SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

     FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 COMMISSION FILE NO. 1-6663

                            COLONIAL COMMERCIAL CORP.
             ------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

              NEW YORK                             11-2037182
  -------------------------------      ------------------------------------
  (State or other jurisdiction of      (I.R.S. Employer Identification No.)
   Incorporation or Organization)

    3601 HEMPSTEAD TURNPIKE, LEVITTOWN, NEW YORK             11756-1315
    --------------------------------------------             ----------
       (Address of Principal Executive Offices)              (Zip Code)

        Registrant's Telephone Number, Including Area Code: 516-796-8400
                                                           -------------

           Securities Registered Pursuant to Section 12(b) of the Act:

          TITLE OF CLASS            NAME OF EXCHANGE ON WHICH REGISTERED
          --------------            ------------------------------------
              None                                   None

           Securities Registered Pursuant to Section 12(g) of the Act:
                     Common Stock, Par Value $.05 Per Share
              CONVERTIBLE PREFERRED STOCK, PAR VALUE $.05 PER SHARE
           ----------------------------------------------------------
                                (Title of Class)

Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.  Yes     No X
                      ---    ---

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).  Yes     No X
                                       ---    ---
The aggregate market value of voting and non-voting stock held by non-affiliates
of the Registrant was approximately $2,709 as of June 28, 2002.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
Registrant's best knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )

The number of shares outstanding of Registrant's Common Stock and Convertible
Preferred Stock as of November 11, 2003.

                                                           OUTSTANDING
                                                           -----------
        Common Stock $.05 par value                         2,405,804
        Convertible Preferred Stock $.05 par value          1,464,242


                       Documents Incorporated by Reference

                                      None

<PAGE>


                                     PART I.
FORWARD-LOOKING STATEMENTS

This Report on Form 10-K contains forward-looking statements relating to such
matters as anticipated financial performance and business prospects. When used
in this Report, the words "anticipates," "expects," "believes," "may," "intends"
and similar expressions are intended to be among the statements that identify
forward-looking statements. From time to time, the Company may also publish
forward-looking statements. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. Forward-looking
statements involve risks and uncertainties, including, but not limited to, the
consummation of certain events referred to in this report, the ability to
continue as a going concern, the availability of financing, the impact of the
bankruptcy of Atlantic on a go-forward basis, technological changes, competitive
factors, maintaining customer and vendor relationships, inventory obsolescence
and availability, and other risks detailed in the Company's periodic filings
with the Securities and Exchange Commission, which could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements.

ITEM 1 BUSINESS

   (a)    GENERAL DEVELOPMENT OF BUSINESS

          Colonial Commercial Corp. (the "Company" or "Registrant" or
"Colonial") is a New York corporation, which was incorporated on October 28,
1964. Unless otherwise indicated, the term "Registrant," "Company" or "Colonial"
refers to Colonial Commercial Corp. and its consolidated subsidiaries.

          The Company's continuing operations are conducted through its wholly
owned subsidiary, Universal Supply Group, Inc., ("Universal"). The business
operations of Universal are described below under "Narrative Description of
Business."

          On July 1, 2002, Universal paid $670,981 to purchase certain accounts
receivable, inventory and other accessories from Goldman Associates of New York,
Inc. ("Goldman"), relating to Goldman's HVAC business in New Jersey and certain
areas of New York.

         The Company disposed of its Well-Bilt door and doorframe manufacturing
segment in February 2001. A loss from operations of this segment of $3,212,152
and a $3,731,654 loss on disposal of this segment are reflected in the
consolidated statements of operations for the year ended December 31, 2000.

         On January 28, 2002, Atlantic Hardware & Supply Corporation
("Atlantic"), a wholly-owned subsidiary of the Company, filed a voluntary
petition with the U. S. Bankruptcy Court for the Eastern District of New York to
reorganize under Chapter 11 of the U. S. Bankruptcy Code. As of the date of this
filing, the proceedings are still on-going. Colonial and Universal are not part
of the Chapter 11 filing. The business of Atlantic is today conducted by one
employee whose sole function is to collect on accounts receivables for the
benefit of Atlantic's creditors, and the Company does not believe that Atlantic
will emerge from the reorganization with any value for the Company. The Company
does not exercise significant influence over Atlantic's operations and financial
activities. As of December 31, 2001, Atlantic has been deconsolidated


                                       1
<PAGE>


on the Company's financial statements and its operations are being reported as
"results from operations of discontinued segments."

         On November 21, 2002, the Company and Universal were released from
their guarantees of the indebtedness (approximately $5.8 million) by Atlantic to
Colonial's and Atlantic's lending bank, in return for the agreement by the
Company and Universal to pay to the bank $2.5 million as a five-year term loan
under the Company's line of credit with the bank, or, if earlier, on demand by
the bank.

         The Company's shares were delisted from the Nasdaq SmallCap Market in
June 2002 because (i) the Company failed to timely file its Form 10-Q for the
fiscal quarter ended March 31, 2002 and its Form 10-K for 2001, (ii) the market
value of its publicly held shares of common stock was less than the required $1
million, and (iii) the closing bid price of its common stock was less than $1
per share.

         On September 30, 2003, Colonial, through its newly formed, wholly owned
subsidiary, RAL Purchasing, Inc., purchased substantially all of the assets and
certain liabilities of RAL Supply Group, Inc. ("RAL"), for a purchase price of
$3,838,521. RAL is a distributor of heating and cooling equipment and high-end
plumbing fixtures with six locations, servicing Orange, Rockland, Ulster and
Sullivan counties in New York. In connection with this acquisition, Colonial's
limit on its credit facility was increased by $2,000,000 to $14,000,000.

         On July 16, 2003, Colonial completed a private placement pursuant to
Regulation D of the Securities Exchange Act of 1933. Colonial raised $240,000
through the issuance of 802,000 shares of Common Stock at $0.30 per share, as
determined by the Board of Directors. The issuance of these additional shares
increased our outstanding shares by 26.1%. The stock was sold to officers and
directors of the Company and one private investor. The proceeds of the private
placement will be used for general working capital purposes.

   (b)   FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

         The Company has one continuing industry segment - heating, ventilation
and air conditioning.

   (c)   NARRATIVE DESCRIPTION OF BUSINESS

         HEATING, VENTILATION AND AIR CONDITIONING

         The heating, ventilation and air conditioning segment, which accounts
for all of the Company's current net sales, operates as Universal. Universal is
a distributor of heating, ventilation and air conditioning equipment (HVAC) and
climate control systems. Universal's products are marketed primarily, in New
Jersey and New York, through nine locations, to HVAC contractors, who, in turn,
sell such products to residential, commercial and industrial customers. No
product accounted for 15% or more of consolidated revenues during 2002, 2001 and
2000.

         Universal had approximately 4,500 customers in 2002. No customer
accounted for more than 10% of consolidated net sales in 2002. Universal
believes that the loss of any one customer would not have a material adverse
effect on its business.

         Universal purchases products from approximately 360 suppliers. In 2002,
two suppliers accounted for 49.1% of Universal's purchases. The loss of one of
these suppliers could have a material adverse effect on its business for a
short-term period. Universal believes that the loss of any one of its other
suppliers would not have a material adverse effect on its business.




                                       2
<PAGE>


         Universal competes primarily with other distributors in its
geographical region. Universal believes it is one of the largest HVAC
distributors in northern New Jersey, and that it maintains a competitive edge by
providing in-house training and technical field support to its customers.

         OTHER MATTERS

         As of December 31, 2002, the Company had 92 employees (excluding 3
Atlantic employees), of whom two were executive officers at its corporate
offices in Levittown, New York. The Company believes its employee relations are
satisfactory.

 (d)     FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

         The Company has no foreign operations and all sales, during the last
three years, are to customers located in the United States.

ITEM 2.  PROPERTIES

         The Company's principal executive offices are located at 3601 Hempstead
Turnpike, Levittown, New York 11756-1315, in leased premises (approximately
1,306 square feet).

             Universal maintains an office and warehouse in Hawthorne, New
Jersey and additional warehouses in Bogota, Augusta, North Brunswick, Cedar
Knolls, Wharton and Rochelle Park, New Jersey and Long Island City and New
Hampton, New York, occupying approximately 166,000 square feet.

             The Registrant's premises are suitable and adequate for their
intended use and are adequately covered by insurance. As of December 31, 2002,
the Company leases all its facilities.

ITEM 3.  LEGAL PROCEEDINGS

              See "General Development of Business" for information on a chapter
11 proceeding for Atlantic.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

              No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2002.

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK, CONVERTIBLE PREFERRED
STOCK AND RELATED STOCKHOLDER MATTERS

 (a)     Price Range of Common Stock and Convertible Preferred Stock


                                       3
<PAGE>


         The Company's shares were delisted from the Nasdaq SmallCap Market in
June 2002 because (i) the Company failed to timely file its Form 10-Q for the
fiscal quarter ended March 31, 2002 and its Form 10-K for 2001, (ii) the market
value of its publicly held shares of common stock was less than the required $1
million, and (iii) the closing bid price of its common stock was less than $1
per share.

         From July 11, 2002 through December 31, 2002, the Company's common
stock was traded on the Over the Counter (OTC) - Pink Sheets market. From
January 1, 2001 through June 9, 2002, the Company's common stock and convertible
preferred stock were traded on the NASDAQ small capitalization automated
quotation system. The following table sets forth the quarterly high and low bid
prices during 2002 and 2001. The quotations set forth below represent
inter-dealer quotations, which exclude retail markups, markdowns and commissions
and do not necessarily reflect actual transactions.

                        Common Stock                Convertible Preferred Stock

                   High                Low             High             Low
                  --------           --------        --------         --------
2002
First Quarter     $  27/32             1/4          2  1/16              7/8
Second Quarter        1/2              9/32         1 15/16           1  5/8
Third Quarter         1/8              1/32      Not Available     Not Available
Fourth Quarter        1/8              3/32      Not Available     Not Available

2001
First Quarter     $3  1/2            1 1/2         3  1/2             1 5/16
Second Quarter     1  3/4              7/8         2 13/32            1
Third Quarter      1 25/32            13/16        2 13/32            1  1/8
Fourth Quarter     1  5/32            17/32        2  7/16            1  7/16

(b) Approximate number of common and convertible preferred stockholders:

                                                      Approximate Number of
                                                          Record Holders
Title of Class                                     (As of November 11, 2003)
---------------                                    -------------------------

Common stock par value $.05 per share                           510
Convertible preferred stock par value $.05 per share          1,328


(c)      Dividends

             The Company does not contemplate common stock dividend payments in
the near future and is restricted from paying any dividends under its credit
facility.







                                       4
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                                ------------------------
                                      2002               2001                 2000               1999                1998
                                ---------------------------------------------------------------------------------------------
<S>                             <C>              <C>                <C>               <C>               <C>
Sales                           $ 36,998,800         31,080,398 (1)       32,342,160 (1)(2)    16,592,423 (1)(3)           -- (1)(3)
                                ------------       ------------         ------------         ------------        ------------
Operating income (loss)              226,567            519,036              (58,036)             209,572            (993,541)
                                ------------       ------------         ------------         ------------        ------------
Income (loss) from continuing
  operations                        (106,310)        (1,610,810)          (1,323,627)            (118,492)          2,746,582 (4)
Income (loss) from operations
  of discontinued segment          3,300,695 (5)     (6,098,023)          (2,977,916)           1,025,529           1,105,171

Income (loss) on disposal of
  discontinued operation                  --            106,509           (3,731,654)                  --                  --
                                ------------       ------------         ------------         ------------        ------------
Income (loss) on discontinued
  operation                        3,300,695         (5,991,514)          (6,709,570)           1,025,529           1,105,171

  Net income (loss)                3,194,385         (7,602,324)          (8,033,197)             907,037           3,851,753 (4)
                                ============       ============         ============         ============        ============
Income (loss) per common  share:
  Basic:
     Continuing operations             (0.07)             (1.00)               (0.86)               (0.08)              1.90  (4)
     Income (loss) on
       discontinued operation           2.06              (3.74)               (4.35)                0.68                0.76
                                ------------       ------------         ------------         ------------        ------------
     Net income (loss) per
       common share                    (1.99)             (4.74)               (5.21)                0.60                2.66 (4)
                                ============       ============         ============         ============        ============
  Diluted:
     Continuing operations             (0.07)             (1.00)               (0.86)               (0.08)               0.88
     Income (loss) on
       discontinued operation           2.06              (3.74)               (4.35)                0.68                0.35
                                ------------       ------------         ------------         ------------        ------------
     Net income (loss) per
       common share                    (1.99)             (4.74)               (5.21)                0.60                1.23
                                ============       ============         ============         ============        ============

</TABLE>
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                            ------------
                                     2002              2001                    2000               1999           1998
                                ---------------------------------------------------------------------------------------------
<S>                             <C>              <C>                <C>               <C>               <C>
Total assets                    $ 13,686,842         13,925,490           26,550,994           23,273,837 (3)      11,380,470
Current liabilities
   Borrowings under
    credit facility               10,350,889 (5)      7,929,576            9,096,294            7,573,761 (3)              --
   Other                           3,953,063 (6)      9,659,183 (6)       12,876,360            3,647,396 (3)         600,091
Long-term liabilities, less
current obligations                   64,775            213,001              852,286              351,141 (3)              --
<FN>
(1)  Due to the discontinuance of operations in 2001, excludes sales from
     Atlantic which were $24,561,972 $25,978,063, $25,666,531 and $25,233,909 in
     2001, 2000, 1999 and 1998, respectively.
(2)  Due to the discontinuance of operations in 2000, excludes sales from
     Well-Bilt, which were $4,074,798, net of inter-company sales.
(3)  In July 1999, Colonial acquired Universal. Prior to that, Colonial had no
     sales from continuing operations.
(4)  Includes a gain on sale of securities in 1998 of $2,101,853 and a gain on
     land sale in 1998 of $826,797.
(5)  The amounts shown in the table as "Borrowings under Credit Facility," as of
     December 31, 2002, includes $2,500,000 which Colonial and Universal agreed
     to pay to their lending bank in consideration of the bank releasing
     Colonial and Universal from their guarantees to the bank of an additional
     $3,300,695 of Atlantic's line of credit. The release from the $3,300,695 of
     the guarantee resulted in the recognition of income from discontinued
     operations in 2002. See "General Development of Business."
(6)  Amount includes $219,007 of guaranteed liabilities of Atlantic, which the
     Company continues to recognize, at cost. The Company believes that it is
     not responsible for any liabilities beyond the amount recorded.
</FN>
</TABLE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

The accounting policies below are critical to the Company's business operations
and the understanding of results of operations. The Company's discussion and
analysis of its financial condition and results of operations are based upon the
Company's consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires the Company to make
estimates and assumptions that affect the reported amounts of assets and


                                       5
<PAGE>


liabilities, disclosure of contingent assets and liabilities as the date of the
consolidated financial statements and the reported amount of revenue and
expenses during the reporting period. The Company bases its estimates on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of asset and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

Revenue for the Company primarily consists of sales of heating, ventilation and
air conditioning equipment and climate control systems. The Company recognizes
revenue after it receives a purchase order with a fixed determinable price from
the customer and shipment of products has occurred in accordance with the
shipping terms. There are no further obligations on the part of the Company
subsequent to revenue recognition, except for returns of defective product from
the Company's customers, which are covered under the manufacturer's warranty.
Credits for returns are not issued to the customer until such time as the
Company receives notification that a vendor credit from the manufacturer will be
issued for the product in question.

The Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. The
Company establishes and monitors the allowance for doubtful accounts based on
the credit risk of specific customers, customer concentrations, historical
trends and other information. The Company had gross accounts receivable of
$5,452,104 and an allowance for doubtful accounts of $265,000 as of December 31,
2002. Although the Company believes its allowance is sufficient, if the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances would be
required.

The Company writes down its inventories for estimated slow moving and obsolete
goods equal to the difference between the carrying value of the inventory and
the estimated market value, based upon assumptions about future demand and
market conditions. A significant sudden increase in the demand for the Company's
products could result in a short-term increase in the cost of inventory
purchases, while a significant decrease in demand could result in an increase in
the amount of excess inventory quantities on-hand. Additionally, the Company's
estimates of future product demand may prove to be inaccurate, in which case the
Company may have understated or overstated the write-down required for excess
and obsolete inventory. In the future, if the Company's inventory is determined
to be overvalued, it would be required to recognize such costs in its cost of
goods sold at the time of such determination. Likewise, if the Company does not
properly estimate the lower of cost or market of its inventory and it is
therefore determined to be undervalued, it may have over-reported its cost of
goods sold in previous periods, and would be required to recognize such
additional operating income at the time of sale. Therefore, although the Company
makes every effort to ensure the accuracy of its forecasts of future product
demand, any significant unanticipated changes in demand could have a significant
impact on the value of the Company's inventory and its reported operating
results.

