** **

** **

**UNITEDSTATES**

###### **SECURITIES ANDEXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 
| **x**      | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                                        |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                           |
| ** ** | **For the quarterly period ended  September 30, 2008**                                                                                                                                                                                                                    |
| ** ** | ** **                                                                                                                                                                                                                                                                     |
| ** ** | **OR**                                                                                                                                                                                                                                                                         |
| ** ** | ** **                                                                                                                                                                                                                                                                     |
| **o**      | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                                       |
| ** ** | ** **                                                                                                                                                                                                                                                                     |
| ** ** | **For the transition period from                       to                     ** |

 

**CommissionFile No. 0-28582**

 

**CHANNELLCOMMERCIAL CORPORATION**

(Exact name ofRegistrant as specified in its charter)

 

**DELAWARE**

(State or otherjurisdiction of incorporation or organization)

 

**95-2453261**

(I.R.S. EmployerIdentification No.)

 

**26040Ynez Road, Temecula, California**

(Address ofprincipal executive offices)

 

**92591**

(Zip Code)

 

**(951)719-2600**

(Registrant’stelephone number, including area code)

 

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.
| ** ** | Yes x | No o |
|------------|-------|------|

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer,”  “accelerated filer” and “smaller reportingcompany” in Rule 12b-2 of the Exchange Act. (Check one):
|   | Large Accelerated Filer  o | Accelerated Filer o          |
|--------|----------------------------|------------------------------|
|   | Non- accelerated Filer o   | Smaller reporting  company x |

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).
| ** ** | Yes o | No x |
|------------|-------|------|

 

9,544,134 sharesof common stock of the registrant were outstanding at November 11, 2008.

 

 

 

----

 

**PART 1- FINANCIAL INFORMATION**

 

**Item 1.    Financial Statements.**

 

CHANNELL COMMERCIALCORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME(LOSS)

(UNAUDITED)

*(amountsin thousands, except per share data)*

 
| ** **                                          | ** ** | **Nine months ended September 30,** | ** ** | **Three months ended September 30,** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                          | ** ** | **2008**                                                | ** ** | **2007**                                                 | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                |       |                                                    |       |                                                     |       |   |   |   |   |
| Net sales                                           |       | $                                                       | 78,633     |                                                     | $          | 103,431 |   | $ | 26,525 |   | $ | 33,856 |   |
| Cost of goods  sold                                 |       | 55,327                                                  |       | 71,382                                                   |       | 18,692 |   | 23,708 |   |
| Gross profit                                        |       | 23,306                                                  |       | 32,049                                                   |       | 7,833 |   | 10,148 |   |
|                                                |       |                                                    |       |                                                     |       |   |   |   |   |
| Operating  expenses                                 |       |                                                    |       |                                                     |       |   |   |   |   |
| Selling                                             |       | 14,035                                                  |       | 16,859                                                   |       | 4,122 |   | 5,389 |   |
| General and  administrative                         |       | 11,698                                                  |       | 11,526                                                   |       | 4,446 |   | 3,452 |   |
| Research and  development                           |       | 1,149                                                   |       | 1,341                                                    |       | 377 |   | 426 |   |
| Impairment of  goodwill and other intangibles       |       | 12,202                                                  |       | —                                                   |       | 8,229 |   | — |   |
| Restructuring  charge                               |       | 1,169                                                   |       | —                                                   |       | 194 |   | — |   |
|                                                |       | 40,253                                                  |       | 29,726                                                   |       | 17,368 |   | 9,267 |   |
|                                                |       |                                                    |       |                                                     |       |   |   |   |   |
| Income (loss)  from operations                      |       | (16,947                                                 | )          | 2,323                                                    |       | (9,535 | ) | 881 |   |
| Interest income                                     |       | 40                                                      |       | 29                                                       |       | 19 |   | 8 |   |
| Interest expense                                    |       | (1,464                                                  | )          | (812                                                     | )          | (467 | ) | (329 | ) |
| Income (loss)  before income tax expense            |       | (18,371                                                 | )          | 1,540                                                    |       | (9,983 | ) | 560 |   |
|                                                |       |                                                    |       |                                                     |       |   |   |   |   |
| Income tax  expense (benefit)                       |       | 1,286                                                   |       | 434                                                      |       | (429 | ) | 414 |   |
| Net income  (loss) before minority interest         |       | (19,657                                                 | )          | 1,106                                                    |       | (9,554 | ) | 146 |   |
| Minority  interest in income (loss) of subsidiaries |       | (476                                                    | )          | 18                                                       |       | — |   | 104 |   |
| Net income  (loss)                                  |       | $                                                       | (19,181    | )                                                        | $          | 1,088 |   | $ | (9,554 | ) | $ | 42 |   |
|                                                |       |                                                    |       |                                                     |       |   |   |   |   |
| Net income  (loss) per share, basic and diluted     |       | $                                                       | (2.01      | )                                                        | $          | 0.11 |   | $ | (1.00 | ) | $ | — |   |
|                                                |       |                                                    |       |                                                     |       |   |   |   |   |
| Net income  (loss)                                  |       | $                                                       | (19,181    | )                                                        | $          | 1,088 |   | $ | (9,554 | ) | $ | 42 |   |
| Other  comprehensive income, net of tax             |       |                                                    |       |                                                     |       |   |   |   |   |
| Foreign currency  translation adjustment            |       | 2,404                                                   |       | 1,682                                                    |       | 1,717 |   | 863 |   |
|                                                |       |                                                    |       |                                                     |       |   |   |   |   |
| Comprehensive  income (loss)                        |       | $                                                       | (16,777    | )                                                        | $          | 2,770 |   | $ | (7,837 | ) | $ | 905 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

2

----

 

CHANNELLCOMMERCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATEDBALANCE SHEETS

(UNAUDITED)

*(amountsin thousands, except per share data)*

 
| ** **                                                                                                                                                                                                                    | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                    | ** ** | **2008**               | ** ** | **2007**              | ** ** |
| ASSETS                                                                                                                                                                                                                        |       |                   |       |                  |       |
| Current assets                                                                                                                                                                                                                |       |                   |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                                    |       | $                      | 731        |                  | $          | 1,825 |   |
| Restricted cash                                                                                                                                                                                                               |       | —                 |       | 282                   |       |
| Accounts  receivable, net of allowance for doubtful accounts of $192 at  September 30, 2008 and $281 at December 31, 2007                                                                                           |       | 12,112                 |       | 12,807                |       |
| Inventories, net                                                                                                                                                                                                              |       | 15,887                 |       | 15,763                |       |
| Prepaid expenses  and other current assets                                                                                                                                                                                    |       | 1,183                  |       | 1,436                 |       |
| Deferred income  taxes, net                                                                                                                                                                                                   |       | 220                    |       | 936                   |       |
| Total current assets                                                                                                                                                                                                          |       | 30,133                 |       | 33,049                |       |
|                                                                                                                                                                                                                          |       |                   |       |                  |       |
| Property and  equipment, net                                                                                                                                                                                                  |       | 17,870                 |       | 19,036                |       |
| Deferred income  taxes, net                                                                                                                                                                                                   |       | 37                     |       | 642                   |       |
| Goodwill                                                                                                                                                                                                                      |       | 760                    |       | 10,998                |       |
| Intangible  assets, net                                                                                                                                                                                                       |       | —                 |       | 2,128                 |       |
| Other assets                                                                                                                                                                                                                  |       | 668                    |       | 994                   |       |
|                                                                                                                                                                                                                          |       | $                      | 49,468     |                  | $          | 66,847 |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                     |       |                   |       |                  |       |
|                                                                                                                                                                                                                          |       |                   |       |                  |       |
| Current  liabilities                                                                                                                                                                                                          |       |                   |       |                  |       |
| Accounts payable                                                                                                                                                                                                              |       | $                      | 12,333     |                  | $          | 9,447 |   |
| Short-term debt  (including current maturities of long-term debt)                                                                                                                                                             |       | 13,468                 |       | 10,335                |       |
| Current  maturities of capital lease obligations                                                                                                                                                                              |       | 361                    |       | 153                   |       |
| Income taxes  payable                                                                                                                                                                                                         |       | 206                    |       | 178                   |       |
| Accrued expenses                                                                                                                                                                                                              |       | 4,437                  |       | 5,444                 |       |
| Total current liabilities                                                                                                                                                                                                     |       | 30,805                 |       | 25,557                |       |
|                                                                                                                                                                                                                          |       |                   |       |                  |       |
| Long-term debt  less current maturities                                                                                                                                                                                       |       | 2,675                  |       | 7,467                 |       |
| Capital lease  obligations, less current maturities                                                                                                                                                                           |       | 353                    |       | 198                   |       |
| Other long-term  liabilities                                                                                                                                                                                                  |       | 632                    |       | 906                   |       |
| Total liabilities                                                                                                                                                                                                             |       | 34,465                 |       | 34,128                |       |
|                                                                                                                                                                                                                          |       |                   |       |                  |       |
| Commitments and  contingencies                                                                                                                                                                                                |       |                   |       |                  |       |
| Minority  interest                                                                                                                                                                                                            |       | —                 |       | 955                   |       |
|                                                                                                                                                                                                                          |       |                   |       |                  |       |
| Stockholders’  equity                                                                                                                                                                                                    |       |                   |       |                  |       |
| Preferred stock,  par value $.01 per share, authorized - 1,000 shares, none issued and outstanding                                                                                                                            |       | —                 |       | —                |       |
| Common stock,  par value $.01 per share, authorized - 19,000 shares; issued - 9,788 at  September  30, 2008 and December 31, 2007 outstanding - 9,544  shares at September 30, 2008 and December 31, 2007 |       | 98                     |       | 98                    |       |
| Additional  paid-in capital                                                                                                                                                                                                   |       | 31,226                 |       | 31,210                |       |
| Treasury stock -  244 shares at September 30, 2008 and December 31, 2007                                                                                                                                            |       | (1,871                 | )          | (1,871                | )          |
| Retained  earnings (accumulated deficit)                                                                                                                                                                                      |       | (19,068                | )          | 113                   |       |
| Accumulated  other comprehensive income -                                                                                                                                                                                     |       |                   |       |                  |       |
| Foreign currency  translation                                                                                                                                                                                                 |       | 4,618                  |       | 2,214                 |       |
| Total stockholders’ equity                                                                                                                                                                                               |       | 15,003                 |       | 31,764                |       |
|                                                                                                                                                                                                                          |       | $                      | 49,468     |                  | $          | 66,847 |   |

 

The accompanying notesare an integral part of these financial statements.

