ý
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
||
For
the quarterly period ended September 30,
2007
|
||
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
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
|
275
Wagaraw Road, Hawthorne, New Jersey
|
07506
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer x
|
Class
|
Outstanding
at November 1, 2007
|
|
Common
Stock, $.05 par value per share
|
4,645,680
shares
|
|
Convertible
Preferred Stock, $.05 par value per share
|
467,500
shares
|
PART
I.
|
FINANCIAL
INFORMATION
|
||
Item
1.
|
Financial
Statements
|
Page
|
|
|
|||
1
|
|||
2
|
|||
3
|
|||
4
|
|||
Item
2.
|
16
|
||
Item
3.
|
28
|
||
Item
4.
|
29
|
||
PART
II.
|
OTHER
INFORMATION
|
||
Item
1.
|
29
|
||
Item
6.
|
29
|
September
30,
|
December
31,
|
|||||||
2007
|
2006
|
|||||||
(Unaudited)
|
||||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
|
$ |
587,416
|
$ |
482,251
|
||||
Accounts
receivable, net of allowance for doubtful accounts of $254,913
in 2007 and
$212,043 in 2006
|
11,249,619
|
9,069,301
|
||||||
Inventory
|
17,730,758
|
12,854,317
|
||||||
Prepaid
expenses and other current assets
|
1,273,521
|
1,057,099
|
||||||
Deferred
tax asset - current portion
|
557,500
|
420,000
|
||||||
Total
current assets
|
31,398,814
|
23,882,968
|
||||||
Property
and equipment
|
1,846,003
|
1,512,666
|
||||||
Goodwill
|
2,044,745
|
1,628,133
|
||||||
Other
intangibles
|
12,000
|
3,500
|
||||||
Other
assets - noncurrent
|
144,072
|
202,177
|
||||||
Deferred
tax asset - noncurrent
|
1,151,000
|
1,288,500
|
||||||
$ |
36,596,634
|
$ |
28,517,944
|
|||||
Liabilities
and Stockholders' Equity
|
||||||||
Current
liabilities:
|
||||||||
Trade
payables
|
$ |
7,594,038
|
$ |
4,719,160
|
||||
Accrued
liabilities
|
1,991,811
|
1,975,175
|
||||||
Income
taxes payable
|
20,443
|
1,630
|
||||||
Borrowings
under credit facility - revolving credit
|
18,394,155
|
13,615,696
|
||||||
Notes
payable - current portion; includes related party notes of $30,000
in 2007
and 2006
|
230,745
|
136,539
|
||||||
Total
current liabilities
|
28,231,192
|
20,448,200
|
||||||
Convertible
notes payable, includes related party notes of $325,000 in 2007
and
2006
|
525,000
|
525,000
|
||||||
Notes
payable, excluding current portion; includes related party notes
of
$711,250 in 2007 and $703,750 in 2006
|
900,504
|
792,394
|
||||||
Total
liabilities
|
29,656,696
|
21,765,594
|
||||||
Commitments
and contingencies
|
||||||||
Stockholders'
equity:
|
||||||||
Redeemable
convertible preferred stock, $.05 par value, 2,500,000 shares authorized,
467,500 shares issued and outstanding in 2007 and 2006, liquidation
preference of $2,337,500 in 2007 and 2006
|
23,375
|
23,375
|
||||||
Common
stock, $.05 par value, 20,000,000 shares authorized, 4,645,680
in 2007 and
|
||||||||
4,593,680
in 2006 shares issued and outstanding
|
232,284
|
229,684
|
||||||
Additional
paid-in capital
|
10,741,879
|
10,707,791
|
||||||
Accumulated
deficit
|
(4,057,600 | ) | (4,208,500 | ) | ||||
Total
stockholders' equity
|
6,939,938
|
6,752,350
|
||||||
$ |
36,596,634
|
$ |
28,517,944
|
For
The Three Months Ended
|
For
The Nine Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
(Restated)
|
|
(Restated)
|
|||||||||||||
Net
sales
|
$ |
20,522,208
|
$ |
19,217,556
|
$ |
58,693,009
|
$ |
52,257,581
|
||||||||
Cost
of sales
|