Goodwill and other intangible assets amounting to $1,416,929 and $85,833 at
December 31, 2002, respectively, consist of assets arising from acquisitions.
The Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," (Statement No. 142) effective January 1,
2002. Under Statement No. 142, goodwill and intangible assets with indefinite
lives are no longer amortized, but are reviewed at least annually for
impairment. In assessing the recoverability of the Company's goodwill and other
intangible assets, the Company must make assumptions regarding estimated future


                                       6
<PAGE>


cash flows and other factors to determine the fair value of the respective
assets and liabilities of the reporting unit. Upon adoption and again as a
result of the Company's annual impairment test, there was no indication of
impairment for goodwill acquired in prior business combinations. If the
Company's estimates or their related assumptions change in the future, the
Company may be required to record impairment charges related to its goodwill.

The Company has accounted for, and currently accounts for, income taxes in
accordance with Statement 109. "Accounting for Income Taxes." This statement
establishes financial accounting and reporting standards for the effects of
income taxes that result from an enterprise's activities during the current and
preceding years. It requires an asset and liability approach for financial
accounting and reporting of income taxes. The realization of future tax benefits
of deductible temporary differences and operating loss or tax credit
carryforwards will depend on whether the Company will have sufficient taxable
income of an appropriate character within the carryback and carryforward period
permitted by the tax law to allow for utilization of the deductible amounts and
carryforwards. Without sufficient taxable income to offset the deductible
amounts and carryforwards, the related tax benefits will expire unused. The
Company evaluates both positive and negative evidence in making a determination
as to whether it is more likely than not that all or some portion of the
deferred tax asset will not be realized. As of December 31, 2002, the Company
had a deferred tax valuation allowance of $12,727,209.

RESULTS OF OPERATIONS 2002-2001

The Company had a net income of $3,194,385 for the year ended December 31, 2002.
This compares with a net loss of $7,602,324 for the year ended December 31,
2001. The 2002 net income consists of $3,300,695 income from the discontinued
operations of Atlantic resulting from the settlement between Colonial, Universal
and Atlantic's lending bank relating to the release of Colonial and Universal
from $5,800,695 of guarantees of Atlantic's indebtedness in return for the
agreement for the Company to pay $2,500,000 to the Bank as a five year term
loan. The loss in 2001 primarily reflects a $6,098,023 loss from the
discontinued operations of Atlantic (now unconsolidated), and a net $106,509
recovery of a portion of the loss previously recognized on disposal of
Well-Bilt. The Well-Bilt recovery resulted from favorable settlements attained
on items accrued for at December 31, 2000. The Company had a loss from
continuing operations, before taxes of $69,143 in 2002, compared with income of
$46,978 in 2001.

In 2001, the Company reported a loss from the discontinued operations of
Atlantic of $6,098,023. This loss was primarily due to a decrease in gross
margins of 6.1% or $1,498,280, as well as $3,306,582 and $1,033,045 of write
downs recorded to accounts receivable and fixed assets, respectively, in order
to reduce them both to their net realizable value. See "General Development of
Business" for information on Atlantic's Chapter 11 bankruptcy filing. Effective
December 31, 2001, Atlantic's assets were written down to net realizable value
and Atlantic has been accounted for as an unconsolidated subsidiary. The lower
than normal gross margins were a result of additional costs incurred by Atlantic
in finalizing certain projects.

The Company's sales for the year ended December 31, 2002 were $36,998,800, or an
increase of $5,918,402 (19%) from the $31,080,398 in sales in 2001. This
increase primarily reflects approximately $2,500,000 in sales to other wholesale
distributors, as a result of the Goldman acquisition, favorable summer weather
conditions, increased market penetration, and a recovery from the adverse impact
of the September 11 events on 2001 sales. Meanwhile, gross margins decreased by
1.4% to 28.7% due to sales increases to other wholesale distributors on selected
products at lower gross margins, as well as overall product mix. Selling,
general and administrative expenses increased by $1,567,549, primarily
reflecting $572,506 of professional fees in connection with Atlantic's Chapter
11 bankruptcy filing, and increased direct and non-sales salaries of $354,974
and $336,726, respectively, principally due to new hires relating to the overall
increase in sales at Universal.


                                       7
<PAGE>

Interest expense decreased by $130,006, reflecting the effect of lower average
borrowings and a decrease in the prime rate. In consideration of the bank's
waiver of Atlantic's default, this decrease was offset in part by a one-point
increase in the Company's interest rate on its line of credit from January 2002
until November 2002. Other income increased by $55,933 due primarily to an
increase in finance charges on Universal's accounts receivable.

For 2002 the Company recorded a state tax provision of $37,167 and no federal
provision. This compares to 2001, when the Company recorded a deferred federal
tax expense of $1,564,429 and current and deferred state tax expense of $60,573
and $32,786, respectively.

RESULTS OF OPERATIONS 2001-2000

The Company's net loss for the year ended December 31, 2001 was $7,602,324. The
net loss for 2001 primarily reflect a $6,098,023 loss from the discontinued
operations of Atlantic, a net $106,509 recovery of a portion of the loss
previously recognized on disposal of Well-Bilt, and a $1,625,002 non-cash
deferred tax expense. The Well-Bilt recovery resulted from favorable settlements
attained on items accrued for at December 31, 2000. This compares to the year
ended December 31, 2000, when the Company recorded a net loss of $8,033,197. The
2000 loss reflects a net loss of $6,943,806 from the discontinued operation and
disposal of Well-Bilt, offset by $234,236 in discontinued operations from
Atlantic. The Company had income from continuing operations before taxes of
$46,978 in 2001, compared with a loss of $463,627 in 2000.

During the year ended December 31, 2000, the Company acquired and discontinued
the operations of Well-Bilt which resulted in the net loss from the discontinued
operations and disposal of Well-Bilt, as discussed above.

The Company had a net loss from the discontinued operations of Atlantic of
$6,098,023 for the year ended December 31, 2001, compared to net income from
discontinued operations of Atlantic of $234,236. The loss in 2001 was primarily
due to a decrease in gross margins of 6.1% or $1,498,280, as well as $3,306,582
and $1,033,045 of write downs recorded to accounts receivable and fixed assets,
respectively, in order to reduce them both to their net realizable value. See
"General Development of Business" for information on Atlantic's Chapter 11
bankruptcy filing. The lower than normal gross margins were a result of
additional costs incurred by Atlantic in finalizing certain projects.

Universal sales decreased $1,261,762 to $31,080,398 principally due to
unfavorable summer weather conditions and a general construction slow down that
followed September 11th. During the same period, gross margins increased 1.1% to
30.1% due to product mix. Selling, general and administrative expenses in 2001
decreased $590,546 to $8,825,180 as a result of various cost cutting strategies
implemented in 2001.

Interest expense was $713,626 compared to $795,571 as a result of decreased
borrowings and prime rate decreases. Other income increased by $8,387 primarily
because of an increase in finance charges collected on Universal's accounts
receivable due to late payments. Interest income decreased by $157,623 due to
lower average invested cash balances.


                                       8
<PAGE>


The Company had a deferred Federal tax expense of $1,564,429 and current and
deferred state tax expense of $60,573 and $32,786, respectively, in 2001. This
compares with $860,000 in the 2000 income statement, which included a federal
deferred tax expense of $858,000 and a current state tax provision of $2,000.
The increase in tax expense was primarily the result of recording a full
valuation allowance on deferred tax assets.

IMPACT OF CHANGING PRICES

To date, the Company was not materially affected by changing prices.

LIQUIDITY AND CAPITAL RESOURCES

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company had losses in 2001 and
2000 of $7,602,324 and $8,033,197, has a stockholders' deficit at December 31,
2002 of $681,885 and has a negative working capital of $2,751,820. In addition,
outstanding borrowings under its credit facility of $10,350,889 are due on
demand. If the bank were to demand repayment, the Company does not project that
it would have sufficient liquidity to make such a payment.

Management recognizes that the Company's ability to continue as a going concern
is dependent upon its ability to generate profits. The Company has discontinued
the operations that generated the losses in 2001 and 2000. In addition, as a
result of implementing various cost cutting strategies in 2001 and 2002, the
corporate office realized a reduction in expenses in 2002 of $578,726, or 45%,
as compared to 2000. Universal has taken various cost cutting measures,
including the use of consignment inventory, which results in lower average
borrowings, and; therefore, lower interest expense to the Company. Furthermore,
since 2000, Universal's sales have increased 14.4% or $4,656,640. Further sales
increases are anticipated in 2003 and beyond, due to additional product lines,
acquisitions and exclusive geographical locations granted to Universal. As of
June 30, 2003, the Company was in compliance with all financial covenants of the
restated lending agreement relating to its credit facility. The Company does not
anticipate that demand for payment will be made, as long as Universal continues
to be profitable and remains in compliance with the lending agreement. Universal
has had increases in sales in four of the past five years and has consistently
generated operating profits.

The Company expects to meet its liquidity needs going forward through a
combination of cash from operations, amounts available under its credit facility
and the issuance of stock through a private placement. On July 16, 2003,
Colonial completed a private placement pursuant to Regulation D of the
Securities Exchange Act of 1933. Colonial raised $240,600 through the issuance
of 802,000 shares of Common Stock at $0.30 per share, as determined by the Board
of Directors. The issuance of these additional shares increased our outstanding
shares by 26.1%. The stock was sold to officers and directors of the company and
one private investor. The proceeds of the private placement will be used for
general working capital purposes.

At December 31, 2002, $2,490,000 of the Company's credit facility was payable
over a five year period. There can be no assurance that the Company will
generate sufficient liquidity to maintain its current operations. If the Company
continues to incur losses and/or if the outstanding borrowings under its credit
facility are demanded to be repaid and the Company was unsuccessful in obtaining
new financing, the Company would likely be required to seek bankruptcy court or
other protection from its creditors. These financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result, should the Company be unable to continue as a going concern.


                                       9
<PAGE>


As of December 31, 2002, the Company had $296,764 in cash and cash equivalents
compared with $576,514 at December 31, 2001.

The following table represents certain contractual commitments associated with
operating agreements, obligations to financial institutions and other long-term
debt obligations as of December 31, 2002:
<TABLE>
<CAPTION>
                                                              Payments due by Period
                                                                 (In Thousands)
                                          ----------------------------------------------------------
                                                                               Less Than       Over
                                          Total         1 Year    1-3 Years   4-5 Years      5 Years
                                          ----------------------------------------------------------
          <S>                              <C>           <C>         <C>       <C>           <C>
          Operating leases                  $ 7,168       1,257       2,450        2,008       1,453
          Compensation agreements             2,185         855       1,330           --          --
          Notes payable                          96          31          47           18          --
          Line of credit                     10,351      10,351          --           --          --
                                            -------     -------     -------      -------     -------
          Totals                           $19,800       12,494       3,827        2,026       1,453
                                           =======      =======     =======      =======     =======

</TABLE>

Net cash flows provided by operating activities in 2002 were $778,090 in
comparison to $297,248 in 2001. The 2002 increase in operating cash flows was
due primarily to a decrease in inventory and an increase in accrued liabilities,
offset by an increase in accounts receivable. The primary reason for the
decrease in inventory is an increase in inventory taken on consignment. The
increase in accrued liabilities is due primarily to accrued professional fees at
December 31, 2002 relating to the release by the Company's lending bank of a
guaranty by the Company and Universal of Atlantic's obligations to the lending
bank (see the discussion below regarding Atlantics' Chapter 11 filing). The
increase in accounts receivable primarily reflects the timing and increase in
sales in 2002.

Cash used in investing activities in 2002 of $840,917 was attributable to
$169,936 of additions to property and equipment relating to the on-going
operations of Universal and $670,981 used for the acquisition of certain assets
of Goldman described under "General Development of Business." Cash flows used in
investing activities during 2001 was $110,751, and consisted primarily of
leasehold improvements related to maintenance of Universal's facilities.

Cash flows used for financing activities in 2002 consisted of $138,236 in net
repayments on notes payable and $78,687 of net repayments on the Company's
credit facility. Cash flows used for financing activities in 2001 reflect
$1,166,718 of net repayments on the credit facility that were required because
of financial difficulties at Atlantic.

Net cash provided by discontinued operations in 2001 of $894,522 consists of
$1,497,932 provided by the operation and liquidation of Atlantic, offset by
$603,410 used for the disposal of Well-Bilt.

On January 28, 2002, Atlantic, a wholly-owned subsidiary of the Company, filed a
voluntary petition with the U. S. Bankruptcy Court for the Eastern District of
New York to reorganize under Chapter 11 of the U. S. Bankruptcy Code. As of the
date of this filing, the proceedings are still on-going. Colonial and its other
operations are not part of the Chapter 11 filing. The business of Atlantic is
today conducted by one employee whose sole function is to collect on accounts
receivables for the benefit of Atlantic's creditors, and the Company does not
believe that Atlantic will emerge from the reorganization with any value for the
Company.




                                       10
<PAGE>

On November 21, 2002, the Company and Universal were released from their
guarantees of the indebtedness (approximately $5,800,000) by Atlantic to
Colonial's and Atlantic's lending bank, in return for the agreement by the
Company and Universal to pay to the bank $2,500,000 as a five-year term loan
under the Company's line of credit with the bank, or, if earlier, on demand by
the bank.

As part of this settlement, the Company and its lending bank amended the
Company's credit facility with the lending bank. The amended facility permits a
total of $12,000,000 in borrowings, including a $373,000 term loan payable in
monthly installments over eighteen months, the $2,500,000 term loan mentioned
above, and additional borrowings on a revolving basis against eligible accounts
receivable and inventory. The interest rate under the facility is at prime +
..5%, except that the interest rate on the $2,500,000 term loan is at prime plus
2.5%. The facility expires November 21, 2005, but all loans are payable upon
demand by the bank, and, accordingly, have been classified as short-term in the
accompanying consolidated balance sheets. All loans are secured by the assets of
the Company, as well as a pledge of all of the outstanding stock of Universal.
The facility contains covenants relating to the financial condition of the
Company and its business operations, and, among other things, restricts the
payment of dividends and capital expenditures. At December 31, 2002, the amount
of unused credit available under the facility was $1,649,111.

On September 30, 2003, Colonial, through its newly formed, wholly owned
subsidiary, RAL Purchasing, Inc., purchased substantially all of the assets and
certain liabilities of RAL Supply Group, Inc. ("RAL"). The purchase price of
$3,838,521 was in the form of $2,447,061 of cash paid to the seller at the time
of purchase with the remaining $1,391,460 in the form of liabilities assumed by
RAL Purchasing, Inc. The $2,447,061 of cash paid at the time of purchase was
funded by $2,147,061 of borrowings on the Company's credit facility and 5-year,
9% notes issued by RAL Purchasing, Inc. to a third party in the amount of
$300,000. The 5-year notes are guaranteed by Universal. Colonial's limit on its
credit facility was increased by $2,000,000 to $14,000,000, as a result of the
acquisition.

     In connection with this acquisition, liabilities were assumed as follows:

     Fair value of assets acquired                        $  3,838,521

     Cash paid                                            $  2,447,061

     Fair value of liabilities assumed                    $  1,391,460

RAL is a distributor of heating and cooling equipment and high-end plumbing
fixtures with six locations, servicing Orange, Rockland, Ulster and Sullivan
counties in New York. Four locations have showrooms. RAL's products are marketed
primarily to contractors, consumers, builders and the commercial sector.

    RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 143, "Accounting for Asset Retirement Obligations". Statement 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. The Company is required to adopt Statement 143, on
January 1, 2003. Adoption of Statement 143 did not have a material impact on the
Company's consolidated operations or financial position.



