**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-Q**
 
 S           QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
        EXCHANGE ACT OF 1934
 
 For
        the
        quarterly period ended **March 31, 2007**
 
 OR
 
 £           TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
        EXCHANGE ACT OF 1934
 
 For
        the
        transition period from ________________ to ________________
 
 Commission
        file number:  **1-6663**
 
 **COLONIAL
        COMMERCIAL CORP.**
 (Exact
        name of registrant as specified in its charter)
 
 **New
                  York**
              
              **11-2037182**(State
                  or other jurisdiction of incorporation or organization)
              
              (I.R.S.
                  Employer Identification No.)**275
                  Wagaraw Road, Hawthorne, New Jersey**
              
              **07506**(Address
                  of principal executive offices)
              
              (Zip
                  Code)
 
 **973-427-8224**
 (Registrant’s
        telephone number, including area code)
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
 Yes  S     No  £
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.
 Large
                    accelerated filer  £
                Accelerated
                    filer  £
                Non-accelerated
                    filer  S
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 Yes
£     No  S
 
 Indicate
        the number of shares outstanding of each of the issuer's classes of common
        stock, as of the latest practicable date.
 
 Class
              
              Outstanding
                  at May 1, 2007Common
                  Stock, $.05 par value per share
              
              4,645,680
                  sharesConvertible
                  Preferred Stock, $.05 par value per share
              
              467,500
                  shares
  
 
 
  **COLONIAL
        COMMERCIAL CORP. AND SUBSIDIARIES**
  CONTENTS
 
 PART
                  I.
              FINANCIAL
                  INFORMATIONItem
                  1.
              
              Financial
                  Statements
              
              PageCondensed
                  Consolidated Balance Sheets as of March 31, 2007 (Unaudited) and
                  December
                  31, 2006
              
              1Condensed
                  Consolidated Statements of Operations (Unaudited) for the Three
                  Months
                  Ended March 31, 2007 and 2006
              
              2Condensed
                  Consolidated Statements of Cash Flows (Unaudited) for the Three
                  Months
                  Ended March 31, 2007 and 2006
              
              3Notes
                  to Condensed Consolidated Financial Statements
                  (Unaudited)
              
              4Item
                  2.
              
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              12Item
                  3.
              
              Quantitative
                  and Qualitative Disclosures About Market Risk
              
              18Item
                  4.
              
              Controls
                  and Procedures
              
              19PART
                  II.
              OTHER
                  INFORMATIONItem
                  1.
              
              Legal
                  Proceedings
              
              20Item
                  6.
              
              Exhibits
              
              20
 *Table
              of Contents*
  **PART
        I.  FINANCIAL
        INFORMATION**
 **Item
        1.  Financial Statements**
 COLONIAL
        COMMERCIAL CORP. AND SUBSIDIARIES
 Condensed
        Consolidated Balance Sheets
 
 March
                  31,
                2007
              
              
              December
                  31,
                2006(Unaudited)AssetsCurrent
                  assets:Cash
              
              $
              600,386
              
              
              $
              482,251Accounts
                  receivable, net of allowance for doubtful accounts of $237,661
                  in 2007 and
                  $212,043 in 2006
              
              
              8,455,946
              
              
              
              9,069,301Inventory
              
              
              14,624,886
              
              
              
              12,854,317Prepaid
                  expenses and other current assets
              
              
              1,271,280
              
              
              
              1,057,099Deferred
                  tax asset - current portion
              
              
              420,000
              
              
              
              420,000Total
                  current assets
              
              
              25,372,498
              
              
              
              23,882,968Property
                  and equipment
              
              
              1,453,888
              
              
              
              1,512,666Goodwill
              
              
              1,628,133
              
              
              
              1,628,133Other
                  intangibles
              
              
              3,000
              
              
              
              3,500Other
                  assets - noncurrent
              
              
              190,740
              
              
              
              202,177Deferred
                  tax asset - noncurrent
              
              
              1,288,500
              
              
              
              1,288,500$
              29,936,759
              
              
              $
              28,517,944Liabilities
                  and Stockholders' EquityCurrent
                  liabilities:Trade
                  payables
              
              $
              6,922,785
              
              
              $
              4,719,160Accrued
                  liabilities
              
              
              1,908,331
              
              
              
              1,975,175Income
                  taxes payable
              
              
              309
              
              
              
              1,630Borrowings
                  under credit facility - revolving credit
              
              
              13,275,383
              
              
              
              13,615,696Notes
                  payable - current portion; includes related party notes of
                  $30,000  in 2007 and 2006
              
              
              134,318
              
              
              
              136,539Total
                  current liabilities
              
              
              22,241,126
              
              
              
              20,448,200Notes
                  payable, excluding current portion; includes related party notes
                  of
                  $1,008,125 in 2007 and $1,028,750 in 2006
              
              
              1,309,888
              
              
              
              1,317,394Total
                  liabilities
              
              
              23,551,014
              
              
              
              21,765,594Commitments
                  and contingenciesStockholders'
                  equity:Redeemable
                  convertible preferred stock, $.05 par value, 2,500,000 shares authorized;
                  467,500 shares issued and outstanding in 2007 and 2006; liquidation
                  preference of $2,337,500 in 2007 and 2006
              
              
              23,375
              
              
              
              23,375Common
                  stock, $.05 par value, 20,000,000 shares authorized; 4,645,680
                  in 2007 and
                  4,593,680 in 2006 shares issued and outstanding
              
              
              232,284
              
              
              
              229,684Additional
                  paid-in capital
              
              
              10,728,526
              
              
              
              10,707,791Accumulated
                  deficit
              
              
              (4,598,440
              )
              
              
              (4,208,500
              )Total
                  stockholders' equity
              
              
              6,385,745
              
              
              
              6,752,350$
              29,936,759
              
              
              $
              28,517,944
 
 See
        accompanying notes to unaudited condensed consolidated financial
        statements.
  1
 *Table
            of Contents*
  COLONIAL
        COMMERCIAL CORP. AND SUBSIDIARIES
 Condensed
        Consolidated Statements of Operations
 (Unaudited)
 
 For
                  The Three Months Ended
                March
                  31,2007
              
              
              2006Net
                  sales
              
              $
              16,042,232
              
              
              $
              14,884,214Cost
                  of sales
              
              
              11,170,730
              
              
              
              10,198,887Gross
                  profit
              
              
              4,871,502
              
              
              
              4,685,327Selling,
                  general and administrative expenses
              
              
              4,988,606
              
              
              