 

3

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CHANNELLCOMMERCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(UNAUDITED)

*(amountsin thousands)*

 
| ** **                                                                                                        | ** ** | **Nine months ended September 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                                        | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| Cash flows from  operating activities:                                                                            |       |                                                    |       |   |   |
| Net income  (loss)                                                                                                |       | $                                                       | (19,181    | ) | $ | 1,088 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities:              |       |                                                    |       |   |   |
| Depreciation and  amortization                                                                                    |       | 3,588                                                   |       | 3,863 |   |
| Stock-based  compensation                                                                                         |       | 16                                                      |       | 86 |   |
| Loss (gain) on  disposal of fixed assets                                                                          |       | (13                                                     | )          | 65 |   |
| Amortization of  deferred gain on sale leaseback                                                                  |       | (45                                                     | )          | (45 | ) |
| Impairment of  goodwill and other intangibles                                                                     |       | 12,202                                                  |       | — |   |
| Deferred income  tax valuation adjustment                                                                         |       | 1,211                                                   |       | — |   |
| Provision for  doubtful accounts                                                                                  |       | 250                                                     |       | 58 |   |
| Provision for  inventory obsolescence                                                                             |       | 197                                                     |       | 271 |   |
| Minority  interest in income (loss) of subsidiaries                                                               |       | (476                                                    | )          | 18 |   |
| Changes in  operating assets and liabilities:                                                                     |       |                                                    |       |   |   |
| Accounts  receivable                                                                                              |       | 67                                                      |       | (3,858 | ) |
| Inventories                                                                                                       |       | (766                                                    | )          | (4,458 | ) |
| Prepaid expenses  and other current assets                                                                        |       | 235                                                     |       | (360 | ) |
| Other assets                                                                                                      |       | 357                                                     |       | 1,001 |   |
| Accounts payable                                                                                                  |       | 3,029                                                   |       | 89 |   |
| Accrued expenses  and other liabilities                                                                           |       | (1,092                                                  | )          | 2,119 |   |
| Income taxes  payable                                                                                             |       | 23                                                      |       | 465 |   |
| Net cash provided by  (used in) operating activities                                                              |       | (398                                                    | )          | 402 |   |
|                                                                                                              |       |                                                    |       |   |   |
| Cash flows from  investing activities:                                                                            |       |                                                    |       |   |   |
| Purchase of  property and equipment                                                                               |       | (3,774                                                  | )          | (2,599 | ) |
| Proceeds from  sale of property and equipment                                                                     |       | 1,375                                                   |       | 95 |   |
| Acquisition of  minority interest                                                                                 |       | (9                                                      | )          | — |   |
| Net cash used in  investing actitivities                                                                          |       | (2,408                                                  | )          | (2,504 | ) |
|                                                                                                              |       |                                                    |       |   |   |
| Cash flows from  financing activities:                                                                            |       |                                                    |       |   |   |
| Repayment of  debt                                                                                                |       | (3,059                                                  | )          | (4,217 | ) |
| Borrowings from  credit facilities                                                                                |       | 1,830                                                   |       | 6,172 |   |
| Borrowings  (repayment) of obligations under capital lease, net                                                   |       | 429                                                     |       | (94 | ) |
| Exercise of  employee stock options                                                                               |       | —                                                  |       | 2 |   |
| Net cash provided by (used in) financing activities                                                               |       | (800                                                    | )          | 1,863 |   |
|                                                                                                              |       |                                                    |       |   |   |
| Effect of  exchange rates on cash                                                                                 |       | 2,230                                                   |       | (355 | ) |
| Decrease in cash  and cash equivalents                                                                            |       | (1,376                                                  | )          | (594 | ) |
| Cash and cash  equivalents, beginning of period                                                                   |       | 2,107                                                   |       | 2,235 |   |
| Cash and cash  equivalents, end of period                                                                         |       | $                                                       | 731        |   | $ | 1,641 |   |
| Cash paid during  the period for:                                                                                 |       |                                                    |       |   |   |
| Interest                                                                                                          |       | $                                                       | 1,357      |   | $ | 857 |   |
| Income taxes                                                                                                      |       | $                                                       | 37         |   | $ | 21 |   |
| Non-cash  investing activities:                                                                                   |       |                                                    |       |   |   |
| Purchases of  property and equipment which are included in obligations under capital leases  and accounts payable |       | $                                                       | 130        |   | $ | 455 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

4

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CHANNELLCOMMERCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATEDSTATEMENT OF STOCKHOLDERS’ EQUITY

Nine months ended September 30,2008

(UNAUDITED)

*(amountsin thousands)*

* *
| ** **                        | ** ** | ** **            | ** ** | ** **  | ** ** | ** **              | ** ** | ** **       | ** ** | ** **        | ** ** | **Retained**           | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
|-----------------------------------|------------|-----------------------|------------|-------------|------------|-------------------------|------------|------------------|------------|-------------------|------------|------------------------|------------|-----------------|------------|------------|------------|
| ** **                        | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional**          | ** ** | ** **       | ** ** | ** **        | ** ** | **earnings**           | ** ** | **other**       | ** ** | **Total**  | ** ** |
| ** **                        | ** ** | **Common stock** | ** ** | **paid-in** | ** ** | **Treasury stock** | ** ** | **(accumulated** | ** ** | **comprehensive** | ** ** | **stockholders’** | ** ** |
| ** **                        | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **capital**             | ** ** | **Shares**       | ** ** | **Amount**        | ** ** | **deficit)**           | ** ** | **income**      | ** ** | **equity** | ** ** |
|                              |       |                  |       |        |       |                    |       |             |       |              |       |                   |       |            |       |       |       |
| Balance,  January 1, 2008    |       | 9,788                 |       | $           | 98         |                    | $          | 31,210           |       | 244               |       | $                      | (1,871     | )               | $          | 113        |       | $ | 2,214 |   | $ | 31,764 |   |
|                              |       |                  |       |        |       |                    |       |             |       |              |       |                   |       |            |       |       |       |
| Stock-based  compensation         |       | —                |       | —      |       | 16                      |       | —           |       | —            |       | —                 |       | —          |       | 16         |       |
|                              |       |                  |       |        |       |                    |       |             |       |              |       |                   |       |            |       |       |       |
| Foreign currency  translation     |       | —                |       | —      |       | —                  |       | —           |       | —            |       | —                 |       | 2,404           |       | 2,404      |       |
|                              |       |                  |       |        |       |                    |       |             |       |              |       |                   |       |            |       |       |       |
| Net loss for the  period          |       | —                |       | —      |       | —                  |       | —           |       | —            |       | (19,181                | )          | —          |       | (19,181    | )          |
|                              |       |                  |       |        |       |                    |       |             |       |              |       |                   |       |            |       |       |       |
| Balance,  September 30, 2008 |       | 9,788                 |       | $           | 98         |                    | $          | 31,226           |       | 244               |       | $                      | (1,871     | )               | $          | (19,068    | )          | $ | 4,618 |   | $ | 15,003 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

5

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CHANNELLCOMMERCIAL CORPORATION

NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS

*(amountsin thousands, except per share data)*

 

**1.****             *****Unaudited financialstatements.**** *In the opinion of management, the accompanyingunaudited condensed consolidated financial statements contain all adjustments(consisting only of normal, recurring adjustments) that are necessary topresent fairly the consolidated financial position of Channell CommercialCorporation (the “Company”) as of September 30, 2008 and the results ofits operations for the three months and nine months ended September 30,2008 and 2007 and cash flows for the nine months ended September 30, 2008and 2007.  The results of operations forthe three months and nine months ended September 30, 2008, and cash flowsfor the nine months ended September 30, 2008 are not necessarilyindicative of the results to be expected for any other interim period or thefull year.  These unaudited condensedconsolidated financial statements should be read in combination with theCompany’s audited consolidated financial statements and notes thereto for theyear ended December 31, 2007, included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2007.

*** ***

***RecentAccounting Pronouncements*****. **In September 2006, the FinancialAccounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards (“SFAS”) No. 157,*  FairValue Measurements*, which defines fair value, establishes aframework for measuring fair value in accordance with generally acceptedaccounting principles, and expands disclosures about fair value measurements.In February 2008, the FASB issued Staff Position 157-2, which delays theeffective date of SFAS No. 157 for nonfinancial assets and liabilities,except for those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis, until January 1, 2009. TheCompany adopted SFAS 157 as of January 1, 2008, with the exception of theapplication of the statement to non-recurring, nonfinancial assets andliabilities. The adoption of SFAS 157 did not have a material impacton the Company’s consolidated financial position or results ofoperations.

 

In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assets andFinancial Liabilities—including an amendment to FASB Statement No. 115*,which allows measurement at fair value of eligible financial assets andliabilities that are not otherwise measured at fair value. If the fair valueoption for an eligible item is elected, unrealized gains and losses for thatitem shall be reported in current earnings at each subsequent reporting date.SFAS No. 159 also establishes presentation and disclosure requirementsdesigned to draw comparison between the different measurement attributes thecompany elects for similar types of assets and liabilities. The Company adoptedSFAS No. 159 as of January 1, 2008. The adoption of SFAS 159 did nothave an impact on the Company’s consolidated financial position orresults of operations.

 

In December 2007, the FASB issued SFAS No. 160,*Noncontrolling Interests in Consolidated Financial Statements — anamendment of Accounting Research Bulletin (“ARB”) No. 51*, whichestablishes and expands accounting and reporting standards for minorityinterests, which will be recharacterized as noncontrolling interests, in asubsidiary and the deconsolidation of a subsidiary.  This statement is effective for fiscal yearsbeginning on or after December 15, 2008. Early adoption of this statement is prohibited, and the presentation anddisclosure requirements shall be applied retrospectively for all periodspresented.  The Company is currentlyassessing the potential impact that the adoption of this statement will have onits financial position and results of operations.

 

In December 2007,the FASB issued SFAS No. 141(revised), *Business Combinations*.  Under SFAS No. 141(R) an entity isrequired to recognize the assets acquired, liabilities assumed, contractualcontingencies, and contingent consideration at their fair values on theacquisition date.  SFAS No. 141(R) appliesto all business combinations for which the acquisition date is on or after thebeginning of the first annual reporting period beginning on or after December 15,2008.  This statement is effective forfiscal years beginning on or after December 15, 2008.  The impact, if any, that the adoption of thisstatement will have on the Company’s financial position and results ofoperations will depend on the nature and size of business combinations theCompany consummates after the effective date.

