Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - CCOM Group, Inc. | Financial_Report.xls |
| EX-23.01 - EXHIBIT 23.01 - CCOM Group, Inc. | ex23_01.htm |
| EX-32.01 - EXHIBIT 32.01 - CCOM Group, Inc. | ex32_01.htm |
| EX-31.01 - EXHIBIT 31.01 - CCOM Group, Inc. | ex31_01.htm |
| EX-32.02 - EXHIBIT 32.02 - CCOM Group, Inc. | ex32_02.htm |
| EX-31.02 - EXHIBIT 31.02 - CCOM Group, Inc. | ex31_02.htm |
| EX-21.01 - EXHIBIT 21.01 - CCOM Group, Inc. | ex21_01.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2011
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____________ to ____________
Commission file number: 11-2037182
COLONIAL COMMERCIAL CORP.
(Exact name of registrant as specified in its charter)
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New York
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11-2037182
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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275 Wagaraw Road, Hawthorne, New Jersey
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07506
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code 973-427-8224
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
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes o No x
Indicate by check mark whether the 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 the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
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 best of registrant's 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. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, computed by reference to the last reported price at which the stock was sold on June 30, 2011 (the last business day of the registrant’s most recently completed second quarter) was $904,618.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class
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Outstanding at March 15, 2012
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Common Stock, $.05 par value per share
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9,154,953 shares
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Convertible Preferred Stock, $.05 par value per share
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293,057 shares
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PART I
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Page
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Item 1.
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2
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Item 1A.
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4
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Item 1B.
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4
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Item 2.
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4
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Item 3.
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5
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Item 4.
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7
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PART II
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Item 5.
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8
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Item 6.
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9
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Item 7.
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10
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Item 7A.
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14
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Item 8.
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15
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Item 9.
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15
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Item 9A.
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15
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Item 9B.
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15
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PART III
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Item 10.
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16
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Item 11.
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20
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Item 12.
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23
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Item 13.
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24
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Item 14.
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26
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PART IV
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Item 15.
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28
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PART I.
General
Colonial Commercial Corp. (“Colonial”) is a New York corporation which was incorporated on October 28, 1964. Unless otherwise indicated, the term “Company” refers to Colonial Commercial Corp. and its consolidated subsidiaries. The Company’s operations are conducted through its wholly owned subsidiaries, Universal Supply Group, Inc. (“Universal”), The RAL Supply Group, Inc. (“RAL”), and S&A Supply, Inc (“S&A”). We distribute heating, ventilating and air conditioning equipment (HVAC), parts and accessories, climate control systems, appliances, and plumbing and electrical fixtures and supplies, primarily in New Jersey, New York, Massachusetts and portions of eastern Pennsylvania, Connecticut and Vermont.
We supply the Amana air conditioning and heating equipment line in New Jersey (exclusive of Cape May and Cumberland counties), lower portions of New York State, and Western Massachusetts. At all our locations we also supply, on a non-exclusive basis, the Goodman line of heating and air conditioning equipment, Fraser-Johnston commercial air conditioning equipment, and Johnson Controls’ Source 1 HVAC Service Parts. We distribute these products through seven sales locations in New Jersey, nine in New York State, and two in Massachusetts. We also have an additional location in New Jersey that we use for warehousing purposes only. We use showrooms for the display and sale of kitchen, bathroom and electrical fixtures and accessories at our locations in Fishkill, Middletown, New Windsor and Suffern, New York and Great Barrington and Pittsfield, Massachusetts.
We have developed a specialty in the design and sale of energy conservation control systems and the fabrication of customized UL listed control panels. We also supply indoor air quality components and systems.
Our in-house staff provides technical assistance and training to customers. In some cases, we also use vendors’ representatives and outside services. We do not install any equipment or systems.
We distribute appliances, such as washers and dryers, to appliance dealers primarily in New York, New Jersey, and portions of Connecticut, Delaware and Pennsylvania.
Our business is affected by significant outdoor temperature swings. Our sales typically increase during peak heating and cooling demand periods. Demand related to the residential central air conditioning replacement market is highest in the second and third quarters, while demand for heating equipment is usually highest in the fourth quarter.
In 2011, approximately 90% of our sales were for replacement and/or renovation and the remaining 10% of sales were for new construction projects, while in each of 2010 and 2009, approximately 85% of our sales were for replacement and/or renovation and the remaining 15% of sales were for new construction projects. In the same years, respectively, sales consisted of approximately 39%, 39% and 39% HVAC equipment; 34%, 35% and 35% parts and accessories; and 11%, 13% and 13% climate control systems.
We own no patents and have no intellectual property rights or proprietary technology.
We carry general liability, comprehensive property damage, workers compensation and product liability insurance in amounts that we consider adequate for our business.
As of December 31, 2011, we had 155 non-union full-time employees. We believe that our employee relations are satisfactory.
We have no foreign operations and have only one operating segment.
Our objective is to become a leading provider of building products, such as HVAC, plumbing and electrical equipment and accessories to the professional contractor in the northeastern United States by expanding our product offerings and increasing our customer technical and logistical support services.
Distribution, Customers and Suppliers
We stock inventory in 19 of our locations and utilize public warehousing, when necessary. We deliver products to customers with our fleet of 13 leased and 19 owned trucks and vans. We also make products available for pick-up at our facilities.
We sell primarily to contractors who purchase and install equipment and systems for residential, commercial and industrial users. We had approximately 7,500 customers in 2011. No customer accounted for more than 4% of consolidated net sales in 2011. We believe that the loss of any one customer would not have a material adverse effect on our business. We have no long term agreement with any customer.
We deal with our customers on a purchase order by purchase order basis.
We purchase inventory from our vendors and maintain this inventory in our warehouses to ensure continuous availability of merchandise to satisfy our customers’ needs. We occasionally accept the return of merchandise from the customer when returned in unopened cartons, subject to a restocking fee. We do not normally provide extended payment terms to customers. We have no material long term agreements with any supplier. The Company enters into agreements with vendors which involve volume rebates, pricing and advertising, all within the standard practices of the industry. Additionally, certain supplier agreements limit the sale of competitive products in designated markets that the Company serves. All purchases are made with domestic vendors, some of which, however, may manufacture products in foreign locations.
Three suppliers accounted for 41% and 39% of our purchases for 2011 and 2010, respectively. The loss of one or all of these suppliers could have a material adverse effect on our business for at least a short-term period. We believe that the loss of any one of our other suppliers would not have a material adverse effect on our business.
Competition
We compete with a number of distributors, national chains and national home centers, and also with several air conditioning and heating equipment manufacturers that distribute a significant portion of their products through their own distribution organizations. There is no single manufacturer, distributor or national chain or home center that dominates our market. Competition is based on product availability, customer service, price and quality. We work to maintain a competitive edge by providing in-house training, technical sales support to our customers and by employing experienced personnel at our point-of-sale locations.
Government Regulations, Environmental and Health and Safety Matters
Our Company is subject to federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. These include laws and regulations implementing the Clean Air Act, relating to minimum energy efficiency standards of HVAC systems and the production, servicing and disposal of certain ozone-depleting refrigerants used in such systems, as well as the phase out of certain refrigerants for use in equipment manufactured after January 1, 2010. We are also subject to regulations concerning the transport of hazardous materials, including regulations adopted pursuant to the Motor Carrier Safety Act of 1990. Our operations are also subject to health and safety requirements including the Occupational, Safety and Health Act (OSHA). Management believes that the business is operated in substantial compliance with all applicable federal, state and local provisions relating to the protection of the environment, transport of hazardous materials and health and safety requirements.
Not applicable.
Not applicable.
Our principal executive offices are located at 275 Wagaraw Road, Hawthorne, New Jersey 07506 and are consolidated with the administrative offices of our subsidiary, Universal Supply Group, Inc.
The Company maintains 18 combination sales and warehouse locations in Hawthorne, Bogota, Augusta, North Brunswick, Cedar Knolls, Wharton and Westville, New Jersey; Elmsford, Hicksville, Middletown, Fishkill, New Windsor, Peekskill, Poughkeepsie, Suffern, and Half Moon, New York; and Great Barrington and Pittsfield, Massachusetts. Additionally, the Company maintains a separate warehouse location in Paterson, New Jersey. Effective September 1, 2011, the Company sublet 12,310 square feet of its Elmsford, New York location. These 18 locations, excluding the sublet space, consist of approximately 388,000 square feet under leases expiring between 2012 and 2022 with current aggregate annual rents of approximately $2,849,739. Effective January 31, 2012, the Company terminated its lease of 1,200 square feet in Willow Grove, Pennsylvania.
The premises located at Middletown, Fishkill, New Windsor and Suffern, New York and Great Barrington and Pittsfield, Massachusetts also include showrooms of kitchen, bathroom and electrical fixtures and accessories.
Our premises are suitable and adequate for their intended use. As of December 31, 2011, we leased all our facilities.
Subsequent to December 31, 2011, the Company exercised its renewal option to extend the leases for its Great Barrington and Pittsfield, Massachusetts locations for five years.
(a) Universal Supply Group, Inc.
Universal Supply Group, Inc., a wholly owned subsidiary of the Company, is a New York corporation (“Universal”). On June 25, 1999, Universal acquired substantially all of the assets of Universal Supply Group, Inc., a New Jersey corporation, including its name, pursuant to the terms of a purchase agreement. The Company filed a copy of the purchase agreement with the Securities and Exchange Commission on March 30, 1999 as Exhibit 10(g) on Form 10KSB, and the Company filed a copy of an amendment to the purchase agreement on July 9, 1999 as Exhibit 10(a)(ii) on Form 8-K. Subsequent to the acquisition, Universal Supply Group, Inc. (the selling corporation) formerly known as Universal Engineering Co., Inc., changed its name to Hilco, Inc. Hilco, Inc. acquired the assets of Amber Supply Co., Inc., formerly known as Amber Oil Burner Supply Co., Inc., in 1998, prior to Hilco’s sale of assets to Universal. Hilco, Inc. is hereinafter referred to as the “Universal Predecessor.” The majority shareholders of Hilco, Inc. were John A. Hildebrandt and Paul Hildebrandt.
The Company understands that the Universal Predecessor and many other companies have been sued in the Superior Court of New Jersey (Middlesex County) by plaintiffs filing lawsuits alleging injury due to asbestos. As of December 31, 2011, there existed 7 plaintiffs in these lawsuits relating to alleged sales of asbestos products, or products containing asbestos, by the Universal Predecessor. Subsequent to December 31, 2011, 1 action was dismissed and 1 plaintiff filed an action, which results in 7 remaining plaintiffs in these lawsuits. The Company never sold any asbestos related products.
Of the existing plaintiffs as of December 31, 2011, 3 filed actions in 2011 and 4 filed actions in 2010. There are 208 other plaintiffs that have had their actions dismissed and 17 other plaintiffs that have settled as of December 31, 2011 for a total of $3,364,500 paid by defendants other than Universal. There has been no judgment against the Universal Predecessor.
Our Universal subsidiary was named by 37 plaintiffs; of these, 1 filed an action in 2010, 11 filed actions in 2007, 6 filed actions in 2006, 11 filed actions in 2005, 5 filed actions in 2001, 1 filed an action in 2000, and 2 filed actions in 1999. Thirty-three plaintiffs naming Universal have had their actions dismissed and, of the total $3,364,500 of settled actions, 3 plaintiffs naming Universal have settled for $27,500. No money was paid by Universal in connection with any settlement. Following these dismissed and settled actions there existed 1 plaintiff that named Universal as of December 31, 2011. Subsequent to December 31, 2011, 1 action that named Universal was dismissed and 1 plaintiff filed an action that named Universal, which results in 1 remaining plaintiff naming Universal.
As set forth in more detail below, the Company has been indemnified against asbestos-based claims, and insurance companies are defending the interests of the Universal Predecessor and the Company in these cases.
Based on advice of counsel, the Company believes that none of the litigation that was brought against the Company’s Universal subsidiary through December 31, 2011 is material, and that the only material litigation that was brought against the Universal Predecessor through that date was Rhodes v. A.O. Smith Corporation, filed on April 26, 2004 in the Superior Court of New Jersey, Law Division, Middlesex County, Docket Number MID-L-2979-04AS. The Company was advised that the Rhodes case was settled for $3,250,000 (“Settlement”) under an agreement reached in connection with a $10,000,000 jury verdict that was rendered on August 5, 2005. The Company was not a defendant in the Rhodes case.
The Company believes that Rhodes differed from the other lawsuits in that plaintiff established that he contracted mesothelioma as a result of his occupational exposure to asbestos dust and fibers and that a predecessor of the Company was a major supplier of the asbestos containing products that allegedly caused his disease.
(b)(i) Indemnification
John A. Hildebrandt, Paul Hildebrandt and the Universal Predecessor have jointly and severally agreed to indemnify our Universal subsidiary from and against any and all damages, liabilities and claims due to exposure to asbestos at any time prior to the June 25, 1999 closing of the purchase agreement referred to earlier. These agreements are set forth in the purchase agreement. Paul Hildebrandt, one of the indemnitors, was a Director of the Company from September 29, 2004 to January 28, 2005.
The indemnitors may use their own counsel to defend these claims. The indemnitors are not liable for any settlement effected without their consent. The indemnitors may settle and pay money claims without the consent of the Company. There is no indemnification unless claims aggregate $50,000; once this trigger point is reached, indemnification is required for all claims, including the first $50,000, but excluding claims of less than $10,000. The indemnification requirement survives at least until 30 days after the running of any relevant statutes of limitation.
The obligation of the indemnitors is joint and several, so that the Company can have recourse against any one or more of these indemnitors, whether or not any other indemnitor has previously defaulted on its obligation to us. There are no other limitations to our rights to indemnification. The Company cannot be certain that the indemnitors have the financial wherewithal to meet their obligations to indemnify the Company.
(b)(ii) Insurance
The assets that the Universal Predecessor sold to us included its insurance policies and other agreements and contracts. The policies provide coverage for liability accruing during the periods for which premiums were paid. The Universal Predecessor was formed in 1940. Copies of policies are available for each year beginning in 1970 and ending with the closing under the purchase agreement in 1999. Copies of policies for the period from 1940 to 1969 are not available.
Insurance companies acknowledge coverage for potential asbestos claims under certain of these policies. Insurance companies under additional policies have reserved their right to deny coverage but have continued to defend and indemnify the Universal Predecessor and the Company under the contested policies.
There are periods during the years from 1940 to 1999 in which our Universal Predecessor did not have coverage for potential asbestos claims. Subject to litigation, insurance companies may maintain that the existence of these periods’ results in coverage for only a portion of a particular injury that varies with the period during which there was asbestos coverage relating to the injury, and that the balance of any settlement or judgment is to be paid by the insured. As of December 31, 2011, no insurance company has claimed any contribution for a gap in coverage except for a claim for $160 made by one insurance company to the Universal Predecessor in 1995. The Universal Predecessor asserted that it had no obligation to pay this amount and did not make any payment.
Insurance companies have, as of December 31, 2011, defended us and the Universal Predecessor, and have paid all settlement amounts and defense costs. Except for $160 referred to above, the insurance companies have not requested any payments from us or from the Universal Predecessor.
Our Universal subsidiary has not engaged in the sale of asbestos products since its formation in 1997. Its product liability policies for all years since 1998 exclude asbestos claims.
(c) General
Regardless of indemnification and insurance coverage, we do not in any event consider our Company to be liable for the asbestos-based lawsuits that name us or for any other claim that arises as a result of actions or omissions by the Universal Predecessor. We expressly disclaimed the assumption of any liabilities when we purchased the assets of the Universal Predecessor. It is our opinion that the existing asbestos litigation will not have a material adverse effect on the Company. Nevertheless, we could be materially and adversely affected if we are held liable for substantial asbestos claims or if the Company incurs substantial legal or settlement costs. This material and adverse effect would occur if indemnitors fail to honor their indemnification agreements and insurance is not available either because policy limits are exceeded, or because insurance companies successfully deny coverage or claim limitations on their liabilities by reason of gaps in coverage or otherwise.
