Net
income
|
$
|
448,191
|
$
|
1,339,868
|
|||
Income
per common share:
|
|||||||
Basic
|
$
|
0.10
|
$
|
0.32
|
|||
Diluted
|
$
|
0.08
|
$
|
0.25
|
|||
Weighted
average shares outstanding:
|
|||||||
Basic
|
4,574,227
|
4,217,250
|
|||||
Diluted
|
5,300,467
|
5,290,507
|
COLONIAL
COMMERCIAL CORP. AND SUBSIDIARIES
|
|||||||
Condensed
Consolidated Statements of Cash Flows
|
|||||||
(Unaudited)
|
|||||||
For
The Nine Months Ended
September
30,
|
|||||||
2006
|
2005
|
||||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
448,191
|
$
|
1,339,868
|
|||
Adjustments
to reconcile net income to net cash (used in) provided by operating
activities:
|
|||||||
Deferred
tax benefit
|
-
|
(641,500
|
)
|
||||
Stock-based
compensation
|
-
|
(52,525
|
)
|
||||
Provision
for doubtful accounts
|
116,035
|
29,343
|
|||||
Depreciation
|
340,216
|
285,211
|
|||||
Amortization
of intangibles
|
7,334
|
12,750
|
|||||
Accretion
of debt discount
|
28,125
|
28,125
|
|||||
Changes
in operating assets and liabilities:
|
|||||||
Accounts
receivable
|
(1,005,649
|
)
|
(395,053
|
)
|
|||
Inventory
|
(1,909,384
|
)
|
(139,892
|
)
|
|||
Prepaid
expenses and other current assets
|
(190,328
|
)
|
(293,483
|
)
|
|||
Other
assets - noncurrent
|
17,780
|
40,529
|
|||||
Trade
payables
|
731,864
|
876,375
|
|||||
Accrued
liabilities
|
(41,299
|
)
|
164,182
|
||||
Income
taxes payable
|
(106
|
)
|
(29,018
|
)
|
|||
Net
cash (used in) provided by operating activities
|
(1,457,221
|
)
|
1,224,912
|
||||
Cash
flows from investing activities:
|
|||||||
Additions
to property and equipment
|
(269,514
|
)
|
(305,359
|
)
|
|||
Net
cash used in investing activities
|
(269,514
|
)
|
(305,359
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Issuance
of common stock and exercise of stock options
|
8,000
|
19,000
|
|||||
Retirement
of preferred stock
|
(15,400
|
)
|
|||||
Repayments
of notes payable: includes related party repayments of $30,389
in 2006,
and $0.00 in 2005
|
(83,734
|
)
|
(48,919
|
)
|
|||
Issuance
of notes payable
|
13,073
|
48,400
|
|||||
Repayments
under credit facility - term loan/overadvance
|
(562,977
|
)
|
(853,690
|
)
|
|||
Borrowings
under credit facility - revolving credit
|
2,529,091
|
85,649
|
|||||
Net
cash provided by (used in) financing activities
|
1,903,453
|
(764,960
|
)
|
||||
Increase
in cash
|
176,718
|
154,593
|
|||||
Cash
- beginning of period
|
613,456
|
310,659
|
|||||
Cash
- end of period
|
$
|
790,174
|
$
|
465,252
|
1.
|
Summary
of Significant Accounting Policies and
Practices
|
2.
|
Stock
Options
|
Options
Outstanding and Exercisable
|
||||||
Range
of Exercise
Prices
|
Shares
|
Weighted
Average Remaining
Contractual Life
|
Weighted
Average
Exercise Price
|
|||
$
.25
|
74,000
|
5.29
|
$
.25
|
For
the Quarter Ended September 30, 2005
|
For
the Nine Months Ended September 30, 2005
|
||||||
Net
income, as reported
|
$
|
1,018,619
|
$
|
1,339,868
|
|||
Add:
Stock-based compensation related to option repricing
|
(26,785
|
)
|
(52,525
|
)
|
|||
Pro
forma net income
|
$
|
991,834
|
$
|
1,287,343
|
|||
Basic
income per share, as reported
|
0.24
|
0.32
|
|||||
Basic
income per share, pro forma
|
0.23
|
0.31
|
|||||
Diluted
income per share, as reported
|
0.19
|
0.25
|
|||||
Diluted
income per share, pro forma
|
0.19
|
0.24
|
3.
|
Equity
Transactions
|
4.