14,541,045
|
13,558,135
|
41,736,908
|
36,475,368
|
||||||||||||
Gross
profit
|
5,981,163
|
5,659,421
|
16,956,101
|
15,782,213
|
||||||||||||
Selling,
general and administrative expenses
|
5,506,431
|
4,857,533
|
15,859,481
|
14,407,601
|
||||||||||||
Operating
income
|
474,732
|
801,888
|
1,096,620
|
1,374,612
|
||||||||||||
Other
income
|
74,116
|
63,707
|
217,193
|
192,963
|
||||||||||||
Interest
expense, net; includes related party interest of $25,632 and
$26,448 for the three months ended September 30, 2007 and 2006,
respectively, and $77,366 and $77,858 for nine months ended September
30,
2007 and 2006, respectively
|
(385,766 | ) | (359,214 | ) | (1,081,063 | ) | (995,116 | ) | ||||||||
Income
before income taxes
|
163,082
|
506,381
|
232,750
|
572,459
|
||||||||||||
Income
tax expense
|
29,237
|
30,839
|
81,850
|
83,081
|
||||||||||||
Net
Income
|
$ |
133,845
|
$ |
475,542
|
$ |
150,900
|
$ |
489,378
|
||||||||
Income
per common share:
|
||||||||||||||||
Basic
|
$ |
0.03
|
$ |
0.10
|
$ |
0.03
|
$ |
0.11
|
||||||||
Diluted
|
$ |
0.03
|
$ |
0.09
|
$ |
0.03
|
$ |
0.10
|
||||||||
Weighted
average shares outstanding:
|
||||||||||||||||
Basic
|
4,645,680
|
4,592,968
|
4,645,490
|
4,574,227
|
||||||||||||
Diluted
|
5,131,371
|
5,301,782
|
5,131,748
|
5,125,467
|
For
The Nine Months Ended
|
||||||||
2007
|
2006
|
|||||||
(Restated)
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ |
150,900
|
$ |
489,378
|
||||
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
||||||||
Stock-based
compensation
|
23,688
|
-
|
||||||
Provision
for doubtful accounts
|
260,292
|
116,035
|
||||||
Depreciation
|
387,642
|
340,216
|
||||||
Amortization
of intangibles
|
1,500
|
7,334
|
||||||
Accretion
of debt discount
|
28,125
|
28,125
|
||||||
Changes
in operating assets and liabilities, net of effects of purchase
acquisition
|
||||||||
Accounts
receivable
|
(919,418 | ) | (1,005,649 | ) | ||||
Inventory
|
(1,312,503 | ) | (1,950,571 | ) | ||||
Prepaid
expenses and other current assets
|
(200,731 | ) | (190,328 | ) | ||||
Other
assets - noncurrent
|
58,105
|
17,780
|
||||||
Trade
payables
|
1,927,201
|
731,864
|
||||||
Accrued
liabilities
|
(2,248 | ) | (41,299 | ) | ||||
Income
taxes payable
|
18,813
|
(106 | ) | |||||
Net
cash provided by (used in) operating activities
|
421,366
|
(1,457,221 | ) | |||||
Cash
flows from investing activities:
|
||||||||
Cash
payments for acquisition of S&A Supply Inc., net of cash
acquired
|
(4,703,375 | ) | ||||||
Additions
to property and equipment
|
(339,461 | ) | (269,514 | ) | ||||
Net
cash used in investing activities
|
(5,042,836 | ) | (269,514 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Issuance
of common stock and exercise of stock options
|
13,000
|
8,000
|
||||||
Repayments
of notes payable: includes related party repayments of $0.00 in
2007 and
$30,289 in 2006
|
(64,824 | ) | (83,734 | ) | ||||
Issuance
of notes payable
|
-
|
13,073
|
||||||
Borrowings
under credit facility - term loan/overadvance
|
-
|
(562,977 | ) | |||||
Borrowings
under credit facility - revolving credit, net
|
4,778,459
|
2,529,091
|
||||||
Net
cash provided by financing activities
|
4,726,635
|
1,903,453
|
||||||
Increase
in cash
|
105,165
|
176,718
|
||||||
Cash
- beginning of period
|
482,251
|
613,456
|
||||||
Cash
- end of period
|
$ |
587,416
|
$ |
790,174
|
1.