              4,756,862Operating
                  loss
              
              
              (117,104
              )
              
              
              (71,535
              )Other
                  income
              
              
              64,598
              
              
              
              65,789Interest
                  expense, net; includes related party interest of $25,967 in 2007
                  and
                  $25,629 in 2006
              
              
              (334,042
              )
              
              
              (299,662
              )Loss
                  before income taxes
              
              
              (386,548
              )
              
              
              (305,408
              )Income
                  tax expense
              
              
              3,392
              
              
              
              19,121Net
                  Loss
              
              $
              (389,940
              )
              
              $
              (324,529
              )Loss
                  per common share:Basic
              
              $
              (0.08
              )
              
              $
              (0.07
              )Diluted
              
              $
              (0.08
              )
              
              $
              (0.07
              )Weighted
                  average shares outstanding:Basic
              
              
              4,645,102
              
              
              
              4,549,411Diluted
              
              
              4,645,102
              
              
              
              4,549,411
 
 See
        accompanying notes to unaudited condensed consolidated financial
        statements.
  2
 *Table
            of Contents*
  COLONIAL
        COMMERCIAL CORP. AND SUBSIDIARIES
 Condensed
        Consolidated Statements of Cash Flows
 (Unaudited)
 
 For
                    The Three Months Ended
                  March
                    31,2007
                
                
                2006Cash
                    flows from operating activities:Net
                    loss
                
                $
                (389,940
                )
                
                $
                (324,529
                )Adjustments
                    to reconcile net loss to net cash provided by (used in) operating
                    activities:Stock-based
                    compensation
                
                
                10,335
                
                
                
                -Provision
                    for doubtful accounts
                
                
                1,792
                
                
                
                59,844Depreciation
                    and amortization
                
                
                119,151
                
                
                
                106,690Amortization
                    of intangibles
                
                
                500
                
                
                
                3,417Accretion
                    of debt discount
                
                
                9,375
                
                
                
                9,375Changes
                    in operating assets and liabilitiesAccounts
                    receivable
                
                
                611,563
                
                
                
                722,721Inventory
                
                
                (1,770,569
                )
                
                
                (2,198,765
                )Prepaid
                    expenses and other current assets
                
                
                (214,181
                )
                
                
                97,857Other
                    assets - noncurrent
                
                
                11,437
                
                
                
                13,119Trade
                    payables
                
                
                2,203,625
                
                
                
                810,256Accrued
                    liabilities
                
                
                (66,844
                )
                
                
                (136,075
                )Income
                    taxes payable
                
                
                (1,321
                )
                
                
                6,257Net
                    cash provided by (used in) operating activities
                
                
                524,923
                
                
                
                (829,833
                )Cash
                    flows from investing activities:Additions
                    to property and equipment
                
                
                (60,373
                )
                
                
                (90,720
                )Net
                    cash used in investing activities
                
                
                (60,373
                )
                
                
                (90,720
                )Cash
                    flows from financing activities:Issuance
                    of common stock and exercise of stock options
                
                
                13,000
                
                
                
                -Repayments
                    of notes payable: includes related party repayments of $30,289
                    in
                    2006.
                
                
                (19,102
                )
                
                
                (46,046
                )Issuance
                    of notes payable
                
                
                -
                
                
                
                13,073Repayments
                    under credit facility - term loan
                
                
                -
                
                
                
                (250,000
                )Borrowings
                    under credit facility - revolving credit
                
                
                (340,313
                )
                
                
                1,153,226Net
                    cash (used in) provided by financing activities
                
                
                (346,415
                )
                
                
                870,253Increase
                    (decrease) in cash
                
                
                118,135
                
                
                
                (50,300
                )Cash
                    - beginning of period
                
                
                482,251
                
                
                
                613,456Cash
                    - end of period
                
                $
                600,386
                
                
                $
                563,156
 
 See
        accompanying notes to unaudited condensed consolidated financial
        statements.
 3
 *Table
              of Contents*
  **COLONIAL
        COMMERCIAL CORP. AND SUBSIDIARIES**
 
 Notes
        To
        Condensed Consolidated Financial Statements
 
 March
        31,
        2007
 
 (Unaudited)
 
 1.
              Summary
                  of Significant Accounting Policies and
                  Practices
 
 The
        condensed consolidated financial statements of Colonial Commercial Corp.
        and
        Subsidiaries (the "Company") included herein have been prepared by the Company
        and are unaudited; however, such information reflects all adjustments
        (consisting solely of normal recurring adjustments), which are, in the opinion
        of management, necessary for a fair presentation of the financial position,
        results of operations, and cash flows for the interim periods to which the
        report relates.  The results of operations for the period ended March
        31, 2007 is not necessarily indicative of the operating results that may
        be
        achieved for the full year.
 
 Certain
        information and footnote disclosures, normally included in consolidated
        financial statements prepared in accordance with accounting principles generally
        accepted in the United States of America, have been condensed or
        omitted.  It is suggested that these consolidated financial statements
        be read in conjunction with the consolidated financial statements and notes
        thereto included in the Company's Form 10-K/A for the year ended December
        31,
        2006.
 
 We
        have
        one industry segment – wholesale distribution of heating, ventilation, air
        conditioning equipment, plumbing fixtures and appliances.
 
 Inventory
        is comprised of finished goods.
 
 2.
              Stock
                  Options
 
 The
        Company uses the modified prospective application method of SFAS No. 123(R),
        “Share-Based Payment”, which establishes standards for transactions in which an
        entity exchanges its equity instruments for goods or services. This standard
        requires an entity to measure the cost of employee services received in exchange
        for an award of equity instruments based on the grant date fair value of
        the
        award.
 
 On
        September 29, 2006, the Company adopted the Colonial Commercial Corp. 2006
        Stock
        Plan, (the “2006 Plan”).  The 2006 Plan enables the Company to grant
        equity and equity-linked awards to our Directors, officers, employees and
        other
        persons who provide services to the Company.  The 2006 Plan is
        intended to allow us to provide incentives that will (1) strengthen the desire
        of highly competent persons to provide services to us and (2) further stimulate
        their efforts on our behalf.
  4
 *Table
            of Contents*
  On
        January 22, 2007, a Director of the Company resigned.  Of the 25,000
        options granted to the director, 15,000 unvested options were forfeited
        immediately and the remaining 10,000 vested options were forfeited on March
        23,
        2007 pursuant to the terms of the grant letter.
 