Since we regard as remote the potential payment of any asbestos-based claim, we have not accrued any balance for any period relating to asbestos claims, and we have not recorded any amount for asbestos claims for any period in any of our financial statements.
(d) Other Litigation
The Company is periodically involved in other litigation in the ordinary course of business. The Company vigorously defends all matters in which the Company or its subsidiaries are named defendants and, for insurable losses, maintains significant levels of insurance to protect against adverse judgments, claims or assessments. Although the adequacy of existing insurance coverage or the outcome of any legal proceedings cannot be predicted with certainty, the Company does not believe the ultimate liability associated with any claims or litigation will have a material impact to its financial condition or results of operations.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a) Price Range of Common Stock and Convertible Preferred Stock
From July 11, 2002 through March 30, 2004, the Company’s common stock was traded on the Over the Counter (OTC)–Pink Sheets market. From March 31, 2004 through February 22, 2011, the Company’s common stock and convertible preferred stock were traded on the Over the Counter (OTC)-Bulletin Board market. Commencing February 23, 2011, the Company’s common stock and convertible preferred stock are traded on OTC Markets Group’s OTCQB. The following table sets forth the quarterly high and low bid prices during 2011 and 2010. The quotations set forth below represent inter-dealer quotations, which exclude retail markups, markdowns and commissions and do not necessarily reflect actual transactions.
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Common Stock
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Convertible Preferred Stock
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2011
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High
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Low
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High
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Low
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First Quarter
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$ | 0.70 | $ | 0.40 | $ | 0.75 | $ | 0.55 | ||||||||
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Second Quarter
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0.68 | 0.25 | 0.55 | 0.45 | ||||||||||||
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Third Quarter
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0.49 | 0.26 | 0.65 | 0.39 | ||||||||||||
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Fourth Quarter
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0.40 | 0.20 | 0.60 | 0.39 | ||||||||||||
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Common Stock
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Convertible Preferred Stock
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2010
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High
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Low
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High
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Low
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First Quarter
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$ | 0.34 | $ | 0.23 | $ | 1.01 | $ | 0.35 | ||||||||
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Second Quarter
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0.30 | 0.20 | 0.35 | 0.35 | ||||||||||||
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Third Quarter
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0.28 | 0.22 | 0.36 | 0.35 | ||||||||||||
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Fourth Quarter
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0.46 | 0.24 | 0.75 | 0.36 | ||||||||||||
(b) Approximate number of common and convertible preferred stockholders:
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Approximate Number of Record Holders
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Title of Class
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(As of March 15, 2012)
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Common stock par value $.05 per share
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242 | |||
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Convertible preferred stock par value $.05 per share
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514 | |||
(c) Dividends
The Company historically has not paid dividends and does not contemplate common stock dividend payments in the near future and is restricted from paying any dividends under its credit facility.
(d) Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth certain information regarding the securities authorized for issuance under the Colonial Commercial Corp. 2006 Stock Plan, as of December 31, 2011.
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Equity Compensation Plan Information
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Number of
securities to
be issued
upon exercise
of
outstanding
options,
warrants and
rights
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Weighted-
average
exercise price
of
outstanding
options,
warrants and
rights
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Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
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Colonial Commercial Corp. 2006 Stock Plan:
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Equity compensation plans approved by security holders
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75,000 | $ | 1.85 | 925,000 | ||||||||
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Equity compensation plans not approved by security holders
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0 | $ | 0.00 | 0 | ||||||||
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Total
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75,000 | $ | 1.85 | 925,000 | ||||||||
On September 29, 2006, the Company adopted the Colonial Commercial Corp. 2006 Stock Plan, (the “2006 Plan”). The 2006 Plan enables the Company to grant equity and equity-linked awards to our Directors, officers, employees and other persons who provide services to the Company. The 2006 Plan is intended to allow us to provide incentives that will (1) strengthen the desire of highly competent persons to provide services to us and (2) further stimulate their efforts on our behalf.
As of December 31, 2011, 75,000 vested options were outstanding under the Company’s 2006 Stock Option Plan.
(e) Private Placement
In March 2011, the Company privately placed 4,500,000 shares of common stock at $0.50 per share for total proceeds of $2,250,000. Of these shares, 3,000,000 shares were purchased by Goldman Associates of New York, Inc. (“Goldman Associates”), 600,000 shares were purchased by Rita Folger, 400,000 shares were purchased by Paul Hildebrandt, 200,000 shares were purchased by William Pagano and 300,000 shares were purchased by John A. Hildebrandt. Michael Goldman is the Chief Executive Officer and majority shareholder of Goldman Associates and is also Chairman of the Company. Mr. Pagano is the Chief Executive Officer of the Company.
We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations of Colonial Commercial Corp. and subsidiaries with a discussion of the “Critical Accounting Policies” that we believe are important to understanding the assumptions and judgments incorporated into our reported financial results which we discuss under “Comparison of Year Ended December 31, 2011 with Year Ended December 31, 2010.” We then provide an analysis of cash flows, and discuss our financial commitments under “Liquidity and Capital Resources,” followed by “Equity Transactions,” and the “Impact of Inflation and Seasonality” on the Company.
Forward-Looking Statements
The following material 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, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 provide 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 availability of financing, 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.
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 liabilities, disclosure of contingent assets and liabilities as of 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 assets 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, climate control systems, plumbing and electrical fixtures and supplies, and appliances. Revenue is recognized when the earnings process is complete, which is generally upon shipment or delivery of products, and the price is determined and collectability is reasonably assured, in accordance with agreed-upon shipping terms and when title and risk of loss transfers to the customer. The Company has no further obligations subsequent to shipment or delivery. Customers have the right to return defective products, which are substantially covered under the manufacturer’s warranty. The customer receives a credit from the Company for defective products returned and the Company receives a corresponding credit provided by the manufacturer. The only warranty provided on products sold is the one provided by the manufacturer.
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 accounts receivable of $10,057,598, net of an allowance for doubtful accounts of $652,449, as of December 31, 2011. 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 in accordance with the lower of cost or 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.
Goodwill is reviewed at least annually for impairment. In assessing the recoverability of the Company’s goodwill, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets and liabilities of the reporting unit. If the Company’s estimates or its related assumptions change, 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 the 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. Management reviewed the gross deferred tax asset and determined that it is more likely than not that such assets would not be recognized in the near future. As of December 31, 2011, the Company has provided a full valuation allowance and the net deferred tax asset was zero.
Comparison of Year Ended December 31, 2011 with Year Ended December 31, 2010
Sales decreased by 0.6%, or $492,298, to $79,563,932 for the year ended December 31, 2011 from $80,056,230 for the same period in 2010. The decrease in sales reflects the continued weakness in residential new construction and modernization, which was partially offset by increases in commercial HVAC business.
Gross profit decreased by 2.7%, or $573,783, to $20,990,944 for the year ended December 31, 2011, from $21,564,727 for the same period in 2010. The decrease in gross profit is the result of some of the products being sold at more competitive prices and the corresponding lower margins, and the change in product mix being sold from the more profitable high-efficiency HVAC equipment to lower-efficiency equipment. Additionally, new product lines sold by the Company were sold at lower margins than is customary for our business. Gross profit expressed as a percentage of sales was 26.4% in 2011 compared to 26.9% for the comparable period in 2010. Cost of sales excludes the distribution costs of incoming freight, purchasing, receiving, inspection, warehousing and handling costs, as these costs are included in our selling, general and administrative expenses. Our gross margins may not be comparable to those of other entities since some entities include these distribution costs in the cost of sales. These distribution costs were $499,837 and $514,146 for the years ended December 31, 2011 and 2010, respectively.
Selling, general and administrative expenses decreased by 2.7%, or $557,086, to $20,228,933 for the year ended December 31, 2011 from $20,786,019 for the same period in 2010. The decrease in selling, general and administrative expense is primarily related to a $400,979 reduction in rent expense, of which $159,291 was related to 12 leases being renewed or renegotiated for a lower rent and $241,688 was related to real estate tax refund claims, a $229,234 reduction in bad debt expense, a $127,974 reduction in office expense, and a $70,532 reduction in depreciation and amortization, partially offset by a $90,017 increase in advertising expense and a $113,915 increase in professional fees related to the real estate tax refund claims.
Other income decreased by 3.5%, or $9,554, to $264,397 for the year ended December 31, 2011 from $273,951 for the same period in 2010 and primarily consists of service charges paid by customers.
Net interest expense decreased by 16.3%, or $154,197, to $792,064 for the year ended December 31, 2011 from $946,261 for the same period in 2010. The net interest expense decrease is the result of a $194,362 decrease in interest on the Company’s credit facility, partially offset by $56,904 in bank fees primarily related to the refinance of the Company’s credit facility. The $194,362 decrease in interest on the Company’s credit facility is the result of a decrease in the interest rate of the credit facility from an average rate of 4.8% for the year ended December 31, 2010 to an average rate of 3.6% for the year ended December 31, 2011.
The Company’s net income increased by 120.3%, or $127,946, to $234,344 for the year ended December 31, 2011 compared to a net income of $106,398 for the same period in 2010. The increase in net income is the result of the $557,086 decrease in selling, general and administrative expenses and a $154,197 decrease in net interest expense, offset by the $573,783 decrease in gross profit.
Liquidity and Capital Resources
Credit Facility
On October 18, 2011, the Company and KeyBank National Association (“KeyBank”) entered into a three-year Credit and Security Agreement (the “KeyBank Agreement”) that refinanced and replaced a credit facility with Wells Fargo Bank.
The KeyBank Agreement provides for a revolving loan facility under which the Company may borrow up to the lesser of (i) $15,000,000 or (ii) 85% of eligible accounts receivable, plus 55% (but not more than $6,500,000) of the lower of cost or market of eligible inventory, less designated reserves. Borrowings bear interest at 2.75% above the Eurodollar Rate (as defined) or 0.25% above the Base Rate (as defined), and are secured by a first lien on substantially all of the Company’s assets, as well as a pledge of the stock of Colonial Commercial Corp.’s operating subsidiaries. The facility contains covenants relating to the financial condition of the Company and its business operations. As of December 31, 2011, the Company must maintain a consolidated net worth of at least $2,800,000, plus 50% of positive consolidated net earnings for the fiscal year then ended (with no deduction for losses). The Company must also maintain a Fixed Charge Coverage Ratio as defined in the KeyBank Agreement. As of December 31, 2011, the Company’s net worth was $4,860,951 and its Fixed Charge Ratio was 1.30, both exceeding the loan covenants. The Company will be considered in default of its credit agreement with KeyBank in the event William Pagano shall cease to hold the position of Chief Executive Officer, or a similar or higher position of the Company and the Company shall fail to hire a replacement consultant or Chief Executive Officer with technical expertise, experience and management skills, in the opinion of KeyBank, necessary for the successful management of the Company. Additionally, the facility restricts, among other things, the payment of dividends, and further restricts, subject to specified exceptions, subordinated debt, purchase of securities, and the merger and sale of the Company.
During the year ended December 31, 2011, the Company borrowed an aggregate of $102,403,315 and repaid $101,182,143. As of December 31, 2011, the balance outstanding under the facility was $11,991,407 and availability $1,329,230.
Goodman Company, L.P. and certain of its affiliates (“Goodman”) is a supplier to the Company. On October 14, 2011, the Company and Goodman entered into an Amendment and Restatement No. 2 that restated the payment terms of a promissory note payable in the initial principal amount of $2,000,000. Amendment and Restatement No. 2 provides that from November 24, 2011 to October 24, 2014 the principal of $1,299,680 of the promissory note outstanding on October 24, 2011 is to be paid with monthly payments of $29,195 and a balloon payment of $470,582 on November 24, 2014. In connection with the KeyBank Agreement, Goodman, Universal and KeyBank entered into an Intercreditor and Lien Subordination Agreement dated as of October 18, 2011. The Intercreditor and Lien Subordination Agreement sets forth among other things the relative priorities of the security interests of KeyBank and Goodman in the assets of the Company.
In connection with the KeyBank Agreement, Goldman Associates of New York, Inc., William Pagano, Rita Folger, Paul Hildebrandt and John A. Hildebrandt, holders of promissory notes of the Company in the aggregate principal amount of $1,049,139, entered into subordination agreements dated as of October 18, 2011 in favor of KeyBank.
The Company believes that the KeyBank credit facility is sufficient to finance its current operating needs. The business of the Company will be materially and adversely affected if the bank substantially reduces the amount of the credit availability under the terms of the loan or the bank demands payment of the loan and the Company is unable to refinance the loan, or if liquidity is otherwise substantially reduced.
On May 27, 2011, the Company borrowed $200,000 from Goldman Associates, which was non-interest bearing and paid in full on June 28, 2011. On July 29, 2011, the Company borrowed $250,000 from Goldman Associates. Interest accrued on the loan at a per annum rate equal to the lesser of (i) 3% plus 90-day LIBOR or (ii) 4%. The loan was repaid on October 20, 2011. The funds were used for working capital purposes.
On March 1, 2012, the Company borrowed $350,000 from Goldman Associates. Interest accrues on the loan at 4% per annum and is due on May 24, 2012. The funds are being used for working capital purposes.
As of December 31, 2011, the Company had $271,697 in cash compared with $75,390 at December 31, 2010.
Net cash used in operating activities was $2,665,082 for the year ended December 31, 2011. The net cash used in operating activities for the 2011 period is a result of changes in operating and asset and liabilities of $3,586,126, offset by net income of $234,344 and non-cash charges of $686,700. The increase in accounts receivable of $743,094 is primarily related to the increased sales volume during the three months ended December 31, 2011 compared to the three months ended December 31, 2010. The increase in inventory of $1,254,528 is to support the estimated future increase in sales volume.
Cash flows provided by financing activities of $2,920,074 for the year ended December 31, 2011 consisted of proceeds of $2,250,000 from the issuance of common stock and net borrowing of $1,221,172 under the credit facility-revolving credit (gross borrowing of $102,403,315 and repayments of $101,182,143), offset by repayments of notes payable in the amount of $551,098.
Equity Transactions
In March 2011, the Company privately placed 4,500,000 shares of common stock at $0.50 per share for total proceeds of $2,250,000. Of these shares, 3,000,000 shares were purchased by Goldman Associates of New York, Inc. (“Goldman Associates”), 600,000 shares were purchased by Rita Folger, 400,000 shares were purchased by Paul Hildebrandt, 200,000 shares were purchased by William Pagano and 300,000 shares were purchased by John A. Hildebrandt. Michael Goldman is the Chief Executive Officer and majority shareholder of Goldman Associates and is also Chairman of the Company. Mr. Pagano is the Chief Executive Officer of the Company.
Impact of Inflation, Deflation and Seasonality
To date, the effect of inflation or deflation has had a minor impact on the Company’s operations causing limited price increases in certain product lines. The Company’s business is affected by significant outdoor temperature swings. Demand related to the residential central air conditioning replacement market is highest in the second and third quarters with demand for heating equipment usually highest in the fourth quarter.
Not applicable.
The consolidated financial statements of the Company, together with the Report of Independent Registered Public Accounting Firm thereon of EisnerAmper LLP, appear herein. See Index to Consolidated Financial Statements, appearing on page F-1.
None.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of December 31, 2011, our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2011. Management reviewed the results of their assessment with our Audit Committee.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting (as such term is defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
None.