|
Summary
of Significant Accounting Policies and
Practices
|
2.
|
Stock
Options
|
Options
Outstanding and Exercisable
|
||||||||||||||||||
Weighted Average
|
||||||||||||||||||
Range of
|
Remaining
|
Weighted Average
|
Aggregate
|
|||||||||||||||
Exercise Prices
|
Shares
|
Contractual
Life
|
Exercise
Price
|
Intrinsic Value
|
||||||||||||||
$ |
.25
|
22,000
|
1.72
|
$ |
.25
|
|||||||||||||
$ |
1.85
|
30,000
|
9.19
|
$ |
1.85
|
|||||||||||||
52,000
|
$ |
1.17
|
$ |
24,200
|
||||||||||||||
Options
Outstanding and Non-exercisable
|
||||||||||||||||||
$ |
1.85
|
45,000
|
9.19
|
$ |
1.85
|
$ |
0
|
For
the Nine Months Ended
|
||||||||
September 30,
2007
|
September 30,
2006
|
|||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$ |
1,034,762
|
$ |
946,646
|
||||
Income
taxes
|
$ |
43,207
|
$ |
81,954
|
For
the Quarter Ended
September
30,
|
For
the Nine Months Ended
September
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
(Restated)
|
(Restated)
|
|||||||||||||||
Net
Income (numerator for basic income per share)
|
$ |
133,845
|
$ |
475,542
|
$ |
150,900
|
$ |
489,378
|
||||||||
Interest
expense on convertible notes (net of tax)
|
- | (1) |
13,558
|
- | (1) | - | (1) | |||||||||
Adjusted
Net Income (numerator for diluted income per share)
|
$ |
133,845
|
$ |
489,100
|
$ |
150,900
|
$ |
489,378
|
||||||||
Weighted
average common shares
|
||||||||||||||||
(denominator
for basic income per share)
|
4,645,680
|
4,592,968
|
4,645,490
|
4,574,227
|
||||||||||||
Effect
of dilutive securities:
|
||||||||||||||||
Convertible
preferred stock
|
467,500
|
468,212
|
467,500
|
474,083
|
||||||||||||
Convertible
notes
|
- | (1) |
175,000
|
- | (1) | - | (1) | |||||||||
Stock
options
|
18,191
|
65,602
|
18,758
|
77,157
|
||||||||||||
Weighted
average common and potential common shares
|
||||||||||||||||
outstanding
(denominator for diluted income per share)
|
5,131,371
|
5,301,782
|
5,131,748
|
5,125,467
|
||||||||||||
Basic
net income per share
|
$ |
0.03
|
$ |
0.10
|
$ |
0.03
|
$ |
0.11
|
||||||||
Diluted
net income per share
|
$ |
0.03
|
$ |
0.09
|
$ |
0.03
|
$ |
0.10
|
6.
|
Financing
Arrangements
|
7.
|
Litigation
|
Consolidated
Statement of Operations
|
||||||||||||||||
(Unaudited)
|
||||||||||||||||
For
The Three Months Ended
|
For
the Nine Months Ended
|
|||||||||||||||
September
30,
|
September
30
|
|||||||||||||||
As
Previously
|
As
Previously
|
|||||||||||||||
Restated
|
Reported
|
Restated
|
Reported
|
|||||||||||||
2006
|
2006
|
2006
|
2006
|
|||||||||||||
Cost
of Sales
|
$ |
13,558,135
|
$ |
13,504,230
|
$ |
36,475,368
|
$ |
36,516,555
|
||||||||
Gross
Profit
|
5,659,421
|
5,713,326
|
15,782,213
|
15,741,026
|
||||||||||||
Operating
income
|
801,888
|
855,793
|
1,374,612
|
1,333,425
|
||||||||||||
Income
before income taxes
|
506,381
|
560,286
|
572,459
|
531,272
|
||||||||||||
Net
income
|
$ |
475,542
|
$ |
529,447
|
$ |
489,378
|
$ |
448,191
|
||||||||
Income
per common share:
|
||||||||||||||||
Basic:
|
$ |
0.10
|
$ |