 The
        following table summarizes information about stock options at March 31,
        2007:
 
 Options
                  Outstanding and ExercisableWeighted
                  AverageRange
                  of
              
              
              
              
              
              Remaining
              
              
              Weighted
                  Average
              
              
              AggregateExercise
                  Prices
              
              
              Shares
              
              
              Contractual
                  Life
              
              
              Exercise
                  Price
              
              
              Intrinsic
                  Value$
              .25
              
              
              
              22,000
              
              
              
              2.23
              
              
              $
              .25$
              1.85
              
              
              
              30,000
              
              
              
              9.69
              
              
              $
              1.8552,000
              
              
              
              
              
              
              $
              1.17
              
              
              $
              33,440Options
                  Outstanding and Non-exercisable$
              1.85
              
              
              
              45,000
              
              
              
              9.69
              
              
              $
              1.85
              
              
              $
              0
 
 For
        the
        quarters ended March 31, 2007 and 2006, the amount of stock based compensation
        was $10,335 and $0, respectively.  The aggregate intrinsic value of
        options exercised during the quarter ended March 31, 2007 was
        $85,800.
 
 3.
              Equity
                  Transactions
 
 During
        the quarter ended March 31, 2007, no shares of redeemable preferred stock
        were
        converted into common stock.  During the quarter ended March 31, 2006,
        holders of a total 9,155 shares of redeemable preferred stock converted these
        shares into 9,155 shares of common stock.
 
 During
        the quarter ended March 31, 2007, the Company issued 52,000 shares of common
        stock pursuant to the exercise of stock options.
  4.
                Supplemental
                    Cash Flow Information
  The
        following is supplemental information relating to the consolidated statements
        of
        cash flows:
 
 For
                  the Three Months EndedMarch
                  31, 2007
              
              
              March
                  31, 2006Cash
                  paid during the period for:Interest
              
              $
              332,170
              
              
              $
              283,714Income
                  taxes
              
              $
              3,804
              
              
              $
              57,364
 5
 *Table
              of Contents*
 
 5.
              Net
                  Loss Per Common Share
 
 Employee
        stock options totaling 97,000 and 106,000 for the three months ended March
        31,
        2007 and 2006, respectively, were not included in the net loss per share
        calculation because their effect would have been
        anti-dilutive.  Convertible preferred stock, convertible into 467,500
        shares of common stock and 475,566 shares of common stock for the three months
        ended March 31, 2007 and 2006, respectively, were not included in the net
        loss
        per share because their effects would have been
        anti-dilutive.  Convertible notes, in the principal amount of
        $525,000, convertible into 175,000 shares of common stock were not included
        in
        the net loss per share calculation for the three months ended March 31, 2007
        and
        2006 because their effect would have been anti-dilutive.
 
 6.
              Financing
                  Arrangements
 
 At
        March
        31, 2007, the amount outstanding under the Company’s credit facility with Wells
        Fargo Business Credit, Inc. (“Wells”) was $13,275,383, and the Company had
        standby letters of credit, which were set to expire on July 31, 2007 and
        September 1, 2007.  The standby letters of credit reduced the
        availability of the credit facility by $300,000 and $100,000, respectively,
        and
        additional reserves determined by the bank further reduced the availability
        of
        the credit facility by $100,000.  On April 25, 2007, the Company’s
        $100,000 standby letter of credit, due to expire on September 1, 2007, was
        no
        longer required by the vendor and was released by Wells Fargo at the request
        of
        the vendor.  Availability under the revolving credit line was $484,165
        as of March 31, 2007 and is determined by a percentage of available assets
        as
        defined in the Agreement, less letters of credit and reserves.  The
        interest rate on the revolving credit facility, as of March 31, 2007 was
        8.0%.
 
 The
        facility contains covenants relating to the financial condition of the Company,
        its business operations, and restricts the payment of dividends, subordinated
        debt, purchase of securities and capital expenditures.
 
 7.
              Litigation
 
 Universal
        Supply Group, Inc.
 
 Universal
        Supply Group, Inc., a wholly owned subsidiary of the Company, is a New York
        corporation (“Universal”).  On June 25, 1999, Universal acquired
        substantially all of the assets of Universal Supply Group, Inc., a New Jersey
        corporation, including its name, pursuant to the terms of a purchase
        agreement.  The Company filed a copy of the purchase agreement with
        the Securities and Exchange Commission on March 30, 1999 as Exhibit 10(g)
        on
        Form 10KSB, and the Company filed a copy of an amendment to the purchase
        agreement on July 9, 1999 as Exhibit 10(a)(ii) on Form
        8-K.  Subsequent to the sale, Universal Supply Group, Inc. (the
        selling corporation) formerly known as Universal Engineering Co., Inc., changed
        its name to Hilco, Inc.  Hilco, Inc. acquired the assets of Amber
        Supply Co., Inc., formerly known as Amber Oil Burner Supply Co., Inc., in
        1998,
        prior to Hilco’s sale of assets to Universal.  Hilco, Inc. is
        hereinafter referred to as the “Predecessor.”  The majority
        shareholders of Hilco, Inc. were John A. Hildebrandt and Paul
        Hildebrandt.
  6
 *Table
            of Contents*
  The
        Company understands that Predecessor and many other companies have been sued
        in
        the Superior Court of New Jersey (Middlesex County) by plaintiffs filing
        lawsuits alleging injury due to asbestos. Currently, there exist 101 plaintiffs
        in these lawsuits relating to alleged sales of asbestos products, or products
        containing asbestos, by the Predecessor. The Company never sold any asbestos
        related products.
 
 Of
        the
        existing plaintiffs, 11 filed actions in 2007, seven filed actions in 2006,
        15
        filed actions in 2005, 42 filed actions in 2004, 23 filed actions in 2003,
        and
        three filed actions in 2002. There are 110 other plaintiffs that have had
        their
        actions dismissed and nine other plaintiffs that have settled as of March
        31,
        2007 for a total of $3,325,500. There has been no judgment against the
        Predecessor.
 
 Our
        Universal subsidiary was named by 35 plaintiffs; of these, two filed actions
        in
        1999, one filed an action in 2000, five filed actions in 2001, eleven filed
        actions in 2005, six filed actions in 2006 and 10 filed actions in 2007.
        Six
        plaintiffs naming Universal have had their actions dismissed and, of the
        total
        $3,325,500 of settled actions, two plaintiffs naming Universal have settled
        for
        $26,500.  No money was paid by Universal in connection with any
        settlement.  Following these dismissed and settled actions, there
        currently exist 27 plaintiffs that name Universal.
 