 

In May 2008,the FASB issued SFAS No. 162, *The Hierarchy of GenerallyAccepted Accounting Principles*, which identifies the sources ofaccounting principles and the framework for selecting the principles used inthe preparation of financial statements of nongovernmental entities that arepresented in conformance with generally accepted accounting principles in theUnited States.  The statement iseffective 60 days after the SEC’s approval of the Public Company Accounting OversightBoard amendments to AU Section 411, *The Meaning of PresentFairly in Conformity with Generally Accepted Accounting Principles*.  The Company is currently assessing thepotential impact that the adoption of this statement will have on its financialposition and results of operations.

 

6

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**2.****             *****Stock-BasedCompensation. ***Effective January 1, 2006 theCompany adopted SFAS No. 123R, *Share-Based Payment*,which requires that compensation expense be recognized over the requisiteservice period based on the fair value of the award at the date of grant.  At September 30, 2008, the Company hadtotal unvested stock-based compensation expense of $29.  The unvested stock options will vest atvarious intervals over the next 2.7 years. Total stock-based compensation expense, recognized in general andadministrative expenses, was $16 and $86 during the first nine months of 2008and 2007, respectively.  During the ninemonths ended September 30, 2008, the Company granted options under its2003 Incentive Stock Plan for the purchase of 52 shares of common stock at aweighted average exercise price of $1.44 per share and a weighted average fairvalue of $1.05 per share.

** **

**3.****             *****Inventories.***** Inventoriesstated at the lower of cost (first-in, first-out method) or market aresummarized as follows:

 
| ** **                        | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
|                              |       |                             |       |                            |       |
| Raw Materials                     |       | $                                | 7,639      |                            | $          | 6,786 |   |
| Work-in-Process                   |       | 5,203                            |       | 4,100                           |       |
| Finished Goods                    |       | 4,353                            |       | 6,459                           |       |
|                              |       | 17,195                           |       | 17,345                          |       |
| Less inventory  valuation reserve |       | (1,308                           | )          | (1,582                          | )          |
|                              |       | $                                | 15,887     |                            | $          | 15,763 |   |

 

**4.****             *****Income (loss) per share.*** Basic income (loss) per share excludes dilution and is computed bydividing net income (loss) available to common stockholders by the weightedaverage number of common shares outstanding for the nine months and threemonths ended September 30, 2008 and 2007*. *Diluted income (loss) per sharereflects the potential dilution that could occur if dilutive options to acquirecommon stock were exercised, the proceeds of which are then presumed to havebeen used to repurchase outstanding stock using the treasury stock method.  For the nine months and three months ended September 30,2008, there is no calculation of dilution since the Company incurred a loss forboth periods, thereby resulting in the options becoming antidilutive.  The following is a reconciliation of thenumber of shares (denominator) used in the basic and diluted income (loss) pershare computations for nine months and three months ended September 30,2008 and 2007:

 
| ** **                        | ** ** | **Nine months ended September 30,** | ** ** |
|-----------------------------------|------------|---------------------------------------------------------|------------|
| ** **                        | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| ** **                        | ** ** | ** **                                              | ** ** | **Per Share** | ** ** | ** ** | ** ** | **Per Share** | ** ** |
| ** **                        | ** ** | **Shares**                                              | ** ** | **Amount** | ** ** | **Shares** | ** ** | **Amount** | ** ** |
| Basic income  (loss) per share    |       | 9,544                                                   |       | $ | (2.01 | ) | 9,544 |   | $ | 0.11 |   |
| Effect of  dilutive stock options |       | —                                                  |       | — |   | 4 |   | — |   |
| Diluted income  (loss) per share  |       | 9,544                                                   |       | $ | (2.01 | ) | 9,548 |   | $ | 0.11 |   |

 
| ** **                        | ** ** | **Three months ended September 30,** | ** ** |
|-----------------------------------|------------|----------------------------------------------------------|------------|
| ** **                        | ** ** | **2008**                                                 | ** ** | **2007** | ** ** |
| ** **                        | ** ** | ** **                                               | ** ** | **Per Share** | ** ** | ** ** | ** ** | **Per Share** | ** ** |
| ** **                        | ** ** | **Shares**                                               | ** ** | **Amount** | ** ** | **Shares** | ** ** | **Amount** | ** ** |
| Basic income  (loss) per share    |       | 9,544                                                    |       | $ | (1.00 | ) | 9,544 |   | $ | 0.00 |   |
| Effect of dilutive  stock options |       | —                                                   |       | — |   | 37 |   | — |   |
| Diluted income  (loss) per share  |       | 9,544                                                    |       | $ | (1.00 | ) | 9,581 |   | $ | 0.00 |   |

 

7

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The following optionswere not included in the computation of diluted (loss) income per share due totheir antidilutive effect.

 
| ** **                                  | ** ** | **Nine months ended September 30,** | ** ** |
|---------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                  | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| * *                                    | * *   | * *                                                | * *   | * * | * * |
| Options to  purchase shares of common stock |       | 1,550                                                   |       | 1,368 |   |
| Exercise prices                             |       | $1.26 - $13.75                                          |       | $4.25 - $13.75 |   |
| Expiration dates                            |       | July 2010 –  May 2018                    |       | July 2010 – May 2017 |   |

 
| ** **                                  | ** ** | **Three months ended September 30,** | ** ** |
|---------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                  | ** ** | **2008**                                                 | ** ** | **2007** | ** ** |
| * *                                    | * *   | * *                                                 | * *   | * * | * * |
| Options to  purchase shares of common stock |       | 1,550                                                    |       | 1,351 |   |
| Exercise prices                             |       | $1.26 - $13.75                                           |       | $4.65 - $13.75 |   |
| Expiration dates                            |       | July 2010 –  May 2018                     |       | July 2010 –May 2017 |   |

 

**5.*****             ******Segments.*** The operating segments of the Company have been aggregated into twogeographical reporting segments: Americas and International. Americas includes the United States, Central and South America andCanada.  International includes Europe,Africa, the Middle East, Australia and Asia. The chief operating decision maker is William H. Channell, Jr.,President and Chief Executive Officer of the Company.  The Company’s four product lines are sold inboth segments.  The following tablessummarize segment information:

 
| ** **                             | ** ** | **Nine months ended September 30,** | ** ** |
|----------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                             | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| Revenues from  external customers (1): |       |                                                    |       |   |   |
| Americas                               |       | $                                                       | 49,494     |   | $ | 57,245 |   |
| International                          |       | 29,139                                                  |       | 46,186 |   |
|                                   |       | $                                                       | 78,633     |   | $ | 103,431 |   |
| Income (loss)  from operations:        |       |                                                    |       |   |   |
| Americas                               |       | $                                                       | (1,387     | ) | $ | 1,901 |   |
| International                          |       | (15,560                                                 | )          | 422 |   |
|                                   |       | $                                                       | (16,947    | ) | $ | 2,323 |   |
| Interest  expense, net:                |       |                                                    |       |   |   |
| Americas                               |       | $                                                       | 450        |   | $ | 450 |   |
| International                          |       | 974                                                     |       | 333 |   |
|                                   |       | $                                                       | 1,424      |   | $ | 783 |   |

 

----

| (1) Note: | Revenues from Australia  exceeded 10% of total revenues for the nine months ended September 30,  2008 and 2007. Revenues from Australia totaled $25,960 and $42,039 for the  nine-month periods in 2008 and 2007, respectively. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

8

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| ** **                             | ** ** | **Three months ended September 30,** | ** ** |
|----------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                             | ** ** | **2008**                                                 | ** ** | **2007** | ** ** |
| Revenues from  external customers (1): |       |                                                     |       |   |   |
| Americas                               |       | $                                                        | 17,683     |   | $ | 18,186 |   |
| International                          |       | 8,842                                                    |       | 15,670 |   |
|                                   |       | $                                                        | 26,525     |   | $ | 33,856 |   |
| Income (loss)  from operations:        |       |                                                     |       |   |   |
| Americas                               |       | $                                                        | 207        |   | $ | 31 |   |
| International                          |       | (9,742                                                   | )          | 850 |   |
|                                   |       | $                                                        | (9,535     | ) | $ | 881 |   |
| Interest  expense, net:                |       |                                                     |       |   |   |
| Americas                               |       | $                                                        | 149        |   | $ | 162 |   |
| International                          |       | 299                                                      |       | 159 |   |
|                                   |       | $                                                        | 448        |   | $ | 321 |   |

 

----

| (1) Note: | Revenues from Australia  exceeded 10% of total revenues for the three months ended September 30,  2008 and 2007.  Revenues from Australia  totaled $7,841 and $14,195 for the three-month periods in 2008 and 2007,  respectively. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

The Company has revenuesfrom external customers from the following product lines:

 
| ** **              | ** ** | **Nine months ended September 30,** | ** ** |
|-------------------------|------------|---------------------------------------------------------|------------|
| ** **              | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
|                    |       |                                                    |       |   |   |
| Product lines:          |       |                                                    |       |   |   |
| Enclosures              |       | $                                                       | 31,296     |   | $ | 44,610 |   |
| Water-related  products |       | 35,820                                                  |       | 46,253 |   |
| Connectivity            |       | 9,901                                                   |       | 8,546 |   |
| Other                   |       | 1,616                                                   |       | 4,022 |   |
|                    |       | $                                                       | 78,633     |   | $ | 103,431 |   |

 
| ** **              | ** ** | **Three months ended September 30,** | ** ** |
|-------------------------|------------|----------------------------------------------------------|------------|
| ** **              | ** ** | **2008**                                                 | ** ** | **2007** | ** ** |
|                    |       |                                                     |       |   |   |
| Product lines:          |       |                                                     |       |   |   |
| Enclosures              |       | $                                                        | 9,809      |   | $ | 14,571 |   |
| Water-related  products |       | 13,678                                                   |       | 14,561 |   |
| Connectivity            |       | 2,279                                                    |       | 3,282 |   |
| Other                   |       | 759                                                      |       | 1,442 |   |
|                    |       | $                                                        | 26,525     |   | $ | 33,856 |   |

 

**6.****             *****Income Taxes.*** The effective tax rate is (7.0%) for the nine months ended September 30,2008, compared to the statutory rate of 34%. The effective rate is based on the expected rate for the full fiscalyear. The income tax expense recorded for the nine months ended September 30,2008 is primarily a result of placing a full valuation allowance of $1.5million on the net deferred tax asset on the Bushman Tanks reporting unit inAustralia.  The Company has not recordedan income tax benefit on the loss of the Company’s domestic operations becauseof the Company’s federal net operating loss carryforward position and the fullvaluation allowance on the Company’s net domestic deferred tax asset.