PART III
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 and officers, except for Melissa Goldman-Williams, who is the daughter of Michael Goldman, nor any arrangements or understandings between any Directors or officers and any other person pursuant to which any of such officers were selected as executive officers.
|
Name
|
Age
(As of March 15, 2012)
|
Position with the Company
|
||
|
Directors and Executive Officers:
|
||||
|
Dr. E. Bruce Fredrikson
|
73 |
Director, Chairman of Audit Committee
|
||
|
Peter Gasiewicz
|
57 |
Director, President and Chief Operating Officer
|
||
|
Melissa Goldman-Williams
|
44 |
Director, Vice President of Operations
|
||
|
Michael Goldman
|
73 |
Director, Chairman of the Board
|
||
|
Stuart H. Lubow
|
54 |
Director, Chairman of Nominating Committee
|
||
|
Ronald H. Miller
|
68 |
Director
|
||
|
William Pagano
|
72 |
Director and Chief Executive Officer of the Company
|
||
|
William Salek
|
50 |
Chief Financial Officer and Secretary of the Company
|
||
Dr. E. Bruce Fredrikson
Dr. E. Bruce Fredrikson has been a Director of the Company since January 28, 2005. Dr. Fredrikson is currently an independent consultant in corporate finance and governance. He is Professor of Finance, Emeritus, at Syracuse University’s Martin J. Whitman School of Management where he taught from 1966 until his retirement in May 2003. From June 1994 until July 2011, Dr. Fredrikson served as a director and Chairman of the Audit Committee of Track Data Corporation, a financial services company, and from March 2007 until July 2011, also served as its non-executive Chairman of the Board. From February 2003 until July 2009, Dr. Fredrikson served as a director and Chairman of the Audit Committee of Consumer Portfolio Services, Inc., a consumer finance company. Dr. Fredrikson holds an A.B. in economics from Princeton University and a M.B.A. in accounting and a Ph.D. in finance from Columbia University.
The nominating committee of the Board of Directors has concluded that Dr. Fredrikson should serve as a director because he has extensive accounting and corporate finance experience, which is particularly valuable in serving as Chairman of the Company’s Audit Committee. The nominating committee also took into account that Dr. Fredrikson is independent, as defined in the NASDAQ Stock Marketplace Rule 5605(a)(2).
Peter Gasiewicz
Peter Gasiewicz has been a Director of the Company since February 24, 2011. Mr. Gasiewicz served as Vice President of Sales of the Company from January 21, 2008 until his appointment as President and Chief Operating Officer of the Company on November 29, 2011. Mr. Gasiewicz has extensive knowledge and experience in HVAC and the distribution business. From January 2006 to January 2008, Mr. Gasiewicz was President of Fedders North America and Senior Vice President of Fedders Corporation. Prior to that, he was Vice President and General Manager of International Comfort Products/Carrier Corporation (ICP), a division of United Technologies Corporation. Mr. Gasiewicz has also served as President of two wholly-owned ICP distributors operating approximately 31 locations and has held various other positions in the HVAC industry. He holds a Bachelor of Arts Degree in Economics from New Jersey’s Ramapo College and has obtained a variety of technical certifications. He also has continuing education background at Darden School of Business, University of Virginia. Mr. Gasiewicz is also a Vietnam-era veteran who served with the United States Marine Corps.
The nominating committee of the Board of Directors has concluded that Mr. Gasiewicz should serve as a director because he has extensive experience in the HVAC industry, which is valuable in understanding the Company’s operations.
Melissa Goldman-Williams
Melissa Goldman-Williams was appointed Vice President of Operations on February 24, 2011. Mrs. Goldman-Williams has been a Director of the Company since October 2004. She has been a member of the Board of Directors of Goldman Associates since January 1996, and during the periods from January 2004 to January 2007 and from January 2010 to January 2011 she also served as the Chief Operating Officer of Goldman Associates. From January 2007 to January 2010, she was the Chief Operating Officer of Westye East, an appliance distributor. She also served as Chief Operating Officer of the HVAC distribution division of Goldman Associates from 1996 to 2001, at which time the division was acquired by Colonial. She holds a B.A. from Lehigh University and a Masters Degree in Environmental Management from Duke University. She is the daughter of Michael Goldman, the Chairman of the Board of the Company.
The nominating committee of the Board of Directors has concluded that Mrs. Goldman-Williams should serve as a director because she has experience as the Chief Operating Officer at appliance distributors, which continues to be beneficial in understanding the Company’s operations.
Michael Goldman
Michael Goldman has been a Director of the Company since September 29, 2004 and was appointed Chairman of the Board on April 17, 2006. Since 1987 Mr. Goldman was the Chief Executive Officer and Chairman of the Board of Directors of Goldman Associates of New York, Inc., an appliance distributor for the Northeast, until January 1, 2007. The assets of Goldman Associates of New York, Inc were acquired by Westye East, on January 1, 2007 and it is now an investment company located in Florida. Mr. Goldman continues to serve as the Chief Executive Officer and Chairman of the Board of Directors of Goldman Associates of New York, Inc. Mr. Goldman is a Certified Public Accountant and holds a B.S. in Accounting from Brooklyn College and an M.B.A. in Management from Syracuse University.
The nominating committee of the Board of Directors has concluded that Mr. Goldman should serve as a director because of his experience as the Chief Executive Officer of his appliance distribution company for 20 years, which is valuable in understanding the Company’s operations. Additionally, Mr. Goldman’s accounting expertise is continually valuable to the Company.
Stuart H. Lubow
Stuart H. Lubow has been a Director of the Company since May 11, 2006. Mr. Lubow is a founder, Chairman, President and Chief Executive Officer of Community National Bank. Mr. Lubow was founder, President and Chief Executive Officer of Community State Bank from 1997 to 2003 and was the Executive Vice President and Chief Operating Officer of Garden State Bank until 1996. Mr. Lubow has been a banking executive for over 30 years. He is a past Chairman of the Community Bankers Association of New Jersey, as well as the former Chairman of the Teaneck Development Corporation. Mr. Lubow holds a B.A. in Accounting from Moravian College and has served as an instructor at the New York University School of Continuing Education.
The nominating committee of the Board of Directors has concluded that Mr. Lubow should serve as a director because he has extensive banking experience. This experience is particularly useful to the Company when seeking to extend current financing or obtain new financing. The nominating committee also took into account that Mr. Lubow is independent, as defined in the NASDAQ Stock Marketplace Rule 5605(a)(2).
Ronald H. Miller
Ronald H. Miller has been a Director of the Company since 1983. Mr. Miller holds a B.S. in Education from Ohio State University and a J.D. from Ohio State University. Mr. Miller was engaged in the practice of law since 1969 until his retirement in 2007. Mr. Miller is an acting Judge of Auglaize County Municipal Court in the State of Ohio.
The nominating committee of the Board of Directors has concluded that Mr. Miller should serve as a director because he has continuously served on the Board since the Company’s reorganization in 1983 and he has 40 years of legal experience to provide to the Company. The nominating committee also took into account that Mr. Miller is independent, as defined in the NASDAQ Stock Marketplace Rule 5605(a)(2).
William Pagano
William Pagano was appointed as a Director of the Company in February 2002, as President of the Company on October 27, 2005, and as Chief Executive Officer of the Company on April 17, 2006. Prior to November 1998, Mr. Pagano was engaged in the practice of law. Mr. Pagano holds a B.S. in Industrial Management, and an M.B.A., both from Fairleigh Dickinson University. Mr. Pagano also holds a J.D. from Seton Hall University.
The nominating committee of the Board of Directors has concluded that Mr. Pagano should serve as a director because of his experience in serving as the President of our subsidiaries, as well as his experience in serving as Chief Executive Officer of the Company since 2006. Additionally, Mr. Pagano’s legal experience is continually valuable to the Company.
William Salek
William Salek was appointed as the Chief Financial Officer of the Company in October 2004 and Secretary of the Company in February 2005. Mr. Salek has been employed by Universal since 1983. Mr. Salek holds a B.S. in Accounting from Clarion University. Mr. Salek is a director of Educational Partnership for Instructing Children, Inc., a non-profit learning institute.
Compliance with Section 16(a) of the Exchange Act
The Company believes that during the period from January 1, 2011 through December 31, 2011, all executive officers, Directors and greater than 10% beneficial owners, complied with Section 16(a) filing requirements.
Code of Ethics
The Company has adopted a Code of Ethics that applies to all employees, including all employees of the Company’s subsidiaries, as well as each member of the Company’s Board of Directors.
Audit Committee
The Company has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. Serving on the Committee are Dr. E. Bruce Fredrikson and Ronald H. Miller. The Board of Directors has determined that Dr. Fredrikson is a financial expert. Both Dr. Fredrikson and Mr. Miller are independent Directors as defined in the NASDAQ Stock Marketplace Rule 5605(a)(2).
Summary Compensation Table
The following table sets forth information about compensation paid or accrued by the Company during the fiscal years ended December 31, 2011 and 2010 to William Pagano, William Salek and Pete Gasiewicz, the only named executive officers of the Company as of December 31, 2011.
|
Name and Principal Position
|
Year
|
Salary
|
Non-Equity
Incentive Plan |
All
Other |
Total
|
|||||||||||||
|
William Pagano—Director and Chief
|
2011
|
$ | 180,000 | - | - | $ | 180,000 | |||||||||||
|
Executive Officer of the Company*
|
2010
|
$ | 180,000 | - | - | $ | 180,000 | |||||||||||
|
William Salek—Chief Financial
|
2011
|
$ | 130,000 | - | - | $ | 130,000 | |||||||||||
|
Officer and Secretary of the Company**
|
2010
|
$ | 120,500 | - | - | $ | 120,500 | |||||||||||
|
Peter Gasiewicz—President and Chief Operating Officer of the Company***
|
2011
|
$ | 170,000 | - | - | $ | 170,000 | |||||||||||
* Mr. Pagano waived 10% of his salary, or $20,000, for each of the full fiscal years 2011 and 2010.
** In 2010 Mr. Salek waived (i) 10% of his salary, or $9,000, for the period beginning on January 1, 2010 and ending on August 29, 2010 and (ii) 5% of his salary, or $5,000, for the period beginning on August 30, 2010 and ending on September 27, 2010.
*** In 2011, Mr. Gasiewicz waived 10% of his salary for the period beginning January 1, 2011 and ending on March 31, 2011.
During the fiscal years ended 2011 and 2010, no stock awards, option awards, bonuses or nonqualified deferred compensation earnings were earned by the named executive officers.
Narrative Disclosure to Summary Compensation Table
Mr. Pagano is the Chief Executive Officer of the Company. Mr. Salek is the Chief Financial Officer and Secretary of the Company. Mr. Gasiewicz is the President and Chief Operating Officer of the Company.
William Pagano
For the calendar year 2010, Mr. Pagano earned $39,369 as incentive compensation, but waived his right to receive this amount.
Mr. Pagano is currently employed by the Company on an at-will basis at an annual compensation rate of $200,000. Mr. Pagano waived 10% of his salary, or $20,000, for 2011.
The Company will be considered in default of its credit agreement with KeyBank National Association (“KeyBank”) in the event William Pagano shall cease to hold the position of Chief Executive Officer, or a similar or higher position of the Company and the Company shall fail to hire a replacement consultant or Chief Executive Officer with technical expertise, experience and management skills, in the opinion of KeyBank, necessary for the successful management of the Company.
William Salek
Mr. Salek is employed by the Company on an at-will basis at an annual compensation rate of $130,000. In 2010 Mr. Salek waived (i) 10% of his salary, or $9,000, for the period beginning on January 1, 2010 and ending on August 29, 2010 and (ii) 5% of his salary, or $5,000, for the period beginning on August 30, 2010 and ending on September 27, 2010.
Peter Gasiewicz
Mr. Gasiewicz is employed by the Company on an at-will basis at an annual compensation rate of $175,000. In 2011, Mr. Gasiewicz waived 10% of his salary for the period beginning January 1, 2011 and ending on March 31, 2011.
Outstanding Equity Awards at Fiscal Year End
There were no equity awards outstanding for the named executive officers as of December 31, 2011.
Potential Payments Upon Termination or Change In Control
No named executive officer is entitled to any payments upon the termination or retirement of such named executive officer or upon a change of control of the Company, except that on November 29, 2011, the Company and Mr. Gasiewicz entered into a Non-Competition and Severance Agreement. The agreement provides that Mr. Gasiewicz is employed on an at will basis, but the Company will pay to him as severance 12 monthly payments of $14,583.33, less withholding taxes, if the Company terminates him other than for cause (as defined). The agreement also provides that Mr. Gasiewicz may not compete with the Company in the Territory (as defined) until one year following the termination of his employment for whatever reason.
Director’s Compensation
The following table sets forth compensation to members of the Board of Directors, other than those employed by the Company, during the fiscal year ended December 31, 2011.
|
Name
|
Fees Earned or Paid
in Cash
|
Option Awards*
|
All Other
Compensation
|
Total
|
||||||||||||
|
Dr. E. Bruce Fredrikson
|
$ | 22,000 | - | - | $ | 22,000 | ||||||||||
|
Melissa Goldman-Williams
|
$ | 3,000 | - | - | $ | 3,000 | ||||||||||
|
Michael Goldman
|
$ | 12,000 | - | - | $ | 12,000 | ||||||||||
|
Stuart H. Lubow
|
$ | 12,000 | - | - | $ | 12,000 | ||||||||||
|
Ronald H. Miller
|
$ | 12,000 | - | - | $ | 12,000 | ||||||||||
*The dollar amount of stock option awards is calculated in accordance with FASB ASC Topic 718. The aggregate number of options outstanding as of December 31, 2011 for each of Dr. Fredrikson, Mr. Lubow and Mr. Miller was 25,000.
Members of the Board of Directors, other than those employed by the Company, received a fee of $12,000 annually consisting of an annual retainer of $8,000 and a fee of $1,000 for each meeting of the Board, limited to $4,000 per annum payable in advance in four equal quarterly installments.
Dr. E. Bruce Fredrikson’s annual retainer fee for serving as a Director and Chairman of the Audit Committee is $18,000. The fee is payable in $4,500 installments in advance of each quarter.
Members of the Board of Directors receive no fees if they are employed by the Company.
Peter Gasiewicz was appointed as a Director on February 24, 2011. Mr. Gasiewicz has served as Vice President of Sales of the Company since January 2008 and as President and Chief Operating Officer since November 29, 2011 and as an employee of the Company, will not receive director fees.
Melissa Goldman-Williams was appointed Vice President of Operations on February 24, 2011 and as an employee of the Company, no longer receives director fees.
On December 6, 2006, the Company granted ten-year options to purchase 25,000 shares of common stock at an exercise price of $1.85 per share to each of the following Directors: Dr. E. Bruce Fredrikson, Stuart H. Lubow and Ronald H. Miller. The option to each Director was immediately vested for 10,000 shares and 5,000 additional shares vested on each of the first three anniversaries of the Grant Date. The options were granted in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of March 15, 2012, information with respect to beneficial ownership by named executive officers and Directors of the Company, holders of over 5% of a class of stock and of the executive officers and Directors of the Company as a group.
|
Common Stock
|
Preferred Stock
|
|||||||||||||||
|
Name of Beneficial Owner
|
Amount and
Nature of |
Percent
of |
Amount and
Nature of |
Percent of
Class |
||||||||||||
|
Officers and Directors:
|
||||||||||||||||
|
Dr. E. Bruce Fredrikson
|
35,600 | (1) | ** | 0 | ** | |||||||||||
|
Peter Gasiewicz
|
0 | - | 0 | - | ||||||||||||
|
Melissa Goldman-Williams
|
5,400 | ** | 0 | ** | ||||||||||||
|
Michael Goldman
|
4,332,329 | (2) | 46.33 | % | 91,065 | 31.07 | % | |||||||||
|
Stuart H. Lubow
|
25,000 | (3) | ** | 0 | ** | |||||||||||
|
Ronald H. Miller
|
26,054 | (4) | ** | 0 | ** | |||||||||||
|
William Pagano
|
979,571 | (5) | 10.66 | % | 0 | ** | ||||||||||
|
William Salek
|
45,000 | (6) | ** | 0 | ** | |||||||||||
|
All Officers and Directors as a Group:
|
5,448,954 | *** | 59.22 | % | 91,065 | 31.07 | % | |||||||||
|
Holders of over 5% of a class of stock who are not Officers or Directors:
|
||||||||||||||||
|
Rita C. Folger
|
1,178,719 | (7) | 12.83 | % | 0 | ** | ||||||||||
|
Goldman Associates of New York, Inc.
|
3,994,255 | (8) | 43.63 | % | 0 | ** | ||||||||||
The beneficial owners listed above have all given a business address of 275 Wagaraw Road, Hawthorne, New Jersey 07506.