 As
        set
        forth in more detail below, the Company has been indemnified against
        asbestos-based claims, and insurance companies are defending the interests
        of
        the Predecessor and the Company in these cases.
 
 Based
        on
        advice of counsel, the Company believes that none of the litigation that
        was
        brought against the Company’s Universal subsidiary through March 31, 2007 is
        material, and that the only material litigation that was brought against
        Predecessor through that date was Rhodes v. A.O. Smith Corporation, filed
        on
        April 26, 2004 in the Superior Court of New Jersey, Law Division, Middlesex
        County, Docket Number MID-L-2979-04AS. The Company was advised that the Rhodes
        case was settled for $3,250,000 (“Settlement”) under an agreement reached in
        connection with a $10,000,000 jury verdict that was rendered on August 5,
        2005.
        The Company was not a defendant in the Rhodes case.
 
 On
        April
        29, 2005, prior to the Rhodes case trial, the Predecessor filed a third party
        complaint against Sid Harvey Industries (“Third Party Complaint”) in an action
        demanding contributor payment in connection with the Settlement. Sid Harvey
        Industries moved successfully for summary judgment.  The Predecessor
        filed an appeal as to the dismissal of Predecessor’s Third Party
        Complaint.  In a decision dated December 29, 2006, the Superior Court
        of New Jersey, Appellate Division, reversed the dismissal of Predecessor’s Third
        Party Complaint and remanded the matter for further proceedings as to
        Predecessor’s claim for contribution.
 
 The
        Company believes that Rhodes differed from the other lawsuits in that
        plaintiff established that he contracted mesothelioma as a result of his
        occupational exposure to asbestos dust and fibers and that a predecessor
        of the
        Company was a major supplier of the asbestos containing products that allegedly
        caused his disease.
  7
 *Table
            of Contents*
  Indemnification
 
 John
        A.
        Hildebrandt, Paul Hildebrandt and the Predecessor have jointly and severally
        agreed to indemnify our Universal subsidiary from and against any and all
        damages, liabilities and claims due to exposure to asbestos at any time prior
        to
        the June 25, 1999 closing of the purchase agreement referred to
        earlier.  These agreements are set forth in the purchase agreement.
        Paul Hildebrandt, one of the indemnitors, was a Director of the Company from
        September 29, 2004 to January 28, 2005.
 
 The
        indemnitors may use their own counsel to defend these claims. The indemnitors
        are not liable for any settlement effected without their consent. The
        indemnitors may settle and pay money claims without the consent of the Company.
        There is no indemnification unless claims aggregate $50,000; once this trigger
        point is reached, indemnification is required for all claims, including the
        first $50,000, but excluding claims of less than $10,000. The indemnification
        requirement survives at least until 30 days after the running of any relevant
        statutes of limitation.
 
 The
        obligation of the indemnitors is joint and several, so that the Company can
        have
        recourse against any one or more of these indemnitors, whether or not any
        other
        indemnitor has previously defaulted on its obligation to us. There are no
        other
        limitations to our rights to indemnification.
 
 Insurance
 
 The
        assets that the Predecessor sold to us included its insurance policies and
        other
        agreements and contracts. The policies provide coverage for liability accruing
        during the periods for which premiums were paid.  The Predecessor was
        formed in 1940. Copies of policies are available for each year beginning
        in 1970
        and ending with the closing under the purchase agreement in 1999. Copies
        of
        policies for the period from 1940 to 1969 are not available.
 
 Insurance
        companies acknowledge coverage for potential asbestos claims under certain
        of
        these policies.  Insurance companies under additional policies have
        reserved their right to deny coverage but have continued to defend and indemnify
        the Predecessor and the Company under the contested policies.
 
 There
        are
        periods during the years from 1940 to 1999 in which our Predecessor did not
        have
        coverage for potential asbestos claims.  Subject to litigation,
        insurance companies may maintain that the existence of these periods’ results in
        coverage for only a portion of a particular injury that varies with the period
        during which there was asbestos coverage relating to the injury, and that
        the
        balance of any settlement or judgment is to be paid by the
        insured.  As of March 31, 2007, no insurance company has claimed any
        contribution for a gap in coverage except for a claim for $159.64 made by
        one
        insurance company to the Predecessor in 1995.  The Predecessor
        asserted that it had no obligation to pay this amount and did not make any
        payment.
 
 Insurance
        companies have, as of March 31, 2007, defended us and the Predecessor, and
        have
        paid all settlement amounts and defense costs.  Except for $159.64
        referred to above, the insurance companies have not requested any payments
        from
        us or from the Predecessor.
 
 Our
        Universal subsidiary has not engaged in the sale of asbestos products since
        its
        formation in 1997. Its product liability policies for all years since 1998
        exclude asbestos claims.
  8
 *Table
            of Contents*
  General
 
 Regardless
        of indemnification and insurance coverage, we do not in any event consider
        our
        Company to be liable for the asbestos-based lawsuits that name us or for
        any
        other claim that arises as a result of actions or omissions by Predecessor
        companies. We expressly disclaimed the assumption of any liabilities when
        we
        purchased the assets of the Predecessor. It is our opinion that the existing
        asbestos litigation will not have a material adverse effect on the
        Company.  Nevertheless, we could be materially and adversely affected
        if we are held liable for substantial asbestos claims or if the Company incurs
        substantial legal or settlement costs. This material and adverse effect would
        occur if indemnitors fail to honor their indemnification agreements and
        insurance is not available either because policy limits are exceeded, or
        because
        insurance companies successfully claim limitations on their liabilities by
        reason of gaps in coverage or otherwise.
 
 Since
        we
        do not regard as likely the potential payment of any asbestos-based claim,
        we
        have not accrued any balance for any period relating to asbestos claims,
        and we
        have not recorded any amount for asbestos claims for any period in any of
        our
        financial statements.
 
 Other
        Litigation
 
 The
        Company is periodically involved in other litigation in the ordinary course
        of
        business.  The Company vigorously defends all matters in which the
        Company or its subsidiaries are named defendants and, for insurable losses,
        maintains significant levels of insurance to protect against adverse judgments,
        claims or assessments.  Although the adequacy of existing insurance
        coverage or the outcome of any legal proceedings cannot be predicted with
        certainty, the Company does not believe the ultimate liability associated
        with
        any claims or litigation will have a material impact to its financial condition
        or results of operations.
 