                                       11
<PAGE>


         In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
 Associated with Exit or Disposal Activities". Statement 146 will spread out the
reporting of expenses related to restructurings initiated after 2002, because
commitment to a plan to exit an activity or dispose of long-lived assets will no
longer be enough to record a liability for the anticipated costs. Instead, exit
and disposal costs are to be recorded when they are "incurred" and can be
measured at fair value, and they will subsequently adjust the recorded liability
for changes in estimated cash flows. The Company adopted Statement 146 on
January 1, 2003. Adoption of Statement 146 did not have an impact on the
Company's consolidated results of operations or its financial position.

         In December 2002, the FASB issued Statement No. 148, Accounting for
Stock- Based Compensation-Transition and Disclosure. Statement No. 148 provides
alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based employee compensation as originally
provided by the FASB issued Statement No. 123, Accounting for Stock-Based
Compensation. Additionally, Statement No. 148 amends the disclosure requirements
of Statement No. 123 in both annual and interim financial statements. The
disclosure requirements have been adopted as of the period ended December 31,
2002. The Company intends to continue to apply the intrinsic value method of
accounting for stock-based employee compensation. The adoption of this
pronouncement will not have any impact on the Company's consolidated financial
position or results of operations.

         In November 2002, the FASB issued FASB interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that
upon issuance of guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 will be effective for any guarantees that are
issued or modified after December 31, 2002. The adoption of FIN 45 did not have
an impact on the Company's consolidated financial statements.

           In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an interpretation of ARB No. 51".
FIN 46 addresses the consolidation by business enterprises of variable interest
entities, as defined in the Interpretation. FIN 46 is effective for all new
variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied for the first interim period beginning
after June 15, 2003. The Company does not believe that the adoption of FIN 46
will have any impact on the Company's consolidated financial statements.

         In April 2003, the FASB issued Statement No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." Statement No.
149 amends and clarifies the accounting guidance on derivative instruments
(including certain derivative instruments embedded in other contracts) and
hedging activities that fall within the scope of Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities." Statement No. 149 is
effective for all contracts entered into or modified after June 30, 2003, with
certain exceptions, and for hedging relationships designated after June 30,
2003. The guidance is to be applied prospectively. The adoption of this


                                       12
<PAGE>


pronouncement will not have any impact on the Company's financial position and
results of operations.

         In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
Statement No. 150 changes the accounting guidance for certain financial
instruments that, under previous guidance, could be classified as equity or
"mezzanine" equity by now requiring those instruments to be classified as
liabilities (or assets in some circumstances) in the statement of financial
position. Further, Statement No. 150 requires disclosure regarding the terms of
those instruments and settlement alternatives. Statement No. 150 is generally
effective for all financial instruments entered into or modified after May 31,
2002 and is otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of this pronouncement will not have
any impact on the Company's financial position and results of operations.

         In January 1, 2003 the Company adopted the FASB's Emerging Issue Task
Force (EITF) Issue No. 02-16 "Accounting by a Reseller for Cash Consideration
Received from a Vendor" ("EITF 02-16"). The consensus reached by the EITF
addressed the accounting for "Cash Consideration" (which includes slotting fees,
cooperative advertising payments, etc.). The consensus of the EITF establishes
an overall presumption that the cash received from vendors is a reduction in the
price of vendor's products and should be recognized accordingly as a reduction
in the cost of sales at the time the related inventory is sold. Some
consideration could be characterized as a reduction of expense if the cash
received represents a reimbursement of specific, incremental, identifiable costs
incurred by the retailer to sell the vendor's products. The Company is in the
process of assessing the impact, if any, of adopting EITF 02-16.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company's pre-tax earnings and cash flows are exposed to changes in
interest rates as all borrowings under its credit facility bear interest based
on the prime rate plus 0.5%, except for the $2.5 million term loan, which bears
interest at a rate of prime plus 2.5%. A hypothetical 10% adverse change in such
rates would reduce the pre-tax earnings and cash flow for the year ended
December 31, 2002 by approximately $54,000 over a one-year period, assuming the
borrowing level remains consistent with the outstanding borrowings as of
December 31, 2002. The fair value of the borrowings under the credit facility is
not affected by changes in market interest rates.

         The Company's remaining interest-bearing obligations are at fixed rates
of interest and as such do not expose pre-tax earnings and cash flows to changes
in market interest rates. The change in fair value of the Company's fixed rate
obligations resulting from a hypothetical 10% adverse change in interest rates
would not be material.



                                       13
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

                   Index to Consolidated Financial Statements

Independent Auditors' Report on consolidated financial statements and schedule

Consolidated financial statements:
         Consolidated balance sheets as of December 31, 2002 and 2001
         Consolidated statements of operations for the years ended December 31,
             2002, 2001 and 2000
         Consolidated statements of stockholders' equity (deficit) for the years
             ended December 31, 2002, 2001 and 2000
         Consolidated statements of cash flows for the years ended December 31,
             2002, 2001 and 2000
         Notes to consolidated financial statements

Independent Auditors' Report on Schedule

Schedule:
         II - Valuation and qualifying accounts

         All other schedules are omitted because they are not required or the
         information required is given in the consolidated financial statements
         or notes thereto.









                                       14
<PAGE>



                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Colonial Commercial Corp.:

         We have audited the accompanying consolidated balance sheets of
Colonial Commercial Corp. and subsidiaries as of December 31, 2002 and 2001, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the years in the three-year period ended
December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Colonial
Commercial Corp. and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

         The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in note 1(c) to the
financial statements, the Company had losses in 2001 and 2000, has stockholders'
deficit at December 31, 2002 and has negative working capital. In addition,
outstanding borrowings under its credit facility are due on demand. If the bank
were to demand repayment, the Company does not project that it would have
sufficient liquidity to make such a payment. In addition, as discussed in note
2(b), Atlantic Hardware & Supply Corporation ("Atlantic"), a wholly-owned
subsidiary of the Company, filed for reorganization under Chapter 11 of the
United States Bankruptcy Code on January 28, 2002. The financial results of
Atlantic have been deconsolidated and the Company accounts for Atlantic using
the cost method. These circumstances raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in note 1(c). The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

         As discussed in note 1(i) to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" as of January 1, 2002.

/s/ KPMG LLP
-------------------
Melville, New York
October 2, 2003



                                       15
<PAGE>



                    COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                           December 31, 2002 and 2001
<TABLE>
<CAPTION>
                          Assets                                                  2002             2001
                                                                             ------------    ------------
<S>                                                                          <C>             <C>
Current assets:
  Cash                                                                       $    296,764         576,514
  Accounts receivable, net of allowance for doubtful accounts
    of $265,000 in 2002 and $253,000 in 2001, respectively                      5,186,893       4,466,667
  Inventory                                                                     5,730,224       6,314,546
  Prepaid expenses and other current assets                                       338,251         376,838
                                                                             ------------    ------------
              Total current assets                                             11,552,132      11,734,565
Property and equipment, net                                                       631,948         622,790
Goodwill                                                                        1,416,929       1,316,929
Other intangibles                                                                  85,833         128,700
Restricted investment securities                                                     --           122,506
                                                                             ------------    ------------
                                                                             $ 13,686,842      13,925,490
                                                                             ============    ============
              Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
  Accounts payable                                                           $  2,446,886       2,422,802
  Accrued liabilities                                                           1,216,051       1,047,188
  Income taxes payable                                                             40,230          26,086
  Borrowings under credit facility                                             10,350,889       7,929,576
  Investment in unconsolidated subsidiary in bankruptcy,
    carried at cost                                                               219,007         219,007
  Guaranteed borrowings of unconsolidated subsidiary in bankruptcy                   --         5,800,695
  Notes payable - current portion                                                  30,889         143,405
                                                                             ------------    ------------
              Total current liabilities                                        14,303,952      17,588,759
Notes payable, excluding current portion                                           64,775          90,495
Deferred compensation                                                                --           122,506
                                                                             ------------    ------------
              Total liabilities                                                14,368,727      17,801,760
                                                                             ------------    ------------

Stockholders' equity (deficit):
  Convertible preferred stock, $.05 par value, liquidation preference of
    $7,321,260 and $7,321,430 at December 31, 2002 and 2001, respectively,
    2,468,860 shares authorized, 1,464,252 and 1,464,286 shares issued and
    outstanding at December 31, 2002 and 2001, respectively                        73,213          73,214
  Common stock, $.05 par value, 20,000,000 shares
    authorized, 1,603,794 and 1,603,760 shares issued and
    outstanding at December 31, 2002 and 2001, respectively                        80,190          80,189
  Additional paid-in capital                                                    8,966,513       8,966,513
  Accumulated deficit                                                          (9,801,801)    (12,996,186)
                                                                             ------------    ------------
              Total stockholders' deficit                                        (681,885)     (3,876,270)
                                                                             ------------    ------------

Commitments and contingencies
                                                                             $ 13,686,842      13,925,490
                                                                             ============    ============
</TABLE>

See accompanying notes to consolidated financial statements


                                      F-1

<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                  Years ended December 31, 2002, 2001 and 2000
<TABLE>
<CAPTION>
                                                                 2002            2001            2000
                                                             ------------    ------------    ------------
<S>                                                          <C>               <C>             <C>
Sales                                                        $ 36,998,800      31,080,398      32,342,160
Cost of sales                                                  26,379,504      21,735,358      22,984,470
                                                             ------------    ------------    ------------
     Gross profit                                              10,619,296       9,345,040       9,357,690

Selling, general and administrative expenses, net              10,392,729       8,825,180       9,415,726
                                                             ------------    ------------    ------------
     Operating income (loss)                                      226,567         519,860         (58,036)

Interest income                                                     1,939          10,706         168,329
Other income                                                      285,971         230,038         221,651
Interest expense                                                 (583,620)       (713,626)       (795,571)
                                                             ------------    ------------    ------------
     Loss from continuing operations
        before income taxes                                       (69,143)         46,978        (463,627)

Income taxes                                                       37,167       1,657,788         860,000
                                                             ------------    ------------    ------------
     Loss from continuing operations                         $   (106,310)     (1,610,810)     (1,323,627)

Discontinued operation (note 2(b)):
Net income (loss) from operations of discontinued segments      3,300,695      (6,098,023)     (2,977,916)
Loss on disposal of discontinued operation                           --              --        (3,731,654)
Recovery of loss on disposal of discontinued operation               --           106,509            --
                                                             ------------    ------------    ------------
    Income (loss) on discontinued operation                     3,300,695      (5,991,514)     (6,709,570)
                                                             ------------    ------------    ------------
    Net income (loss)                                        $  3,194,385      (7,602,324)     (8,033,197)
                                                             ============    ============    ============
Loss per common share:
  Basic:
    Income (loss) from continuing operations                 $      (0.07)          (1.00)          (0.86)
    Income (loss) on discontinued operation                          2.06           (3.74)          (4.35)
                                                             ------------    ------------    ------------
    Net income (loss) per common share                       $       1.99           (4.74)          (5.21)
                                                             ============    ============    ============
  Diluted:
    Income (loss) from continuing operations                 $      (0.07)          (1.00)          (0.86)
    Income (loss) on discontinued operation                          2.06           (3.74)          (4.35)
                                                             ------------    ------------    ------------
    Net income (loss) per common share                       $       1.99           (4.74)          (5.21)
                                                             ============    ============    ============
Weighted average shares outstanding:
  Basic                                                         1,603,777       1,603,178       1,542,712
  Diluted                                                       1,603,777       1,603,178       1,542,712

</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-2

<PAGE>


                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
            Consolidated Statements of Stockholders' Equity (Deficit)
                  Years ended December 31, 2002, 2001 and 2000
<TABLE>
<CAPTION>
                                          Number of
                                           shares
                               ------------------------------                                           Retained
                                Convertible                   Convertible                 Additional      Earnings        Total
                                Preferred        Common       Preferred       Common      Paid-In    (Accumulated    Stockholders'
                                  Stock          Stock          Stock         Stock       Capital       Deficit)    Equity (Deficit)
                               ------------------------------ ----------      -------     ----------  ------------  ---------------
<S>                            <C>           <C>              <C>             <C>         <C>         <C>           <C>
Balances at December 31, 1999    1,532,983      1,523,063   $     76,649        76,154      8,936,114      2,639,335   $ 11,728,252

Net loss                              --             --             --            --             --       (8,033,197)    (8,033,197)
Conversion of shares of
  preferred stock to
  common stock                     (66,532)        66,532         (3,327)        3,327           --             --             --
Options exercised                     --           12,000           --             600         30,399           --           30,999
                              ------------   ------------   ------------  ------------   ------------   ------------   ------------

Balances at December 31, 2000    1,466,451      1,601,595         73,322        80,081      8,966,513     (5,393,862)     3,726,054

Net loss                              --             --             --            --             --       (7,602,324)    (7,602,324)
Conversion of shares of
  preferred stock to
  common stock                      (2,165)         2,165           (108)          108           --             --             --
                              ------------   ------------   ------------  ------------   ------------   ------------   ------------

Balances at December 31, 2001    1,464,286      1,603,760         73,214        80,189      8,966,513    (12,996,186)    (3,876,270)

Net income                            --             --             --            --             --        3,194,385      3,194,385
Conversion of shares of
  preferred stock to
  common stock                         (34)            34             (1)            1           --             --             --
                              ------------   ------------   ------------  ------------   ------------   ------------   ------------

Balances at December 31, 2002    1,464,252      1,603,794   $     73,213        80,190      8,966,513     (9,801,801)  $   (681,885)
                              ============   ============   ============  ============   ============   ============   ============
</TABLE>

See accompanying notes to consolidated financial statements.



                                      F-3
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                  2002                  2001               2000
                                                                               -----------          -----------        -----------
<S>                                                                    <C>                          <C>                <C>
Cash flows from operating activities:
   Net income (loss)                                                           $ 3,194,385           (7,602,324)        (8,033,197)
   Adjustments to reconcile net loss to net cash
      provided by operating activities:
         Loss (income) from discontinued operation                              (3,300,695)           5,991,514          6,709,570
         Deferred tax expense                                                         --              1,625,002            858,000
         Provision for doubtful accounts                                           111,339               57,589             85,554
         Depreciation                                                              160,778              154,590            126,415
         Amortization of intangibles                                                42,867              128,650            134,301
         Amortization of excess of fair value of acquired net
             assets over cost                                                         --                 26,712               --
         Changes in assets and liabilities, net of the effects
             of acquisitions:
                Accounts receivable                                               (328,923)            (261,947)          (205,426)
                Inventory                                                          652,661            1,261,899           (746,214)
                Prepaid expenses and other current assets                           38,587              107,375            (95,604)
                Accounts payable                                                    24,084             (798,213)         1,610,692
                Investment securities - trading                                    122,506              (42,270)           (54,480)
                Accrued liabilities                                                168,863             (418,685)             3,432
                Income taxes payable                                                14,144               25,086            (39,393)
                Deferred compensation                                             (122,506)              42,270             54,480
                                                                               -----------          -----------        -----------
                Net cash provided by operating activities                          778,090              297,248            408,130
                                                                               -----------          -----------        -----------
Cash flows from investing activities:
    Payment for acquisition of Universal                                              --                   --             (141,298)
    Payment for acquisition of Goldman Associates                                 (670,981)                --                 --
    Purchase of licensing agreement                                                   --                 (4,800)           (22,000)
    Payments on notes receivable                                                      --                   --              316,069
    Additions to property and equipment                                           (169,936)            (105,951)          (469,260)
                                                                               -----------          -----------        -----------
               Net cash used in investing activities                              (840,917)            (110,751)          (316,489)
                                                                               -----------          -----------        -----------

Cash flows from financing activities:
    Net repayments on notes payable                                               (138,236)            (140,799)          (148,943)
    Net (repayments) borrowings under credit facility                              (78,687)          (1,166,718)         1,126,533
    Exercise of employee stock options                                                --                   --               30,999
                                                                               -----------          -----------        -----------
               Net cash (used in) provided by financing activities                (216,923)          (1,307,517)         1,008,589
                                                                               -----------          -----------        -----------
Net cash provided by (used in) discontinued operation                                 --                894,522         (1,726,266)
                                                                               -----------          -----------        -----------
Decrease in cash and cash equivalents                                             (279,750)            (226,498)          (626,036)
Cash and cash equivalents - beginning of period                                    576,514              803,012          1,429,048
                                                                               -----------          -----------        -----------
Cash and cash equivalents - end of period                                      $   296,764              576,514            803,012
                                                                               ===========          ===========        ===========

</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-4

<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 2002, 2001 and 2000

(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

     (a)  DESCRIPTION OF BUSINESS

      Colonial Commercial Corp., (the Company), through its operating
         subsidiary, Universal Supply Group, Inc. (Universal), is a distributor
         of heating, ventilation and air conditioning (HVAC) and climate control
         products to building contractors and architectural firms. The Company's
         products are marketed primarily to HVAC contractors, which, in turn,
         sell such products to residential and commercial/industrial customers.
         The Company's customers are located in the United States, primarily in
         Southern New York and Northern New Jersey. The Company's other
         subsidiary, Atlantic Hardware & Supply Corporation ("Atlantic"), has
         filed for reorganization under Chapter 11 of the United States
         Bankruptcy Code. See Note 2 for more information on discontinued
         operations.

