UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
MAY 21, 2007
Date of Report (Date of earliest event reported)
COLONIAL COMMERCIAL CORP.
(Exact name of Registrant as Specified in Charter)
NEW YORK 1-6663 11-2037182
(State or other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
275 WAGARAW ROAD, HAWTHORNE, 07506
NEW JERSEY
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 973-427-8224
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 4.02 NON-RELIANCE ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A
RELATED AUDIT REPORT OR COMPLETED INTERIM REVIEW
RESTATEMENT AND NON-RELIANCE ON FINANCIAL STATEMENTS
In conjunction with the preparation of the Form 10-Q of the Company, and
following consultation with, and upon recommendation of the Company's management
and Audit Committee, on May 21, 2007 the Board of Directors of the Company
determined that it is necessary to restate the Company's financial statements
pursuant to SAB No. 108 for the period ended December 31, 2006 filed on Form
10-K on March 23, 2007. This restatement is necessary to correct the treatment
of vendor rebates recorded by the Company as described in detail under the
heading "Background and Description of Restatement," below. Accordingly, the
Company's financial statements for those periods affected should no longer be
relied upon.
The Audit Committee and authorized officers of the Company discussed with Weiser
LLP, the Company's independent accounting firm for the periods in question, the
matters disclosed in this filing on Form 8-K. Weiser, LLP has concurred with
the decision of the Audit Committee and authorized officers to proceed with the
restatement.
BACKGROUND AND DESCRIPTION OF RESTATEMENT
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 acceptable for quantifying 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. The misstatement
that has been corrected is described below.
Subsequent to the completion of the financial statements, and following
consultation with, and upon the 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 a reduction of
cost of sales when earned, not as a reduction of costs when sold. In accordance
with the transition method of SAB No. 108, we recorded a $319,521 cumulative
effect adjustment to retained earnings and an offsetting amount to inventory as
of January 1, 2006. When adjusting vendor rebates to be recognized as a
reduction of cost of sales, an increase of gross profit of $62,350 was
recognized for the period ended December 31, 2006. The tax effect of this
adjustment was immaterial and, accordingly, the Company has made no adjustment.
Based on the nature of this adjustment, the Company has concluded that this
adjustment is immaterial to prior years' consolidated financial statements under
our previous method of assessing materiality, and therefore, has elected, as
permitted under the transition provisions of SAB No. 108, to reflect the effect
of this adjustment as a reduction to inventory as of January 1, 2006, with the
offsetting adjustment reflected as a cumulative effect adjustment to opening
retained earnings as of January 1, 2006.
AMENDMENT TO ANNUAL REPORT ON FORM 10-K
The Company plans to complete the restatement as quickly as possible by filing
an amended Annual Report on Form 10-K/A for the fiscal year ended December 31,
2006. However, the time required to complete the restatement will depend upon
several factors, including the extent of the review required by Weiser, LLP and
Eisner, LLP.
The restatement process has also delayed the Company's filing of its Quarterly
Report on Form 10-Q for the quarter ended March 31, 2007. The Company currently
expects to file its Form 10-Q as soon as practical, subsequent to filing its
Form 10-K/A.
ITEM 8.01 OTHER EVENTS
Reference is made to the vendor rebates adjustment described in Item 4.02 above.
As a result of such adjustment, 2007 10-Q future filings will be compared to
2006 figures with the described vendor rebate adjustment and therefore will not
be consistent with the 2006 quarter-ended information presented in the Company's
10-Q filings in fiscal year ended 2006, which did not contain such adjustments.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COLONIAL COMMERCIAL CORP.
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(Registrant)
Date: May 21, 2007 /s/ William Salek
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William Salek
Chief Financial Officer