*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.
**Represents beneficial ownership of less than one percent of the Company’s outstanding securities.
***Assumes the conversion by Mr. Goldman of his 91,065 shares of Convertible Preferred Stock into 91,065 shares of Common Stock.
(1) Dr. E. Bruce Fredrikson’s beneficial ownership consists of 10,600 shares of Common Stock and 25,000 shares of Common Stock issuable upon exercise of his options.
(2) Michael Goldman is the Chief Executive Officer and Chairman of the Board of Goldman Associates of New York, Inc. (“Goldman Associates”). Goldman Associates is the owner of 3,994,255 shares of Common Stock (“Goldman Shares”). Mr. Goldman is the owner of 247,009 shares of Common Stock, 91,065 shares of Common Stock issuable at any time upon conversion of 91,065 shares of Convertible Preferred Stock, and the beneficial owner of the Goldman Shares. Mr. Goldman’s Common Stock ownership in the table above reflects the aggregate amount of his beneficially owned shares consisting of: (i) 247,009 shares of Common Stock, (ii) 91,065 shares of Common Stock issuable at any time upon conversion of 91,065 shares of Convertible Preferred Stock, and (iii) the Goldman Shares. Mr. Goldman’s beneficial ownership excludes 20,000 shares of Common Stock owned by his wife, of which Goldman Associates and Michael Goldman disclaim beneficial ownership. Mr. Goldman’s wife disclaims beneficial ownership of Mr. Goldman’s shares.
(3) Stuart H. Lubow’s beneficial ownership consists of 25,000 shares of Common Stock issuable upon exercise of his options.
(4) Ronald H. Miller’s beneficial ownership consists of 1,054 shares of Common Stock and 25,000 shares of Common Stock issuable upon exercise of his options.
(5) William Pagano’s beneficial ownership consists of 946,238 shares of Common Stock and 33,333 shares of Common Stock issuable at any time upon conversion of a $100,000 Convertible Note at a conversion price of $3 per share.
(6) William Salek’s beneficial ownership consists of 45,000 shares of Common Stock.
(7) Rita C. Folger’s beneficial ownership consists of 1,145,386 shares of Common Stock and 33,333 shares of Common Stock issuable upon conversion of a $100,000 Convertible Note at a conversion price of $3 per share. Mrs. Folger is the wife of Oscar Folger and the mother of Jeffrey Folger. Oscar Folger and Jeffrey Folger, of the law firm of Folger & Folger, are counsel to the Company. Oscar Folger and Jeffrey Folger each disclaim beneficial ownership of the shares owned by Rita Folger.
(8) The beneficial ownership of Goldman Associates of New York, Inc. consists of 3,994,255 shares of Common Stock. See Footnote 2, above, for information relating to beneficial ownership of these securities held by Michael Goldman.
Certain Relationships and Related Transactions
|
(a)
|
A subsidiary of the Company leases a warehouse and store in Wharton, New Jersey comprising of 27,000 square feet from a company owned by Mr. Paul Hildebrandt under a lease that expires July 31, 2017. The Company paid Mr. Hildebrandt’s company $220,788 and $215,534 during the years ended December 31, 2011 and 2010, respectively. William Salek, the Company’s Chief Financial Officer, is the son-in-law of Mr. Hildebrandt. Mr. Hildebrandt served as a Director of the Company from July 2004 to January 2005.
|
|
(b)
|
Pursuant to a secured note dated July 29, 2004, as amended, the Company owes Goldman Associates of New York, Inc. (“Goldman Associates”), the principal amount of $750,000 at December 31, 2011 collateralized by the assets of the Company. The secured note is subordinate to the borrowings under the credit facility, bears interest at the prime rate plus 2% and is due on January 1, 2014. Michael Goldman is the Chief Executive Officer and Chairman of the Board of Goldman Associates and is Chairman of the Board of the Company.
|
|
(c)
|
Oscar Folger and Jeffrey Folger, of the law firm of Folger & Folger, are counsel to the Company. Rita Folger, a more than 5% shareholder of the Company, is the wife of Oscar Folger and the mother of Jeffrey Folger. Professional fees paid to the law firm of Folger & Folger for the years ended December 31, 2011 and 2010 were $60,719 and $20,093, respectively.
|
|
(d)
|
Pioneer Realty Holdings, LLC, a New York limited liability company (“Pioneer”), is the owner of the premises located at 836 Route 9, Fishkill, New York, formerly known as 2213 Route 9, Fishkill, New York that is leased to a subsidiary of the Company under a lease that expires on March 31, 2017, subject to two five-year renewal options.
|
|
William Pagano, Chief Executive Officer and Director of the Company, has a 55% interest in Pioneer and each of Mrs. Folger and Jeffrey Folger has a 20% interest in Pioneer Realty Partners I, LLC, which has a 40% interest in Pioneer. The Company paid Pioneer $270,516 and $268,896 during the years ended December 31, 2011 and 2010, respectively.
|
|
(e)
|
Mr. Pagano and Mrs. Folger are each holders of convertible unsecured notes in the amount of $100,000, issued pursuant to the terms of a private placement made on July 29, 2004, as amended. The convertible unsecured notes bear interest at the prime rate plus 2% and are due on January 1, 2014.
|
Interest expense on each of the notes held by Mr. Pagano and Mrs. Folger amounted to $5,250 for each of the years ended December 31, 2011 and 2010.
|
(f)
|
Mr. Hildebrandt, Goldman Associates, Mr. Pagano and Mrs. Folger were each holders of unsecured notes in the amounts of $90,000, $171,033, $35,000 and $100,000, respectively, issued in connection with the Company’s August 20, 2009 tender offer to purchase any and all shares of its convertible preferred stock at $1.25 per share. The unsecured notes bear interest at 12% and are payable in twenty equal quarterly payments beginning October 10, 2009.
|
Subsequent to the expiration of the Company’s tender offer, the Company repaid to Mr. Hildebrandt, Goldman Associates, Mr. Pagano and Mrs. Folger the unused portion of the above notes. These repayments amounted to $50,947, $96,818, $19,813 and $56,608, respectively. As a result of these repayments, Mr. Hildebrandt, Goldman Associates, Mr. Pagano and Mrs. Folger were each holders of unsecured notes in the amounts of $39,053, $74,215, $15,187 and $43,392, respectively.
At December 31, 2011 the remaining principal on the above notes to Mr. Hildebrandt, Goldman Associates, Mr. Pagano and Mrs. Folger were $18,186, $34,599, $7,072 and $20,206, respectively. Interest expense on the notes held by Mr. Hildebrandt, Goldman Associates, Mr. Pagano and Mrs. Folger amounted to $2,728, $5,184, $1,061 and $3,031, respectively, for the year ended December 31, 2011. Interest expense on the notes held by Mr. Hildebrandt, Goldman Associates, Mr. Pagano and Mrs. Folger amounted to $3,601, $6,843, $1,400 and $4,001, respectively, for the year ended December 31, 2010.
|
(g)
|
In March 2011, the Company privately placed 4,500,000 shares of common stock at $0.50 per share for total proceeds of $2,250,000. Of these shares, 3,000,000 shares were purchased by Goldman Associates of New York, Inc. (“Goldman Associates”), 600,000 shares were purchased by Rita Folger, 400,000 shares were purchased by Paul Hildebrandt, 200,000 shares were purchased by William Pagano and 300,000 shares were purchased by John A. Hildebrandt.
|
|
(h)
|
On February 24, 2011, the Board of Directors of the Company appointed Melissa Goldman-Williams to serve as Vice President of Operations. Mrs. Goldman-Williams receives a salary of $135,000 per year. Mrs. Goldman-Williams is a director of the Company and is the daughter of Michael Goldman, the Chairman of the Board of the Company.
|
|
(i)
|
On May 27, 2011, the Company borrowed $200,000 from Goldman Associates, which was non-interest bearing and paid in full on June 28, 2011.
|
|
(j)
|
On July 29, 2011, the Company borrowed $250,000 from Goldman Associates. Interest accrued on the loan at a per annum rate equal to the lesser of (i) 3% plus 90-day LIBOR and (ii) 4%. The loan was repaid on October 20, 2011.
|
|
(k)
|
On March 1, 2012, the Company borrowed $350,000 from Goldman Associates. Interest accrues on the loan at 4% per annum and is due on May 24, 2012.
|
The positions with the Company and the relevant stock ownerships of the persons and entities referenced in this Item are set forth in Items 10 and 12.
Director Independence
The Board of Directors is comprised of seven members, of which three are classified as “independent” as defined in the NASDAQ Stock Marketplace Rule 5605(a)(2). The three independent Directors are Dr. E. Bruce Fredrikson, Stuart H. Lubow and Ronald H. Miller.
Audit Fees
Audit fees were $235,000 in each of 2010 and 2011. All services provided by independent accountants were approved by the audit committee. Audit Fees consist of fees billed for professional services rendered for the audit of the Company’s annual statements, for review of interim consolidated financial statements included in quarterly reports and services that were normally provided by EisnerAmper LLP in connection with statutory and regulatory filings or engagements.
Audit Related Fees
The Company did not incur audit related fees from EisnerAmper LLP in 2011 or 2010. Audit-Related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements and are not reported under “Audit Fees.”
Tax Fees
The Company did not incur tax fees from EisnerAmper LLP in 2011 or 2010. Tax Fees consist of fees billed for professional services rendered for tax compliance. These services include assistance regarding federal, state and local tax compliance.
All Other Fees
The Company did not incur any other fees from EisnerAmper LLP in 2011 or 2010.
The Audit Committee meets with the independent auditor prior to the audit and discusses the planning and staffing of the audit, approves in advance the engagement of the independent auditor for all audit services and non-audit services and approves the fees and other terms of any such engagement, and obtains periodically from the independent auditor a communication of the matters required to be discussed by Statements of Auditing Standards No. 61 and SEC Rule 10(a). The Audit Committee also meets with the auditors prior to the filing of Forms 10-K and 10-Q to discuss the results of their audit and reviews. In addition, the Company obtains a letter describing all relationships between the auditor and the Company and discusses with the auditor any disclosed relationships or services that may impact auditor objectivity and independence.
PART IV
|
(a)
|
Exhibits and Financial Statements
|
|
|
(1)
|
Financial Statements. See Item 8., Financial Statements and Supplementary Data
|
|
|
(2)
|
Financial Statement Schedules. See F-1 through F-25, attached
|
|
|
(3)
|
Exhibits
|
INDEX TO EXHIBITS
|
Exhibit
|
Exhibit Name
|
Filed
Herewith |
Form
|
Date Filed
With SEC |
Incorporated By
Reference |
|||||
|
3.01
|
Restated Certificate of Incorporation of Registrant dated January 6, 1983
|
10-K
|
03-30-06
|
3.01
|
||||||
|
(a)
|
Certificate of Amendment of the Certificate of Incorporation dated October 31, 1986
|
10-K
|
03-30-06
|
3.01(a)
|
||||||
|
(b)
|
Certificate of Amendment of the Certificate of Incorporation dated June 24, 1988
|
10-K
|
03-30-06
|
3.01(b)
|
||||||
|
(c)
|
Certificate of Amendment of the Certificate of Incorporation dated January 13, 1998
|
10-K
|
03-30-06
|
3.01(c)
|
||||||
|
(d)
|
Certificate of Amendment of the Certificate of Incorporation dated January 13, 1998
|
10-K
|
03-30-06
|
3.01(d)
|
||||||
|
(e)
|
Certificate of Amendment of the Certificate of Incorporation dated September 29, 2006
|
10-Q
|
11-13-06
|
3.01
|
||||||
|
3.02
|
By-Laws of Registrant
|
10-K
|
03-30-06
|
3.02
|
||||||
|
(a)
|
Amended and Restated By-Laws of Registrant, ratified and adopted June 13, 2006
|
8-K
|
06-19-06
|
3.01
|
||||||
|
4.01
|
Specimen of Common Stock Certificate
|
10-K
|
03-30-06
|
4.01
|
||||||
|
4.02
|
Specimen of Convertible Preferred Stock Certificate
|
10-K
|
03-30-06
|
4.02
|
||||||
|
10.01
|
Employment Agreement dated as of June 25, 1999 between Universal Supply Group, Inc. and William Pagano
|
8-K
|
07-09-99
|
10(a)(iii)
|
||||||
|
(a)
|
Amendment Number 1 dated October 29, 2002 to Employment Agreement dated as of June 25, 1999 between Universal Supply Group, Inc. and William Pagano
|
8-K
|
11-02-05
|
10.02
|
||||||
|
(b)
|
Amendment Number 2 dated as of June 15, 2005 to Employment Agreement dated as of June 25, 1999 between Universal Supply Group, Inc. and William Pagano
|
8-K
|
06-20-05
|
99.1
|
||||||
|
(c)
|
Amendment Number 3 dated as of March 12, 2007 to Employment Agreement dated as of June 25, 1999 between Universal Supply Group, Inc. and William Pagano
|
8-K
|
03-12-07
|
10.04
|
||||||
|
10.02
|
Non-Competition and Severance Agreement dated November 29, 2011 by and between Colonial Commercial Corp. and Peter Gasiewicz
|
8-K
|
12-02-11
|
10.01
|
|
10.03
|
2006 Stock Plan
|
10-Q
|
11-13-06
|
10.01
|
||||||
|
(a)
|
Form of stock option grant letter
|
8-K
|
12-06-06
|
10.01
|
||||||
|
10.04
|
Certain documents related to tender offer to purchase Convertible Preferred Stock:
|
|||||||||
|
(a)
|
Offer to Purchase dated August 20, 2009
|
SC-TO
|
08-20-09
|
99.(a)(1)
|
||||||
|
(b)
|
Letter of Transmittal
|
SC-TO
|
08-20-09
|
99.(a)(2)
|
||||||
|
(c)
|
Notice of Guaranteed Delivery
|
SC-TO
|
08-20-09
|
99.(a)(3)
|
||||||
|
(d)
|
Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
|
SC-TO
|
08-20-09
|
99.(a)(4)
|
||||||
|
(e)
|
Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
|
SC-TO
|
08-20-09
|
99.(a)(5)
|
||||||
|
(f)
|
Letter to holders of Convertible Preferred Stock of Colonial
|
SC-TO
|
08-20-09
|
99.(a)(6)
|
||||||
|
(g)
|
Consent of Registered Independent Public Accounting Firm
|
SC-TO
|
08-20-09
|
99.(a)(8)
|
||||||
|
(h)
|
Form of Note Payable
|
SC-TO
|
08-20-09
|
99.(b)(1)
|
||||||
|
(i)
|
Financial Advisor Retainer Agreement
|
SC-TO
|
08-20-09
|
99.(c)(1)
|
||||||
|
(j)
|
Opinion of Financial Advisor
|
SC-TO
|
08-20-09
|
99.(c)(2)
|
||||||
|
(k)
|
Form of Depository Agreement
|
SC-TO
|
08-20-09
|
99.(d)(4)
|
||||||
|
(l)
|
Form of Escrow Agreement among Colonial Commercial Corp., American Stock Transfer & Trust Company and the Private Lenders
|
SC-TO
|
08-20-09
|
99.(d)(5)
|
||||||
|
10.05
|
Purchase Agreement dated March 25, 1999 for business and assets subject to certain liabilities of Universal Supply Group, Inc.
|
10-KSB
|
03-30-99
|
10(g)
|
||||||
|
(a)
|
Amendment Number 1 dated June 25, 1999 to Purchase Agreement dated March 25, 1999
|
8-K
|
07-09-99
|
10(a)(ii)
|
||||||
|
10.06
|
Certain documents related to refinance with Wells Fargo Business Credit, Inc. of asset based loan and term loan dated July 28, 2004, previously with LaSalle Bank National Association:
|
|||||||||
|
(a)
|
Credit Security Agreement dated July 28, 2004 between American/Universal Supply, Inc., The RAL Supply Group, Inc. and Universal Supply Group, Inc. to Wells Fargo Business Credit, Inc.