      (b) PRINCIPLES OF CONSOLIDATION

      The consolidated financial statements include the financial statements of
          the Company and its wholly-owned subsidiaries. All significant
          intercompany balances and transactions have been eliminated in
          consolidation.

      (c)  GOING CONCERN

         The accompanying consolidated financial statements have been prepared
          assuming the Company will continue as a going concern. The Company had
          losses in 2001 and 2000 of $7,602,324 and $8,033,197, has a
          stockholders' deficit at December 31, 2002 of $681,885 and has a
          negative working capital of $2,751,820. In addition, outstanding
          borrowings under its credit facility of $10,350,889 are due on demand.
          If the bank were to demand repayment, the Company does not project
          that it would have sufficient liquidity to make such a payment.

        Management recognizes that the Company's ability to continue as a going
          concern is dependent upon its ability to generate profits. The Company
          has discontinued the operations that generated the losses in 2001 and
          2000. In addition, as a result of implementing various cost cutting
          strategies in 2001 and 2002, the corporate office realized a reduction
          in expenses in 2002 of $578,726, or 45%, as compared to 2000.
          Universal has taken various cost cutting measures, including the use
          of consignment inventory, which results in lower average borrowings,
          and; therefore, lower interest expense to the Company. Furthermore,
          since 2000, Universal's sales have increased 14.4% or $4,656,640.
          Further sales increases are anticipated in 2003 and beyond, due to
          additional product lines, acquisitions and exclusive geographical
          locations granted to Universal. As of June 30, 2003, the Company was
          in compliance with all financial covenants of the restated lending
          agreement relating to its credit facility. The Company does not
          anticipate that demand for payment will be made, as long as Universal



                                       16
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

         continues to be profitable and remains in compliance with the lending
         agreement. Universal has had increases in sales in four of the past
         five years and has consistently generated operating profits.

      The Company expects to meet its liquidity needs going forward through a
          combination of cash from operations, amounts available under its
          credit facility and the issuance of stock through a private placement.
          At December 31, 2002, $2,490,000 of the Company's credit facility was
          payable over a five year period. There can be no assurance that the
          Company will generate sufficient liquidity to maintain its current
          operations. If the Company continues to incur losses and/or if the
          outstanding borrowings under its credit facility are demanded to be
          repaid and the Company was unsuccessful in obtaining new financing,
          the Company would likely be required to seek bankruptcy court or other
          protection from its creditors. These financial statements do not
          include any adjustments relating to the recoverability and
          classification of asset carrying amounts or the amount and
          classification of liabilities that might result, should the Company be
          unable to continue as a going concern.

      (d)  REVENUE RECOGNITION

      Revenue is recognized when the earnings process is complete, generally
          upon shipment of products in accordance with shipping terms. There are
          no further obligations on the part of the Company subsequent to
          revenue recognition, except for returns of defective product from the
          Company's customers, which are covered under the manufacturer's
          warranty. Credits for returns are not issued to the customer until
          such time as the Company receives notification that a vendor credit
          from the manufacturer will be issued for the product in question. The
          Company does not provide a warranty on products sold, rather the
          warranty is provided by the manufacturer.

      (e)  CASH EQUIVALENTS

      The Company considers all highly liquid investment instruments with an
          original maturity of three months or less to be cash equivalents.
          There were no cash equivalents at December 31, 2002 or 2001.

      (f)  INVENTORY

      Inventory is stated at the lower of cost or market and consists solely of
          finished goods. Cost is determined using the first-in, first-out
          method.

      All costs of shipping inventory, which include costs to ship inventory
          from the Company's vendors and to the Company's customers, are
          included in selling, general and administrative expenses. Such costs
          approximated $291,089, $209,975 and $259,403 for the years ended
          December 31, 2002, 2001 and 2000, respectively.




                                       17
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

      (g) INVESTMENT SECURITIES

      The Company maintains investments in its equity securities, which have
          been classified as trading securities, for the deferred compensation
          plan (note 13(b)). Trading securities are bought and held principally
          for the purposes of selling them in the near term. Trading securities
          are recorded at fair value. Unrealized holding gains and losses on
          trading securities are included in earnings. Dividend and interest
          income are recognized when earned.

      (h) PROPERTY AND EQUIPMENT

      Property and equipment are stated at cost. Depreciation is calculated on
          the straight-line method over the estimated useful lives of the assets
          as follows:

                           Computer hardware and software         5 years
                           Office and warehouse equipment         5 years
                           Furniture and fixtures                 5 years
                           Automobiles                          3-5 years

      Leasehold improvements are amortized over the shorter of the lease term or
          the estimated useful life of the asset.

(i) INTANGIBLE ASSETS

     In July 2001, the financial Accounting Standards Board (FASB) issued
          Statement of Financial Accounting Standard (Statement) No. 141,
          "Business Combinations," and Statement No. 142, "Goodwill and Other
          Intangible Assets". Statement 141 requires companies to account for
          acquisitions using the purchase method and establishes criteria to be
          used in determining whether acquired intangible assets are to be
          recorded separately from goodwill. Statement 141 requires that the
          Company evaluate its existing intangible assets and goodwill that were
          acquired in a prior purchase business combination, and make any
          necessary reclassifica- tions, in order to conform with the new
          criteria in Statement 141 for recognition apart from goodwill.
          Implementation of Statement 141 did not have an impact on the
          Company's financial position and results of operations.

     Statement 142 requires that goodwill and intangible assets with indefinite
          useful lives no longer be amortized, but rather will be tested for
          impairment at least annually. Statement 142 also requires that
          intangible assets with definite useful lives be amortized over their
          respective estimated useful lives to their estimated residual values
          and reviewed for impairment, in accordance with Statement No. 144,
          "Accounting for the Impairment or Disposal of Long-Lived Assets." Upon
          adoption of Statement 142, the Company was required to perform an
          assessment of whether there is an indication that goodwill was
          impaired as of the date of adoption. To accomplish this, the Company
          had to identify its reporting units and determine the carrying value
          of each reporting unit by assigning the assets and liabilities,
          including the existing goodwill and intangible assets, to those



                                       18
<PAGE>


                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

          reporting units as of the date of adoption. The Company adopted the
          provisions of Statement 142 effective January 1, 2002 and,
          accordingly, has ceased the amortization of the goodwill acquired in
          prior business combinations. Upon adoption and again as a result of
          the Company's annual impairment test, there was no indication of
          impairment for goodwill acquired in prior business combinations.

     As required by the adoption of Statement No. 142, the Company also
          reassessed the useful lives and residual values of all acquired
          intangible assets to make any necessary amortization period
          adjustments. Based upon that assessment, no adjustments were made to
          the amortization period of residual values of other intangible assets.
          The cost of other intangible assets are amortized on a straight-line
          basis over their respective lives.

     As of December 31, 2002 and December 31, 2001, the Company had intangible
          assets, subject to amortization of $231,667 and $236,467,
          respectively, and related accumulated amortization of $145,834 and
          $107,767, respectively, which pertained primarily to covenants not to
          compete. Amortization expense for intangible assets subject to
          amortization amounted to approximately $42,900 and $47,200 for the
          years ended December 31, 2002 and 2001, respectively. The estimated
          aggregate amortization expense for each of the four succeeding years
          ending December 31, 2006 amounts to approximately $41,700, $26,700,
          $11,700 and $5,800 in 2003, 2004, 2005 and 2006, respectively.

     As of December 31, 2002 and 2001, the Company had unamortized goodwill in
          the amount of $1,416,929 and $1,316,929, respectively. The $100,000
          increase is due to the Goldman acquisition (see Note 2(a)).

     The following table shows the results of operations as if Statement No. 142
         was applied in prior years:

<TABLE>
<CAPTION>
                                                                   For the years ended December 31,
                                                              2002              2001             2000
                                                          -------------    -------------    -------------
<S>                                                       <C>              <C>              <C>
Net income (loss) as reported                             $   3,194,385    $  (7,602,324)   $  (8,033,197)
Deduct:  negative goodwill amortization, net                       --            (35,050)         (36,797)
Adjusted net loss                                         $   3,194,385    $  (7,637,374)   $  (8,069,994)
                                                          =============    =============    =============
Income (loss) per share - basic net
income (loss), as reported                                $        1.99    $       (4.74)   $       (5.21)
Negative goodwill amortization, net                                --              (0.02)           (0.02)
                                                          -------------    -------------    -------------
Adjusted net income (loss)                                $        1.99    $       (4.76)   $       (5.23)
                                                          =============    =============    =============
Income (loss) per share - diluted net
income (loss), as reported                                $        1.99   $        (4.74)   $       (5.21)
Negative goodwill amortization, net                                  --            (0.02)           (0.02)
                                                          -------------    -------------    -------------
Adjusted net income (loss)                                $        1.99    $       (4.76)   $       (5.23)
                                                          =============    =============    =============
</TABLE>

     (j)   STOCK OPTION PLAN

     The Company applies the intrinsic value-based method of accounting
          prescribed by Accounting Principles Board ("APB") Opinion No. 25,
          "Accounting for Stock Issued to Employees," and related
          interpretations, including FASB Interpretation No. 44, "Accounting for
          Certain Transactions Involving Stock Compensation, an Interpretation
          of APB Opinion No.25, issued in March 2000, to account for its
          fixed-plan stock options.



                                       19
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

          Under this method, compensation expense is recorded on the date of
          grant only if the current market price of the underlying stock
          exceeded the exercise price. Statement No. 123, "Accounting for
          Stock-Based Compensation," established accounting and disclosure
          requirements using a fair-value-based method of accounting for
          stock-based employee compensation plans. As allowed by Statement No.
          123, the Company has elected to continue to apply the intrinsic
          value-based method of accounting described above, and has adopted only
          the disclosure requirements of Statement No. 123. The following table
          illustrated the effect on net income if the fair-value-based method
          had been applied to all outstanding and unvested awards in each
          period.
<TABLE>
<CAPTION>
                                                                    2002              2001           2000
                                                                    ----              ----           ----
<S>                                                               <C>             <C>             <C>
         Net income (loss), as reported                           $3,194,385      (7,602,324)     (8,033,197)

         Add:  Stock-based employee compensation
               expense included in reported net loss                      --              --             --

         Deduct:  Total stock-based employee
                  compensation determined under fair-
                  value-based method for all awards              $   (22,164)        (22,164)        (22,164)
                                                                 -----------     -----------     -----------
                                         Pro forma               $ 3,172,221      (7,624,488)     (8,055,361)
                                                                 ===========     ===========     ===========
         Basic net income (loss)
            per common share
                                          As reported            $     1.99           (4.74)         (5.21)
                                          Pro forma              $     1.98           (4.76)         (5.22)
         Diluted net income (loss)
            per common share
                                          As reported            $     1.99           (4.74)         (5.21)
                                          Pro forma              $     1.98           (4.74)         (5.21)

</TABLE>

      In calculating the above stock-based employee compensation determined
         under fair-value based method for all awards granted in 1999, the
         Company utilized the following assumptions; expected volatility of
         86.5%, expected life of 10 years, risk free interest rate of 6.2% and
         dividend yield of 0%.

     (k)  INCOME TAXES

      Income taxes are accounted for under the asset and liability method.
          Deferred tax assets and liabilities are recognized for the future tax
          consequences attributable to differences between the financial
          statement carrying amounts of existing assets and liabilities and
          their respective tax bases and operating loss and tax credit
          carryforwards. Deferred tax assets and liabilities are measured using
          enacted tax rates expected to apply to taxable income in the years in
          which those temporary differences are expected to be recovered or
          settled. The effect on deferred tax assets and liabilities of a change
          in tax rates is recognized in income in the period that includes the
          enactment date.


                                       20
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       (l)  NET INCOME (LOSS) PER COMMON SHARE

       Basic income (loss) per share excludes any dilution. It is based upon
         the weighted average number of common shares outstanding during the
         period. Dilutive earnings per share reflects the potential dilution
         that would occur if securities or other contracts to issue common stock
         were exercised or converted into common stock. Dilutive net loss per
         common share for fiscal 2002, 2001 and 2000 is the same as basic net
         loss per common share due to the antidilutive effect of the assumed
         conversion of preferred shares and exercise of stock options.

       (m) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
           OF

       Statement No. 144, "Accounting for the Impairment or Disposal of
         Long-Lived Assets," provides a single accounting model for long-lived
         assets to be disposed of. Statement No. 144 also changes the criteria
         for classifying an asset as held for sale and broadens the scope of
         businesses to be disposed of that qualify for reporting as discontinued
         operations and changes the timing of recognizing losses on such
         operations. The Company adopted Statement No 144 on January 1, 2002.
         The adoption of Statement No. 144 did not affect the Company's
         consolidated and combined financial statements.

       In accordance with Statement No. 144 long-lived assets, such as
         property, plant and equipment, and purchased intangibles subject to
         amortization, are reviewed for impairment whenever events or changes in
         circumstances indicate that the carrying amount of an asset may not be
         recoverable. Recoverability of assets to be held and used is measured
         by a comparison of the carrying amount of an asset to estimated
         undiscounted future cash flows expected to be generated by the asset If
         the carrying amount of an asset exceeds its estimated undiscounted
         future cash flows, an impairment charge is recognized by the amount by
         which the carrying amount of the asset exceeds the fair value of the
         asset. Assets to be disposed of would be separately presented in the
         balance sheet and reported at the lower of the carrying amount or fair
         value less costs to sell, and are no longer depreciated. The assets and
         liabilities of a disposed group classified as held for sale would be
         presented separately in the appropriate asset and liability sections of
         the balance sheet.

       Prior to the adoption of Statement No. 144, the Company accounted for
         long-lived assets in accordance with Statement No. 121, "Accounting for
         the Impairment of Long-Lived Assets and for Long-Lived Assets to be
         disposed Of."

       (n) COMPREHENSIVE INCOME (LOSS)

       The Company has no items of other comprehensive income (loss);
         therefore, there is no difference between the Company's comprehensive
         income (loss) and net income (loss) for the periods presented.






                                       21
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       (o) USE OF ESTIMATES

       The preparation of the financial statements, in accordance with
         accounting principles generally accepted in the United States of
         America, requires management to make estimates and assumptions that
         affect the reported amounts of assets and liabilities and disclosure of
         contingent assets and liabilities at the date of the consolidated
         financial statements and the reported amounts of revenues and expenses
         during the reporting period. Actual results could differ from those
         estimates.

       (p)  RECLASSIFICATIONS

       Certain reclassifications have been made to the 2000 consolidated
         financial statements, in order to conform them to the 2001
         presentation. As of December 31, 2001, Atlantic has been deconsolidated
         and the Company's 100% investment in Atlantic's common stock is being
         carried at cost, as the Company is no longer able to exercise
         significant influence over Atlantic's operations and financial
         activities. In addition, Atlantic's results of operations for 2001 are
         being reported as "results from operations of discontinued segments."
         The Company's statements of operations and cash flows for the year
         ended December 31, 2000 have been restated to conform to this
         presentation.

       (q) ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

       In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
         Retirement Obligations". Statement 143 addresses financial accounting
         and reporting for obligations associated with the retirement of
         tangible long-lived assets and the associated asset retirement costs.
         It applies to legal obligations associated with the retirement of
         long-lived assets that result from the acquisition, construction,
         development and (or) the normal operation of a long-lived asset, except
         for certain obligations of lessees. The Company is required to adopt
         Statement 143, on January 1, 2003. Adoption of Statement 143 did not
         have a material impact on the Company's consolidated operations or
         financial position.