|
Supplemental
Cash Flow Information
|
For
the Nine Months Ended
|
|||||||
September
30,
2006
|
September
30, 2005
|
||||||
Cash
paid during the period for:
|
|||||||
Interest
|
$
|
946,646
|
$
|
704,032
|
|||
Income
taxes
|
$
|
81,954
|
$
|
253,046
|
5. |
Net
Income Per Common Share
|
For
the Quarter Ended
September
30,
|
For
the Nine Months Ended
September
30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Net
Income (numerator)
|
$
|
529,447
|
$
|
1,018,619
|
$
|
448,191
|
$
|
1,339,868
|
|||||
Weighted
average common shares
|
|||||||||||||
(denominator
for basic income per share)
|
4,592,968
|
4,300,270
|
4,574,227
|
4,217,250
|
|||||||||
Effect
of dilutive securities:
|
|||||||||||||
Convertible
preferred stock
|
468,212
|
668,193
|
474,083
|
745,333
|
|||||||||
Convertible
notes
|
175,000
|
175,000
|
175,000
|
175,000
|
|||||||||
Stock
options
|
65,602
|
152,670
|
77,157
|
152,924
|
|||||||||
Weighted
average common and potential common shares outstanding (denominator
for
diluted income per share)
|
5,301,782
|
5,296,133
|
5,300,467
|
5,290,507
|
|||||||||
Basic
net income per share
|
$
|
0.12
|
$
|
0.24
|
$
|
0.10
|
$
|
0.32
|
|||||
Diluted
net income per share
|
$
|
0.10
|
$
|
0.19
|
$
|
0.08
|
$
|
0.25
|
6.
|
Financing
Arrangements
|
7.
|
Litigation
|
8. |
New
Accounting Pronouncements
|
9.
|
Related
Party Transaction
|
10.
|
Subsequent
Events
|
Computer
hardware and software
|
3-5
years
|
Furniture
and fixtures
|
5
years
|
Automobiles
|
3-5
years
|
For
the Quarter
Ended
September 30,
|
For
the Nine Months
Ended
September 30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
|||||
Cost
of sales
|
70.3
|
70.7
|
69.9
|
70.0
|
|||||||||
Gross
profit
|
29.7
|
29.3
|
30.1
|
30.0
|
|||||||||
Selling,
general and administrative expenses
|
25.3
|
25.6
|
27.5
|
27.1
|
|||||||||
Operating
income
|
4.4
|
3.7
|
2.6
|
2.9
|
|||||||||
Other
income
|
0.4
|
0.4
|
0.3
|
0.4
|
|||||||||
Interest
expense, net
|
(1.9
|
)
|
(1.6
|
)
|
(1.9
|
)
|
(1.6
|
)
|
|||||
Income
before taxes
|
2.9
|
2.5
|
1.0
|
1.7
|
|||||||||
Income
taxes
|
(0.1
|
)
|
3.4
|
(0.1
|
)
|
1.1
|
|||||||
Net
income
|
2.8
|
%
|
5.9
|
%
|
0.9
|
%
|
2.8
|
%
|
a.
|
Evaluation
of Disclosure Controls and
Procedures
|
b.
|
Changes
in Internal Controls
|
a.
|
A
Special Meeting of Shareholders was held on September 29,
2006.
|
b.
|
On
September 29, 2006, the common and preferred shareholders voted
in favor
of the following proposals:
|
i.
|
To
adopt an amendment to the Restated Certificate of Incorporation,
as
amended, that would allow the Company to issue up to 10,000,000
shares of
preferred stock in one or more series, the terms of any such series
to be
determined by the Board of Directors from time to time.
|
ii.
|
To
adopt a restated Certificate of Incorporation to include only those
articles that are currently applicable to the Company and that
incorporates all amendments to date.
|
iii.
|
To
adopt the Colonial Commercial Corp. 2006 Stock
Plan.
|
PROPOSAL
|
FOR
|
AGAINST
|
ABSTAINED
|
|||
To
adopt an amendment to the Restated Certificate of Incorporation,
as
amended, that would allow the Company to issue up to 10,000,000
shares of
preferred stock in one or more series, the terms of any such series
to be
determined by the Board of Directors from time to time.
|
3,143,995
|
318,895
|
10,179
|
|||
To
adopt a restated Certificate of Incorporation to include only those
articles that are currently applicable to the Company and that
incorporates all amendments to date.
|
3,150,949
|
313,625
|
8,495
|
|||
To
adopt the Colonial Commercial Corp. 2006 Stock Plan.
|
3,075,472
|
311,862
|
85,735
|
|||
Restated
Certificate of Incorporation of Colonial Commercial Corp. dated
September
29, 2006.
|
||
Colonial
Commercial Corp. 2006 Stock Plan.
|
||
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
||
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
||
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
||
Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
Dated:
November 13, 2006
|
COLONIAL
COMMERCIAL CORP.
|
|
/s/
William Pagano
|
||
William
Pagano,
|
||
Chief
Executive Officer
|
||
/s/
William Salek
|
||
William
Salek,
|
||
Chief
Financial Officer
|