|
10-Q
|
08-16-04
|
10.1
|
||||||
|
(b)
|
First Amendment to the Credit Security Agreement dated May 11, 2006
|
8-K
|
06-27-06
|
10.02
|
||||||
|
(c)
|
Second Amendment to the Credit Security Agreement dated September 10, 2007
|
8-K
|
09-14-07
|
10.08
|
||||||
|
(d)
|
Third Amendment to the Credit Security Agreement dated November 12, 2009
|
10-Q
|
11-13-09
|
10.04
|
||||||
|
(e)
|
Fourth Amendment to the Credit Security Agreement dated March 4, 2010
|
8-K
|
03-10-10
|
10.17
|
||||||
|
(f)
|
Fifth Amendment to the Credit Security Agreement dated May 11, 2010
|
10-Q
|
05-12-10
|
10.06
|
||||||
|
(g)
|
Sixth Amendment to the Credit Security Agreement dated March 15, 2011
|
8-K
|
03-21-11
|
10.07
|
|
10.07
|
Certain documents related to refinance with KeyBank National Association. of asset based loan and term loan dated October 18, 2011, previously with Wells Fargo Business Credit, Inc.:
|
|||||||||
|
(a)
|
Credit and Security Agreement dated October 18, 2011 by and among Colonial Commercial Corp., Universal Supply Group, Inc., The RAL Supply Group, Inc., S&A Supply, Inc. and KeyBank National Association
|
8-K
|
10-19-11
|
10.01
|
||||||
|
(b)
|
Promissory Note dated March 24, 2010 by and among Goodman, L.P., Goodman Manufacturing Company, L.P. and Goodman Sales Company, and Universal Supply Group, Inc. (“Promissory Note”)
|
8-K
|
03-26-10
|
10.02
|
||||||
|
(c)
|
Amendment and Restatement No. 1 dated April 13, 2011 of Schedule 1 to the Promissory Note
|
8-K
|
04-13-11
|
10.02
|
||||||
|
(d)
|
Form of Amendment and Restatement No. 2 dated October 14, 2011 of Schedule 1 to the Promissory Note
|
8-K
|
10-20-11
|
10.05
|
||||||
|
(e)
|
Form of Subordination Agreement dated October 18, 2011 by and between Colonial Commercial Corp., KeyBank National Association, and Rita Folger
|
8-K
|
10-20-11
|
10.07
|
||||||
|
(f)
|
Form of Subordination Agreement dated October 18, 2011 by and between Colonial Commercial Corp., KeyBank National Association, and Goldman Associates of New York, Inc., filed herewith.
|
8-K
|
10-20-11
|
10.08
|
||||||
|
(g)
|
Form of Subordination Agreement dated October 18, 2011 by and between Colonial Commercial Corp., KeyBank National Association, and Paul Hildebrandt
|
8-K
|
10-20-11
|
10.10
|
||||||
|
(h)
|
Form of Subordination Agreement dated October 18, 2011 by and between Colonial Commercial Corp., KeyBank National Association, and William Pagano
|
8-K
|
10-20-11
|
10.11
|
||||||
|
(i)
|
Form of Intercreditor and Lien Subordination Agreement dated October 18, 2011 by and among Universal Supply Group, Inc., KeyBank National Association and Goodman Manufacturing Company, L.P., Goodman Company, L.P., and Goodman Sales Company
|
8-K
|
12-09-11
|
10.01
|
||||||
|
10.08
|
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
|
11-18-03
|
10(g)
|
||||||
|
10.09
|
Agreement of Purchase of Sale of Assets dated July 1, 2002 between Goldman Associates of New York, Inc. and Universal Supply Group, Inc.
|
10-K
|
11-18-03
|
10(h)
|
|
10.10
|
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”
|
10-K
|
03-30-06
|
10.10
|
||||||
|
10.11
|
Private Placement Purchase Agreement dated February 12, 2004 by and among Colonial Commercial Corp. and the persons who are counterparts to the Agreement as “Investors”
|
10-K
|
03-30-06
|
10.11
|
||||||
|
10.12
|
Private Placement Purchase Agreement dated July 29, 2004 by and among Colonial Commercial Corp, and the persons who are counterparts to the Agreement as “Investors” including:
|
|||||||||
|
(a)
|
Private Placement Purchase Agreement
|
10-Q
|
08-16-04
|
4.1
|
||||||
|
(b)
|
Convertible Note Payable
|
10-Q
|
08-16-04
|
4.2
|
||||||
|
(c)
|
Amendment No. 1 dated March 27, 2008 to the Convertible Note Payable dated as of July 29, 2004 by and among Colonial Commercial Corp. and Rita Folger
|
10-K
|
03-31-08
|
10.13(c)
|
||||||
|
(d)
|
Amendment No. 1 dated March 27, 2008 to the Convertible Note Payable dated as of July 29, 2004 by and among Colonial Commercial Corp. and William Pagano
|
10-K
|
03-31-08
|
10.13(d)
|
||||||
|
(e)
|
Amendment No. 2 dated February 12, 2009 to the Convertible Note Payable dated as of July 29, 2004 by and between Colonial Commercial Corp. and Rita Folger
|
8-K
|
02-13-09
|
10.06
|
||||||
|
(f)
|
Amendment No. 2 dated February 12, 2009 to the Convertible Note Payable dated as of July 29, 2004 by and between Colonial Commercial Corp. and William Pagano
|
8-K
|
02-13-09
|
10.09
|
||||||
|
(g)
|
Amendment No. 3 dated March 5, 2010 to the Convertible Note Payable dated as of July 29, 2004 by and between Colonial Commercial Corp. and Rita Folger
|
8-K
|
03-10-10
|
10.08
|
||||||
|
(h)
|
Amendment No. 3 dated March 5, 2010 to the Convertible Note Payable dated as of July 29, 2004 by and between Colonial Commercial Corp. and William Pagano
|
8-K
|
03-10-10
|
10.12
|
||||||
|
(i)
|
Amendment No. 4 dated March 1, 2011 to the Convertible Note Payable dated as of July 29, 2004 by and between Colonial Commercial Corp. and Rita Folger
|
8-K
|
03-02-11
|
10.10
|
||||||
|
(j)
|
Amendment No. 4 dated March 1, 2011 to the Convertible Note Payable dated as of July 29, 2004 by and between Colonial Commercial Corp. and William Pagano
|
8-K
|
03-02-11
|
10.15
|
||||||
|
(k)
|
Amendment No. 5 dated February 15, 2012 to the Convertible Note Payable dated as of July 29, 2004 by and between Colonial Commercial Corp. and Rita Folger
|
8-K
|
02-17-12
|
10.12
|
||||||
|
(l)
|
Amendment No. 5 dated February 15, 2012 to the Convertible Note Payable dated as of July 29, 2004 by and between Colonial Commercial Corp. and William Pagano
|
8-K
|
02-17-12
|
10.18
|
|
10.13
|
Private Placement Purchase Agreement dated July 29, 2004 by and among Michael Goldman and Goldman Associates of New York, Inc. including:
|
10-Q
|
08-16-04
|
4.3
|
||||||
|
(a)
|
Private Placement Agreement
|
10-Q
|
08-16-04
|
4.4
|
||||||
|
(b)
|
Secured Note
|
10-Q
|
08-16-04
|
4.5
|
||||||
|
(c)
|
Warrant
|
10-Q
|
08-16-04
|
4.6
|
||||||
|
(d)
|
Amendment No. 1 dated March 27, 2008 to the Secured Note Payable dated as of July 29, 2004 by and among Colonial Commercial Corp. and Goldman Associates of New York, Inc.
|
10-K
|
03-31-08
|
10.14(d)
|
||||||
|
(e)
|
Amendment No. 2 dated February 12, 2009 to the Secured Note Payable dated as of July 29, 2004 by and between Colonial Commercial Corp. and Goldman Associates of New York, Inc.
|
8-K
|
02-13-09
|
10.03
|
||||||
|
(f)
|
Amendment No. 3 dated March 5, 2010 to the Secured Note Payable dated as of July 29, 2004 by and between Colonial Commercial Corp. and Goldman Associates of New York, Inc.
|
8-K
|
03-10-10
|
10.04
|
||||||
|
(g)
|
Amendment No. 4 dated March 1, 2011 to the Secured Note Payable dated as of July 29, 2004 by and between Colonial Commercial Corp. and Goldman Associates of New York, Inc.
|
8-K
|
03-02-11
|
10.05
|
||||||
|
(h)
|
Amendment No. 5 dated February 15, 2012 to the Secured Note Payable dated as of July 29, 2004 by and between Colonial Commercial Corp. and Goldman Associates of New York, Inc.
|
8-K
|
02-17-12
|
10.06
|
||||||
|
10.14
|
Form Private Placement Purchase Agreement by and among Colonial Commercial Corp, and the persons who are counterparts to the Agreement as “Investors.”
|
8-K
|
3-02-11
|
10.16
|
||||||
|
10.15
|
Asset Purchase Agreement dated September 5, 2003 for the purchase of certain assets, subject to certain liabilities of The RAL Supply Group, Inc., by RAL Purchasing Corp., a wholly-owned subsidiary of Colonial Commercial Corp.
|
8-K
|
10-15-03
|
10(a)(i)
|
||||||
|
10.16
|
RAL Closing Statement dated September 30, 2003
|
8-K
|
10-15-03
|
10(a)(ii)
|
||||||
|
10.17
|
Asset Purchase Agreement dated September 10, 2007 for the purchase of certain assets, subject to certain liabilities of S&A Supply, Inc. by S&A Purchasing Corp., a wholly-owned subsidiary of Colonial Commercial Corp.
|
8-K
|
09-14-07
|
10.01
|
|
(a)
|
Form of Amendment Number 1 dated March 26, 2008 to Asset Purchase Agreement dated September 10, 2007 for the purchase of certain assets, subject to certain liabilities of S&A Supply, Inc. by S&A Purchasing Corp., a wholly-owned subsidiary of Colonial Commercial Corp.
|
10-K
|
03-31-08
|
10.17(a)
|
||||||
|
10.18
|
Lease Agreement by and between Zanzi Realty, Inc. and The RAL Supply Group, Inc., dated September 1, 1998
|
8-K
|
11-02-05
|
10.04
|
||||||
|
(a)
|
First Modification of Lease Agreement dated September 30, 2003 to Lease Agreement by and between Zanzi Realty, Inc. and The RAL Supply Group, Inc., dated September 1, 1998
|
8-K
|
11-02-05
|
10.05
|
||||||
|
(b)
|
Second Modification of Lease Agreement dated April 12, 2005 to Lease Agreement by and between Zanzi Realty, Inc. and The RAL Supply Group, Inc., dated September 1, 1998
|
8-K
|
11-02-05
|
10.06
|
||||||
|
(c)
|
Third Modification of Lease Agreement dated February 21, 2007 to Lease Agreement by and between Zanzi Realty, Inc. and The RAL Supply Group, Inc., dated September 1, 1998
|
8-K
|
02-23-07
|
10.04
|
||||||
|
(d)
|
Option Agreement by and between Pioneer Realty Holdings, LLC and Colonial Commercial Corp., dated as of February 21, 2007.
|
8-K
|
02-23-07
|
10.05
|
||||||
|
11.01
|
Statement re computation of per share earnings (loss)—Not filed since computations are readily apparent from the Consolidated Financial Statements
|
|||||||||
|
14.01
|
Code of Ethics
|
10-K
|
04-15-05
|
14
|
||||||
|
Subsidiaries of Registrant
|
Yes
|
|||||||||
|
Consent of Registered Independent Public Accounting Firm
|
Yes
|
|||||||||
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
Yes
|
|||||||||
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
Yes
|
|||||||||
|
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
Yes
|
|||||||||
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
Yes
|
|
101.INS*
|
XBRL Instance Document
|
|||||||||
|
101.SCH*
|
XBRL Taxonomy Extension Schema Document
|
|||||||||
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|||||||||
|
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|||||||||
|
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase Document
|
|||||||||
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|||||||||
* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Index to Consolidated Financial Statements
CONTENTS
|
Page
|
||
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated Balance Sheets as of December 31, 2011 and 2010
|
F-3
|
|
|
Consolidated Statements of Income for the Years Ended December 31, 2011 and 2010
|
F-4
|
|
|
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2011 and 2010
|
F-5
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011 and 2010
|
F-6
|
|
|
Notes to the Consolidated Financial Statements
|
F-7
|
|
|
Schedule II – Valuation and Qualifying Accounts
|
F-25
|
|
|
All other schedules are omitted because they are not required or the information required is given in the consolidated financial statements or notes thereto.
|
||
To the Board of Directors and Stockholders
Colonial Commercial Corp.