       In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
         Associated with Exit or Disposal Activities". Statement 146 will spread
         out the reporting of expenses related to restructurings initiated after
         2002, because commitment to a plan to exit an activity or dispose of
         long-lived assets will no longer be enough to record a liability for
         the anticipated costs. Instead, exit and disposal costs are to be
         recorded when they are "incurred" and can be measured at fair value,
         and they will subsequently adjust the recorded liability for changes in
         estimated cash flows. The Company adopted Statement 146 on January 1,
         2003. Adoption of Statement 146 did not have an impact on the Company's
         consolidated results of operations or its financial position.



                                       22
<PAGE>


                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       In December 2002, the FASB issued Statement No. 148, Accounting for
         Stock- Based Compensation-Transition and Disclosure. Statement No. 148
         provides alternative methods of transition for a voluntary change to
         the fair value method of accounting for stock-based employee
         compensation as originally provided by the FASB issued Statement No.
         123, Accounting for Stock-Based Compensation. Additionally, Statement
         No. 148 amends the disclosure requirements of Statement No. 123 in both
         annual and interim financial statements. The disclosure requirements
         have been adopted as of the period ended December 31, 2002. The Company
         intends to continue to apply the intrinsic value method of accounting
         for stock-based employee compensation. The adoption of this
         pronouncement will not have any impact on the Company's consolidated
         financial position or results of operations.

       In November 2002, the FASB issued FASB interpretation No. 45,
         "Guarantor's Accounting and Disclosure Requirements for Guarantees,
         Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
         FIN 45 requires that upon issuance of guarantee, a guarantor must
         recognize a liability for the fair value of an obligation assumed under
         a guarantee. FIN 45 also requires additional disclosures by a guarantor
         in its interim and annual financial statements about the obligations
         associated with guarantees issued. The recognition provisions of FIN 45
         will be effective for any guarantees that are issued or modified after
         December 31, 2002. The adoption of FIN 45 did not have an impact on the
         Company's consolidated financial statements.

       In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
         "Consolidation of Variable Interest Entities, an interpretation of ARB
         No. 51". FIN 46 addresses the consolidation by business enterprises of
         variable interest entities, as defined in the Interpretation. FIN 46 is
         effective for all new variable interest entities created or acquired
         after January 31, 2003. For variable interest entities created or
         acquired prior to February 1, 2003, the provisions of FIN 46 must be
         applied for the first interim period beginning after June 15, 2003. The
         Company does not believe that the adoption of FIN 46 will have any
         impact on the Company's consolidated financial statements.

       In April 2003, the FASB issued Statement No. 149, "Amendment of
         Statement 133 on Derivative Instruments and Hedging Activities."
         Statement No. 149 amends and clarifies the accounting guidance on
         derivative instruments (including certain derivative instruments
         embedded in other contracts) and hedging activities that fall within
         the scope of Statement No. 133, "Accounting for Derivative Instruments
         and Hedging Activities." Statement No. 149 is effective for all
         contracts entered into or modified after June 30, 2003, with certain
         exceptions, and for hedging relationships designated after June 30,
         2003. The guidance is to be applied prospectively. The adoption of this
         pronouncement will not have any impact on the Company's financial
         position and results of operations.

       In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
         Financial Instruments with Characteristics of both Liabilities and
         Equity." Statement No. 150 changes the accounting guidance for certain
         financial instruments that, under previous guidance, could be
         classified as equity or "mezzanine" equity by now requiring those



                                       23
<PAGE>


                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

         instruments to be classified as liabilities (or assets in some
         circumstances) in the statement of financial position. Further,
         Statement No. 150 requires disclosure regarding the terms of those
         instruments and settlement alternatives. Statement No. 150 is generally
         effective for all financial instruments entered into or modified after
         May 31, 2002 and is otherwise effective at the beginning of the first
         interim period beginning after June 15, 2003. The adoption of this
         pronouncement will not have any impact on the Company's financial
         position and results of operations.

       In January 1, 2003 the Company adopted the FASB's Emerging Issue Task
          Force (EITF) Issue No. 02-16 "Accounting by a Reseller for Cash
          Consideration Received from a Vendor" ("EITF 02-16"). The consensus
          reached by the EITF addressed the accounting for "Cash Consideration"
          (which includes slotting fees, cooperative advertising payments,
          etc.). The consensus of the EITF establishes an overall presumption
          that the cash received from vendors is a reduction in the price of
          vendor's products and should be recognized accordingly as a reduction
          in the cost of sales at the time the related inventory is sold. Some
          consideration could be characterized as a reduction of expense if the
          cash received represents a reimbursement of specific, incremental,
          identifiable costs incurred by the retailer to sell the vendor's
          products. The Company is in the process of assessing the impact, if
          any, of adopting EITF 02-16.

(2) BUSINESS ACQUISITIONS AND DISCONTINUED OPERATIONS

     (a) In July 2002 Universal paid $670,981 to acquire certain accounts
         receivable, inventory and other accessories from Goldman Associates of
         New York, Inc. ("Goldman"), relating to Goldman's HVAC business in New
         Jersey and certain areas of New York. $570,981 of the purchase price
         was allocated to the above listed assets at their estimated fair
         values. The remaining $100,000 was recorded as goodwill and will be
         tested annually for impairment under the provisions of Statement 142.
         Pro forma results of operations are not provided as the information is
         not material to the consolidated financial statements.

     (b) On January 28, 2002, Atlantic, a wholly-owned subsidiary of the
         Company, filed a voluntary petition with the U. S. Bankruptcy Court for
         the Eastern District of New York to reorganize under Chapter 11 of the
         U. S. Bankruptcy Code. As of the date of this filing, the proceeding is
         still on-going. Neither Colonial, nor Universal, is part of the Chapter
         11 filing. The business of Atlantic is today conducted by one employee
         whose sole function is to collect on accounts receivables for the
         benefit of Atlantic's creditors, and the Company does not believe that
         Atlantic will emerge from the reorganization with any value for the
         Company. The Company does not exercise significant influence over
         Atlantic's operations and financial activities, and, accordingly, as of
         December 31, 2001, Atlantic has been unconsolidated on the Company's
         financial statements and its operations are being reported as "results
         from operations of discontinued segments." The Company's balance sheet
         as of December 31, 2000 and its statements of operations and statements
         of cash flows for 2000 include certain reclassifications in order to
         conform to this presentation. The losses from operations of Atlantic
         for the year ended December 31, 2001 and for the period up to


                                       24
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

          January 28, 2002, the date of filing for Chapter 11, were $5,553,904
          and $544,119, respectively. These losses total $6,098,023 and were
          reported as a net loss from operation of a discontinued operation at
          December 31, 2001. This loss includes $3,439,366 of net losses
          recorded as a result of writing down Atlantic's assets to their net
          realizable value in order to arrive at the appropriate cost value of
          the Company's investment in Atlantic. Atlantic's sales totaled
          $24,561,972 for the year ended December 31, 2001 and for the period up
          to January 28, 2002 and are not included in sales as reported in the
          consolidated statement of operations. A tax benefit from the loss from
          operations of discontinued segment has not been recorded as one is not
          expected to be realized.

          On November 21, 2002, the Company and Universal were released from
          their guarantees of the indebtedness (approximately $5,800,000) of
          Atlantic by Atlantic's lending bank, in return for the agreement by
          the Company and Universal to pay to the bank $2,500.000 as a five-year
          term loan under the Company's line of credit with the bank, or, if
          earlier, on demand by the bank. The $3,300,000 difference between the
          total amount previously guaranteed ($5,800,000) and the amount the
          Company and Universal agreed to pay ($2,500,000) is reflected in the
          Company's 2002 statement of operations as income from the operations
          of discontinued segments.

          The Company's investment in Atlantic's common stock is being
          recognized at a cost, value of $219,007 of guaranteed liabilities as
          of December 31, 2002. The Company has recognized liabilities of
          Atlantic only to the extent such liabilities are guaranteed by the
          Company because the Company believes that it is not responsible for
          any other liabilities of Atlantic as Atlantic's creditors will be able
          to look only to Atlantic's assets for recovery. Colonial will continue
          to recognize the $219,007 of guaranteed liabilities of Atlantic until
          they are extinguished by Atlantic's bankruptcy proceedings or
          otherwise.

          Since the Company is treating Atlantic as an unconsolidated
          subsidiary, Atlantic is being carried at cost on the Company's books.
          As such, the Company has not reflected any of Atlantic's 2002
          financial activity in its consolidated financial statements, except
          for the $3,300,695 release of guarantee, as stated above. The
          following summarized financial information for the deconsolidated
          subsidiary, Atlantic, includes the actual 2002 activity:

                                      For the years ended December 31,

                                     2002             2001          2000
                                  ----------      -----------    -----------
                Net sales         $2,700,174      $24,561,972     25,978,063
                Net (loss)        (1,712,197)      (6,098,023)       234,236

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                   2002            2001
                                                                                -----------    -----------
         <S>                                                                    <C>            <C>
         Current assets (primarily accounts receivable and inventory)           $ 1,920,563      3,352,197
         Non-current assets (primarily property and equipment)                           --         57,510

         Current liabilities (primarily accounts payable, accrued liabilities    (3,487,946)    (3,628,714)
         Guaranteed borrowings under credit facility                                     --     (5,800,695)
                                                                                -----------    -----------
         Net (liabilities) assets of deconsolidated subsidiary                  $(1,567,383)    (6,019,702)
                                                                                ===========    ===========
</TABLE>


                                       25
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(c)    The Company acquired its now discontinued Well-Bilt door and doorframe
       manufacturing segment in March 2000 and disposed of Well-Bilt in February
       2001. A loss from operations of this segment of $3,212,152 and a
       $3,731,654 loss on disposal of this segment are reflected in the
       consolidated statements of operations for the year ended December 31,
       2000.

       In connection with the initial acquisition of Well-Bilt, liabilities were
       assumed as follows:

               Fair value of assets acquired                       $ 6,665,786
               Cash paid (including advances of $2,324,732) and
                   amounts accrued                                   3,384,094
                                                                   -----------
               Fair value of liabilities assumed                   $ 3,281,692
                                                                   ===========

         The results of operations for Well-Bilt, since its acquisition in March
         2000 have been shown as a discontinued operation in the consolidated
         financial statements as of and for the year ended December 31, 2000.
         The loss from operations of Well-Bilt for the year ended December 31,
         2000 and for the period up to the measurement date, January 12, 2001,
         was $3,212,152. The loss on the disposition of the segment was
         $3,731,654, which includes a provision of $141,722 for operating losses
         incurred during the phase- out period. The results of the discontinued
         operation do not reflect any management fees or interest expense
         allocated by corporate. The loss from operations of Well-Bilt includes
         $321,355 of interest on borrowings under the credit facility by
         Atlantic to fund Well-Bilt's operations. The interest was calculated
         based upon the applicable interest rate under the credit facility.
         Atlantic retained certain assets, including inventory of approximately
         $369,000, and certain liabilities of approximately $1,284,000.
         Well-Bilt's net sales, excluding sales to affiliated subsidiaries, were
         $4,074,798 for the period of March 24, 2000 through January 12, 2001,
         and $53,205 from January 12, 2001 through the disposal date of February
         1, 2001. These amounts are not included in net sales as reported in the
         consolidated statement of income (loss). A tax benefit from the loss
         from operations of discontinued segment and the loss on the disposition
         has not been recorded as one is not expected to be realized. Pro forma
         financial information relating to the disposition of Well-Bilt is not
         presented because the disposition is fully reflected in the financial
         statements as of and for the year ended December 31, 2000.

         Summarized information for the discontinued operation is as follows:

                                     For the period from March 24, 2000 through
                                                 December 31, 2000
                                                -----------------
          Net sales                                    $4,074,798
          Net loss                                     (3,212,152)
                                                     ============

          During the second half of 2001, the Company, which had guaranteed
          certain liabilities of Well-Bilt, was able to reach favorable
          settlements on certain guarantees. As a result, the Company recorded a
          $106,509 net reduction of the loss on disposal of discontinued segment
          recorded at December 31, 2000.



                                       26
<PAGE>


                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


 (3)  INVESTMENT SECURITIES

          As of December 31, 2001, the Company's investment securities consist
          of $122,506 of mutual funds that were held in connection with the
          deferred compensation plan (the plan) (note 13). As was allowed under
          the plan, the Company terminated the plan during 2002. The assets of
          the plan were paid out to the plan participants.

 (4)  PROPERTY AND EQUIPMENT

  Property and equipment consist of the following at December 31:

                                                  2002        2001
                                               ---------    ---------
         Computer hardware and software        $ 419,030      390,411
         Furniture and fixtures                   97,643       68,555
         Leasehold improvements                  333,033      290,110
         Automobiles                             238,809      176,473
                                               ---------    ---------
                                               1,088,515      925,549
         Less accumulated depreciation
            and amortization                     456,567      302,759
                                               ---------    ---------
                                               $ 631,948      622,790
                                               =========    =========

       Computer hardware and software include approximately $325,659 and
         $323,619 of costs as of December 31, 2002 and 2001, respectively,
         related to the acquisition and installation of management information
         systems for internal use. The computer software costs are being
         amortized on a straight-line basis over a period of five years.

(5)  FINANCING ARRANGEMENTS

       On November 21, 2002, the Company and Universal were released from
         their guarantees of the indebtedness (approximately $5,800,000) by
         Atlantic to Colonial's and Atlantic's lending bank, in return for the
         agreement by the Company and Universal to pay to the bank $2,500,000 as
         a five-year term loan under the Company's line of credit with the bank,
         or, if earlier, on demand by the bank.

       As part of this settlement, the Company and its lending bank amended
         the Company's credit facility with the lending bank. The amended
         facility permits a total of $12,000,000 in borrowings, including a
         $373,000 term loan payable in monthly installments over eighteen
         months, the $2,500,000 term loan mentioned above, and additional
         borrowings on a revolving basis against eligible accounts receivable
         and inventory. The interest rate under the facility is at prime plus
         0.5%, except that interest rate on the $2,500,000 term loan is at prime
         plus 2.5%. The facility expires November 21, 2005, but all loans are in
         any event due at any time on demand by the bank, and, accordingly, have
         been classified as short-term in the accompanying consolidated balance
         sheets. All loans are secured by the assets of the Company, as well as
         a pledge of all of the outstanding stock of Universal. The facility





                                       27
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

         contains covenants relating to the financial condition of the Company
         and its business operations, and restricts the payment of dividends and
         capital expenditures.

       At December 31, 2002, amounts outstanding under the credit facility
         were $10,350,889, of which (i) $331,000 represents a term loan payable
         in 16 remaining equal monthly installments of approximately $21,000,
         and (ii) $2,490,000 represents a separate term loan payable in 59
         remaining monthly installments of agreed amounts under an amortization
         schedule. Although the term loans are payable over specified periods,
         16 and 59 months respectively, the Bank can demand payment at any time.
         At December 31, 2002, the amount of the unused available credit was
         $1,649,111. The interest rate on the $2,490,000 term loan was 6.75% as
         of December 31, 2002. The interest rates on the remaining credit
         facility, as of December 31, 2002 and 2001, were 4.75% and 5.75%,
         respectively.

 (6)  NOTES PAYABLE

(a) Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
                                                                               2002       2001
                                                                             --------   --------
            <S>                                                              <C>         <C>
            Term note payable to a former owner of acquired
            business in 60 monthly principal and interest
            installments of $9,125, bearing interest at 8.0%                 $   --      138,037

            Term note payable to a former owner of acquired
            business in 60   monthly principal and interest
            installments of $4,790, bearing interest at 7.0%                     --       18,881

            Term note payable to a bank in 60 monthly principal
            and interest installments of $347, bearing
            interest at .9%                                                    8,320      12,480

            Term note payable to a bank in 60 monthly
            principal and interest installments of $346, bearing
            interest at .9%                                                    8,651      12,802

            Term note payable to a bank in 60 monthly
            principal and interest installments of $346, bearing
            interest at .9%                                                    8,999      13,152


            Term note payable to a bank in 48 monthly
            principal and interest installments of $435, bearing
            interest at 5.9%                                                  12,166      17,380

            Term note payable to a bank in 60 monthly
            principal and interest installments of $392, bearing
            interest at 3.9%                                                  16,464      21,168

            Term note payable to a bank in 60 monthly
            principal only installments of $354                               20,532          --

</TABLE>


                                       28
<PAGE>


                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

         Term note payable to a bank in 60 monthly
         principal only installments of $354.             20,532           --
                                                        --------     --------
                                                          95,664      233,900
         Less current installments                        30,889      143,405
                                                        --------     --------
                                                        $ 64,775       90,495
                                                        ========     ========

         Maturities of notes payable are as follows:
              2003                                       30,889
              2004                                       30,887
              2005                                       15,990
              2006                                       10,858
              2007                                        7,040
                                                       --------
                                                         95,664
          Less current installments                      30,889
                                                       --------
                                                       $ 64,775
                                                       ========

     (b) Included in accrued liabilities at December 31, 2002 and 2001 is
         approximately $91,885 and $186,362, respectively, of unclaimed payments
         on notes payable to creditors, pursuant to a 1983 reorganization plan.
         The last payment on such notes was made in January 1998. During the
         years ended December 31, 2002, 2001 and 2000, $94,477, $93,923 and
         $95,557, respectively, of the unclaimed payments were recorded as other
         income in the accompanying consolidated statements of operations since,
         in accordance with the opinion of counsel, it is more likely than not
         that the Company is entitled to these payments.