 

Under SFAS No. 109, *Accounting for Income Taxes,* the Company is required torecord a valuation allowance to reduce its net deferred tax asset to the amountthat management believes is more likely than not to be realized.  Accounting guidance allows the Company tolook to future earnings to support the realizability of net deferredassets.  However, since the Company hashad cumulative losses in recent years in its domestic operations, the Companyis unable to support the realizability of domestic deferred tax assets based onforecasted future earnings.  As a result,management has concluded that a full valuation allowance against net

 

9

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domestic deferred taxassets continues to be necessary.  Inaddition, based on recent losses generated in the Bushman Tanks reporting unit,management also concluded, in the second quarter of 2008, that a full valuationallowance is necessary against the net deferred tax asset of the Bushman Tanksreporting unit in Australia.

 

As of September 30,2008, the Company had no material unrecognized tax benefits. Based on theinformation currently available, no significant changes in unrecognized taxbenefits are expected in the next twelve months. As of September 30, 2008,the Company files income tax returns in the U.S. federal jurisdiction andvarious state and foreign jurisdictions. The 2002 through 2007 tax years remain subject to examination by federaltax authorities while most state and foreign jurisdictions remain subject toexamination from 2003 through 2007.

 

The Company recognizesinterest and penalties related to uncertain tax positions in income taxexpense.  As of September 30, 2008,the Company had no provisions for interest or penalties related to uncertaintax positions.

** **

**7.*****             ******Commitments and Contingencies*****.**  *Employment Agreements**—*** InJune, 2008 the Company entered into an amended and restated employmentagreement with William H. Channell, Jr., its chief executiveofficer.  The employment agreement is for an initial five-year term and isautomatically renewed for additional five-year terms unless it is terminated bythe Company or by Mr. Channell, Jr. in accordance with theagreement.  Mr. Channell, Jr.’s base salary under the agreementis $836,000 and may be increased from time to time at the discretion of theboard of directors.  The base salary may not be decreased during the termof the agreement.  In addition to basesalary, Mr. Channell, Jr. is entitled to participate in the Company’scash and other bonus programs, including the incentive stock plans, 401(k) planand 2004 Incentive Bonus Plan pursuant to which he is entitled to aggregatebonuses of up to $410,000 per year based upon certain goals, objectives andother factors.  In addition, Mr. Channell, Jr.was entitled to receive a cash bonus of $300,000 in June 2008 and $200,000in July 2008.  Pursuant to the agreement, the Company is alsorequired to maintain certain insurance policies for Mr. Channell, Jr.’sbenefit and he is also entitled to certain other benefits, including anautomobile allowance, health insurance, and vacation and sick leave, inaccordance with customary practices for senior executive officers.  In the event that (1) the Companyterminates Mr. Channell, Jr.’s employment without “cause,” as definedin the agreement,  (2) Mr. Channell, Jr.terminates his employment with the Company for “good reason,” which is alsospecifically defined in the agreement, or (3)  the Company decides not torenew the Agreement at the end of the initial five-year term or during anysubsequent five-year term, then Mr. Channell, Jr. would be entitledto a lump sum payment equal to three times his then current base salary, allhealth and life insurance benefits for three years, and accelerated vesting ofany stock options or restricted stock granted to him.  In addition, if the Company terminates Mr. Channell, Jr.’semployment for any reason other than cause, it is required to maintain Mr. Channell, Jr.’sdisability policy, at its expense, until the date on which Mr. Channell, Jr.is 65 years old.  The agreement alsoprovides for certain benefits to Mr. Channell, Jr. upon his death ordisability.

 

In November, 2008the Company entered into an employment agreement with Guy Marge to serve aspresident and chief operating officer.  The employment agreement is for aninitial three-year term and is automatically renewed for an additional two-yearterm unless it is terminated by the Company or by Mr. Marge in accordancewith the Agreement.  Mr. Marge’s base salary under the Agreement is$500,000, except for the period from November 1, 2008 through January 31,2009 during which he will be paid $1 per month, and may be increased from timeto time at the discretion of the board of directors.  The base salaryshall not be decreased during the term of the Agreement.  In addition to base salary, Mr. Marge isentitled to participate in the Company’s cash and other bonus programs,including the incentive stock plans, 401(k) plan and 2004 Incentive BonusPlan.  In particular, under the 2004 Incentive Bonus Plan, Mr. Margeis entitled to a bonus, commencing in 2009, with a target bonus amount of atleast 20% of base salary per year based upon achievement of certain goals andobjectives established by the board of directors.   With respect tothe incentive stock plans, Mr. Marge is to be awarded 100,000 options topurchase common stock of the Company upon the execution of the Agreement andcommencement of services.  Additionally, Mr. Marge is entitled toreceive a signing bonus of $50,000.  Mr. Marge is also entitled tocertain other benefits paid for by the Company, including an automobileallowance, health insurance, and vacation and sick leave, in accordance withthe Company’s customary practices for senior executive officers.  In the event that (1) the Company wereto terminate Mr. Marge’s employment without “cause,” as defined in theAgreement, (2) Mr. Marge were to terminate his employment with theCompany for “good reason,” which is also specifically defined in the Agreementand generally consists of (a) a significant reduction of his duties,title, position or responsibilities without his consent, (b) a substantialreduction, without good business reasons, of the quality of officeaccommodations or employment benefits without his consent, (c) a reductionof his base salary or a material reduction in his participation in incentivebonus programs without his consent, (d) relocation of his primary officeto a facility more than 50 miles away from his primary office without hisconsent, or (e) a “change of control” as specifically defined in theAgreement, then Mr. Marge shall be entitled to receive continued paymentof his base salary for the following period: (i) one month if terminationoccurs within six months after commencement of services, (ii) two monthsif termination occurs more than 6 months and up to 12 months after commencementof services, (iii) four months if termination occurs more than 12 monthsand up to 24 months after commencement of services, or (iv) six months iftermination occurs more than 24 months after commencement of services.

 

The Company wasparty to an employment agreement with William H. Channell, Sr., theCompany’s former chairman of the board of directors.  The agreement was terminated on April 8,2007, the date on which Mr. Channell, Sr. passed away.  In accordance with the agreement, the Companywill continue to provide Mrs. Jacqueline Channell with medical insurance(to the same extent such insurance is provided to the Company’s seniorexecutive officers) during her lifetime.

*** ***

***Taxes*****. **The Federal income taxes ofthe Company for the years ended December 31, 2003 and 2004 are currentlyunder examination by the Internal Revenue Service (“IRS”).  As of September 30, 2008, the Companyand the IRS have resolved all outstanding issues except for the one related toan ordinary worthless stock deduction. The amount of the benefit under dispute is approximately $3,000.  The net benefit recognized for this position wasapproximately $300 with the remaining benefit offset by the valuation allowancethat has been established against the deferred tax asset.  The Companydoes not anticipate a material adverse impact on its financial statements forthis item.

*** ***

***Termination of Transportation and Logistics Services by Primary FreightProvider for Bushman Tanks Business. ***As of October 12, 2006, the primaryfreight provider for the Company’s Bushman Tanks water storage tankmanufacturing and distribution business unilaterally withdrew itstransportation and logistics services. Accordingly, the agreement with the freight provider has beenterminated, and Bushman Tanks has reserved its rights in relation to anydamages it suffers as a result of the termination of such services.  The freight provider claims that BushmanTanks has breached the agreement. Although the Company does not believe Bushman Tanks has breached theterms of the agreement, the Company has accrued for amounts in dispute.  If the dispute with the freight providercannot be resolved, either Bushman Tanks or the freight provider may pursuelegal action. Although no litigation has been initiated, the legal costassociated with potential litigation related to the termination of suchservices, and any settlements as a result of legal disputes related thereto,could negatively affect the Company’s working capital and results ofoperations.

 

10

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***LegalProceedings.**** *The Company is from time to timeinvolved in ordinary routine litigation incidental to the conduct of itsbusiness.  The Company regularly reviewsall pending litigation matters in which it is involved and establishes reservesdeemed appropriate for such litigation matters. Management believes that no presently pending litigation matters arelikely to have a material adverse effect on the Company’s financial statementsor results of operations, taken as a whole.

** **

**8.**         ***Concentrations.***  Sales to Verizon of $12,827 in the first ninemonths of 2008 represented 16.3 % of the Company’s sales in the period.  Sales to Verizon of $7,736 in the first ninemonths of 2007 represented 7.5 % of the Company’s sales in the period.

** **

Sales to Verizonof $6,416 in the third quarter of 2008 represented 24.2% of the Company’s salesin the period.  Sales to Verizon of$1,789 in third quarter of 2007 represented 5.3% of the Company’s sales in theperiod.

 

Accountsreceivable from Verizon of $2,802 and $1,128 represented 23.1 % and 8.8 % of theCompany’s accounts receivable as of September 30, 2008 and December 31,2007, respectively.

** **

**9*.******             ******Guarantees.*** In 1997, the Company guaranteed debt of the Channell Family Trust, oneof its principal stockholders, of approximately $754 incurred in connectionwith construction of one of the facilities leased to the Company, and suchguaranteed debt is collateralized by said facilities.  The loan amount subject to the guarantee hasdeclined and is expected to decline further before expiring in 2017.  At September 30, 2008, the outstandingloan balance subject to the guarantee totaled approximately $458.  It is not practicable to estimate the fairvalue of the guarantee; however, the Company does not anticipate that it willincur losses as a result of this guarantee. As such, the Company has not recorded a liability for this guarantee.Management has determined that the Channell Family Trust does not qualify as a “variableinterest entity” subject to consolidation under FIN 46 and FIN 46(R).

 

**10.**       ***Goodwill and Other IntangibleAssets.***  The balance of goodwill and intangible assetson the Company’s balance sheet fluctuates from period to period due to theapplication of foreign currency translation to United States dollars incalculating the balance of goodwill and other intangible assets of the Company’sforeign subsidiaries.  SFAS No. 142,*Goodwill and Other Intangible Assets,*requires that goodwill and certain intangibles are not to be amortized, butinstead be reviewed at least annually for impairment.