 8.
              New
                  Accounting Pronouncements
 
 In
        June
        2006, the FASB issued FASB Interpretation No. 48, *Accounting for Uncertainty
        in Income Taxes*-an interpretation FASB No. 109 (“FIN 48”), which prescribes
        accounting for and disclosure of uncertainty in tax positions.  This
        interpretation defines the criteria that must be met for the benefits of
        a tax
        position to be recognized in the financial statements and the measurement
        of tax
        benefits recognized.  The provisions of FIN 48 are effective as of the
        beginning of the Company’s 2007 fiscal year, with the cumulative effect of the
        change in accounting principle recorded as an adjustment to opening retained
        earnings.
  9
 *Table
            of Contents*
  The
        Company adopted the provisions of FIN 48 on January 1,
        2007.  Under FIN 48, tax positions must meet a “more-likely-than-not”
recognition threshold at the effective date to be recognized upon the adoption
        of FIN 48 and in subsequent periods.  The adoption of FIN 48 had an
        immaterial impact on the Company’s consolidated financial position and did not
        result in unrecognized tax benefits being recorded.  Accordingly, no
        corresponding interest and penalties have been accrued.  The
        Company files income tax returns in the U.S. federal jurisdiction and various
        states. There are currently no federal or state income tax examinations underway
        for these jurisdictions.  The Company is no longer subject to U.S.
        federal income tax examinations by the Internal Revenue Service and state
        and
        local tax authorities for tax years before 2002.  The Company does,
        however, have prior year net operating losses which remain open for
        examination.
 
 In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No.
        157, *Fair Value Measurements*, (“SFAS 157”).  This Standard
        defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles and expands disclosures about fair
        value measurements.  SFAS 157 is effective for financial statements
        issued for fiscal years beginning after November 15, 2007 and interim periods
        within those fiscal years.  The adoption of SFAS 157 is not expected
        to have a material impact on the Company’s financial position, results of
        operations or cash flows.
 
 In
        September 2006, the SEC staff issued Staff Accounting Bulletin No. 108 (“SAB No.
        108”), “Considering the Effects of Prior Year Misstatements when Quantifying
        Misstatements in Current Year Financial Statements.”  SAB No. 108
        specifies how the carryover or reversal of prior year unrecorded financial
        statements misstatements should be considered in quantifying a current year
        misstatement.  SAB No. 108 requires a dual approach that considers
        both the amount by which the current year Consolidated Statement of Operations
        is misstated (“rollover method”) and an approach that considers the cumulative
        amount by which the current year Consolidated Balance Sheet is misstated
        (“iron
        curtain method”).  Prior to the issuance of SAB No. 108, either the
        rollover or iron curtain method was used to assess financial statement
        misstatements.  Prior to the Company’s application of the guidance in
        SAB No. 108, management used the rollover approach for quantifying financial
        statement misstatements.
 
 Initial
        application of SAB No. 108 allows registrants to elect not to restate prior
        periods but to reflect the initial application in their annual financial
        statements covering the first fiscal year ending after November 15,
        2006.  The cumulative effect of the initial application should be
        reported in the carrying amounts of assets and liabilities as of the beginning
        of that fiscal year and the offsetting adjustment, net of tax, should be
        made to
        the opening balance of retained earnings for that year.  We elected to
        record the effects of applying SAB No. 108 using the cumulative effect
        transition method.  Consistent with the requirements of SAB No. 108,
        this adjustment has been allocated to the appropriate 2006 quarter in the
        accompanying consolidated financial statements.
 
 The
        adjustment, pursuant to SAB No. 108, to the previously filed Form 10-Q for
        the
        quarter ended March 31, 2006 included an increase in gross profit of $98,560
        from $4,586,797 to a restated gross profit of $4,685,327, which resulted
        in a
        net loss adjustment from $423,089 to a restated net loss of $324,529 and
        a loss
        per common share adjustment from $0.09 to a restated loss per common share
        of
        $0.07.  The adjustment reduced the carrying value of inventory at
        March 31, 2006 by $220,961.
  10
 *Table
            of Contents*
  In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        No.
        159,*The Fair Value Option for Financial Assets and Financial
        Liabilities,* (“FASB 159”).  This standard permits an entity to
        choose to measure many financial instruments and certain other items at fair
        value.  The objective is to improve financial reporting by providing
        entities with the opportunity to mitigate volatility in reported earnings
        caused
        by measuring related assets and liabilities differently with having to apply
        complex accounting provisions.  The adoption of SFAS 159 is not
        expected to have a material impact on the Company’s financial
        position.
 
 9.
              Related
                  Party Transaction
 
 Pioneer
        Realty Holdings, LLC, a New York limited liability company (“Pioneer”), is the
        owner of the premises located at 836 Route 9, Fishkill, New York, formerly
        known
        as 2213 Route 9, Fishkill, New York that is leased to a subsidiary of the
        Company under a lease that until amended described in the next paragraph,
        was to
        expire in September 2008, subject to renewal options, and provided for a
        current
        aggregate annual rent of $133,500.  Pioneer is the landlord under the
        lease pursuant to an assignment and assumption agreement dated April 12,
        2005.
 
 On
        February 21, 2007, the lease was amended to provide, among other things,
        for
        25,947 square feet of the leased premises, a net increase of 14,443 square
        feet,
        for $245,844 total base annual rent, adjusted annually for CPI, an initial
        increase of $106,740 per annum.  The effectiveness of the amendment
        commences on the date of issuance of a certificate of occupancy for the Premises
        that are currently undergoing reconstruction.  The term of the amended
        lease expires on March 31, 2017, subject to two five-year renewal
        options.
 
 Additionally,
        on February 21, 2007, Pioneer granted the Company an option (“Option”) to
        purchase the Premises for (i) an exercise price equal to Pioneer’s total
        financial investment in the Premises through the date of exercise and (ii)
        the
        release of Mr. Pagano (and any other guarantors) from guaranties of mortgage
        loans secured by the Premises.  The Option expires on July 31,
        2007.
 
 William
        Pagano has a 55% interest in Pioneer and each of Rita Folger and Jeffrey
        Folger
        has an 8% interest in Pioneer Realty Partners I, LLC, which has a 40% interest
        in Pioneer.  The Company paid Pioneer Realty Holdings, LLC $31,100 and
        $33,375 in rent during the quarters ended March 31, 2007 and 2006,
        respectively.
 