 (7)  CAPITAL STOCK

       Each share of the Company's preferred stock is convertible into one
         share of the Company's common stock. Preferred stockholders will be
         entitled to a dividend, based upon a formula, when and if, any
         dividends are declared on the Company's common stock. The preferred
         stock is redeemable, at the option of the Company, at $7.50 per share.

       The voting rights of the common stockholders and preferred stockholders
         are based upon the number of shares of convertible preferred stock
         outstanding. If 1,250,000 or more shares of preferred stock are
         outstanding five of the nine directors are elected by the common
         stockholders and the remainder by the preferred stockholders. If more
         than 600,000 but less than 1,250,000 preferred shares are outstanding,
         six of the nine directors are elected by common stockholders. If
         600,000 or less preferred shares are outstanding, all nine directors
         are elected by common stockholders. A majority of the directors elected
         by preferred stockholders and a majority of the directors elected by
         the common stockholders are required to approve certain transactions,
         including, but not limited to, incurring certain indebtedness, merger,
         consolidation or liquidation of the Company, and the redemption of
         common stock. Preferred and common directors vote together on all other
         matters.




                                       29
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       At December 31, 2002, there were 2,685,252 shares of common stock
         reserved for conversion of preferred stock and for the exercise of
         stock options (note 8).

 (8) STOCK OPTIONS

       In June 1996, the Company adopted the 1996 Stock Option Plan (the 1996
         Plan) pursuant to which, as amended, the Company's Board of Directors
         may grant up to 1,200,000 options until December 31, 2005 to key
         employees and other persons who render service (non- employees) to the
         Company. Under the 1996 Plan, the options can be either incentive or
         nonqualified. The rate at which the options become exercisable is
         determined by the Board of Directors at the time of grant. The exercise
         price of the incentive stock options may not be less than the fair
         market value of the Company's common stock on the date of grant. The
         exercise price of the nonqualified stock options may not be less than
         85% of the fair market value of the Company's common stock on the date
         of grant.

       At December 31, 2002, a total of 182,000 options were outstanding under
         the 1996 Stock Option Plan and 51,000 options were outstanding under
         the Company's 1986 Stock Option Plan, which expired on December 31,
         1995.

 Changes in options outstanding are as follows:
<TABLE>
<CAPTION>
                                                    Shares Subject      Weighted Average
                                                       to Option         Exercise Price
                                                    -------------- ---------------------
         <S>                                        <C>            <C>
         Balance at December 31, 1999                   345,000                 2.66
         Exercised                                      (12,000)                2.58
         ------------------------------------------- ------------- ---------------------
         Balance at December 31, 2000                   333,000                 2.66
         ------------------------------------------- ------------- ---------------------
         Balance at December 31, 2001                   333,000                 2.66
         Cancelled                                      (30,000)                2.30
         Expired                                        (70,000)                1.50
         ------------------------------------------- ------------- ---------------------
         Balance at December 31, 2002                   233,000                 3.06
         ------------------------------------------- ------------- ---------------------
         Options exercisable at December
         31, 2002                                       211,400                 2.99
         ------------------------------------------- ------------- ---------------------
</TABLE>

       At December 31, 2002 and 2001, the range of exercise prices of
         outstanding options was $1.25-$3.75 per share. At December 31, 2002 and
         2001, the weighted average remaining contractual lives of outstanding
         options were approximately five and five years, respectively.

      The following table summarizes information about stock options at December
31, 2002:



                                       30
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

<TABLE>
<CAPTION>
                                                                                         Options Exercisable
                                                                                     ----------------------------
                                            Weighted-       Weighted-                                  Weighted-
                                             Average         Average                                    Average
        Range of                            Remaining       Exercise                                   Exercise
    Exercise Prices      Shares         Contractual Life      Price                  Shares              Price
    -----------------    ------         ----------------      -----                  ------              -----
   <S>                  <C>             <C>                 <C>                      <C>                <C>
        $1.25             51,000             0.05             $1.25                   51,000             $1.25
      2.51-3.75          182,000             6.32              3.57                  160,400              3.54
                         -------             ----              ----                  -------              ----
         Total           233,000             4.95              3.06                  211,400              2.99
                         =======             ====              ====                  =======              ====
</TABLE>

(9)  NET LOSS PER COMMON SHARE

       A reconciliation between the numerators and denominators of the basic
         and diluted income (loss) per common share is as follows:
<TABLE>
<CAPTION>
                                                      2002               2001               2000
                                                  ----------         ----------        ----------
<S>                                               <C>                <C>               <C>
Net loss (numerator)                              $3,194,385         (7,602,324)       (8,033,197)
                                                  ==========         ==========        ==========
Weighted average common shares
 (denominator for basic income
 (loss) per share)                                 1,603,777          1,603,178         1,542,712

Effect of dilutive securities:
  Convertible preferred stock                            --                 --                --
  Employee stock options                                 --                 --                --
                                                  ----------         ----------        ----------
Weighted average common and
  potential common shares
  outstanding (denominator for
  diluted income (loss)  per
  share)                                           1,603,777          1,603,178         1,542,712
                                                  ==========         ==========        ==========
Basic net income (loss) per share                 $     1.99              (4.74)            (5.21)
                                                  ==========         ==========        ==========
Diluted net income (loss) per share                     1.99              (4.74)            (5.21)
                                                  ==========         ==========        ==========
</TABLE>

       Employee stock options totaling 263,700, 252,400 and 329,000 for the
         years ended December 31, 2002, 2001 and 2000, respectively, were not
         included in the net income (loss) per share calculation because their
         effect would have been antidilutive. Convertible preferred stock
         totaling 1,464,269, 1,464,868 and 1,518,793 for the years ended
         December 31, 2002, 2001 and 2000, respectively, were not included in
         the net loss per share because their effect would have been
         antidilutive.

(10)  INCOME TAXES

The provision for income taxes attributable to continuing operations and
discontinued operations:

                                       31
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

<TABLE>
<CAPTION>
                                   2002                                 2001                                  2000
                                   -----                                -----                                 -----
                                   State                                State                                 State
                                    and                                  and                                   and
                         Federal   Local      Total       Federal       Local          Total     Federal      Local      Total
                         -------------------------------------------------------------------------------------------------------
<S>                      <C>           <C>       <C>                    <C>           <C>                      <C>         <C>
Current                  $  --         37,167    37,167          --     32,786        32,786          --       2,000       2,000
Deferred                    --             --        --   1,564,429     60,573     1,625,002     858,000          --     858,000
                         ---------  ---------  --------   ---------   --------     ---------   ---------   ---------   ---------
Tax Expense
  on Continuing
  Operations                --        37,167     37,167   1,564,429     93,359     1,657,778     858,000       2,000     860,000

Tax Expense
  on Discontinued
  Operations                --             --        --          --         --          --        32,000      18,000      32,000
                         ---------  ---------  --------   ---------   --------     ---------   ---------   ---------   ---------
Total Tax Expense        $  --         37,167    37,167   1,564,429     93,359     1,657,778     890,000      20,000     892,000
                         =========  =========  ========   =========   ========     =========   =========   =========   =========
</TABLE>


       A reconciliation of the provision for income taxes attributable to
         income (loss) on continuing operations computed at the Federal
         statutory rate to the reported provision for income taxes follows:
<TABLE>
<CAPTION>
                                                       2002                     2001                     2000
                                                       ----                     ----                     ----
<S>                                        <C>                 <C>       <C>            <C>      <C>              <C>
    Tax provision at Federal
       statutory rate                      $  (23,509)         34.0%     15,973         34.0%    (157,633)        34.0 %
    State income taxes, net of
       federal benefit                         24,530        (35.5)%     61,617        131.2%       1,320         (0.3)%
    Change in valuation allowance for
       deferred tax assets                     26,202        (37.9)%  1,570,965       3344.0%   1,010,236       (217.9)%
    Adjustment to estimated utilization
       of net operating loss carryforwards         --           --           --           --       58,520        (12.6)%
    Permanent differences                       9,944        (14.4)%      2,693          5.7%     (87,918)        19.0 %
    Other                                          --           --        6,540         13.9%      35,475         (7.7)%
                                           ----------   ----------   ----------   ----------   ----------   ----------
    Total                                  $   37,167        (53.8)%  1,657,788       3528.8%     860,000       (185.5)%
                                           ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>

       The components of deferred income tax expense (benefit) on continuing
         operations attributable to income (loss) on continuing operations are
         as follows:
<TABLE>
<CAPTION>
                                                                    2002              2001            2000
                                                                    ----              ----            ----
<S>                                                           <C>                     <C>         <C>
Deferred tax expense (benefit), exclusive of
  the effects of the other components listed below            $   (1,382)             3,082       (1,920,661)
Increase (decrease) in beginning-of-the-year
 balance of the valuation allowance for
 deferred tax assets                                              29,793          1,625,002         2,778,661
Generation of continuing operations net operating loss
  carryforward                                                   (31,175)            (3,082)               --
                                                              ----------         ----------        ----------
                                                                      --        $ 1,625,002           858,000
                                                              ==========         ==========        ==========
</TABLE>



                                       32
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 2002 and 2001 are
presented below.

<TABLE>
<CAPTION>
                                                                                    2002           2001
                                                                                    ----           ----
                         <S>                                                   <C>             <C>
                         Deferred tax assets:
                            Federal net operating loss carryforwards           $ 12,191,239    $ 13,289,441
                            State net operating loss carryforwards                  178,529         524,707
                            Allowance for doubtful accounts receivable               34,608          29,797
                            Inventory                                                  --             3,458
                            Additional costs inventoried for tax purposes           304,697         204,381
                            Value of unconsolidated subsidiary in bankruptcy           --           190,934
                            Alternative minimum tax credit carryforward             113,156         113,156
                            Other                                                      --               591
                                                                               ------------    ------------
                               Total gross deferred tax assets                   12,822,229      14,356,465
                               Less valuation allowance                         (12,727,209)    (14,356,465)
                                                                               ------------    ------------
                               Deferred tax assets, net                              95,020            --
                                                                               ------------    ------------
                           Deferred tax liabilities:
                             Goodwill                                               (87,377)           --
                             Depreciation                                            (7,643)           --
                                                                               ------------    ------------
                             Gross deferred tax liabilities                         (95,020)           --
                                                                               ------------    ------------
                             Net deferred tax asset (liability)                        --              --
                                                                               ============    ============
</TABLE>

       At December 31, 2002, the valuation allowance was determined by
         estimating the recoverability of the deferred tax assets. In assessing
         the realizability of deferred tax assets, management considers whether
         it is more likely than not that some portion or all of the deferred tax
         assets will not be realized. In making this assessment, the ultimate
         realization of deferred tax assets is dependent upon the generation of
         future taxable income and tax planning strategies in making this
         assessment. Based upon the level of historical income and projections
         for future taxable income over the periods in which the deferred tax
         assets are deductible, management believes it is more likely than not
         that the Company will not realize the benefits of these deductible
         differences at December 31, 2002.

       During the years ended December 31, 2002 and 2001, the valuation
         allowance was increased (decreased) by approximately $(1,629,256) and
         $3,742,893, respectively in order to reflect the net deferred tax asset
         deemed recoverable, based upon projections of future taxable income.

       At December 31, 2002, the Company has net operating loss carryforwards
         for federal income tax purposes of approximately $35,856,586. Varying
         amounts of the net operating loss carryforwards will expire from 2004
         through 2021.






                                       33
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

                EXPIRATION YEAR               NET OPERATING LOSSES
                ---------------               --------------------
                        2004                        $  8,743,614
                        2005                           8,245,078
                        2006                           4,810,981
                        2007                           4,944,884
                        2008                             414,691
                        2020                           5,959,802
                        2021                           2,737,536
                                                       ---------
                                                    $ 35,856,586

       None of the net operating loss carryforwards will expire if not
         utilized during 2003. During 2002, the Company utilized approximately
         $3,300,000 of its net operating loss carryforwards. The projected
         utilization of the net operating loss carryforwards has been
         substantially reduced as a result of certain annual limitations and it
         may be further limited to utilization against the future earnings of
         the subsidiary that sustained the loss. If certain substantial changes
         in ownership occur, there would be a further annual limitation on the
         amount of tax carryforwards that can be utilized in the future. The
         Company also has alternative minimum tax credits of $113,156 which will
         not expire.

(11) FAIR VALUE OF FINANCIAL INSTRUMENTS

       Statement No.107, "Disclosure about Fair Value of Financial
         Instruments," defines the fair value of a financial instrument as the
         amount at which the instrument could be exchanged in a current
         transaction between willing parties. The carrying value of all
         financial instruments classified as current assets or liabilities is
         deemed to approximate fair value, with the exception of the notes
         payable, because of the short maturity of these instruments.

       The notes payable approximate fair value as the interest rates are
         comparable to rates currently offered by local lending institutions for
         loans of similar terms to companies with comparable credit risk.

(12)  SUPPLEMENTAL CASH FLOW INFORMATION

The following is supplemental information relating to the consolidated
statements of cash flows:

                                                   2002        2001       2000
             Cash paid during the years for:
                    Interest                   $ 511,324      643,708    795,571
                                               =========    =========  =========
                    Income taxes               $  23,024        7,700     48,195
                                               =========    =========  =========
 Non-cash transactions:

       During 2002, 2001 and 2000, 34, 2,165 and 66,532 shares, respectively,
         of convertible preferred stock were converted to a similar number of
         common shares.

       During 2001 and 2000, notes payable of $18,493 and $41,525,
         respectively were incurred for the purchase of automobiles. 20



                                       34
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(13) EMPLOYEE BENEFIT PLANS

(a)  401(K) PLAN

       The Company has a 401(k) plan, which covers substantially all employees
         of the Company's subsidiary Universal. Participants in the 401(k) plans
         may contribute a percentage of compensation, but not in excess of the
         maximum allowed under the Internal Revenue Code. The Universal 401(k)
         plan provides for matching contributions. In 2002, 2001 and 2000,
         $111,793, $102,000 and $99,000, respectively, of matching contributions
         were made to the Universal 401(k) plan.

  (b)  DEFERRED COMPENSATION PLAN

       During fiscal 1999, Universal adopted a Deferred Compensation Plan (the
         Plan) for a select group of management employees. The Plan was intended
         to provide certain executives with supplemental retirement benefits, as
         well as to permit the deferral of more of their compensation than they
         are permitted to defer under the 401(k) plan. The plan provided for a
         contribution equal to 5% of a participant's compensation to be made to
         the plan for those participants who are employed as of December 31. The
         plan was not intended to be a qualified plan under the provisions of
         the Internal Revenue Code. All compensation deferred under the plan was
         held by the Company in an investment trust, which was considered an
         asset of the Company. The investments, which amounted to $122,506 at
         December 31, 2001, have been classified as trading securities and are
         included in investment securities on the accompanying consolidated
         balance sheet as of December 31, 2001. The return on these underlying
         investments determined the amount of earnings credited to the
         employees. As was allowed under the plan, the Company terminated the
         plan during 2002. The proceeds of the plan investments were paid out to
         the plan participants. The deferred compensation liability is reflected
         as a long-term liability on the accompanying consolidated balance
         sheets as of December 31, 2001.

(14)  BUSINESS AND CREDIT CONCENTRATIONS

       Universal purchases products from approximately 360 suppliers. In 2002,
         two suppliers accounted for 49.1% of Universal's purchases. The loss of
         one of these suppliers could have a material adverse effect upon its
         business for a short-term period. Universal believes that the loss of
         any one of its other suppliers would not have a material adverse effect
         upon its business. In 2001, two suppliers accounted for 39% of
         Universal's purchases.

