**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
        10-Q/A**





T
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                the quarterly period ended **March 31, 2007**OR£
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                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
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            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  T                                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  T





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes  £                                No  T





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**CONTENTSPART
                I.
            FINANCIAL
                INFORMATIONItem
                1.
            
            Financial
                Statements
            PageCondensed
                Consolidated Balance Sheets as of March 31, 2007
                (Unaudited) and December 31, 2006
            2Condensed
                Consolidated Statements of Operations (Unaudited)
                for the Three Months Ended March 31, 2007 and 2006
            3Condensed
                Consolidated Statements of Cash Flows (Unaudited)
                for the Three Months Ended March 31, 2007 and 2006
            4Notes
                to Condensed Consolidated Financial Statements
                (Unaudited)
            5Item
                2.
            
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations
            13Item
                3.
            
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            20Item
                4.
            
            Controls
                and Procedures
            21PART
                II.
            OTHER
                INFORMATIONItem
                1.
            
            Legal
                Proceedings
            22Item
                6.
            
            Exhibits
            22


*Table
          of Contents*




**Explanatory
          Note**
  This
          Form
          10-Q/A is being filed to revise certain sections of the Form 10-Q for the
          quarter ended March 31, 2007 which was filed with the Securities and Exchange
          Commission on May 21, 2007.  In the Form 10-Q previously filed, the
          Company stated it was utilizing the cumulative effect transition method
          pursuant
          to the guidance contained in SAB 108.  Subsequent communications with
          the Securities and Exchange Commission (“SEC”) indicated that the Company had
          improperly applied the guidance in SAB 108.  The Audit Committee and
          management of the Company concurred with the SEC and determined that it
          was
          necessary to restate the Company’s financial statements for the years ended
          December 31, 2004, 2005 and 2006, as they relate to the treatment of vendor
          rebates.  The purpose of this 10-Q/A filing is to change the prior
          financial disclosures which stated that the Company relied upon SAB
          108.  No items other than these disclosures were affected by this
          change.
  No
          other
          changes have been made to the Company’s financial statements for the quarters
          ended March 31, 2007 and 2006.
  The
          following sections are amended in this Form 10-Q/A:
  Item
          1.
Notes to Condensed Consolidated Financial Statements (Unaudited), 8.
New Accounting Pronouncements is amended to remove the disclosure of the
          application of SAB 108, as it relates to vendor rebates, and 10. Vendor
          Rebates is included to describe the treatment of vendor rebates and the
          effect of the vendor rebate adjustment on the financial statements for
          the
          quarter ended March 31, 2006.
  Item
          2.
Management’s Discussion and Analysis of Financial Condition and Results of
          Operations is amended under the caption Critical Accounting Policies,
*Vendor Rebates,* to include the effect of the vendor rebate adjustment
          on the financial statements for the quarter ended March 31, 2006.
  Item
          4.
          Controls and Procedures is amended to state that the Audit Committee and
          management of the Company has concluded that the Company improperly applied
          the
          guidance in SAB 108, specifically, the effect on materiality of the incorrect
          treatment of vendor rebates on net income for 2004, as set forth in this
          Form
          10-Q/A.  The need for this restatement of our financial statements is
          a result of material weaknesses in our internal controls over financial
          reporting.  The Company continues to develop controls and procedures
          and plans to implement additional controls and procedures sufficient to
          accurately report our financial performance in the foreseeable
          future.  The Company has also augmented its finance and accounting
          staff by retaining an experienced independent consultant to enhance the
          Company’s financial accounting and reporting capabilities.
  As
          required by Rule 12b-15 under the Securities and Exchange Act of 1934,
          as
          amended (the Exchange Act), new certifications by the Company’s principal
          executive officer and principal financial officer are being filed as exhibits
          to
          this Form 10-Q/A under Item 6. Exhibits.
  For
          purposes of this Form 10-Q/A, and in accordance with Rule 12b-15 under
          the
          Exchange Act, each item of the Company’s Form 10-Q for the quarter ended March
          31, 2007, as originally filed on May 21, 2007, that was affected by this
          amendment, has been amended and restated in its entirety.  No attempt
          has been made in this Form 10-Q/A to modify or update other disclosures
          as
          presented in the original Form 10-Q, except as required to reflect such
          amendments.
  Because
          this Form 10-Q/A restates all of the pertinent financial data for the affected
          periods, we do not intend to amend our previously filed Quarterly Reports
          on
          Form 10-Q for periods ending prior to December 31, 2006.  As a result,
          the reader should not rely on the prior filings, but should rely upon the
          restated financial statements and related financial information for affected
          periods contained in this Form 10-Q/A.  Additionally, 2007 10-Q
          filings will be compared to 2006 figures with the described vendor rebate
          adjustment and therefore will not be consistent with the 2006 quarterly
          information previously presented in the Company’s 10-Q filings for the fiscal
          year ended 2006.