0.12
|
$ |
0.11
|
$ |
0.10
|
||||||||
Diluted:
|
$ |
0.09
|
$ |
0.10
|
$ |
0.10
|
$ |
0.08
|
||||||||
Weighted
average shares outstanding:
|
||||||||||||||||
Basic:
|
4,592,968
|
4,592,968
|
4,574,227
|
4,574,227
|
||||||||||||
Diluted:
|
5,301,782
|
5,301,782
|
5,125,467
|
5,300,467
|
Consolidated
Statement of Cash Flows
|
||||||||
(Unaudited)
|
||||||||
For
The Nine Months Ended
|
||||||||
September
30,
|
||||||||
As
Previously
|
||||||||
Restated
|
Reported
|
|||||||
2006
|
2006
|
|||||||
Net
income
|
$ |
489,378
|
$ |
448,191
|
||||
Inventory
|
(1,950,571 | ) | (1,909,384 | ) |
Inventory
|
$ |
3,600,000
|
||
Accounts
receivable
|
1,500,000
|
|||
Other
current assets
|
15,000
|
|||
Property
and equipment, net
|
375,000
|
|||
Goodwill
|
400,000
|
|||
Covenant
not to compete
|
10,000
|
|||
Total
tangible and intangible assets acquired
|
5,900,000
|
|||
Less
liabilities assumed:
|
||||
Current
liabilities
|
1,050,000
|
|||
Long-term
liabilities
|
135,000
|
|||
Total
liabilities
|
1,185,000
|
|||
Net
Assets Acquired
|
4,715,000
|
Pro
Forma Condensed Consolidated Operating Data
|
||||||||||||||||
(Unaudited)
|
||||||||||||||||
For
The Three Months Ended
|
For
the Nine Months Ended
|
|||||||||||||||
September
30,
|
September
30
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Net
Sales
|
$ |
23,367,520
|
$ |
23,042,751
|
$ |
68,020,579
|
$ |
63,079,260
|
||||||||
Operating
income
|
442,434
|
896,995
|
808,120
|
1,288,177
|
||||||||||||
Net
income (loss)
|
$ |
36,975
|
$ |
490,984
|
$ | (357,435 | ) | $ |
171,867
|
|||||||
Income
(loss) per common share:
|
||||||||||||||||
Basic:
|
$ |
0.01
|
$ |
0.11
|
$ | (0.08 | ) | $ |
0.04
|
|||||||
Diluted:
|
$ |
0.01
|
$ |
0.09
|
$ | (0.08 | ) | $ |
0.03
|
Computer
hardware and software
|
3-5
years
|
Furniture
and fixtures
|
5
years
|
Automobiles
|
3-5
years
|
Showroom
fixtures and displays
|
3
years
|
For
the Quarter
|
For
the Nine Months
|
|||||||||||||||
Ended
September 30,
|
Ended
September 30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Sales
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost
of sales
|
70.9
|
70.6
|
71.1
|
69.8
|
||||||||||||
Gross
profit
|
29.1
|
29.4
|
28.9
|
30.2
|
||||||||||||
Selling,
general and administrative expenses
|
26.8
|
25.2
|
27.0
|
27.6
|
||||||||||||
Operating
income
|
2.3
|
4.2
|
1.9
|
2.6
|
||||||||||||
Other
income
|
0.4
|
0.3
|
0.4
|
0.4
|
||||||||||||
Interest
expense, net
|
(1.9 | ) | (1.9 | ) | (1.8 | ) | (1.9 | ) | ||||||||
Income
before taxes
|
0.8
|
2.6
|
0.5
|
1.1
|
||||||||||||
Income
taxes
|
(0.1 | ) | (0.1 | ) | (0.2 | ) | (0.1 | ) | ||||||||
Net
income
|
0.7 | % | 2.5 | % | 0.3 | % | 1.0 | % |
|
a.
|
Evaluation
of Disclosure Controls and
Procedures
|
|
b.
|
Changes
in Internal Controls
|
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
14, 2007
|
COLONIAL
COMMERCIAL CORP.
|
/s/
William Pagano
|
|
William
Pagano,
|
|
Chief
Executive Officer
|
|
/s/
William Salek
|
|
William
Salek,
|
|
Chief
Financial
Officer
|