 

The Company tests thevalue of goodwill for impairment annually at December 31 or wheneverevents or changes in circumstance indicate that the carrying amount of suchassets may not be recoverable.  The testinvolves significant judgment in estimating projections of fair value generatedthrough future performance of the operating segment.  In calculating the fair value, the Companyrelies on factors such as operating results, business plans, economicprojections, and anticipated cash flows used in discounting the cashflows.  Inherent uncertainties exist indetermining and applying such factors.

 

In June 2008 theCompany completed the purchase from Australia and New Zealand Banking GroupLimited (“ANZ”) of all of the outstanding shares of stock of Channell BushmanPty Limited (“Channell Bushman”), a subsidiary of the Company, held by ANZ,which represented 25% of the outstanding shares of Channell Bushman for animmaterial amount.  The Company now owns 100% of the outstanding shares ofChannell Bushman, the primary entity in the Bushman Tanks reporting unit inAustralia.   During the first six monthsof 2008 the Bushman Tanks reporting unit experienced materially lower revenues,which adversely affected operating results. Therefore management determined that the goodwill, non-compete agreementand non-amortizable trademark intangible in the Bushman Tanks reporting unitshould be tested for impairment at June 30, 2008.

 

Due to the purchase priceof the Channell Bushman shares acquired from ANZ and based on the impairmenttest, as of June 30, 2008, the Company recorded a $2,864 impairmentrelated to the carrying value of goodwill, $647 related to the carrying valueof the non-compete agreement and $462 related to the carrying value of thenon-amortizable trademark intangible.  The primary cause for this impairmentof goodwill is the decrease in revenues, gross margins and operating income,which have been negatively impacted by unusually high levels of rainfall and alarge decline in market demand, which resulted in revisions of projected futureearnings and cash flows.  The fair value of the Bushman Tanks reportingunit, and the non-compete agreement and non-amortizable trademark intangible,were estimated using a combination of valuation techniques, including theexpected present value of future cash flows.

 

In September 2008the Company recorded a further $7,251 impairment related to the carrying valueof goodwill, $613 related to the carrying value of the non-compete agreementand $364 related to the carrying value of the non-amortizable trademark intangible.  Duringthe third quarter the Company continued to evaluate the projected and actualrevenues, gross margins and operating income of the Bushman Tanks reportingunit as well as the market value of the Company’s common stock.  Based onthis analysis management decided to record an impairment charge for thecarrying value of the goodwill, non-compete agreement and trademark intangible.

 

11

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Thechanges in the carrying amount of goodwill, the non-compete agreement and thenon-amortizable trademark intangible, are summarized below for the nine monthsended September 30, 2008:

 
| ** **                              | ** ** | ** **   | ** ** | **Non-Compete** | ** ** | **Trademark**  | ** ** |
|-----------------------------------------|------------|--------------|------------|-----------------|------------|----------------|------------|
| ** **                              | ** ** | **Goodwill** | ** ** | **Agreement**   | ** ** | **Intangible** | ** ** |
|                                    |       |         |       |            |       |           |       |
| Balance at  December 31, 2007      |       | $            | 10,998     |            | $          | 1,339          |       | $ | 789 |   |
| Amortization of  non-compete agreement  |       | —       |       | (134            | )          | —         |       |
| Impairment                              |       | (10,115      | )          | (1,260          | )          | (827           | )          |
| Purchase price  adjustment              |       | (537         | )          | —          |       | —         |       |
| Effect of  foreign currency translation |       | 414          |       | 55              |       | 38             |       |
| Balance at  September 30, 2008     |       | $            | 760        |            | $          | —         |       | $ | — |   |

 

As of September 30,2008, the Company has recorded goodwill of $760 in its Canadian reporting unit,which is part of the Americas segment.

 

**11.**      ***Loan and Security Agreements.***   In July 2007, the Company and ChannellCommercial Canada Inc. (“Channell Canada”), as borrowers, entered into anAmended and Restated Loan and Security Agreement (the “Agreement”) withasset-based lenders in the United States and Canada.  The Agreementprovides for: (i) a term loan of $2,500; (ii) capital expenditureloans in an aggregate amount of up to $5,000; and (iii) a revolving creditfacility with borrowings of up to a maximum of $12,500, depending on the levelof certain qualifying assets.  The revolving facility also includesavailability for letters of credit.  The Agreement terminates on June 30,2010 (unless earlier terminated pursuant to the terms thereof).

 

Theterm loan is repayable in monthly payments based on a 60-month amortizationschedule and a balloon payment due June 30, 2010. The capital expenditureloans will be repayable in equal monthly installments equal to the originalprincipal amount of the loan divided by 60, with the remaining outstandingbalance due on June 30, 2010. The balances outstanding at September 30,2008 under the revolving line of credit, term loan and capital expenditurefacility were $5,294, $1,941 and $1,409, respectively.  As of September 30,2008, outstanding letters of credit totaled $701.

 

Underthe Agreement, the outstanding balance of the term loan and the revolver eachbears interest payable monthly at a variable rate based on either LIBOR or thelender’s base rate, which was 5% as of September 30, 2008.

 

Theloans under the Agreement are guaranteed by Channell Limited, ChannellCommercial Europe Limited and A.C. Egerton (Holdings) Limited, which are directand indirect subsidiaries of the Company (the “Subsidiary Guarantors”), and aresecured by substantially all of the assets of the Company and the SubsidiaryGuarantors. In addition, any borrowings made by Channell Canada are secured bysubstantially all of the assets of Channell Canada.  The Agreementcontains various financial and operating covenants that impose limitations onthe Company’s ability, among other things, to incur additional indebtedness,merge or consolidate, sell assets except in the ordinary course of business,make certain investments, enter into leases and pay dividends.  TheAgreement requires the Company to maintain a lockbox on the revolving creditfacility.  The Agreement also generally provides that if there exists anevent of default thereunder, the lenders or administrative agents would havethe option of accelerating the outstanding obligations and terminating allcommitments thereunder. The Company was in compliance with all covenants at September 30,2008.

 

In October 2007,Channell Bushman and Bushmans Group Pty Limited, Australian Bushman Tanks PtyLimited, Bushmans Engineering Pty Limited and Polyrib Tanks Pty Limited, each awholly-owned subsidiary of Channell Bushman and an indirect subsidiary of theCompany (the “Channell Bushman Subsidiaries”), entered into a FacilityAgreement (the “Facility Agreement”) by and among Channell Bushman, asborrower, the Channell Bushman Subsidiaries, as guarantors, and an Australianprivate debt fund, as lender (the “Lender”). In connection with the FacilityAgreement, Channell Bushman and the Channell Bushman Subsidiaries also enteredinto a Fixed and Floating Charge (Incorporating an Equitable Mortgage of Shares)(the “Security Agreement”) with the Lender. The Facility Agreement wasoriginally scheduled to terminate on September 30, 2010, unless earlierterminated pursuant to the terms thereof. The Facility Agreement was amended inMay 2008 and again in October 2008 (see below for a description ofthe amendments).

 

TheFacility Agreement (denominated in Australian dollars) provides for creditfacilities in the aggregate principal amount of $12,506, consisting of: (i) aterm loan of $7,696 and (ii) a revolving facility with borrowings of up to$4,810, depending on the level of certain qualifying assets. The term loan isrepayable in monthly payments that began March 2008 based on a 50-monthamortization schedule and a balloon payment due September 30, 2010. At September 30,2008, the outstanding balance under the term loan was $4,499 and theoutstanding balance on the revolver was $2,941.

 

12

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Underthe Facility Agreement, the outstanding balance of the term loan bears interestpayable monthly at a variable rate based on the Lender’s base rate, which was7.81% as of September 30, 2008.

 

Theobligations of Channell Bushman under the Facility Agreement are guaranteed bythe Channell Bushman Subsidiaries and are secured by all assets of ChannellBushman and the Channell Bushman Subsidiaries.

 

TheFacility Agreement and Security Agreement contain various financial andoperating covenants that impose limitations on Channell Bushman and theChannell Bushman Subsidiaries’ ability to, among other things, incur orguarantee additional indebtedness, merge or consolidate, sell assets except inthe ordinary course of business, make certain investments, issue or redeemshares, transfer ownership of the share capital of the Channell BushmanSubsidiaries, grant further security interests, and pay dividends. The FacilityAgreement and Security Agreement provide that on the occurrence of an event ofdefault, the Lender may declare the outstanding obligations under the FacilityAgreement immediately due and payable, terminate its commitments under theFacility Agreement and enforce its rights under its security interests,including taking possession of and otherwise acting as owner of the assets ofChannell Bushman and the Channell Bushman Subsidiaries, appointing a receiverover the assets of Channell Bushman and the Channell Bushman Subsidiaries withthe power to, among other things, sell the assets, and causing 100% of theshares of each Channell Bushman Subsidiary to be registered in its name. TheLender may also declare the outstanding obligations under the FacilityAgreement immediately due and payable should any change of control in ChannellBushman or any Channell Bushman Subsidiary occur.

 

In March 2008,Channell Pty Limited and Bushman Group Pty Limited, which are indirectsubsidiaries of the Company, entered into a new loan and security agreementwith a commercial bank in Australia. The agreement (denominated in Australiandollars) includes vehicle and equipment financing facilities with anoutstanding balance of $650 as of September 30, 2008, performanceguarantees, credit card facilities and payroll processing facilities. In November 2008,the agreement was amended to include a $493 overdraft facility. The loans underthe agreement are secured by all the assets of Channell Pty Limited. Theagreement replaces a similar agreement that Channell Pty Limited and BushmanGroup Pty Limited previously had with another commercial bank in Australia. Theagreement contains various operating covenants that impose limitations onChannell Pty Limited and Bushman Group Pty Limited’s ability, among otherthings, to merge or consolidate, sell assets except in the ordinary course ofbusiness, and pay dividends.

 

In May 2008,Channell Bushman entered into an amendment to the Facility Agreement which,among other things, provides: (i) for payment of $311 (AUD$338) byChannell Bushman to the Lender to cure an event of default that existed at March 31,2008 as a result of having borrowed funds in excess of those permitted by theborrowing base calculations of the Facility Agreement, (ii) that ChannellBushman must pay in full (without any prepayment or other fee) all amountsowing under the Facility Agreement no later than October 26, 2008, (iii) fora financial covenant related to the ratio of the total loan principaloutstanding under the Facility Agreement to the total amount of ChannellBushman receivables, inventory and property and equipment, and in the eventthat such covenant is not maintained as of each testing date for such covenant,a mandatory prepayment of the loans under the Facility Agreement in the amountsspecified therein, (iv) for a waiver, as of the date of the amendment andin the future, of (a) the financial covenants in section 9.13 of theFacility Agreement (which are replaced in their entirety by the financialcovenant described in subsection (iii)), (b) certain reportingrequirements contained in the Facility Agreement and (c) the repaymentobligation in Section 5.1(b) of the Facility Agreement and (v) fora cancellation of the undrawn portion of the revolving credit facility underthe Facility Agreement, with any further advances thereunder subject to theconsent of the Lender.