We have audited the accompanying consolidated balance sheets of Colonial Commercial Corp. and subsidiaries (the "Company") as of December 31, 2011 and 2010 and the related consolidated statements of income, stockholders' equity and cash flows for each of the years then ended. Our audit also included the financial statement schedule – Schedule II, Schedule of Valuation and Qualifying Accounts. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Colonial Commercial Corp. and subsidiaries as of December 31, 2011 and 2010, and the consolidated results of their operations and their consolidated cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ EisnerAmper LLP
New York, New York
March 27, 2012
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
|
December 31,
|
December 31,
|
|||||||
|
2011
|
2010
|
|||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash
|
$ | 271,697 | $ | 75,390 | ||||
|
Accounts receivable, net of allowance for doubtful accounts of $652,449 in 2011 and $694,083 in 2010
|
10,057,598 | 9,632,829 | ||||||
|
Inventory
|
12,035,597 | 10,781,069 | ||||||
|
Prepaid expenses and other current assets
|
1,413,531 | 1,111,625 | ||||||
|
Total current assets
|
23,778,423 | 21,600,913 | ||||||
|
Property and equipment
|
949,912 | 1,126,810 | ||||||
|
Goodwill
|
1,416,929 | 1,416,929 | ||||||
|
Other assets - noncurrent
|
428,532 | 172,913 | ||||||
| $ | 26,573,796 | $ | 24,317,565 | |||||
|
Liabilities and Stockholders' Equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Trade payables
|
$ | 5,681,928 | $ | 6,513,506 | ||||
|
Accrued liabilities
|
1,476,776 | 1,674,403 | ||||||
|
Income taxes payable
|
586 | 2,360 | ||||||
|
Borrowings under credit facility - revolving credit
|
11,991,407 | 10,770,235 | ||||||
|
Notes payable - current portion; includes related party notes of $32,009 in 2011 and 2010
|
384,630 | 1,094,275 | ||||||
|
Total current liabilities
|
19,535,327 | 20,054,779 | ||||||
|
Convertible notes payable-related party
|
200,000 | 200,000 | ||||||
|
Notes payable, excluding current portion; includes related party notes of $798,014 in 2011 and $830,024 in 2010
|
1,977,518 | 1,686,179 | ||||||
|
Total liabilities
|
21,712,845 | 21,940,958 | ||||||
|
Commitments and contingencies
|
||||||||
|
Stockholders' equity:
|
||||||||
|
Redeemable convertible preferred stock, $.05 par value, 2,500,000 shares authorized, 293,057 shares issued and outstanding in 2011 and 2010, liquidation preference of $1,465,285 in 2011 and 2010
|
14,653 | 14,653 | ||||||
|
Common stock, $.05 par value, 20,000,000 shares authorized, 9,154,953 and 4,654,953 shares issued and outstanding in 2011 and 2010, respectively
|
457,747 | 232,747 | ||||||
|
Additional paid-in capital
|
12,659,782 | 10,634,782 | ||||||
|
Accumulated deficit
|
(8,271,231 | ) | (8,505,575 | ) | ||||
|
Total stockholders' equity
|
4,860,951 | 2,376,607 | ||||||
| $ | 26,573,796 | $ | 24,317,565 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Income
|
For the Year Ended December 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Sales
|
$ | 79,563,932 | $ | 80,056,230 | ||||
|
Cost of sales
|
58,572,988 | 58,491,503 | ||||||
|
Gross profit
|
20,990,944 | 21,564,727 | ||||||
|
Selling, general and administrative expenses, net
|
20,228,933 | 20,786,019 | ||||||
|
Operating income
|
762,011 | 778,708 | ||||||
|
Other income
|
264,397 | 273,951 | ||||||
|
Interest expense, net; includes related party interest of $61,880 in 2011 and $65,720 in 2010
|
(792,064 | ) | (946,261 | ) | ||||
|
Net income
|
$ | 234,344 | $ | 106,398 | ||||
|
Income per common share:
|
||||||||
|
Basic
|
$ | 0.03 | $ | 0.02 | ||||
|
Diluted
|
$ | 0.03 | $ | 0.02 | ||||
|
Weighted average shares outstanding:
|
||||||||
|
Basic
|
8,425,090 | 4,654,953 | ||||||
|
Diluted
|
8,718,148 | 4,948,010 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
|
Number of shares
|
||||||||||||||||||||||||||||
|
Redeemable
Convertible
Preferred
Stock
|
Common Stock
|
Redeemable
Convertible
Preferred
Stock
|
Common Stock
|
Additional
Paid-In
Capital
|
Accumulated
Deficit
|
Total
Stockholders'
Equity
|
||||||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||||||
|
Balance at December 31, 2009
|
293,057 | 4,654,953 | $ | 14,653 | $ | 232,747 | $ | 10,634,782 | $ | (8,611,973 | ) | $ | 2,270,209 | |||||||||||||||
|
Net Income
|
106,398 | 106,398 | ||||||||||||||||||||||||||
|
Balance at December 31, 2010
|
293,057 | 4,654,953 | $ | 14,653 | $ | 232,747 | $ | 10,634,782 | $ | (8,505,575 | ) | $ | 2,376,607 | |||||||||||||||
|
Issuance of Common Stock for cash
|
4,500,000 | 225,000 | 2,025,000 | 2,250,000 | ||||||||||||||||||||||||
|
Net Income
|
234,344 | 234,344 | ||||||||||||||||||||||||||
|
Balance at December 31, 2011
|
293,057 | 9,154,953 | $ | 14,653 | $ | 457,747 | $ | 12,659,782 | $ | (8,271,231 | ) | $ | 4,860,951 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
|
For The Year Ended
|
||||||||
|
2011
|
2010
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net income
|
$ | 234,344 | $ | 106,398 | ||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
|
Provision for doubtful accounts
|
318,325 | 548,559 | ||||||
|
Depreciation
|
369,004 | 437,036 | ||||||
|
Net gain on sale of fixed assets
|
(629 | ) | (7,677 | ) | ||||
|
Amortization of intangibles
|
- | 2,500 | ||||||
|
Changes in operating assets and liabilities
|
||||||||
|
Accounts receivable
|
(743,094 | ) | (713,265 | ) | ||||
|
Inventory
|
(1,254,528 | ) | 807,902 | |||||
|
Prepaid expenses and other current assets
|
(301,906 | ) | (216,120 | ) | ||||
|
Other assets – noncurrent
|
(255,619 | ) | (38,708 | ) | ||||
|
Trade payables
|
(831,578 | ) | 1,110,970 | |||||
|
Accrued liabilities
|
(197,627 | ) | 114,523 | |||||
|
Income taxes payable
|
(1,774 | ) | (2,014 | ) | ||||
|
Net cash (used in) provided by operating activities
|
(2,665,082 | ) | 2,150,104 | |||||
|
Cash flows from investing activities:
|
||||||||
|
Additions to property and equipment
|
(67,068 | ) | (89,912 | ) | ||||
|
Proceeds from disposal of property and equipment
|
8,383 | 20,700 | ||||||
|
Net cash used in investing activities
|
(58,685 | ) | (69,212 | ) | ||||
|
Cash flows from financing activities:
|
||||||||
|
Repayments of notes payable; includes related party repayments of $32,009 in 2011 and 2010
|
(551,098 | ) | (431,700 | ) | ||||
|
Proceeds from issuance of common stock
|
2,250,000 | - | ||||||
|
Borrowings (repayments) under credit facility - revolving credit, net
|
1,221,172 | (2,320,431 | ) | |||||
|
Net cash provided by (used in) financing activities
|
2,920,074 | (2,752,131 | ) | |||||
|
Increase (decrease) in cash
|
196,307 | (671,239 | ) | |||||
|
Cash - beginning of period
|
75,390 | 746,629 | ||||||
|
Cash - end of period
|
$ | 271,697 | $ | 75,390 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2011 and 2010
|
1.
|
Summary of Significant Accounting Policies and Practices
|
(a) Description of Business
Colonial Commercial Corp. (“Colonial”), through its operating subsidiaries, Universal Supply Group, Inc. (“Universal”), The RAL Supply Group, Inc. (“RAL”), and S&A Supply, Inc. (“S&A”) (together, the “Company”), is a distributor of heating, ventilation and air conditioning (HVAC), climate control products, plumbing and electrical fixtures and supplies and appliances to building contractors and other users, which the Company considers its only operating segment. The Company’s products are marketed primarily to HVAC, plumbing and electrical contractors, who, in turn, sell such products to residential and commercial/industrial customers. The Company’s customers are primarily located in New Jersey, New York, Massachusetts and portions of eastern Pennsylvania, Connecticut and Vermont. The Company has no long term agreement with any customer. The Company deals with its customers on a purchase order by purchase order basis. The Company has no material long term agreements with any supplier. The Company enters into agreements with vendors which involve volume rebates, pricing and advertising, all within the standard practices of the industry. Additionally, certain supplier agreements limit the sale of competitive products in designated markets that the Company serves. All purchases are made with domestic vendors, some of which, however, may manufacture products in foreign locations.
(b) Basis of Presentation
The accompanying audited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of Colonial and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
(d) Revenue Recognition
Revenue is recognized when the earnings process is complete, which is generally upon shipment or delivery of products, and the price is determined and collectability is reasonably assured, in accordance with agreed-upon shipping terms and when title and risk of loss transfers to the customer. The Company has no further obligations subsequent to shipment or delivery. Customers have the right to return defective products, which are substantially covered under the manufacturer’s warranty. The customer receives a credit from the Company for defective products returned and the Company receives a corresponding credit provided by the manufacturer. The only warranty provided on products sold is the one 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, 2011 and 2010.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(f) Accounts Receivable
Accounts receivable consist of trade receivables recorded at original invoice amount, less an estimated allowance for uncollectible accounts. Trade credit is generally extended on a short-term basis; thus trade receivables generally do not bear interest. However, a service charge may be applied to receivables that are past due. These charges, when collected, are included as other income. Trade receivables are periodically evaluated for collectability based on past credit history with customers and their current financial condition. Changes in the estimated collectability of trade receivables are recorded in the results of operations for the period in which the estimate is revised. Trade receivables that are deemed uncollectible are offset against the allowance for uncollectible accounts. The Company generally does not require collateral for trade receivables.
(g) 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.
Distribution costs of incoming freight, purchasing, receiving, inspection, warehousing and handling costs are included in selling, general and administrative expenses. Such costs were $499,837 and $514,146 for the years ended December 31, 2011 and 2010, respectively.
(h) Vendor Rebates
The Company has arrangements with several vendors that provide rebates to be payable to the Company when the Company achieves any of a number of measures, generally related to the volume level of purchases. The Company accounts for such rebates as a reduction of inventory until the sale of the product. Rebates under arrangements with vendors that require a specified cumulative level of purchases are recognized by the Company based on progress toward achieving such levels, provided the rebates are probable and estimable.
(i) 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
|
3-5 years
|
|
Furniture and fixtures
|
5 years
|
|
Automobiles
|
3-5 years
|
|
Showroom fixtures and displays
|
3 years
|
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(j) Goodwill
Goodwill is reviewed at least annually for impairment. In assessing the recoverability of the Company’s goodwill, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets and liabilities of the reporting unit. The Company considers each subsidiary as a reporting unit. To conduct impairment tests of goodwill, the fair value of the reporting unit is compared to its carrying value. If the reporting unit’s carrying value exceeds its fair value, an impairment loss to the extent the carrying value of goodwill exceeds the fair value of goodwill will be recorded. The Company groups assets, including goodwill, by reporting unit and utilizes the income approach (Discounted Cash Flows) to estimate the fair value of long-lived assets. If the Company’s fair value determination changes due to modifications in the underlying assumptions, the Company may be required to record impairment charges related to its goodwill. At December 31, 2011, goodwill on the Company’s books of $1,416,929 relate entirely to Universal. Based on the Company’s determination, the residual fair value of Universal’s goodwill was higher than its carrying value as of December 31, 2011 and there was no need for an impairment charge. The methodology used to estimate the fair values has not changed.
As a result of the Company’s annual impairment tests, as of December 31, 2011 and 2010, there was no indication of impairment for goodwill for Universal. Goodwill amounting to $1,416,929 at each December 31, 2011 and 2010 consisted of assets arising from acquisitions.
(k) Stock Options
The Company recognizes equity based compensation expense in accordance with established standards for transactions in which an entity exchanges its equity instruments for goods or services. This standard requires an entity to measure the cost of services received in exchange for an award of equity instruments based on the grant date fair value of the award.
(l) Net Income Per Common Share
Basic income per share excludes any dilution. It is based upon the weighted average number of common shares outstanding during the period. Dilutive earnings per share reflect the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.
(m) Income Taxes
The Company accounts for income taxes in accordance with the 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. Management reviewed the gross deferred tax asset and determined that it is more likely than not that such assets would not be recognized in the near future. As of December 31, 2011 and 2010, the Company has provided a full valuation allowance and the net deferred tax asset was zero.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has adopted the provisions that tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized. The adoption of this accounting guidance had no impact on the Company’s consolidated financial position and did not result in unrecognized tax benefits being recorded. The Company has no unrecognized tax benefits recorded for the years ended December 31, 2011 and 2010. When an accrual for interest and penalties is required, interest and penalties will be recognized in tax expense. The Company files income tax returns in the U.S. federal jurisdiction and various states. There are currently no federal income tax examinations in process, however, one of the Company’s subsidiaries is under examination for sales and use tax in the State of Massachusetts. The Company has concluded that there will be an immaterial assessment and has not provided for such liability. A prior year income tax examination related to one of the Company’s subsidiaries in the State of New Jersey concluded during 2011 and resulted in a small refund. The 2008 through 2011 tax years remain subject to examination by the Internal Revenue Service and other taxing authorities for U.S. federal and state/local tax purposes. The Company does, however, have prior year net operating losses dating back to 2000, which are subject to examination.
(n) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived assets, such as intangible assets, furniture, equipment and leasehold improvements, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to fair value.
(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 financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include valuation reserves for accounts receivable, inventory, income taxes, valuation of goodwill and the impairment of long lived assets. Actual results could differ from those estimates.
(p) Recent Issued Accounting Pronouncements
In December 2010, the FASB issued an amendment which affects entities that have recognized goodwill and have one or more reporting units whose carrying amounts for purposes of performing Step 1 of the goodwill impairment test is zero or negative, to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are adverse qualitative factors, including the examples provided in ASC paragraph 350-20-35-30, in determining whether an interim goodwill impairment test between annual test dates is necessary. The standard allows an entity to use either the equity or enterprise valuation premise to determine the carrying amount of a reporting unit. This standard is effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2010. The guidance had no impact on the Company’s financial statements.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Accounting Pronouncement Not Yet Adopted:
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, “Testing Goodwill for Impairment” (ASU 2011-08). Under ASU 2011-08, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If an entity believes, as a result of its qualitative assessment that the fair value of a reporting unit is less than its carrying amount, performing the current two-step impairment test is not required. The guidance also includes a number of events and circumstances that an entity consider in conducting the qualitative assessment. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, if an entity has not yet issued financial statements for the most recent annual or interim period, provided the entity has not yet performed its annual impairment test. We do not expect this guidance to have a material impact on the Company’s financial statements.
(q) Reclassification
The Company has reclassified certain prior period amounts to conform to the current year presentation.
|
2.
|
Property and Equipment
|
Property and equipment consists of the following at December 31:
|
2011
|
2010
|
|||||||
|
Computer hardware and software
|
$ | 1,338,800 | $ | 1,282,837 | ||||
|
Furniture and fixtures
|
246,738 | 245,276 | ||||||
|
Leasehold improvements
|
1,706,045 | 1,686,811 | ||||||
|
Showroom fixtures and displays
|
403,586 | 384,027 | ||||||
|
Automobiles
|
997,996 | 955,193 | ||||||
| 4,693,165 | 4,554,144 | |||||||
|
Less accumulated depreciation and amortization
|
(3,743,253 | ) | (3,427,334 | ) | ||||
| $ | 949,912 | $ | 1,126,810 | |||||
Depreciation expense amounted to $369,004 and $437,036 for the years ended December 31, 2011 and 2010, respectively.
|
3.
|
Financing Arrangements
|
On October 18, 2011, the Company and KeyBank National Association (“KeyBank”) entered into a three-year Credit and Security Agreement (the “KeyBank Agreement”) that refinanced and replaced a credit facility with Wells Fargo Bank.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The KeyBank Agreement provides for a revolving loan facility under which the Company may borrow up to the lesser of (i) $15,000,000 or (ii) 85% of eligible accounts receivable, plus 55% (but not more than $6,500,000) of the lower of cost or market of eligible inventory, less designated reserves. Borrowings bear interest at 2.75% above the Eurodollar Rate (as defined) or 0.25% above the Base Rate (as defined), and are secured by a first lien on substantially all of the Company’s assets, as well as a pledge of the stock of Colonial Commercial Corp.’s operating subsidiaries. The facility contains covenants relating to the financial condition of the Company and its business operations. As of December 31, 2011, the Company must maintain a consolidated net worth of at least $2,800,000, plus 50% of positive consolidated net earnings for the fiscal year then ended (with no deduction for losses). The Company must also maintain a Fixed Charge Coverage Ratio as defined in the KeyBank Agreement. As of December 31, 2011, the Company’s net worth was $4,860,951 and its Fixed Charge Ratio was 1.30, both exceeding the loan covenants. The Company will be considered in default of its credit agreement with KeyBank in the event William Pagano shall cease to hold the position of Chief Executive Officer, or a similar or higher position of the Company and the Company shall fail to hire a replacement consultant or Chief Executive Officer with technical expertise, experience and management skills, in the opinion of KeyBank, necessary for the successful management of the Company. Additionally, the facility restricts, among other things, the payment of dividends, and further restricts, subject to specified exceptions, subordinated debt, purchase of securities, and the merger and sale of the Company.
During the year ended December 31, 2011, the Company borrowed an aggregate of $102,403,315 and repaid $101,182,143. As of December 31, 2011, the balance outstanding under the facility was $11,991,407 and availability $1,329,230.
Goodman Company, L.P. and certain of its affiliates (“Goodman”) is a supplier to the Company. On October 14, 2011, the Company and Goodman entered into an Amendment and Restatement No. 2 that restated the payment terms of a promissory note payable in the initial principal amount of $2,000,000. Amendment and Restatement No. 2 provides that from November 24, 2011 to October 24, 2014 the principal of $1,299,680 of the promissory note outstanding on October 14, 2011 is to be paid with monthly payments of $29,195 and a balloon payment of $470,582 on November 24, 2014. In connection with the KeyBank Agreement, Goodman, Universal and KeyBank entered into an Intercreditor and Lien Subordination Agreement dated as of October 18, 2011. The Intercreditor and Lien Subordination Agreement sets forth among other things the relative priorities of the security interests of KeyBank and Goodman in the assets of the Company.
In connection with the KeyBank Agreement, Goldman Associates of New York, Inc., William Pagano, Rita Folger, Paul Hildebrandt and John A. Hildebrandt, holders of promissory notes of the Company in the aggregate principal amount of $1,049,139, entered into subordination agreements dated as of October 18, 2011 in favor of KeyBank.