 Oscar
        and
        Jeffrey Folger acted as legal counsel for the Company through April 20,
        2005.  Oscar and Jeffrey Folger acted as legal consultants for the
        Company from April 21, 2005 through December 31, 2005 and each became an
        employee of the Company as Vice President-Chief Legal Counsel and Assistant
        Vice
        President-Legal, respectively, on January 1, 2006 until March 31,
        2007.  As of April 1, 2007, Oscar and Jeffrey Folger ceased to act as
        employees of the Company, but Oscar Folger’s law firm remains as counsel to the
        Company.  Mrs. Folger is the wife of Oscar Folger and the mother of
        Jeffrey Folger.  Professional fees paid to Oscar Folger’s law firm for
        quarters ended March 31, 2007 and 2006, respectively, was $24,400 and
        $2,775.  Additionally, $3,000 was paid to each of Oscar and Jeffrey
        Folger as part time employees of the Company for each of the quarters ended
        March 31, 2007 and 2006.
  11
 *Table
            of Contents*
  10.
              Subsequent
                  Events
 
 Please
        refer to Section 9, Related Party Transaction, above, for information
        related to a lease entered into by a subsidiary of the Company on February
        21,
        2007.
 
 On
        April
        25, 2007, the Company’s standby letter of credit that reduced the availability
        of the credit facility by $100,000 and was due to expire on September 1,
        2007,
        was no longer required by the vendor and was released by Wells Fargo at the
        request of the vendor.
 
 **Item
        2.  Management’s Discussion and Analysis of
        Financial Condition and Results** **of
        Operations**
 
 The
        Company
 
 Colonial
        Commercial Corp. (“Colonial”) is a New York corporation, which was incorporated
        on October 28, 1964. Unless otherwise indicated, the term “Company” refers to
        Colonial Commercial Corp. and its consolidated subsidiaries. The Company’s
        operations are conducted through its wholly-owned subsidiaries, Universal
        Supply
        Group, Inc. (“Universal”), The RAL Supply Group, Inc. (“RAL”) and
        American/Universal Supply, Inc. (“American”).
 
 Forward-Looking
        Statements
 
 This
        report on Form 10-Q 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, 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.
  12
 *Table
            of Contents*
  Critical
        Accounting Policies
 
 The
        accounting policies below are critical to the Company’s business operations and
        the understanding of results of operations.  The Company’s discussion
        and analysis of its financial condition and results of operations are based
        upon
        the Company’s consolidated financial statements, which have been prepared in
        accordance with accounting principles generally accepted in the United
        States.  The preparation of these financial statements requires the
        Company to make estimates and assumptions that affect the reported amounts
        of
        assets and liabilities, disclosure of contingent assets and liabilities as
        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.
 
 In
        addition, we are periodically faced with uncertainties, the outcomes of which
        are not within our control and will not be known for prolonged periods of
        time.
 
 We
        believe the following to be critical accounting policies that affect the
        most
        significant estimates and judgments used in the preparation of our consolidated
        financial statements:
 
 *Principles
        of Consolidation*
 
 The
        consolidated financial statements include the accounts of the Company and
        its
        wholly-owned subsidiaries. All significant intercompany balances and
        transactions have been eliminated in consolidation.
 
 *Revenue
        Recognition*
 
 Revenue
        for the Company primarily consists of sales of heating, ventilation and air
        conditioning equipment, climate control systems, plumbing fixtures and supplies
        and appliances. The Company recognizes revenue after 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 products from the Company’s customers, which are
        covered under the manufacturer’s warranty.  The Company will receive a
        vendor credit from the manufacturer related to the warranted product in
        question, at which time credits are issued to the customer.  The
        Company does not provide a warranty on products sold; rather the warranty
        is
        provided by the manufacturer.
  13
 *Table
            of Contents*
  *Accounts
        Receivable*
 
 Accounts
        receivable consist of trade receivables recorded at original invoice amount,
        less an estimated allowance for uncollectible accounts. Trade credit is
        generally extended on a short-term basis; thus trade receivables generally
        do
        not bear interest. However, a service charge may be applied to receivables
        that
        are past due. These service charges are not recognized until collected, and
        are
        then included in other income.  Trade receivables are periodically
        evaluated for collectibility based on past credit history with customers
        and
        their current financial condition. Changes in the estimated collectibility
        of
        trade receivables are recorded in the results of operations for the period
        in
        which the estimate is revised. Trade receivables that are deemed uncollectible
        are offset against the allowance for uncollectible accounts. The Company
        generally does not require collateral for trade receivables.
 
 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.  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.
 
 *Inventory*
 
 Inventory
        is stated at the lower of cost or market and consists solely of finished
        goods.
        Cost is determined using the first-in, first-out method.
 
 Distribution
        costs of incoming freight, purchasing, receiving, inspection, warehousing
        and
        handling costs are included in selling, general and administrative
        expenses.  Such costs were $124,515 and $103,939 for the quarter ended
        March 31, 2007 and 2006, respectively.
 
 The
        Company writes down its inventories for estimated slow moving and obsolete
        goods
        in accordance with the lower of cost or market value, based upon assumptions
        about future demand and market conditions. A significant sudden increase
        in the
        demand for the Company’s products could result in a short-term increase in the
        cost of inventory purchases, while a significant decrease in demand could
        result
        in an increase in the amount of excess inventory quantities on-hand.
        Additionally, the Company’s estimates of future product demand may prove to be
        inaccurate, in which case the Company may have understated or overstated
        the
        write-down required for excess and obsolete inventory.
 
 *Vendor
        Rebates*
 
 The
        Company has arrangements with several vendors that provide rebates payable
        when
        the Company achieves any of a number of measures, generally related to volume
        level of purchases.  The Company accounts for such rebates as a
        reduction of inventory until sale of the product, at which time such rebates
        are
        reflected as a reduction of cost of sales in the consolidated statements
        of
        income.  Throughout the year, the Company estimates the amount of
        rebate based on estimates of purchases to date relative to the purchase levels
        that mark the progress toward earning the rebate.  The Company
        continually revises these estimates of earned vendor rebates based on actual
        purchase levels.
  14
 *Table
            of Contents*
  *Property
        and Equipment*
 
 Property
        and equipment are stated at cost.  Depreciation is calculated on the
        straight line method over the estimated useful lives of the assets as
        follows:
 
 Computer
                  hardware and software
              3-5
                  yearsFurniture
                  and fixtures
              5
                  yearsAutomobiles
              3-5
                  yearsShowroom
                  fixtures and displays
              3
                  years
 
 Leasehold
        improvements are amortized over the shorter of the lease term or the estimated
        useful life of the asset.
 