 

In October 2008,Channell Bushman entered into a further amendment to the Facility Agreementwhich, among other things, provides: (i) that Channell Bushman must pay infull (without any prepayment or other fee) all amounts owing under the FacilityAgreement no later than April 30, 2009, (ii) for the interest rate tobe 14% per annum for the remaining term of the agreement, (iii) for thewaiver of the financial covenant included in the May 2008 amendmentrelated to the ratio of the total loan principal outstanding under the FacilityAgreement to the total amount of Channell Bushman receivables, inventory andproperty and equipment, and (iv) for Channell Bushman to provide a letterof credit on January 31, 2009 for the amount equal to the differencebetween $328 (AUD$400) and the amount used for certain marketing-relatedactivities, to the extent that less than $328 (AUD$400) is used on suchactivities. As a result of the accelerated due date, the Company hasreclassified $2,923 of long-term debt to short-term debt.  The Companywould have been required to make an additional principal payment if theagreement had not been amended in October.

 

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**12.****      *Restructuring Charge.*** Inthe first nine months of 2008, the Company announced restructuring plans,primarily in the United States and Australia, in an effort to further reducecosts and align headcount and facilities with expected business levels. Therestructuring charge for the first nine months of 2008 totaled $1,169. Theprincipal actions in the restructuring plans involve reduction of headcount andrationalization of facilities. The restructuring plan in the U.S. resulted inthe elimination of 100 management, administrative, sales and manufacturingpositions, most of which occurred in the first quarter of 2008. The restructuringplan in Australia, undertaken in the second quarter of 2008, resulted in theelimination of 60 management, administrative, sales and manufacturing positionsprimarily in the Channell Bushman operation, and was substantially completed byJune 30, 2008. The major components of the restructuring charge are asfollows:

 
| ** **                                           | ** ** | **Three months ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                           | ** ** | **September 30, 2008** | ** ** | **June 30, 2008** | ** ** | **March 31, 2008** | ** ** |
| Employee  severance and related benefit costs        |       | $                                | 178        |   | $ | 300 |   | $ | 234 |   |
| Costs associated  with rationalization of facilities |       | 16                               |       | 270 |   | 171 |   |
|                                                 |       | $                                | 194        |   | $ | 570 |   | $ | 405 |   |

 

**S*everance.***The Companyhad a total reduction of 160 employees, which included approximately 25% of thetotal U.S. workforce and 33% of the total Australian workforce. The reductionsaffected employees in the following areas: factory direct labor, factorysupport, management, administrative and sales.

 

***Costs Associated withRationalization of Facilities.***The Company has incurredcosts of $457 related to an approximate 88 square foot reduction inmanufacturing floor space, which is approximately 25% of the Company’s squarefootage in the U.S. The rationalization effort includes consolidation ofmachinery and equipment into a reduced amount of manufacturing space anddisposal of excess machinery and equipment.

 

**13.****      *Acquisition. ***  In June 2008, the Companyacquired the remaining 25% ownership interest in its Bushman Tanks subsidiary,which is a manufacturer of rotational molded plastic (polyethylene) waterstorage tanks.   The considerationwas approximately $10 and the difference between the purchase price and netassets acquired was allocated to goodwill and resulted in a reduction ofgoodwill of $537.

 

**Item 2.****       Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

 

### **Introductionand Overview**

### ** **

ChannellCommercial Corporation (the “Company”) is a designer and manufacturer oftelecommunications equipment supplied to communications network operatorsworldwide and water storage tanks distributed in consumer markets throughoutAustralia.  Major product lines include a complete line of thermoplasticand metal fabricated enclosures, advanced copper termination andconnectorization products, fiber-optic cable management systems andpolyethylene water storage tanks.

 

During the last sixyears, demand for communications infrastructure equipment has fluctuateddramatically.  At various times in the past there have been significantslowdowns in capital spending by both cable and telecom network operators dueto several factors including, but not limited to, service providerconsolidation, delays in outside plant upgrade/rebuild projects, and theirefforts to enhance free cash flow to strengthen their balance sheets and paydown debt.  These changes had a significant negative impact on overalldemand for infrastructure products, and at various times have directly reduceddemand for the Company’s products and increased price competition within itsindustry, which has led to reductions in the Company’s revenues and contributedto its recent operating losses.

 

Demand for the Company’swater storage products is driven by water conservation efforts and regulatoryfactors at the local, state, and federal government levels.  Recently,portions of Australia have experienced significant rainfall which have alreadyhad a negative effect on and, if continued, could continue to negativelyaffect, the sales of the Company’s product. Revenues have also been affected bydeclining economic conditions in Australia, and the housing sector inparticular.

 

Within both thecommunications infrastructure market and water storage market, the historicallyhigh price of petroleum commodities has had a negative impact on the Company’sgross margins.  The products manufactured in both of the markets in whichthe Company operates are primarily composed of polyethylene resins, which areprimarily derived from commodities such as oil and natural gas.  TheCompany is limited in its ability to pass on incremental price increases to itscustomers.  Continued commodity price increases would have a negativeimpact on the Company’s performance.

 

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The Company continues toinvest in the development of new communications infrastructure products andwater storage tanks and believes that in both markets it has leading productportfolios in terms of performance and features.

 

The Company measures itssuccess by monitoring net sales and gross margins with a near-term goal ofmaintaining positive cash flows, while striving to achieve long-term operatingprofits.  The Company believes that there continue to be long-term growthopportunities within both the communications infrastructure equipment and watertank markets.

 

**Resultsof Operations**

 

**Comparisonof the Nine Months Ended September 30, 2008 with the Nine Months Ended September 30,2007**

 

***NetSales*.**Net sales in the first nine months of 2008 were$78.6 million, a decrease of $24.8 million or 24.0% compared to the first ninemonths of 2007. The decrease is due to lower demand for the Company’s productsin both of the Company’s reporting segments.

 

Americas net sales were$49.5 million in the first nine months of 2008, a decrease of $7.8 million or13.5% from the same period in 2007. The decrease was due primarily to a lowervolume of sales to the Company’s core telecom and cable customers. Sales tolarge telecom and cable service providers fluctuate from period to period basedon the status of such customers’ infrastructure projects and therefore aredifficult to predict.

 

International net saleswere $29.1 million in the first nine months of 2008, a decrease of $17.0million or 36.9 % from the same period in 2007. The lower sales volume wasprimarily a result of a large decline in market demand for the Company’s waterstorage tanks due to unusually high levels of rainfall in Australia, lessattractive regulatory incentives and a general decline in the Australianeconomy.

 

Sales to Verizon of $12.8million in the first nine months of 2008 represented 16.3% of Company sales inthe period. Sales to Verizon of $7.7 million in the first nine months of 2007represented 7.5 % of Company sales in the period. Sales to Verizon are expectedto be a significant portion of the Company’s sales for the remainder of 2008.

 

***GrossProfit*.**Gross profit in the first nine months of 2008 was$23.3 million, a decrease of $8.7 million or 27.3% compared to the first ninemonths of 2007. The decrease was due primarily to decreased revenues in both ofthe Company’s reporting segments. Gross profit in the Americas segmentdecreased $3.0 million from $17.6 million in the first nine months of 2007 to$14.6 million in the first nine months of 2008. Gross profit of $8.7 million inthe first nine months of 2008 in the International segment was $5.7 millionlower than in the corresponding 2007 period.

 

As a percentage of netsales, gross profit decreased from 31.0% in the first nine months of 2007 to29.6% in the first nine months of 2008. The decrease is primarily due to adecrease in the gross profit percentage in the Americas segment from 30.8% inthe first nine months of 2007 to 29.5% in the first nine months of 2008. Thisdecrease is primarily due to the lower revenues in the U.S., which resulted inreduced absorption of fixed costs, along with an increase in raw material costsrelated to increased commodity prices. The gross profit percentage alsodecreased in the International segment from 31.2% in the first nine months of2007 to 30.0 % in the first nine months of 2008. This decrease was primarilydue to the lower revenues and related absorption in Australia.

 

***Selling*.**Selling expenses were $14.0 million in the first nine months of 2008, adecrease of $2.8 million or 16.8% from the first nine months of 2007. Thedecrease is primarily a result of the lower revenues and thus lower freightexpense as well as cost reduction measures.

 

As a percentage of netsales, selling expenses increased from 16.3% in the first nine months of 2007to 17.8% in the corresponding 2008 period. The higher percentage is primarilydue to the small decrease in total selling expenses compared to the largerdecrease in revenues, because a portion of the selling expenses are fixedcosts.

 

***Generaland Administrative*.**General and administrative expenseswere $11.7 million in the first nine months of 2008, an increase of $0.2million or 1.5% from the first nine months of 2007. The increase is due toforeign currency transaction losses of $1.0 million caused by an increase inthe value of the U.S. dollar relative to certain other currencies, reduced bylower compensation and benefits in the International segment, mostly stemmingfrom the Company’s restructuring activities in Australia. Should the U.S.dollar continue to strengthen in the fourth quarter of 2008, additional foreigncurrency transaction losses may be incurred.

 

As a percentage of netsales, general and administrative expense increased from 11.1% in the firstnine months of 2007 to 14.9 % in the corresponding 2008 period as a result ofthe small increase in general and administrative expenses and a large decreasein revenues.

 

***Researchand Development*.**Research and development expenses were$1.1 million in the first nine months of 2008, a decrease of $0.2 million or14.3% from the first nine months of 2007. The decrease is due to the timing ofcertain development projects.

 

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As a percentage of netsales, research and development expenses increased from 1.3% in the first ninemonths of 2007 to 1.5% in the first nine months of 2008 as a result of decreasedrevenues.

 

***Impairmentof Goodwill and Other Intangibles*.**Intangible impairmentexpense was $12.2 million in the first nine months of 2008, compared to noimpairment in the corresponding 2007 period. The impairment was related to theCompany’s Bushman Tanks reporting unit in Australia. The Company recorded $10.1million impairment expense related to goodwill, $1.3 million related to thecarrying value of the non-compete agreement, and $0.8 million related to thecarrying value of the trademark intangible. The primary cause for thisimpairment was the decrease in revenues, gross margins and operating income,which have been negatively impacted by a large decline in market demand, whichresulted in revisions of projected future earnings and cash flows. Anadditional factor influencing the impairment decision was the current marketvalue of the Company’s common stock.