(15)  COMMITMENTS

      (a) COMPENSATION

       The Company has employment contracts with two officers and various
         employees with remaining terms ranging from two to three years. The
         amounts due by the Company, per these contracts, are $855,000, $880,000
         and $450,000 in the years ended December 31, 2003, 2004 and 2005,
         respectively. These commitments do not include amounts that may be
         earned as a bonus.


                                       35
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


       (b)LEASES

       The Company is obligated under operating leases for warehouse, office
         facilities and certain office equipment. Rental expense, including real
         estate taxes, amounted to approximately $1,153,867, $1,034,605 and
         $907,134 for the years ended December 31, 2002, 2001 and 2000,
         respectively. At December 31, 2002, future minimum lease payments in
         the aggregate and for each of the five succeeding years are as follows:


                         2003                 $  1,256,846
                         2004                    1,236,459
                         2005                    1,213,578
                         2006                    1,040,840
                         2007                      967,287
                      Thereafter                 1,452,726
                                               -----------
                       Total                   $ 7,167,736
                                               ===========

(16)  SUBSEQUENT EVENTS

(a)   Private Placement

       On July 16, 2003, the Company completed a private placement pursuant to
         Regulation D of the Securities Exchange Act of 1933. The Company raised
         $240,600 through the issuance of 802,000 shares of Common Stock at
         $0.30 per share. The stock was sold to officers and directors of the
         company and one private investor. The proceeds of the private placement
         will be used for general working capital purposes. The stock cannot be
         sold, transferred or otherwise disposed of unless subsequently
         registered under the Securities Act of 1933 and applicable state
         securities or Blue Sky laws or pursuant to an exemption from such
         registration, which is available at the time of desired sale, and will
         bear a legend to that effect.

(b)  Acquisition

       On September 30, 2003, RAL Purchasing, Inc., a newly formed, wholly
         owned subsidiary of Colonial, purchased substantially all of the assets
         and certain liabilities of RAL Supply Group, Inc. ("RAL") for a price
         of $3,838,521. $2,447,061 of the purchase price was paid in cash to the
         seller at the time of purchase. The remaining $1,391,460 was in the
         form of liabilities assumed by RAL Purchasing, Inc. The cash paid at
         the time of purchase was funded as follows:




                                       36
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


<TABLE>
<CAPTION>
         <S>                                                                    <C>
         Borrowings on Colonial's credit facility                               $  2,147,061

         5-Year unsecured notes issued by RAL
         Purchasing, Inc. to a third party, at annual rate of 9%                $   300,000
                                                                                -----------

         Total outlay                                                           $ 2,447,061
                                                                                ===========

         In connection with this acquisition, Colonial's limit on its credit
         facility was increased by $2,000,000 to $14,000,000. All borrowings
         under the credit facility are secured by substantially all of the
         assets of RAL and Universal. In addition, the 5-year notes are
         guaranteed by Universal.

         As a result of this acquisition, liabilities were assumed as follows:

         Fair value of assets acquired                                          $  3,838,521
         Cash paid                                                              $  2,447,061
                                                                                ------------

         Fair value of liabilities assumed                                      $  1,391,460
                                                                                ============
</TABLE>

         RAL is a distributor of heating and cooling equipment and high-end
         plumbing fixtures with six locations, servicing Orange, Rockland,
         Ulster and Sullivan counties in New York. Four locations have
         showrooms. RAL's products are marketed primarily to contractors,
         consumers, builders and the commercial sector. Initial purchase price
         allocations are not yet available as the acquisition was recently
         completed. The results of operations of RAL will be included in the
         consolidated results from the date of acquisition.




                                       37
<PAGE>

                   COLONIAL COMMERCIAL CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(17)     QUARTERLY RESULTS (UNAUDITED)

       The following table sets forth selected unaudited quarterly financial
         data of the Company for the years ended December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                      QUARTER ENDED
                                                -----------------------------------------------------------
                                                   Mar. 31,        June 30,      Sept. 30,       Dec. 31,
                                                 ----------       ----------    ----------      ---------
                                                       (Dollars in thousand, except per share data)
<S>                                                  <C>          <C>          <C>          <C>
2001
Net sales                                            6,604           7,676           7,895          8,905
Gross profit                                         2,021           2,317           2,368          2,639
Income (loss) from continuing operations              (288)            (29)             76         (1,370)

Income (loss) on discontinued operation                315              44            (492)        (5,859)
                                                  --------       ---------       ---------      ---------
Net income (loss)                                       27              15            (416)        (7,229)
                                                  ========       =========       =========      =========
Income (loss) per common share:
   Basic:
       Continuing operations                         (0.18)          (0.02)           0.05          (0.86)
       Income (loss) on discontinued operations       0.20            0.03           (0.31)         (3.65)
                                                  --------       ---------       ---------      ---------
            Net loss                                  0.02            0.01           (0.26)         (4.51)
                                                  ========       =========       =========      =========
   Diluted:
       Continuing operations                         (0.18)          (0.02)           0.02          (0.86)

       Income (loss) on discontinued operations       0.20            0.03           (0.16)         (3.65)
                                                  --------       ---------       ---------      ---------
            Net loss                                  0.02            0.01           (0.14)         (4.51)
                                                  ========       =========       =========      =========
2002

Net sales                                            7,231           9,173          10,592         10,003
Gross profit                                         2,211           2,645           2,901          2,862
Income (loss) from continuing operations              (189)            (48)            142            (11)

Income (loss) on discontinued operation               --              --              --            3,300
                                                  --------       ---------       ---------      ---------

Net income (loss)                                     (189)            (48)            142          3,289
                                                  ========       =========       =========      =========
Income (loss) per common share:
   Basic:
       Continuing operations                         (0.12)          (0.03)           0.09          (0.01)
       Income (loss) on discontinued operations         --              --              --           2.06
                                                  --------       ---------       ---------      ---------
            Net loss                                 (0.12)          (0.03)           0.09           2.05
                                                  ========       =========       =========      =========
   Diluted:
       Continuing operations                         (0.12)          (0.03)           0.05          (0.01)

       Income (loss) on discontinued operations         --              --              --           2.06
                                                  --------       ---------       ---------      ---------
            Net loss                                 (0.12)          (0.03)           0.05           2.05
                                                  ========       =========       =========      =========
</TABLE>




                                       38
<PAGE>

                          INDEPENDENT AUDITORS' REPORT



  The Board of Directors and Stockholders
    Colonial Commercial Corp.:


  Under the date of October 2, 2003, we reported on the consolidated balance
  sheets of Colonial Commercial Corp. and subsidiaries as of December 31, 2002
  and 2001, and the related consolidated statements of operations, stockholders'
  equity (deficit) and cash flows for each of the years in the three-year period
  ended December 31, 2002, which are included in the Company's 2002 annual
  report on Form 10-K. In connection with our audits of the aforementioned
  consolidated financial statements, we also audited the related consolidated
  financial statement schedule in the 2002 annual report on Form 10-K. This
  consolidated financial statement schedule is the responsibility of the
  Company's management. Our responsibility is to express an opinion on this
  financial statement schedule based on our audits.

  In our opinion, such financial statement schedule, when considered in relation
  to the basic consolidated financial statements taken as a whole presents
  fairly, in all material respects, the information set forth therein. The audit
  report on the consolidated financial statements of Colonial Commercial Corp.
  and subsidiaries referred to above contains an explanatory paragraph that
  states that the Company has had losses in 2002, 2001 and 2000 has
  stockholders' deficit at December 31, 2002 and has negative working capital.
  In addition, outstanding borrowings under its credit facility are due on
  demand. If the bank were to demand repayment, the Company does not project
  that it would have sufficient liquidity to make such a payment. In addition,
  as discussed in note 2(b), Atlantic Hardware & Supply Corporation
  ("Atlantic"), a wholly-owned subsidiary of the Company, filed for
  reorganization under Chapter 11 of the United States Bankruptcy Code on
  January 28, 2002. The financial results of Atlantic have been deconsolidated
  and the Company accounts for Atlantic using the cost method. These
  circumstances raise substantial doubt about the Company's ability to continue
  as a going concern. Management's plans in regard to these matters are also
  described in Note 1(c). The financial statements do not include any
  adjustments that might result from the outcome of this uncertainty. Also, our
  report refers to a change in the accounting for goodwill and other intangible
  assets.





/S/ KPMG LLP
------------------
KPMG LLP

Melville, New York
October 2, 2003




                                       39
<PAGE>

                                   Schedule II

Colonial Commercial Corp. and Subsidiaries

Schedule of Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                                Balance at      Charged to       Charged to
                                                Beginning       Costs and        Other                                 Balance at
            Description                           of Year        Expenses        Accounts            Deductions        End of Year
            ------------                         --------        --------        ---------         -------------        ---------
<S>                                              <C>              <C>            <C>               <C>                   <C>
For the year ended December 31, 2002
  Allowance for doubtful accounts                $253,156         111,339        19,592 (a)        (118,876) (b)         265,211
                                                 ========        ========        ==========        =============        ========

For the year ended December 31, 2001
  Allowance for doubtful accounts                $247,646          57,589        22,458 (a)        (74,537) (b)          253,156
                                                 ========        ========        ==========        =============        ========

For the year ended December 31, 2000
  Allowance for doubtful accounts                $227,920          85,554        79,320 (a)        (145,148) (b)         247,646
                                                 ========        ========        ==========        =============        ========

<FN>
(a)    Comprised primarily accounts that were previously charged against the
       allowance, and have since been collected.

(b)    Comprised primarily uncollected accounts charged against the allowance.
</FN>

</TABLE>


                                       40
<PAGE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURES

         None

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The names, ages and positions of the Registrant's directors and executive
officers are listed below, along with a brief account of their business
experience during the last five years. Officers are appointed annually by the
Board of Directors at its first meeting following the Annual Meeting of
Stockholders and from time to time at the pleasure of the Board. There are no
family relationships among these directors or officers, nor any arrangement or
understanding between any such directors or officers and any other person
pursuant to which any of such officers were selected as executive officers.

<TABLE>
<CAPTION>
                                                             Business Experience                 Year First Elected
               Name                    Age                 During Past Five Years                    as Director

<S>                                  <C>                                                                <C>
Common Stock Directors:
Gerald S. Deutsch **                 66        Certified Public Accountant and Attorney                 1988
Bernard Korn *                       78        Chairman of the Board, President and                     1964
                                               Chief Executive Officer of the Company
Carl L. Sussman                      78        Private Investor                                         1964
James W. Stewart *                   57        Executive Vice President, Treasurer and
                                               Secretary of the Company                                 1982
Convertible Preferred
Stock Directors:

Jack Rose                            84        Private Investor                                         1983
Ronald Miller                        59        Attorney at Law                                          1983
William Koon                         73        President, Lord's Enterprises,                           1983
                                               Grain Merchants
William Pagano *                     63        President of Universal Supply Group, Inc.                2001

 * Executive Officers of the Company
** Mr. Deutsch resigned as a director on June 19, 2003.

</TABLE>
         There are no other significant employees who would need to be included
in this item.

         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         The Company believes that during the period from January 1, 2002
through December 31, 2002, all executive officers, directors and greater than
10% beneficial owners, complied with Section 16(a) filing requirements.



                                       41
<PAGE>


ITEM 11.  EXECUTIVE COMPENSATION.

         COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The Company does not have a Compensation Committee or any other
committee of the Board of Directors performing equivalent functions. Decisions
regarding compensation of executive officers of the Company are made by the
Board of Directors. Three of the company's executive officers, Bernard Korn,
James W. Stewart and William Pagano, are directors of the Company. Each of these
individuals participated in deliberations of the Board during the fiscal year
ended December 31, 2002 concerning executive officer compensation, except that
they abstained from deliberations and voting regarding their own compensation.

         BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION

         As required by the rules established by the Securities and Exchange
Commission, the Board of Directors has prepared the following report on the
compensation policies of the Board of Directors applicable to the Company's
executive officers.

         The Company's executive compensation policies and programs are designed
to retain talented executives and motivate them to achieve business objectives
that will enhance stockholder value. The Company's compensation program for
executives consists of three elements:

         -  a base salary,

         -  a performance-based annual bonus, and

         -  periodic grants of stock options.

         BASE SALARY

         The salaries for the executive officers are designed to retain
qualified and dedicated executive officers. The Board of Directors reviews
salary recommendations made by the Company's Chief Executive Officer (CEO), and
evaluates individual responsibility levels, performance and length of service.

         ANNUAL BONUS

         Bonus compensation provides the Company with a means of rewarding
performance, based upon the attainment of corporate profitability during the
year. Mr. Pagano receives annual bonuses based on a percentage of earnings of
his subsidiary. He received a bonus of $194,734 for the year ended December 31,
2002.

         STOCK OPTIONS

         During 2002, no stock options were granted to the Company's employees,
including the executive officers.




                                       42
<PAGE>


         CHIEF EXECUTIVE OFFICER'S COMPENSATION

                The CEO's compensation was determined on the basis of the same
factors utilized to compensate other executives.

                                The Board of Directors

                 Bernard Korn (Chairman)            James W. Stewart
                 Gerald S. Deutsch                  William Koon
                 Ronald Miller                      Jack Rose
                 Carl L. Sussman                    William Pagano

         EXECUTIVE COMPENSATION

         The following table sets forth information about compensation paid or
accrued by the Company during the fiscal years ended December 31, 2002, 2001 and
2000 to Bernard Korn, James W. Stewart and William Pagano, the only officers of
the Company and its subsidiaries whose compensation exceeded $100,000 (the
"Named Officers").

         SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                                           Long-Term
                                                                                           Compensation
                                                            Annual Compensation            Stock
         Name and Principal Position     Year            Salary ($)       Bonus ($)        Options #
         ---------------------------     ------          ----------       --------         ---------
         <S>                             <C>             <C>              <C>              <C>
         Bernard Korn                      2002            200,000             --               --
         Chairman of the Board,            2001            221,154             --               --
         President, Chief Executive        2000            250,000             --               --
         Officer and Director

         James W. Stewart                  2002            130,329             --               --
         Executive Vice President,         2001            167,967             --               --
         Treasurer, Secretary              2000            200,000             --               --
         and Director

         William Pagano                    2002            200,000        194,734               --
         President, Universal Supply       2001            200,000        147,640               --
         Group, Inc.                       2000            200,000        128,523               --
</TABLE>

        AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
        AND FISCAL YEAR-END OPTION VALUES

         The following table sets forth information concerning the value of
unexercised stock options at the end of the 2002 fiscal year for the persons
named in the Summary Compensation Table.


<TABLE>
<CAPTION>
                                                                                          Value of
                                                                   Number of            Unexercised
                                                                  Unexercised           In-The-Money
                              Shares                              Options at             Options at
                            Acquired On       Value             Fiscal Year-End        Fiscal Year-End
                             Exercise        Realized             Exercisable/          Exercisable/
                               (#)             ($)               Unexercisable          Unexercisable
                            -----------      --------           ---------------        ---------------
          <S>               <C>              <C>                <C>                    <C>
UNEXERCISABLE
          Bernard Korn            0               0                 87,000/0                  0/0
          James W. Stewart        0               0                 45,000/0                  0/0
          William Pagano          0               0               12,000/20,000               0/0
</TABLE>


                                       43
<PAGE>

         Mr. Korn is employed pursuant to an employment agreement (the
"Agreement"), expiring December 31, 2005, at an annual compensation of $250,000.
In the event of Mr. Korn's death, the Agreement provides for continued
compensation payments for a period of one year. In the event of Mr. Korn's
disability, he will receive compensation for the balance of the term of the
agreement at the rate of compensation then in effect. Mr. Korn voluntarily
agreed to a $50,000 per annum salary reduction on June 7, 2001 and another
$50,000 on February 24, 2003.

         Mr. Stewart is employed pursuant to an employment agreement expiring
December 31, 2004 at a compensation of $200,000 per annum for the year 2001,
$225,000 per annum for the years 2002 and 2003 and $250,000 per annum for the
year 2004. Mr. Stewart's agreement also provides for annual incentive
compensation, based on increases in pre-tax income from a base period of the
year ended December 31, 1999. Mr. Stewart voluntarily agreed to a $50,000 per
annum salary reduction on March 1, 2001 and another $75,000 on February 24,
2003.