The Company believes that the KeyBank credit facility is sufficient to finance its current operating needs. The business of the Company will be materially and adversely affected if the bank substantially reduces the amount of the credit availability under the terms of the loan or the bank demands payment of the loan and the Company is unable to refinance the loan, or if liquidity is otherwise substantially reduced.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On May 27, 2011, the Company borrowed $200,000 from Goldman Associates, which was non-interest bearing and paid in full on June 28, 2011. On July 29, 2011, the Company borrowed $250,000 from Goldman Associates. Interest accrued on the loan at a per annum rate equal to the lesser of (i) 3% plus 90-day LIBOR or (ii) 4%. The loan was repaid on October 20, 2011. The funds were used for working capital purposes.
|
4.
|
Notes Payable
|
Notes payable consist of the following at December 31:
|
2011
|
2010
|
|||||||
|
Various term notes payable: (collateralized by the book value of equipment, the purchase of which such notes financed) with aggregate monthly principal and interest installments of $8,564 and $7,480 for 2011 and 2010, respectively, bearing interest between 0% to 11.4%
|
$ | 263,539 | $ | 215,861 | ||||
|
Term notes payable to related parties: subordinated unsecured convertible notes payable, bearing interest at the prime rate plus 2%, interest payable quarterly, with the principal payable on January 1, 2014. The notes are convertible into 66,666 shares of common stock at $3.00 per share during the term of the notes.(1)
|
200,000 | 200,000 | ||||||
|
Term note of $750,000 payable to a related party: subordinated secured note payable, bearing interest at the prime rate, which was 3.25% at December 31, 2011, plus 2%, interest payable quarterly, with the principal payable on January 1, 2014.(2)
|
750,000 | 750,000 | ||||||
|
Promissory notes payable to related parties and a private investor: subordinated unsecured notes payable, bearing interest at 12% per annum, payable in twenty equal quarterly payments of principle and accrued interest beginning October 10, 2009.(3)
|
90,127 | 126,177 | ||||||
|
Promissory note payable to a supplier: subordinated unsecured note, bearing interest at 8%, payable in monthly principal installments with the balance to be repaid in November 2014.(4)
|
1,258,482 | 1,688,416 | ||||||
| 2,562,148 | 2,980,454 | |||||||
|
Less current installments
|
(384,630 | ) | (1,094,275 | ) | ||||
| $ | 2,177,518 | $ | 1,886,179 | |||||
|
(1)
|
Included in the above term notes payable bearing interest at the prime rate plus 2% are two notes considered to be related party transactions; $100,000 term note payable to William Pagano, President of Universal and Director of the Company, and $100,000 term note payable to Rita Folger, beneficial owner of greater than 5% of the Company. On February 15, 2012, the Company amended the Convertible Notes dated as of July 29, 2004, as amended, payable to each Rita Folger and William Pagano (“Amended Convertible Notes”). The Amended Convertible Notes provide for the first maturity date and the final maturity date of each note to be extended to January 1, 2014 so that the entire principal amount of each note is due and payable on January 1, 2014.
|
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
(2)
|
The term note payable bearing interest at prime rate plus 2% is to Goldman Associates of New York, Inc., (“Goldman Associates”), in which Michael Goldman is majority shareholder, Chief Executive Officer and Chairman of the Board. On February 15, 2012, the Company amended the Secured Note dated July 29, 2004, as amended, (“Amended Secured Note”). The Amended Secured Note extended the maturity date of the note from January 1, 2012 to January 1, 2014.
|
|
(3)
|
Included in the above promissory notes payable bearing interest at 12% are four notes considered to be related party transactions; $20,206, $34,599, $18,186 and $7,072 in 2011 and $28,289, $48,383, $25,460 and $9,901 in 2010 payable to Rita Folger, Goldman Associates, Paul Hildebrandt and William Pagano, respectively.
|
|
(4)
|
Goodman Company, L.P. and certain of its affiliates (“Goodman”) is a supplier to the Company. On October 14, 2011, the Company and Goodman entered into an Amendment and Restatement No. 2 that restated the payment terms of a promissory note payable in the initial principal amount of $2,000,000. Amendment and Restatement No. 2 provides that from November 24, 2011 to October 24, 2014 the principal of $1,299,680 of the promissory note outstanding on October 14, 2011 is to be paid with monthly payments of $29,195 and a balloon payment of $470,582 on November 24, 2014. In connection with the KeyBank Agreement, Goodman, Universal and KeyBank entered into an Intercreditor and Lien Subordination Agreement dated as of October 18, 2011. The Intercreditor and Lien Subordination Agreement sets forth among other things the relative priorities of the security interests of KeyBank and Goodman in the assets of the Company.
|
Maturities of notes payable are as follows:
|
2012
|
$ | 384,630 | ||
|
2013
|
385,189 | |||
|
2014
|
1,740,302 | |||
|
2015
|
44,858 | |||
|
2016
|
7,169 | |||
|
|
$ | 2,562,148 |
|
5.
|
Capital Stock
|
Each share of the Company’s convertible preferred stock is convertible into one share of the Company’s common stock. Convertible 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 convertible preferred stock is redeemable, at the option of the Company, at $7.50 per share. The shares contain a liquidation preference provision entitling the holder to receive payments equaling $5.00 per share.
The voting rights of the common stockholders and preferred stockholders are based upon the number of shares of convertible preferred stock outstanding. The Company's Restated Certificate of Incorporation provides that the Board of Directors is to consist of one class of Directors if there are less than 600,000 shares Convertible Preferred Stock outstanding. As of December 31, 2011, the number of preferred shares outstanding was 293,057; accordingly, the Board of Directors to be elected at the 2012 annual shareholders’ meeting will consist of one class of Directors elected by the holders of common stock and convertible preferred stock voting together as one class on a share for share basis.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 2011, there were 434,723 shares of common stock reserved for conversion of preferred stock and for the exercise of vested stock options and convertible notes.
In March 2011, the Company privately placed 4,500,000 shares of common stock at $0.50 per share for total proceeds of $2,250,000. Of these shares, 3,000,000 shares were purchased by Goldman Associates of New York, Inc. (“Goldman Associates”), 600,000 shares were purchased by Rita Folger, 400,000 shares were purchased by Paul Hildebrandt, 200,000 shares were purchased by William Pagano and 300,000 shares were purchased by John A. Hildebrandt.
|
6.
|
Stock Option Plans
|
On September 29, 2006, the Company adopted the Colonial Commercial Corp. 2006 Stock Plan, (the “2006 Plan”). The 2006 Plan enables the Company to grant equity and equity-linked awards to the Company’s Directors, officers, employees and other persons who provide services to the Company. The 2006 Plan is intended to allow us to provide incentives that will (1) strengthen the desire of highly competent persons to provide services to us and (2) further stimulate their efforts on the Company’s behalf.
The following is a summary of certain provisions of the 2006 Plan.
Shares Available. The maximum number of shares of common stock that may be delivered under the 2006 Plan is 1,000,000, subject to adjustment for certain specified changes to the Company's capital structure. As of December 31, 2011, 925,000 options were available to be issued.
Eligibility. All directors, officers and other employees and other persons who provide services to the Company are eligible to participate in the 2006 Plan.
Administration. The administrator of the 2006 Plan will be the board or any other committee which the board designates to serve as the administrator of the 2006 Plan.
Types of Awards. The types of awards that may be made under the 2006 Plan are stock options, stock appreciation rights, restricted stock awards, and stock units. The board or the committee that administers the 2006 Plan will fix the terms of each award, including, to the extent relevant, the following: (1) exercise price for options, base price for stock appreciation rights, and purchase price, if any, for restricted stock awards, (2) vesting requirements and other conditions to exercise, (3) term and termination, (4) effect, if any, of a change of control and (5) method of exercise and of any required payment by the recipient.
Term of Plan. No award may be granted under the 2006 Plan after the close of business on the day immediately preceding the tenth anniversary of the adoption of the 2006 Plan. However, all awards made prior to such time will remain in effect in accordance with their terms.
No options were granted during the years ended December 31, 2011 and 2010.
The Company uses the Black-Scholes valuation method to estimate the fair value of stock options at the grant date. The Black-Scholes valuation model uses the option exercise price and the number of options expected to be exercised as well as assumptions related to the expected price volatility of the Company’s stock, the rate of return on risk-free investments, the period during which the options will be outstanding, and the expected dividend yield for the Company’s stock to estimate the fair value of the stock option on the grant date. The fair value of the stock options, which are subject to graded vesting, is expensed on a straight-line basis over the vesting life of the stock options.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Changes in options outstanding are as follows:
|
Shares Subject
to Option
|
Weighted
Average
Exercise Price
|
Aggregate
Intrinsic
Value
|
||||||||||
|
Balance at December 31, 2009
|
75,000 | $ | 1.85 | |||||||||
|
Options Granted
|
0 | 0.00 | ||||||||||
|
Options Exercised and/or Forfeited
|
0 | 0.00 | * | |||||||||
|
Balance at December 31, 2010
|
75,000 | $ | 1.85 | |||||||||
|
Options Granted
|
0 | 0.00 | ||||||||||
|
Options Exercised and/or Forfeited
|
0 | 0.00 | ||||||||||
|
Balance at December 31, 2011
|
75,000 | $ | 1.85 | * | ||||||||
|
Exercisable at December 31, 2011
|
75,000 | $ | 1.85 | * | ||||||||
*Intrinsic value is the value by which the quoted market price of the Company’s common stock exceeds the exercise price. As of December 31, 2011 and 2010, the quoted market price of the Company’s common stock was less than the exercise price.
In 2011 and 2010, the amount of stock-based compensation was $0 and as of December 31, 2011, the Company had no unrecognized compensation.
The following table summarizes information about stock options at December 31, 2011:
|
Options Outstanding and Exercisable
|
||||||||||||||
|
Weighted Average
|
||||||||||||||
|
Range of
|
Remaining
|
Weighted Average
|
||||||||||||
|
Exercise Prices
|
Shares
|
Contractual Life
|
Exercise Price
|
|||||||||||
| $ | 1.85 | 75,000 | 4.94 | $ | 1.85 | |||||||||
|
7.
|
Net Income Per Common Share
|
Basic income per share reflects the amount of earnings for the period available to common shareholders and holders of participating securities and is based upon the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings per share reflects, in periods in which they have a dilutive effect, the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock and is computed using the treasury stock method and if-converted method, where applicable.
For the years ended December 31, 2011 and 2010, convertible preferred stock, convertible into 293,507 shares of common stock, were included as common stock equivalents when calculating diluted earnings per share. Employee stock options totaling 75,000 for the years ended December 31, 2011 and 2010 were not included in the net income per share calculation because their effect would have been anti-dilutive. Convertible notes, in the principal amount of $200,000, convertible into 66,666 shares of common stock, were not included in the net income per share calculation for the years ended December 31, 2011 and 2010, because their effect would have been anti-dilutive.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
8.
|
Income Taxes
|
The provision for income taxes consists of the following:
|
2011
|
2010
|
|||||||||||||||||||||||
|
State
|
State
|
|||||||||||||||||||||||
|
And
|
And
|
|||||||||||||||||||||||
|
Federal
|
Local
|
Total
|
Federal
|
Local
|
Total
|
|||||||||||||||||||
|
Current
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
|
Deferred
|
- | - | - | - | - | - | ||||||||||||||||||
|
Total tax expense
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
A reconciliation of the provision for income taxes computed at the Federal statutory rate to the reported provision for income taxes follows:
|
2011
|
2010
|
|||||||
|
Tax provision at Federal statutory rate
|
34.00 | % | 34.00 | % | ||||
|
State income tax, net of federal benefit
|
6.00 | % | 6.00 | % | ||||
|
Change in valuation allowance for deferred tax assets
|
(44.51 | )% | (49.15 | )% | ||||
|
Permanent differences
|
4.51 | % | 9.15 | % | ||||
|
Total
|
0.00 | % | 0.00 | % | ||||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2011 and 2010 are presented below.
|
2011
|
2010
|
|||||||
|
Current Deferred Tax Assets:
|
||||||||
|
Federal net operating loss carryforwards
|
$ | 0 | $ | 0 | ||||
|
Current Deferred Tax Assets
|
$ | 0 | $ | 0 | ||||
|
Non-current Deferred Tax Assets:
|
||||||||
|
Federal net operating loss carryforwards
|
$ | 8,930,284 | $ | 8,935,398 | ||||
|
State net operating loss carryforwards
|
315,053 | 315,033 | ||||||
|
Allowance for doubtful accounts
|
334,639 | 327,042 | ||||||
|
Additional costs inventoried for tax purposes
|
456,616 | 441,156 | ||||||
|
Alternative Minimum Tax Credit Carryforward
|
49,436 | 49,436 | ||||||
|
Compensation
|
53,412 | 53,412 | ||||||
|
Rent
|
89,139 | 97,502 | ||||||
|
Goodwill
|
(129,164 | ) | (3,943 | ) | ||||
|
Depreciation
|
148,150 | 136,891 | ||||||
|
Non-current Deferred Tax Assets
|
10,247,565 | 10,351,927 | ||||||
|
Less Valuation Allowance
|
(10,247,565 | ) | (10,351,927 | ) | ||||
|
Net Non-Current Deferred Tax Assets
|
$ | 0 | $ | 0 | ||||
The change in the valuation allowance for the years ended December 31, 2011 and 2010 was $104,362 and $52,830, respectively.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 2011, the Company’s net operating loss carryforwards for federal income tax purposes were approximately $26,265,000. Various amounts of net operating loss carryforwards will expire from 2020 through 2031.
|
Expiration Year
|
Net Operating Losses
|
|||
|
2020
|
$ | 5,960,000 | ||
|
2021
|
2,737,000 | |||
|
2022
|
14,532,000 | |||
|
2028
|
1,010,000 | |||
|
2029
|
1,878,000 | |||
|
2030
|
134,000 | |||
|
2031
|
14,000 | |||
| $ | 26,265,000 | |||
Section 382 of the Internal Revenue Code (“Section 382”) imposes a limitation on a corporation's ability to utilize net operating loss carryforwards (“NOLs”) if it experiences an “ownership change.” In general, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. The Company has not had an ownership change under Section 382. If such a change did occur, a limitation could be placed on the Company's ability to utilize its NOLs.
One of the Company’s subsidiaries is under examination for sales and use tax in the State of Massachusetts. The Company has concluded that there will be an immaterial assessment and has not provided for such liability. A prior year income tax examination related to one of the Company’s subsidiaries in the State of New Jersey concluded during 2011 and resulted in a small refund.
|
9.
|
Fair Value of Financial Instruments
|
The Company uses the standard that 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 because of the short term nature of these instruments and the interest rate applicable to the Company’s financial status. Based on the current estimated market rates at December 31, 2011, the fair value of the non-current debt approximates its carrying value.
|
10.
|
Supplemental Cash Flow Information
|
The following is supplemental information relating to the consolidated statements of cash flows:
|
Cash paid during the years for:
|
2011
|
2010
|
||||||
|
Interest
|
$ | 828,800 | $ | 1,023,172 | ||||
|
Supplemental disclosure of non-cash financing and investing activities:
|
||||||||
|
Conversion of accounts payable to notes payable
|
$ | 0 | $ | 2,000,000 | ||||
|
Notes issued for purchase of fixed assets
|
$ | 132,792 | $ | 137,278 | ||||
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
11.
|
Employee Benefit Plans
|
401(k) Plan
The Company has a 401(k) plan, which covers substantially all employees. Participants in the plan may contribute a percentage of compensation, but not in excess of the maximum allowed under the Internal Revenue Code. In 2011 and 2010, the plan did not provide for matching contributions.
|
12.
|
Business and Credit Concentrations
|
The same three suppliers accounted for 41% and 39% of the Company’s purchases for each of the years 2011 and 2010, respectfully. As of December 31, 2011, the Company’s outstanding balance payable to these three suppliers was $994,135. The loss of one or all of these suppliers could have a material adverse effect upon its business for a short-term period.
|
13.
|
Commitments and Contingencies
|
(a) Leases
The Company records lease payments via the straight line method and, for leases with step rent provisions whereby the rental payments increase over the life of the lease, the Company recognizes the total minimum lease payments on a straight-line basis over the lease term. The Company is obligated under operating leases for warehouse, office facilities and certain office equipment which amounted to $3,519,483 and $3,611,126 for the years ended December 31, 2011 and 2010, respectively. At December 31, 2011, future minimum lease payments in the aggregate and for each of the five succeeding years are as follows:
|
2012
|
$ | 3,421,322 | ||
|
2013
|
3,120,080 | |||
|
2014
|
2,597,795 | |||
|
2015
|
2,520,126 | |||
|
2016
|
2,431,031 | |||
|
Thereafter
|
1,829,655 | |||
|
Total
|
$ | 15,920,009 |
Subsequent to December 31, 2011, the Company exercised one of its renewal options to extend the leases for its Great Barrington and Pittsfield, Massachusetts locations for a period of five years, expiring on September 10, 2017.