 *Income
        Taxes*
 
 In
        June
        2006, the FASB issued FASB Interpretation No. 48, *Accounting for Uncertainty
        in Income Taxes*-an interpretation FASB No. 109 (“FIN 48”), which prescribes
        accounting for and disclosure of uncertainty in tax positions.  This
        interpretation defines the criteria that must be met for the benefits of
        a tax
        position to be recognized in the financial statements and the measurement
        of tax
        benefits recognized.  The provisions of FIN 48 are effective as of the
        beginning of the Company’s 2007 fiscal year, with the cumulative effect of the
        change in accounting principle recorded as an adjustment to opening retained
        earnings.
 
 The
        Company adopted the provisions of FIN 48 on January 1,
        2007.  Under FIN 48, tax positions must meet a “more-likely-than-not”
recognition threshold at the effective date to be recognized upon the adoption
        of FIN 48 and in subsequent periods.  The adoption of FIN 48 had an
        immaterial impact on the Company’s consolidated financial position and did not
        result in unrecognized tax benefits being recorded.  Accordingly, no
        corresponding interest and penalties have been accrued.  The Company
        files income tax returns in the U.S. federal jurisdiction and various states.
        There are currently no federal or state income tax examinations underway
        for
        these jurisdictions.  The Company is no longer subject to U.S. federal
        income tax examinations by the Internal Revenue Service and state and local
        tax
        authorities for tax years before 2002.  The Company does, however,
        have prior year net operating losses which remain open for
        examination.
  15
 *Table
            of Contents*
  *Deferred
        Income Tax Asset*
 
 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.
 
 *Goodwill
        and Other Intangible Assets*
 
 Statement
        of Financial Accounting Standards (SFAS) 142, "Goodwill and Other Intangible
        Assets," requires that goodwill is reviewed at least annually for
        impairment.  In assessing the recoverability of the Company’s
        goodwill, the Company must make assumptions regarding estimated future cash
        flows and other factors to determine the fair value of the respective assets
        and
        liabilities of the reporting unit.  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 its related assumptions change in the future, the
        Company may be required to record impairment charges related to its
        goodwill.
 
 Results
        of Operations For the Quarter Ended March 31, 2007 and 2006
 
 Sales
        increased by 7.8%, or $1,158,018, to $16,042,232 for the quarter ended March
        31,
        2007 from $14,884,214 for the same period in 2006.  The increase in
        sales is primarily a result of sales of appliances in 2007 that the Company
        was
        not offering until September 2006 and increases in our commercial air
        conditioning equipment sales.  These increases were partially offset
        by a continued slowness in our control systems business and softness in sales
        of
        our showroom plumbing fixtures.
 
 Gross
        profit increased by 4.0%, or $186,175, to $4,871,502 for the quarter ended
        March
        31, 2007 from $4,685,327 for the same period in 2006.  Gross profit
        expressed as a percentage of sales decreased by 1.1% to 30.4% in 2007 compared
        to 31.5% for the comparable period in 2006.  The decrease in the
        percentage of gross profit is primarily the result of a change in product
        mix,
        for example, selling more low-margin high volume products, including appliances,
        without a corresponding increase in sales of higher-margin products such
        as
        control systems, showroom plumbing and fixture sales.  Cost of sales
        excludes the distribution costs of incoming freight, purchasing, receiving,
        inspection, warehousing and handling costs, as these costs are included in
        our
        selling, general and administrative expenses.  Our gross margins may
        not be comparable to those of other entities since some entities include
        these
        distribution costs in the cost of sales.  These distribution costs
        were $124,515 and $103,939 for the quarter ended March 31, 2007 and 2006,
        respectively.
  16
 *Table
            of Contents*
  Selling,
        general and administrative expense increased by 4.9%, or $231,744, to $4,988,606
        from $4,756,862 for the same period in 2006.  The increase in selling,
        general and administrative expense is primarily due to staffing, marketing
        and
        advertising expenses related to the sales of appliances in 2007 that the
        Company
        was not offering until September 2006.
 
 Interest
        expense, net increased by 11.5%, or $34,380, to $334,042 for the quarter
        ended
        March 31, 2007 from $299,662 for the same period in 2006.  The
        interest expense increase is primarily the result of increasing interest
        rates
        and increased borrowings under the credit line related to inventory to support
        sales of appliances and new product offerings.  The revolving credit
        line bears interest at .25% below prime rate, which was 8.25% at March 31,
        2007
        compared to 7.75% at March 31, 2006.
 
 Pre-tax
        loss increased by 26.6%, or $81,140, to $386,548 for the quarter ended March
        31,
        2007 from $305,408 for the same period in 2006.  The difference in the
        pre-tax loss figures between the first quarter of 2007 and 2006 was mostly
        related to increased sales and related gross profit of appliances and commercial
        air conditioning equipment offset by a general weakness in our control systems
        business and slower sales from our plumbing showrooms, as well as increases
        in
        selling, general and administrative expenses and interest expense, as discussed
        above.  The Company’s net loss increased by 20.2%, or $65,411, to
        $389,940 for the quarter ended March 31, 2007 from $324,529 for the same
        period
        in 2006.
 
 The
        following table summarizes information derived from the Company’s consolidated
        statements of income expressed as a percentage of sales for the quarter ended
        March 31, 2007 and 2006.
 
 For
                  the Quarter
                Ended
                  March 31,2007
              
              
              2006Sales
              
              
              100.0
              %
              
              
              100.0
              %Cost
                  of sales
              
              
              69.6
              
              
              
              68.5Gross
                  profit
              
              
              30.4
              
              
              
              31.5Selling,
                  general and administrative expenses
              
              
              31.1
              
              
              
              32.0Operating
                  income
              
              
              (0.7
              )
              
              
              (0.5
              )Other
                  income
              
              
              0.4
              
              
              
              0.4Interest
                  expense, net
              
              
              (2.1
              )
              
              
              (2.0
              )Income
                  before taxes
              
              
              (2.4
              )
              
              
              (2.1
              )Income
                  taxes
              
              
              (0.1
              )
              
              
              (0.1
              )Net
                  income
              
              
              (2.5
              )%
              
              
              (2.2
              )%
 17
 *Table
              of Contents*
  Liquidity
        and Capital Resources
 
 The
        Company has a total secured loan facility of $15,000,000 pursuant to a credit
        and security agreement (“Agreement”) with Wells Fargo Business Credit, Inc.
        (“Wells”) consisting of a revolving line of credit which expires August 1,
        2010.  The revolving credit line bears interest at .25% below
        prime.  At March 31, 2007, the Company had standby letters of credit,
        which were set to expire on July 31, 2007 and September 1, 2007.  The
        standby letters of credit reduced the availability of the credit facility
        by
        $300,000 and $100,000, respectively, and additional reserves determined by
        the
        bank further reduced the availability of the credit facility by
        $100,000.  On April 25, 2007, the Company’s $100,000 standby letter of
        credit, due to expire on September 1, 2007, was no longer required by the
        vendor
        and was released by Wells Fargo at the request of the
        vendor.  Availability under the revolving credit line was $484,165 as
        of March 31, 2007 and is determined by a percentage of available assets as
        defined in the Agreement, less letters of credit and reserves.  The
        balance outstanding under the revolving line of credit was $13,275,383 as
        of
        March 31, 2007.  The interest rate on the revolving credit facility,
        as of March 31, 2007 was 8.0%.
 