 

***RestructuringCharge.***The Company recorded $1.2 million ofrestructuring costs in the first nine months of 2008. Included in the costswere $0.4 million for severance in the Americas segment and $0.4 million forseverance in the International segment along with $0.4 million for facilitiesrationalization expenses all of which were primarily related to the Americassegment. The rationalization effort includes consolidation of machinery andequipment into a reduced amount of manufacturing space and disposal of excessmachinery and equipment. The Company expects to incur additional restructuringcosts of $50 in the fourth quarter of 2008.

 

***Income(Loss) from Operations*.**As a result of the itemsdiscussed above, loss from operations was ($16.9) million in the first ninemonths of 2008 compared to income from operations of $2.3 million in the firstnine months of 2007. Operating margin as a percent of sales was (21.6%) in thefirst nine months of 2008 compared to 2.2% in the corresponding 2007 period.

 

***InterestExpense, Net*.**Interest expense, net of interest income,was $1.4 million in the first nine months of 2008 and $0.8 million in the firstnine months of 2007. The increase in interest expense is due to the increasedlevel of borrowing compared to the same period of the prior year along withhigher interest rates in the International segment.

 

***IncomeTaxes*.**There was an income tax expense of $1.3 million inthe first nine months of 2008 compared to an income tax expense of $0.4 millionin the first nine months of 2007. The effective tax rate was (7.0%) in thefirst nine months of 2008 and 28.2% in the first nine months of 2007. The taxexpense in the first nine months of 2008 is primarily the result of placing afull valuation allowance on the realization of the net deferred tax asset inthe Bushman Tanks reporting unit in Australia. Since the Company also has afull valuation allowance on the realization of the domestic net deferred taxasset, no tax expense or benefit is currently being recorded on the results ofoperations in the U.S.

 

**Comparisonof the Three Months Ended September 30, 2008 with the Three Months Ended September 30,2007**

 

***NetSales*.**Net sales in the third quarter of 2008 were $26.5million, a decrease of $7.3 million or 21.7% compared to the third quarter of2007. The decrease is due to lower demand for the Company’s products in both ofthe Company’s reporting segments.

 

Americas net sales were$17.7 million in the third quarter of 2008, a decrease of $0.5 million or 2.8%from the same period in 2007. The decrease was due primarily to a lower volumeof sales to the Company’s core telecom and cable customers. Sales to largetelecom and cable service providers fluctuate from period to period based onthe status of such customers’ infrastructure projects and therefore aredifficult to predict.

 

International net saleswere $8.8 million in the third quarter of 2008, a decrease of $6.8 million or43.4% from the same period in 2007. The lower sales volume was primarily aresult of a large decline in market demand for the Company’s water storagetanks due to unusually high levels of rainfall in Australia, less attractiveregulatory incentives and a general decline in the Australian economy.

 

Sales to Verizon of $6.4million in the third quarter of 2008 represented 24.2% of Company sales in theperiod. Sales to Verizon of $1.8 million in the third quarter of 2007represented 5.3% of Company sales in the period. Sales to Verizon are expectedto be a significant portion of the Company’s sales for the remainder of 2008.

 

***GrossProfit*.**Gross profit in the third quarter of 2008 was$7.8 million, a decrease of $2.3 million or 22.8% compared to the third quarterof 2007. The decrease was due to lower gross profit dollars resulting from thedecreased revenues in both of the Company’s reporting segments. Gross profitdollars in the Americas segment was $4.8 million in the third quarter of 2007and in the third quarter of 2008. Gross profit of $3.0 million in the thirdquarter of 2008 in the International segment was $2.3 million lower than in thecorresponding 2007 period.

 

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As a percentage of netsales, gross profit decreased from 30.0% in the third quarter of 2007 to 29.5%in the third quarter of 2008. The decrease is primarily due to the relativelygreater amount of sales in the Americas segment which have lower margins. Thegross profit percentage in the Americas segment increased from 26.4% in thethird quarter of 2007 to 27.2% in the third quarter of 2008. This increase isprimarily due to cost reduction efforts which more than offset an increase inraw material costs related to increased commodity prices and reduced absorption.The gross profit percentage in the International segment increased from 34.1%in the third quarter of 2007 to 34.2% in the third quarter of 2008. Thisincrease was primarily due to the cost reductions associated with the Company’srestructuring activities in Australia.

 

***Selling*.**Selling expenses were $4.1 million in the third quarter of 2008, a decreaseof $1.3 million or 23.5% from the third quarter of 2007. The decrease isprimarily a result of the lower revenues and thus lower freight expense as wellas cost reduction measures.

 

As a percentage of netsales, selling expenses decreased slightly from 15.9% in the third quarter of2007 to 15.5% in the corresponding 2008 period. The small decrease in totalselling expenses was roughly offset by the larger decrease in revenues.

 

***Generaland Administrative*.**General and administrative expenseswere $4.4 million in the third quarter of 2008, an increase of $1.0 million or28.8% from the third quarter of 2007. The increase was due to foreign currencytransaction losses of $1.3 million caused by an increase in the value of theU.S. dollar relative to certain other currencies, offset by cost reductionsassociated with the Company’s restructuring activities in Australia.

 

As a percentage of netsales, general and administrative expense increased from 10.2% in the thirdquarter of 2007 to 16.8% in the corresponding 2008 period as a result of theincrease in general and administrative expenses and the large decrease inrevenues.

 

***Researchand Development*.**Research and development expenses were$0.4 million in the third quarter of 2008, a decrease of $0.1 million or 11.5%from the third quarter of 2007.

 

As a percentage of netsales, research and development expenses increased from 1.3% in the thirdquarter of 2007 to 1.4% in the first quarter of 2008 as a result of decreasedrevenues.

 

***Impairmentof Goodwill and Other Intangibles*.**Intangible impairmentexpense was $8.2 million in the third quarter of 2008, compared to noimpairment in the corresponding 2007 period. The impairment was related to theCompany’s Bushman Tanks reporting unit in Australia. The Company recorded $7.2million impairment expense related to goodwill, $0.6 million related to thecarrying value of the non-compete agreement, and $0.4 million related to thecarrying value of the trademark intangible. The primary cause for thisimpairment was the continued decrease in revenue, gross margins and operatingincome in addition to the current market value of the Company’s common stock.

 

***RestructuringCharge.***The Company recorded $0.2 million ofrestructuring costs in the third quarter of 2008. Included in the costs were$0.1 million for severance in the Americas segment and $0.1 million forseverance in the International segment.

 

***Income(Loss) from Operations*.**As a result of the itemsdiscussed above, loss from operations was ($9.5) million in the third quarterof 2008 compared to income from operations of $0.9 million in the third quarterof 2007. Operating margin as a percent of sales was (35.9%) in the thirdquarter of 2008 compared to 2.6% in the corresponding 2007 period.

 

***InterestExpense, Net*.**Interest expense, net of interest income,was $0.4 million in the third quarter of 2008 and $0.3 million in the thirdquarter of 2007. The increase in interest expense is due to the higher level ofborrowing compared to the same period of the prior year along with higherinterest rates in the International segment.

 

***IncomeTaxes*.**There was an income tax benefit of $0.04 millionin the third quarter of 2008 compared to an income tax expense of $0.4 millionin the third quarter of 2007. The effective tax rate was 4.3% in the thirdquarter of 2008 and 73.9% in the third quarter of 2007. The tax benefit in thethird quarter of 2008 is primarily a result of the loss in the Company’sforeign operations excluding the Bushman Tanks reporting unit. Since theCompany has a full valuation allowance on the realization of the domestic andBushman Tanks reporting unit net deferred tax asset, no tax expense or benefitis currently being recorded on the results of operations in the U.S. and thoseof the Bushman Tanks reporting unit.

 

**Liquidityand Capital Resources**

 

Net cash provided byoperating activities was $0.1 million for the nine months ended September 30,2008, compared to net cash provided by operating activities of $0.4 million forthe nine months ended September 30, 2007. The cash provided by operatingactivities in the first nine months of 2008 was primarily due to the ($19.2)million net loss, offset by a net increase in cash of $1.9 million related tothe change in the operating assets and liabilities, mainly attributable to a$3.0 million increase in accounts payable, and by $17.5 million in non-cashdeductions which included $12.7 million of intangibles impairment expense, $1.2million related to the valuation allowance on the net deferred tax asset and$3.6 million of depreciation and amortization expense.

 

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Net cash used ininvesting activities was ($2.9) million for the nine months ended September 30,2008 and ($2.5) million for the nine months ended September 30, 2007. Proceedsfrom a sale-leaseback transaction of $1.3 million in 2008 were offset bypurchases of property and equipment of $3.8 million.

 

Net cash provided by(used in) financing activities was ($0.8) million for the nine months ended September 30,2008 compared to $1.9 million for the nine months ended September 30, 2007.This decrease was due to the Company’s reduced borrowings in 2008 relative to2007.

 

Cash and cash equivalentson September 30, 2008 were $0.7 million as compared to $2.1 million at December 31,2007.

 

Net accounts receivabledecreased to $12.1 million at September 30, 2008 from $12.8 million at December 31,2007 due to reduced sales in the Company’s International segment which havehigher levels of days sales outstanding. The Americas segment increased $0.7million while the International segment decreased $1.4 million. In terms ofdays sales outstanding, accounts receivable increased from 39 days at December 31,2007 to 41 days at September 30, 2008. The increase in days salesoutstanding is due to a higher percentage of sales occurring at the end of thethird quarter of 2008 as compared to the end of the fourth quarter of 2007.

 

Inventories increased to$15.9 million at September 30, 2008 from $15.8 million at December 31,2007 due to the higher volume of manufacturing activity at the end of the thirdquarter of 2008 compared to the fourth quarter of 2007 and increased costs forcertain raw materials. The Americas segment increased $1.9 million while theInternational segment decreased $1.8 million. Days inventory increased from 68days at December 31, 2007 to 77 days at September 30, 2008 as aresult of the higher inventory balances in the Americas segment and a salesdecline in the International segment that exceeded the decline in inventory.

 

Accounts payableincreased from $9.4 million at December 31, 2007 to $12.3 million at September 30,2008 due to the higher volume of activity at the end of the third quarter of2008. Days payables were 41 days at December 31, 2007 and 59 days at September 30,2008 due to working capital management.