         Mr. Pagano is employed pursuant to an employment agreement expiring on
December 31, 2005 at a compensation of $200,000 per annum. The agreement also
provides for additional incentive compensation based on a percentage of
earnings, as defined, of Universal Supply Group, Inc.

         DIRECTORS' COMPENSATION

        The Company paid Mr. Deutsch an aggregate of $26,000 for fees for
professional services rendered to the Company and its subsidiaries during 2002.

         Members of the Board of Directors, other than those employed by the
Company or its subsidiaries, receive a fee of $1,000 for each meeting of the
Board attended, limited to $4,000 per annum, in addition to an annual retainer
of $2,000.



                                       44
<PAGE>

                                Performance Graph

                   Comparison of Five Year Cumulative Return*
                         Among Colonial Commercial Corp.
         the NASDAQ Stock Market (U.S.) Index and The Russell 2000 Index



<TABLE>
<CAPTION>
                                            12/31/97  12/31/98    12/31/99   12/31/00   12/31/01   12/31/02
<S>                                         <C>        <C>        <C>         <C>         <C>          <C>
Colonial Commercial Corp.                   100.00     123.33     173.33      170.03      38.93        5.33
NASDAQ Stock Market (U.S.)                  100.00     140.99     261.48      157.42     124.89       86.34
Russell 2000                                100.00      97.45     118.17      114.60     117.45       93.39
</TABLE>


                 * $100 invested on 12/31/97 in stock or index,
                      including reinvestment of dividends.
                         Fiscal year ending December 31.

        The annual changes for the five-year period are based on the assumption
that $100 had been invested on December 31, 1997 and that all dividends were
reinvested. The total cumulative dollar returns shown on the graph represent the
value that such investments would have had on December 31, 2002.





                                       45
<PAGE>




ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The following table sets forth as of November 11, 2003, information
with respect to equity ownership by directors of the Company, holders of over 5%
of a class of stock and of directors and officers of the Company as a group.

<TABLE>
<CAPTION>
                   Common Stock**                         Convertible Preferred Stock

                              Amount and                            Amount and
                              Nature of                             Nature of
Name of Beneficial            Beneficial             Percent        Beneficial      Percent
Owner                         Ownership*             of Class       Ownership       of Class
---------------------------------------------------------------------------------------------
<S>                           <C>                   <C>             <C>             <C>
Gerald S. Deutsch                12,900 (1)  (2)         (3)              --              -
William Koon                     23,082 (4)  (2)         (3)          11,259             (3)
Bernard Korn                    342,561 (5)  (2)       13.13%        119,694            8.17%
Ronald H. Miller                 12,000      (2)         (3)           3,696 (6)         (3)
William Pagano                  385,640      (2)       14.79%             --             --
Jack Rose                       156,196 (8)  (2)        5.99%         48,371            3.30%
James W. Stewart                149,000      (2)        5.71%             --             --
Carl L. Sussman                 111,507 (7)  (2)        4.28%             --             --
Richard Rozzi                   399,365                15.31%             --             --
Rita C. Folger                  265,325 (9)            10.17%             61             (3)
All directors and
Officers as a group           1,192,886                45.73%        183,020           12.50%
</TABLE>

The beneficial owners listed above have all given a business address of 3601
Hempstead Turnpike, Levittown, New York 11756.

* For the purposes of this table, "Beneficial Ownership" is defined as set forth
in rule 13d-3 under the Securities Exchange Act of 1934, as amended. Except as
set forth in the following notes, each person listed in the table has sole
voting and sole investment power with respect to the shares of Common Stock
listed in the table.

** The shares of Common Stock listed in the table do not reflect the conversion
of the Company's Convertible Preferred Stock. If all of such Convertible
Preferred Stock were to be converted, the percentage of ownership of Messrs.
Korn, Rose, Stewart, Pagano, Rozzi, Ms. Folger and all directors and officers as
a group would be 11.35%, 5.02%, 3.66%, 9.47%, 9.81%, 6.52% and 33.78%,
respectively.


                                       46
<PAGE>


(1) Includes 1,500 shares of Common Stock owned by Mr. Deutsch's wife, of which
shares Mr. Deutsch disclaims beneficial ownership. Mr. Deutsch resigned as a
director on June 19, 2003

(2) Includes 87,000, 45,000, 12,000 and 6,500 common shares subject to options
which are exercisable within 60 days held by Messrs. Korn, Stewart, Pagano and
Deutsch, respectively, and 12,000 common shares, subject to options, which are
exercisable within 60 days held by each of Messrs. Sussman, Koon, Rose and
Miller and 198,500 common shares subject to options, which are exercisable
within 60 days held by all directors and officers as a group.

(3) Messrs. Deutsch, Miller and Koon, as well as Ms. Folger, each are the
beneficial owners of less than one percent of the Company's outstanding
securities, excluding securities held by, or for the account of, the Company or
its subsidiaries, plus securities deemed outstanding pursuant to Rule
13d-(3)-(d)(1) of the Exchange Act. As a result, their respective percentages of
ownership have not been disclosed.

(4) Includes 10,600 shares of Common Stock and 5,000 shares of Convertible
Preferred Stock owned by Mr. Koon's wife, of which shares Mr. Koon disclaims
beneficial ownership.

(5) If only Mr. Korn were to convert his Convertible Preferred Stock, his
percentage of ownership of Common Stock would be 16.94%.

(6) Includes 2,803 shares of Convertible Preferred Stock owned by Mr. Miller's
wife, of which shares Mr. Miller disclaims beneficial ownership.

(7) Includes 44,507 shares of Common Stock owned jointly by Mr. Sussman and his
wife.

(8) If only Mr. Rose were to convert his Convertible Preferred Stock, his
percentage of ownership of Common Stock would be 7.70%.

(9) Ms. Folger is the wife of Oscar Folger, the Company's legal counsel. Mr.
Folger has disavowed beneficial ownership of his wife's shares.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          None

ITEM 14.  CONTROLS AND PROCEDURES


(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         The Company's senior management is responsible for establishing and
maintaining a system of disclosure controls and procedures (as defined in Rule
13a-14 and 15d-14 under the Securities Exchange Act of 1934 (the "Exchange
Act")) designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported as specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports that it files
or submits under the Act is accumulated and communicated to the issuer's
management, including its principal executive officer or officers and principal
financial officer or officers, or persons performing similar functions, as
appropriate to allow them to make informed decisions regarding required
disclosure.



                                       47
<PAGE>


         The Company has evaluated the effectiveness of the design and operation
of its disclosure controls and procedures under the supervision of and with the
participation of management, including the Chief Executive Officer and Chief
Financial Officer within 90 days prior to the filing date of this report, Based
on that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are effective in alerting
them to material information required to be included in our periodic Securities
and Exchange Commission filings.

(b)      CHANGES IN INTERNAL CONTROLS

         Subsequent to that evaluation, there have been no significant changes
in our internal controls or other factors that could significantly affect these
controls after such evaluation.

                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

   (a) See Index to Consolidated Financial Statements and Schedule included
elsewhere herein.

   (b) No reports on Form 8-K were filed during the fourth quarter of 2002.

   (c) Exhibits





                                       48
<PAGE>
<TABLE>
<CAPTION>
                                                                                                                   Incorporated by
                                                              Filed                                                Reference From
                                                             Herewith         Form                 Date                Exhibit
                                                             --------         ----                 ----            ---------------
<S>                                                          <C>              <C>                 <C>              <C>
  3 (a) Certificate of  Incorporation of
           Registrant                                                          8-K                 1/5/83                  1
           (i ) Certificate of Amendment of
                 the Certificate of Incorporation
                 Re: Authorized Common and
                 Convertible Preferred Shares
     (b) By-Laws of Registrant                                                 8-K                  1/5/83                 1
10 (a) Employment Agreement dated as of
           January 1, 1998 between Registrant
           and Bernard Korn                                                   10-KSB               3/31/99                10(a)
           (i) Amendment No. 1 dated April 1,
               1999 to Employment Agreement
               dated as of January 1, 1998
               between Registrant and
               Bernard Korn                                                   10-K                  4/9/01                10(a)(i)
          (ii) Amendment No. 2 dated April 1,
               2000 to Employment Agreement
               dated as of January 1, 1998
               between Registrant and
               Bernard Korn                                                   10-K                  4/9/01                10(a)(ii)
        (iii) Amendment No. 3 dated October 29,
               2002 to Employment Agreement
               dated as of January 1, 1998 between
               Registrant and Bernard Korn                       Yes
        (iv)  Amendment No. 4 dated October 29,
                2002 to Employment Agreement
                dated as of January 1, 1998
                between Registrant and Bernard Korn              Yes
   (b)    Employment Agreement dated as of
            January 1, 2000 between Registrant
            and James W. Stewart                                              10-KSB              3/31/99                 10(b)
           (i) First Amendment dated
               September 15, 2000 to Employ-
               Agreement dated as of January
               1, 2000 between Registrant and
               James W. Stewart                                               10-K                 4/9/01                 10(b)(i)
         (ii) Second Amendment dated October
               29, 2002 to Employment Agreement
               dated as of January 1, 2000 between
               Registrant and James W. Stewart                   Yes
   (c)    1986 Stock Option Plan                                              10-K                3/30/88                10(c)(ii)
   (d)    1996 Stock Option Plan                                               S-8                10/2/97                28 B
   (e)    Purchase agreement dated March, 25, 1999 for
            business and assets subject to certain
            liabilities of Universal Supply Group, Inc.                       10-KSB              12/31/98               10(g)
          (i) Amendment No. 1 dated June 25, 1999 to
              Purchase Agreement dated March 25, 1999                          8-K                  7/8/99               10(a)(ii)



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<PAGE>

                                                                                                                   Incorporated by
                                                              Filed                                                Reference From
                                                             Herewith         Form                 Date                Exhibit
                                                             --------         ----                 ----            ---------------
          (ii)  Employment agreement dated
                June 25, 1999 between Universal
                Supply Group, Inc. and
                William Pagano                                                 8-K                7/8/99               10(a)(iii)
          (iii) Loan and Security Agreement
                 dated June 24, 1999 between
                 LaSalle Bank National Associa-
                 tion and Universal Supply
                 Group, Inc.                                                   8-K                7/8/99                10(a)(iv)
           (iv) Demand Note dated June 24,
                  1999 between LaSalle Bank
                  National Association and
                  Colonial Commercial Sub Corp.                                8-K                7/8/99                 10(a)(v)

            (v) Guaranty of all liabilities and
                  Security Agreement of Colonial
                  Commercial Sub Corp. by
                  Colonial Commercial Corp. to
                  LaSalle Bank National Associa-
                  tion dated June 24, 1999                                     8-K                7/8/99                 10(a)(vi)
           (vi)   Waiver and Tenth Amendment,
                  dated November 21, 2002 to the
                  Loan and Security Agreement, as
                  of June 24, 1999, between LaSalle
                  Bank National Association and
                  Universal Supply Group, Inc.                                10-K               12/31/01               10(e)(vi)
          (vii) Securities Pledge Agreement
                  dated November 21, 2002, made by the
                  Registrant, in favor of LaSalle
                  Bank National Association, re:
                  Universal Supply Group, Inc.                                10-K               12/31/01               10(e)(vii)
     (f) Certain documents related to
         Well-Bilt Steel Products, Inc.:
          (i) Reaffirmation Agreement,
              General Release Consent and
              Acknowledgement of Commercial
              Reasonableness of Private Sale
              dated February 1, 2001, between
              Atlantic Hardware & Supply
              Corporation, Universal Supply
              Group, Inc., Colonial Commercial
              Corp., and the secured lender                                    8-K                2/15/01                10(a)(i)
         (ii) Reaffirmation Agreement,
              General Release Consent and
              Acknowledgement of Commercial
              Reasonableness of Private Sale
              dated February 1, 2001 between
              Well-Bilt Steel Products
              Inc. and the secured lender                                      8-K                2/15/01                10(a)(ii)



                                       50
<PAGE>

                                                                                                                   Incorporated by
                                                              Filed                                                Reference From
                                                             Herewith         Form                 Date                Exhibit
                                                             --------         ----                 ----            ---------------

        (iii)  Foreclosure Agreement dated
               February 1, 2001 between Independent
               Steel Products, LLC the secured lender,
               Atlantic Hardware & Supply Corporation,
               Universal Supply Group, Inc.
               and Well-Bilt Steel Products, Inc.                              8-K                2/15/01              10(a)(iii)
         (iv) Bill of Sale and Assignment dated
                February 1, 2001 made by the
                secured lender in favor of
                Independent Steel Products, LLC                                8-K                2/15/01              10(a)(iv)
     (g)  Inventory Control Agreement re:
           Universal Supply Group, Inc. taking in
           Inventory on a Consignment basis,
           dated August 9, 2001, between Douglas-
           Guardian Services Corporation,
           Universal Supply Group, Inc. and
           GMC Sales Corp.                                                    10-K                12/31/01               10(g)
     (h) Agreement of Purchase and Sale of
           Assets dated July 1, 2002 between
           Goldman Associates of New York, Inc.
           and Universal Supply Group, Inc.                      Yes
     (i)   Private Placement Purchase Agreement
           dated June 30, 2003 by and among
           Colonial Commercial Corp. and the
           persons who are counterparts to the
           Agreement as "Investors"                              Yes
     (j)  Asset Purchase Agreement
           dated September 5, 2003, for
           the purchase of certain assets,
           subject to certain liabilities
           of RAL Supply Group, Inc., by RAL
           Purchasing Corp., a wholly owned
           subsidiary of Colonial Commercial Corp.               Yes
     (k) RAL Closing Statement dated
           September 30,2003.                                    Yes
  11    Statement re computation of per
        share earnings (loss) (not filed since
        computations are readily apparent
        from the consolidated financial
        statements)
21   Subsidiaries of Registrant                                  Yes
23   Consent of Independent Accountants                          Yes
31.1 Certification of Chief Executive Officer
        Pursuant to Rule 15d-14 of the Securities
        and Exchange Act of 1934, as amended, as
        Pursuant to Section 302 of the Sarbanes-
        Oxley Act of 2002                                        Yes
31.2 Certification of Chief Financial Officer
        Pursuant to Rule 15d-14 of the Securities
        and Exchange Act of 1934, as amended, as
        Pursuant to Section 302 of the Sarbanes-
        Oxley Act of 2002                                        Yes
32-1 Certification of Chief Executive Officer
        Pursuant to 18 U.S.C. Section 1350, as
        adopted pursuant to Section 906 of the
        Sarbanes-Oxley Act of 2002                               Yes
32-2 Certification of Chief Financial Officer
        Pursuant to 18 U.S.C. Section 1350, as
        adopted pursuant to Section 906 of the
        Sarbanes-Oxley Act of 2002                               Yes
99.1 Code of Ethics for Registrant's Financial
        Officers                                                 Yes
99.2 Affidavit, dated January 28, 2002, in
        Support of Atlantic's Petition for Relief
        under chapter 11 of the U. S. Bankruptcy
        Code                                                                  10-K                12/31/01                 99.3

</TABLE>


<PAGE>



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.

                            COLONIAL COMMERCIAL CORP.
                            (Registrant)

                            By: /S/ BERNARD KORN
                            --------------------------
                            Bernard Korn, President

                            By: /S/ JAMES W. STEWART
                            --------------------------
                            James W. Stewart
                            Treasurer, Chief Financial
                            and Accounting Officer


Dated:  November 14, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been duly signed below on November 14, 2003 by the following persons on
behalf of the Registrant and in the capacities indicated:

                            By: /S/ BERNARD KORN
                            -----------------------------------
                            Bernard Korn, President & Director

                            By: /S/ JAMES W. STEWART
                            -----------------------------------
                            Executive Vice President, Treasurer
                            and Secretary/Director

                            By: /S/ WILLIAM KOON
                            -----------------------------------
                            William Koon, Director

                            By: /S/ RONALD MILLER
                            -----------------------------------
                            Ronald Miller, Director

                            By: /S/ WILLIAM PAGANO
                            -----------------------------------
                            William Pagano, Director

                            By: /S/ JACK ROSE
                            -----------------------------------
                            Jack Rose, Director

                            By: /S/ CARL L. SUSSMAN
                            -----------------------------------
                            Carl L. Sussman, Director






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