1
 *Table
            of Contents*




**PART
      I.  FINANCIAL INFORMATION**


**Item
      1.  Financial Statements**


COLONIAL
      COMMERCIAL CORP. AND SUBSIDIARIES


Condensed
      Consolidated Balance Sheets





March
                31,
            
            
            December
                31,2007
            
            
            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.




2
 *Table
          of Contents*


COLONIAL
      COMMERCIAL CORP. AND SUBSIDIARIES




Condensed
      Consolidated Statements of Operations




(Unaudited)





For
                The Three Months EndedMarch
                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.


3
 *Table
          of Contents*




COLONIAL
      COMMERCIAL CORP. AND SUBSIDIARIES




Condensed
      Consolidated Statements of Cash Flows




(Unaudited)




For
                The Three Months EndedMarch
                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.




4
 *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.




5
 *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


6
 *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.




7
 *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.




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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.




9
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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.




10
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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
      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.




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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.




10.
              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.
  The
          Company restated its Annual Report on Form 10-K/A for the year ended December
          31, 2006 on May 21, 2007 and further restated its Annual Report on Form
          10-K/A
          (Amendment Number 2) for the year ended December 31, 2006 on August 27,
          2007 to
          correct previously improper accounting for vendor rebates.  Due to the
          adjustment, 2007 10-Q filings will be compared to 2006 figures with the
          described vendor rebate adjustment and therefore will not be consistent
          with the
          2006 quarterly information previously presented in the Company’s 10-Q filings
          for the fiscal year ended 2006.
  The
          adjustment 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.


12
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11.
            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.




13
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            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.




14
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            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.




15
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            of Contents*




The
          Company restated its Annual Report on Form 10-K/A for the year ended December
          31, 2006 on May 21, 2007 and further restated its Annual Report on Form
          10-K/A
          (Amendment Number 2) for the year ended December 31, 2006 on August 27,
          2007 to
          correct previously improper accounting for vendor rebates.  Due to the
          adjustment, 2007 10-Q filings will be compared to 2006 figures with the
          described vendor rebate adjustment and therefore will not be consistent
          with the
          2006 quarterly information previously presented in the Company’s 10-Q filings
          for the fiscal year ended 2006.
  The
          adjustment 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.


*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.




16
 *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.




*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.




17
 *Table
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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.




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.




18
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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 QuarterEnded
                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
            )%




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.




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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.




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.




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**Item
      4.  Controls and
      Procedures**




a.
            Evaluation
                of Disclosure Controls and
                Procedures




As
        of the
        end of the period covered by this report, the Company carried out an evaluation
        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 this evaluation, our
        Chief Executive Officer and Chief Financial Officer concluded that, as of
        the
        Evaluation Date, the disclosure controls and procedures were not 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.




On
        May
        21, 2007, 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 recorded as 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.  The
        Company adjusted certain vendor rebates using the cumulative effect transition
        method pursuant to the guidance contained in SAB 108.  Based upon this
        evaluation, the Company concluded that as of March 31, 2007, its disclosure
        controls and procedures in connection with the interpretation of accounting
        pronouncements were not effective.




On
        July
        23, 2007, the Audit Committee and management of the Company concluded that
        the
        Company had improperly applied the guidance in SAB 108, specifically, the
        effect
        on materiality of the incorrect treatment of vendor rebates on net income
        for
        2004.  Based upon this evaluation, the Company concluded that as of
        March 31, 2007, its disclosure controls and procedures in connection with
        the
        interpretation of accounting pronouncements were not effective.  In
        connection with the review of its accounting for vendor rebates, the Company’s
        management believed that it obtained the necessary understanding of the
        accounting and reporting for such transactions.  The Company continues
        to develop controls and procedures and plans to implement additional controls
        and procedures sufficient to accurately report our financial performance
        in the
        foreseeable future.  The Company has also augmented its finance and
        accounting staff by retaining an experienced independent consultant to 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.




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**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.


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**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:
                  August 27, 2007
              COLONIAL
                  COMMERCIAL CORP./s/
                  William PaganoWilliam
                  Pagano,Chief
                  Executive Officer/s/
                  William SalekWilliam
                  Salek,Chief
                  Financial Officer