 The
        Company believes that the credit facility is sufficient to finance its current
        operating needs.  However, the business of the Company would be
        materially and adversely affected if the bank demands payment of the loan
        and
        the Company is unable to refinance the loan.
 
 As
        of
        March 31, 2007, the Company had $600,386 in cash compared with $482,251 at
        December 31, 2006.
 
 Net
        cash
        provided by operating activities was $524,923 for the quarter ended March
        31,
        2007.  The net cash provided by operating activities for the 2007 period is
        primarily a result of cash provided by operating assets and liabilities of
        $773,710 and non-cash charges of $141,153, offset by a net loss of $389,940.
         The decrease in accounts receivable approximating $613,355 was primarily
        a
        result of the cyclical decrease in sales during the first
        quarter.  Accounts payable increased due to additional inventory
        purchases in preparation for the increased demand of sales of air conditioning
        products for the second quarter of 2007.
 
 Cash
        flows used in investing activities were $60,373 during the quarter ended
        March
        31, 2007 due to purchases of equipment.
 
 Cash
        flows used in financing activities of $346,415 consisted of $340,313 for
        repayments under the credit facility-revolving credit and $19,102 for repayments
        on notes payable.  Cash flows provided by financing activities
        consisted of $13,000 received from the exercise of stock options.
 
 **Item
        3.  Quantitative and Qualitative Disclosures About
        Market Risk**
 
 Market
        risk represents the risk of changes in value of a financial instrument,
        derivative or non-derivative, caused by fluctuations in interest rates, foreign
        exchange rates and equity prices.  The Company has no financial
        instruments that give it exposure to foreign exchange rates or equity
        prices.
  18
 *Table
            of Contents*
  The
        Company’s pre-tax earnings and cash flows are exposed to changes in interest
        rates.  All borrowings under its credit facility bear interest based
        on the prime rate less .25% and a $750,000 note to Goldman Associates of
        NY,
        Inc. which bears interest at prime.  A hypothetical 10% adverse change
        in such rates would reduce the pre-tax earnings and cash flows by approximately
        $112,000 over a one-year period, assuming the borrowing level remains consistent
        with the outstanding borrowings as of March 31, 2007.  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 the 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.
 
 **Item
        4.  Controls and
        Procedures**
 
 a.
              Evaluation
                  of Disclosure Controls and
                  Procedures
 
 An
        evaluation had been carried out under the supervision and with the participation
        of our management, including our Chief Executive Officer and Chief Financial
        Officer, of the effectiveness of the design and the operation of our "disclosure
        controls and procedures" (as such term is defined in Rule 13a-15(e) under
        the
        Securities Exchange Act of 1934) as of March 31, 2007 (“Evaluation Date”). Based
        on such evaluation, our Chief Executive Officer and Chief Financial Officer
        had
        concluded that, as of the Evaluation Date, the disclosure controls and
        procedures were reasonably designed and effective to ensure that (i) information
        required to be disclosed by us in the reports we file or submit under the
        Securities Exchange Act of 1934 was recorded, processed, summarized and reported
        within the time periods specified in the SEC's rules and forms, and (ii)
        such
        information was accumulated and communicated to our management, including
        our
        Chief Executive Officer and Chief Financial Officer, as appropriate to allow
        timely decisions regarding required disclosure.
  In
        conjunction with the preparation of this Form 10-Q of the Company, and following
        consultation with, and upon recommendation of the Company’s management and Audit
        Committee, the Board of Directors of the Company determined that certain
        vendor
        rebates should be an adjustment to the cost of the vendors’ product and included
        as a reduction of cost of sales when recognized in the income
        statement.  Previously, some vendor rebates were recognized as income,
        not as a reduction of costs when sold.  Accordingly, the Company has
        now concluded that its disclosure controls and procedures in connection with
        the
        interpretation of accounting pronouncements were not effective as of March
        31,
        2007.  In connection with the review of its accounting for vendor
        rebates, the Company’s management obtained the necessary understanding of the
        accounting and reporting for such transactions.  The Company also
        decided to augment its finance and accounting staff by retaining an experienced
        independent consultant who will enhance the Company’s financial accounting and
        reporting capabilities.
 
 b.
              Changes
                  in Internal Controls
 
 Other
        than described above, there have been no significant changes in the Company’s
        internal controls or in other factors that could significantly affect internal
        controls subsequent to March 31, 2007.
  19
 *Table
            of Contents*
  **PART
        II.  OTHER INFORMATION**
 
 **Item
        1.  Legal Proceedings**
 
 The
        Company’s Legal Proceedings are incorporated by reference from Part I
Financial Information, Item 1 Financial Statements, Section 7
Litigation, of this Report on Form 10-Q.
 
 **Items
        1A, 2, 3, 4 and 5 are not applicable and have been
        omitted.**
 
 **Item
        6.  Exhibits**
 
 31.01
              Certification
                  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002.
 
 31.02
              Certification
                  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002.
 
 32.01
              Certification
                  of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002.
 
 32.02
              Certification
                  of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002.
  20
 *Table
            of Contents*
  **SIGNATURES**
 
 Pursuant
        to the requirements of the Securities and Exchange Act of 1934, the Registrant
        has duly caused this report to be signed on its behalf by the undersigned
        thereunto duly authorized.
 
 
 Dated:  May
                  21, 2007
              COLONIAL
                  COMMERCIAL CORP./s/
                  William PaganoWilliam
                  Pagano,Chief
                  Executive Officer/s/
                  William SalekWilliam
                  Salek,Chief
                  Financial Officer