(b) Litigation
(i) Universal Supply Group, Inc.
Universal Supply Group, Inc., a wholly owned subsidiary of the Company, is a New York corporation (“Universal”). On June 25, 1999, Universal acquired substantially all of the assets of Universal Supply Group, Inc., a New Jersey corporation, including its name, pursuant to the terms of a purchase agreement. Subsequent to the acquisition, Universal Supply Group, Inc. (the selling corporation) formerly known as Universal Engineering Co., Inc., changed its name to Hilco, Inc. Hilco, Inc. acquired the assets of Amber Supply Co., Inc., formerly known as Amber Oil Burner Supply Co., Inc., in 1998, prior to Hilco’s sale of assets to Universal. Hilco, Inc. is hereinafter referred to as the “Universal Predecessor.” The majority shareholders of Hilco, Inc. were John A. Hildebrandt and Paul Hildebrandt.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company understands that the Universal Predecessor and many other companies have been sued in the Superior Court of New Jersey (Middlesex County) by plaintiffs filing lawsuits alleging injury due to asbestos. As of December 31, 2011, there existed 7 plaintiffs in these lawsuits relating to alleged sales of asbestos products, or products containing asbestos, by the Universal Predecessor. Subsequent to December 31, 2011, 1 action was dismissed and 1 plaintiff filed an action, which results in 7 remaining plaintiffs in these lawsuits. The Company never sold any asbestos related products.
Of the existing plaintiffs as of December 31, 2011, 3 filed actions in 2011 and 4 filed actions in 2010. There are 208 other plaintiffs that have had their actions dismissed and 17 other plaintiffs that have settled as of December 31, 2011 for a total of $3,364,500 paid by defendants other than Universal. There has been no judgment against the Universal Predecessor.
The Company’s Universal subsidiary was named by 37 plaintiffs; of these, 1 filed an action in 2010, 11 filed actions in 2007, 6 filed actions in 2006, 11 filed actions in 2005, 5 filed actions in 2001, 1 filed an action in 2000, and 2 filed actions in 1999. Thirty-three plaintiffs naming Universal have had their actions dismissed and, of the total $3,364,500 of settled actions, 3 plaintiffs naming Universal have settled for $27,500. No money was paid by Universal in connection with any settlement. Following these dismissed and settled actions there existed 1 plaintiff that named Universal as of December 31, 2011. Subsequent to December 31, 2011, 1 action that named Universal was dismissed and 1 plaintiff filed an action that named Universal, which results in 1 remaining plaintiff naming Universal.
As set forth in more detail below, the Company has been indemnified against asbestos-based claims, and insurance companies are defending the interests of the Universal Predecessor and the Company in these cases.
Based on advice of counsel, the Company believes that none of the litigation that was brought against the Company’s Universal subsidiary through December 31, 2011 is material, and that the only material litigation that was brought against the Universal Predecessor through that date was Rhodes v. A.O. Smith Corporation, filed on April 26, 2004 in the Superior Court of New Jersey, Law Division, Middlesex County, Docket Number MID-L-2979-04AS. The Company was advised that the Rhodes case was settled for $3,250,000 (“Settlement”) under an agreement reached in connection with a $10,000,000 jury verdict that was rendered on August 5, 2005. The Company was not a defendant in the Rhodes case.
The Company believes that Rhodes differed from the other lawsuits in that plaintiff established that he contracted mesothelioma as a result of his occupational exposure to asbestos dust and fibers and that a predecessor of the Company was a major supplier of the asbestos containing products that allegedly caused his disease.
(ii)(a) Indemnification
John A. Hildebrandt, Paul Hildebrandt and the Universal Predecessor have jointly and severally agreed to indemnify the Company’s Universal subsidiary from and against any and all damages, liabilities and claims due to exposure to asbestos at any time prior to the June 25, 1999 closing of the purchase agreement referred to earlier. These agreements are set forth in the purchase agreement. Paul Hildebrandt, one of the indemnitors, was a Director of the Company from September 29, 2004 to January 28, 2005.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The indemnitors may use their own counsel to defend these claims. The indemnitors are not liable for any settlement effected without their consent. The indemnitors may settle and pay money claims without the consent of the Company. There is no indemnification unless claims aggregate $50,000; once this trigger point is reached, indemnification is required for all claims, including the first $50,000, but excluding claims of less than $10,000. The indemnification requirement survives at least until 30 days after the running of any relevant statutes of limitation.
The obligation of the indemnitors is joint and several, so that the Company can have recourse against any one or more of these indemnitors, whether or not any other indemnitor has previously defaulted on its obligation to us. There are no other limitations to the Company’s rights to indemnification. The Company cannot be certain that the indemnitors have the financial wherewithal to meet their obligations to indemnify the Company.
(ii)(b) Insurance
The assets that the Universal Predecessor sold to the Company included its insurance policies and other agreements and contracts. The policies provide coverage for liability accruing during the periods for which premiums were paid. The Universal Predecessor was formed in 1940. Copies of policies are available for each year beginning in 1970 and ending with the closing under the purchase agreement in 1999. Copies of policies for the period from 1940 to 1969 are not available.
Insurance companies acknowledge coverage for potential asbestos claims under certain of these policies. Insurance companies under additional policies have reserved their right to deny coverage but have continued to defend and indemnify the Universal Predecessor and the Company under the contested policies.
There are periods during the years from 1940 to 1999 in which the Universal Predecessor did not have coverage for potential asbestos claims. Subject to litigation, insurance companies may maintain that the existence of these periods’ results in coverage for only a portion of a particular injury that varies with the period during which there was asbestos coverage relating to the injury, and that the balance of any settlement or judgment is to be paid by the insured. As of December 31, 2011, no insurance company has claimed any contribution for a gap in coverage except for a claim for $160 made by one insurance company to the Universal Predecessor in 1995. The Universal Predecessor asserted that it had no obligation to pay this amount and did not make any payment.
Insurance companies have, as of December 31, 2011, defended the Company and the Universal Predecessor, and have paid all settlement amounts and defense costs. Except for $160 referred to above, the insurance companies have not requested any payments from the Company or from the Universal Predecessor.
The Company’s Universal subsidiary has not engaged in the sale of asbestos products since its formation in 1997. Its product liability policies for all years since 1998 exclude asbestos claims.
COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(iii) General
Regardless of indemnification and insurance coverage, management does not in any event consider the Company to be liable for the asbestos-based lawsuits that name the Company or for any other claim that arises as a result of actions or omissions by the Universal Predecessor. The Company expressly disclaimed the assumption of any liabilities when the Company purchased the assets of the Universal Predecessor. It is the opinion of management that the existing asbestos litigation will not have a material adverse effect on the Company. Nevertheless, the Company could be materially and adversely affected if it is held liable for substantial asbestos claims or if it incurs substantial legal or settlement costs. This material and adverse effect would occur if indemnitors fail to honor their indemnification agreements and insurance is not available either because policy limits are exceeded, or because insurance companies successfully deny coverage or claim limitations on their liabilities by reason of gaps in coverage or otherwise.
Since management regards as remote the potential payment of any asbestos-based claim, no amounts have been accrued for any period relating to asbestos claims, and no amounts have been recorded for asbestos claims for any period in the financial statements.
(iv) Other Litigation
The Company is periodically involved in other litigation in the ordinary course of business. The Company vigorously defends all matters in which the Company or its subsidiaries are named defendants and, for insurable losses, maintains significant levels of insurance to protect against adverse judgments, claims or assessments. Although the adequacy of existing insurance coverage or the outcome of any legal proceedings cannot be predicted with certainty, the Company does not believe the ultimate liability associated with any claims or litigation will have a material impact to its financial condition or results of operations.
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14.
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Related Party Transactions
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(a)
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A subsidiary of the Company leases a warehouse and store in Wharton, New Jersey comprising of 27,000 square feet from a company owned by Mr. Paul Hildebrandt under a lease that expires July 31, 2017. The Company paid Mr. Hildebrandt’s company $220,788 and $215,534 during the years ended December 31, 2011 and 2010, respectively. William Salek, the Company’s Chief Financial Officer, is the son-in-law of Mr. Hildebrandt. Mr. Hildebrandt served as a Director of the Company from July 2004 to January 2005.
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(b)
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Pursuant to a secured note dated July 29, 2004, as amended, the Company owes Goldman Associates of New York, Inc. (“Goldman Associates”), the principal amount of $750,000 at December 31, 2011 collateralized by the assets of the Company. The secured note is subordinate to the borrowings under the credit facility, bears interest at the prime rate plus 2% and is due on January 1, 2014. Michael Goldman is the Chief Executive Officer and Chairman of the Board of Goldman Associates and is Chairman of the Board of the Company.
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(c)
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Oscar Folger and Jeffrey Folger, of the law firm of Folger & Folger, are counsel to the Company. Rita Folger, a more than 5% shareholder of the Company, is the wife of Oscar Folger and the mother of Jeffrey Folger. Professional fees paid to the law firm of Folger & Folger for the years ended December 31, 2011 and 2010 were $60,719 and $20,093, respectively.
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COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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(d)
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Pioneer Realty Holdings, LLC, a New York limited liability company (“Pioneer”), is the owner of the premises located at 836 Route 9, Fishkill, New York, formerly known as 2213 Route 9, Fishkill, New York that is leased to a subsidiary of the Company under a lease that expires on March 31, 2017, subject to two five-year renewal options.
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William Pagano, Chief Executive Officer and Director of the Company, has a 55% interest in Pioneer and each of Mrs. Folger and Jeffrey Folger has a 20% interest in Pioneer Realty Partners I, LLC, which has a 40% interest in Pioneer. The Company paid Pioneer $270,516 and $268,896 during the years ended December 31, 2011 and 2010, respectively.
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(e)
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Mr. Pagano and Mrs. Folger are each holders of convertible unsecured notes in the amount of $100,000, issued pursuant to the terms of a private placement made on July 29, 2004, as amended. The convertible unsecured notes bear interest at the prime rate plus 2% and are due on January 1, 2014.
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Interest expense on each of the notes held by Mr. Pagano and Mrs. Folger amounted to $5,250 for each of the years ended December 31, 2011 and 2010.
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(f)
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Mr. Hildebrandt, Goldman Associates, Mr. Pagano and Mrs. Folger were each holders of unsecured notes in the amounts of $90,000, $171,033, $35,000 and $100,000, respectively, issued in connection with the Company’s August 20, 2009 tender offer to purchase any and all shares of its convertible preferred stock at $1.25 per share. The unsecured notes bear interest at 12% and are payable in twenty equal quarterly payments beginning October 10, 2009.
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Subsequent to the expiration of the Company’s tender offer, the Company repaid to Mr. Hildebrandt, Goldman Associates, Mr. Pagano and Mrs. Folger the unused portion of the above notes. These repayments amounted to $50,947, $96,818, $19,813 and $56,608, respectively. As a result of these repayments, Mr. Hildebrandt, Goldman Associates, Mr. Pagano and Mrs. Folger were each holders of unsecured notes in the amounts of $39,053, $74,215, $15,187 and $43,392, respectively.
At December 31, 2011 the remaining principal on the above notes to Mr. Hildebrandt, Goldman Associates, Mr. Pagano and Mrs. Folger were $18,186, $34,599, $7,072 and $20,206, respectively. Interest expense on the notes held by Mr. Hildebrandt, Goldman Associates, Mr. Pagano and Mrs. Folger amounted to $2,728, $5,184, $1,061 and $3,031, respectively, for the year ended December 31, 2011. Interest expense on the notes held by Mr. Hildebrandt, Goldman Associates, Mr. Pagano and Mrs. Folger amounted to $3,601, $6,843, $1,400 and $4,001, respectively, for the year ended December 31, 2010.
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(g)
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In March 2011, the Company privately placed 4,500,000 shares of common stock at $0.50 per share for total proceeds of $2,250,000. Of these shares, 3,000,000 shares were purchased by Goldman Associates of New York, Inc. (“Goldman Associates”), 600,000 shares were purchased by Rita Folger, 400,000 shares were purchased by Paul Hildebrandt, 200,000 shares were purchased by William Pagano and 300,000 shares were purchased by John A. Hildebrandt.
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(h)
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On February 24, 2011, the Board of Directors of the Company appointed Melissa Goldman-Williams to serve as Vice President of Operations. Mrs. Goldman-Williams receives a salary of $135,000 per year. Mrs. Goldman-Williams is a director of the Company and is the daughter of Michael Goldman, the Chairman of the Board of the Company.
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COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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(i)
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On May 27, 2011, the Company borrowed $200,000 from Goldman Associates, which was non-interest bearing and paid in full on June 28, 2011.
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(j)
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On July 29, 2011, the Company borrowed $250,000 from Goldman Associates. Interest accrued on the loan at a per annum rate equal to the lesser of (i) 3% plus 90-day LIBOR and (ii) 4%. The loan was repaid on October 20, 2011.
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(k)
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On March 1, 2012, the Company borrowed $350,000 from Goldman Associates. Interest accrues on the loan at 4% per annum and is due on May 24, 2012.
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COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Schedule II
Colonial Commercial Corp. and Subsidiaries
Schedule of Valuation and Qualifying Accounts
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Additions
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||||||||||||||||||||
|
Description
|
Balance at
Beginning |
Charged to
Costs and |
Charged to
Other |
Deductions
|
Balance at
End of Year |
|||||||||||||||
| For the year ended December 31, 2011 | ||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 694,083 | $ | 318,325 | $ | 35,685 | (a) | $ | (395,644 | ) (b) | $ | 652,449 | ||||||||
| For the year ended December 31, 2010 | ||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 619,740 | $ | 548,559 | $ | 22,793 | (a) | $ | (497,009 | ) (b) | $ | 694,083 | ||||||||
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a.
|
Comprised primarily of accounts that were previously charged against the allowance, and have since been collected.
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b.
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Comprised primarily of uncollected accounts charged against the allowance.
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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) | ||
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By:
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/s/ William Pagano | |
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William Pagano,
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||
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Chief Executive Officer and Director
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||
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By:
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/s/ William Salek
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|
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William Salek,
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||
|
Chief Financial Officer & Principal Accounting Officer
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||
| Dated: March 27, 2012 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been duly signed below on March 27, 2012 by the following persons on behalf of the Registrant and in the capacities indicated:
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By:
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/s/ E. Bruce Fredrikson
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|
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E. Bruce Fredrikson, Director
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||
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By:
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/s/ Peter Gasiewicz
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|
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Peter Gasiewicz,
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||
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President, Chief Operating Officer and Director
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||
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By:
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/s/ Melissa Goldman-Williams
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|
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Melissa Goldman-Williams,
|
||
|
Vice President of Operations and Director
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||
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By:
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/s/ Michael Goldman
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|
|
Michael Goldman, Chairman of the Board
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||
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By:
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/s/ Stuart H. Lubow
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|
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Stuart H. Lubow, Director
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||
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By:
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/s/ Ronald H. Miller
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|
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Ronald H. Miller, Director
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||
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By:
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/s/ William Pagano
|
|
|
William Pagano,
|
||
|
Chief Executive Officer and Director
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