 

Unusually high levels ofrainfall in parts of Australia, as well as less attractive regulatory incentivebeginning in the latter part of 2007 and continuing into 2008, resulted in adecline in market demand that resulted in materially lower 2008 revenues in theCompany’s Australian operations. As a result of the foregoing, in April 2008,Channell Bushman announced and undertook a restructuring plan. In connectionwith the restructuring plan, the headcount for the Company’s Australianoperations was reduced by approximately 33%, and severance costs ofapproximately $250 were incurred. In addition, the scale of operations wasreduced at three of Channell Bushman’s operating facilities.

 

In May 2008,Channell Bushman entered into an amendment to its Facility Agreement with anAustralian debt fund which, among other things, provides: (i) for paymentof $311 (AUD$338), by Channell Bushman to the lender to cure an event ofdefault that existed at March 31, 2008, as a result of having borrowedfunds in excess of those permitted by the borrowing base calculations of theFacility Agreement, (ii) that Channell Bushman must pay in full (withoutany prepayment or other fee) all amounts owing under the Facility Agreement nolater than October 26, 2008, (iii) for a financial covenant relatedto the ratio of the total loan principal outstanding under the FacilityAgreement to the total amount of Channell Bushman receivables, inventory andproperty and equipment, and in the event that such covenant is not maintainedas of each testing date for such covenant, a mandatory prepayment of the loansunder the Facility Agreement in the amounts specified therein, (iv) for awaiver, as of the date of the amendment and in the future, of (a) thefinancial covenants in section 9.13 of the Facility Agreement (which arereplaced in their entirety by the financial covenant described in subsection(iii)), (b) certain reporting requirements contained in the FacilityAgreement and (c) the repayment obligation in Section 5.1(b) ofthe Facility Agreement and (v) for a cancellation of the undrawn portionof the revolving credit facility under the Facility Agreement, with any furtheradvances thereunder subject to the consent of the Lender.

 

In October 2008,Channell Bushman entered into a further amendment to the Facility Agreementwhich, among other things, provides: (i) that Channell Bushman must pay infull (without any prepayment or other fee) all amounts owing under the FacilityAgreement no later than April 30, 2009, (ii) for the interest rate tobe 14% per annum for the remaining term of the agreement, (iii) for thewaiver of the financial covenant included in the May 2008 amendmentrelated to the ratio of the total loan principal outstanding under the FacilityAgreement to the total amount of Channell Bushman receivables, inventory andproperty and equipment, and (iv) for Channell Bushman to provide a letterof credit on January 31, 2009 for the amount equal to the differencebetween $328 (AUD$400) and the amount used for certain marketing-relatedactivities, to the extent that less than $328 (AUD$400) is used on such activities.If the Company is unable to refinance such debt it may have a significantimpact on the operations, liquidity and financial results of Channell Bushman.

 

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Management anticipatesthat the material reduction in revenues for the Channell Bushman operationswill continue over the near term. Management has undertaken variousrestructuring actions to address this issue, which have reduced operatinglosses in the second and third quarters of 2008, excluding intangibleimpairment charges. However, if the reduction in revenue continues for anextended period or management’s restructuring efforts do not sufficientlyimprove the operating results, Channell Bushman’s liquidity position will beadversely affected.

 

In an effort to furtherreduce costs and align headcount and facilities levels with expected revenuelevels, the Company incurred various restructuring costs in the U.S. related toworkforce reduction and facilities rationalization during the first nine monthsof 2008. During this period the Company’s U.S. revenues were below expectedrevenue levels due to overall economic conditions and, in particular, thedecline in new home construction. As a result of the further decline inrevenues, the Company has undertaken additional restructuring actions in thethird quarter of 2008 primarily related to reduction in workforce. In addition,the Company has also experienced increased costs for raw materials such asmetal and plastic resins. If the decline in U.S. revenue continues for anextended period, management’s restructuring efforts do not sufficiently improvethe operating results or the Company is unsuccessful in recovering increasedraw material costs by passing on incremental price increases to customers, theliquidity of the Company’s U.S. operations, including the ability to borrowunder the Company’s credit facilities, will be adversely affected.

 

Except as noted abovewith respect to Channell Bushman and the Company’s U.S. operations, the Companybelieves that cash flow from operations and the Company’s existing debtfacilities described in Note 11 should be sufficient to fund the Company’scapital expenditure and working capital requirements for the next twelvemonths.

 

**Off-Balance Sheet Arrangements**

 

The Company’s off-balancesheet arrangements consist of operating leases, employment contracts andpurchase obligations. In addition, the Company guaranteed the debt of theChannell Family Trust of approximately $754 in 1997. The guaranteed debt wasincurred in connection with construction of one of the facilities leased to theCompany and is collateralized by said facilities. The loan amount subject tothe unsecured guarantee is expected to decline before expiring in 2017. TheCompany does not anticipate that it will incur losses as a result of thisguarantee and has not recorded a liability for such guarantee. If the ChannellFamily Trust were to default on the outstanding loan balance, the Company mightbe required to repay the remaining principal balance. The maximum potentialamount the Company would be required to pay is equal to the outstandingprincipal and interest balance of the loan to the Channell Family Trust. At September 30,2008, the outstanding loan balance subject to the guarantee totaled $458.

 

**Critical Accounting Policies**

 

The Company’s discussionand analysis of its financial condition and results of operations are basedupon its consolidated financial statements, which have been prepared in accordancewith accounting principles generally accepted in the United States of America. Thepreparation of these financial statements requires the Company to makeestimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities.

 

The Company believes thatthe estimates, assumptions and judgments involved in the accounting policiesdescribed in the “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” section of its most recent Annual Report on Form 10-Khave the greatest potential impact on its financial statements, so it considersthese to be its critical accounting policies. Because of the uncertaintyinherent in these matters, actual results could differ from the estimates theCompany uses in applying the critical accounting policies. Certain of thesecritical accounting policies affect working capital account balances, includingthe policies for revenue recognition, the reserve for uncollectible accountsreceivable, inventory reserves, and income taxes. These policies require thatthe Company make estimates in the preparation of its financial statements as ofa given date.

 

Within the context ofthese critical accounting policies, the Company is not currently aware of anyreasonably likely events or circumstances that would result in materiallydifferent amounts being reported.

 

**Forward-Looking Statements**

 

Certain statementscontained herein are “forward-looking” statements within the meaning of thePrivate Securities Litigation Reform Act of 1995 (the “Act”), which providescertain “safe harbor” provisions for forward-looking statements. Allforward-looking statements made herein are made pursuant to the Act. Forward-lookingstatements include statements which are predictive in nature; which depend uponor refer to future events or conditions; or which include words such as “expects,”“anticipates,” “intends,” “plans,” “believes,” “estimates,” or variations ornegatives thereof or by similar or comparable words or phrases. In addition,any statement concerning future financial performance, ongoing businessstrategies or prospects, and possible future Company actions that may beprovided by management are also forward-looking statements as defined by theAct. Forward-looking statements are based on

 

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current expectations andprojections about future events and are subject to risks, uncertainties, andassumptions about the Company; and economic and market factors in the countriesin which the Company does business, among other things. These statements arenot guarantees of future performance, and the Company has no specificintentions to update these statements. Actual events and results may differmaterially from those expressed or forecasted in forward-looking statements dueto a number of factors including, among others: (1) the communicationsindustry is in a state of rapid technological change, which can render theCompany’s products obsolete or unmarketable; (2) any failure by theCompany to anticipate or respond to technological developments or changes inindustry standards or customer requirements, or any significant delays inproduct development or introduction, could have a material adverse effect onthe Company’s business, operating results and financial condition; (3) arelatively small number of telecommunications customers account for a largepercentage of the Company’s available market; (4) the Company expects thatsales to the telecommunications industry will continue to represent asubstantial portion of its total sales, and the demand for products within thisindustry depends primarily on capital spending by service providers; (5) theCompany’s cost of sales may be materially affected by increases in the marketprices of the raw materials used in the Company’s manufacturing processes; (6) theCompany’s water-related sales could be materially affected by weatherconditions and government regulation; (7) the Company is subject to therisks of conducting business internationally; and (8) the industries inwhich the Company operates are highly competitive. Additional risks anduncertainties are outlined in the Company’s filings with the Securities andExchange Commission, including its most recent Annual Report on Form 10-K.

 

**Item 3.****       Quantitativeand Qualitative Disclosures About Market Risk.**

 

The risk inherent in theCompany’s market sensitive instruments is the potential loss arising fromadverse changes in interest rates and foreign currency exchange rates. Allfinancial instruments held by the Company described below are held for purposesother than trading.

 

**Interest Rate Sensitivity**

 

The Company and itssubsidiaries have entered into three financing agreements.  In July 2007,the Company entered into a three-year Loan and Security Agreement with assetbased lenders in the United States and Canada that expires June 30,2010.  The agreement contains a term loan, revolving line of credit andcapital expenditure facility.  In October 2007, many of the Company’sAustralian subsidiaries entered into a Facility Agreement with a private debtfund in Australia, which contains a term loan and a revolving line of creditthat expire in April 2009.  In March 2008, two of the Company’s Australiansubsidiaries entered into a Loan and Security Agreement with a commercial bankin Australia, which contains two equipment financing facilities, performanceguarantees, credit card facilities and payroll processing facilities. Theseagreements allow for the outstanding balance to bear interest at a variablerate based on the lender’s base rate.  The credit facilities expose theCompany to changes in short-term interest rates since the interest rates on thecredit facility are variable.

 

Based upon the amount ofvariable rate debt outstanding at the end of the quarter, and holding thevariable rate debt balance constant, each one percentage point increase ininterest rates occurring on the second day of a quarterly period would resultin an increase in interest expense of approximately $24 per quarter. Thisanalysis does not consider the effects of economic activity on the Company’ssales and profitability in such an environment.

 

**Exchange Rate Sensitivity**

 

The Company has assetsand liabilities outside the United States that are subject to fluctuations inforeign currency exchange rates. Assets and liabilities outside the UnitedStates are primarily located in the United Kingdom, Australia, and Canada. TheCompany’s investment in foreign subsidiaries with a functional currency otherthan the U.S. dollar is generally considered long-term. Accordingly, theCompany does not hedge these investments. The Company also purchases a limitedportion of its raw materials from foreign countries. These purchases aregenerally denominated in U.S. dollars and are accordingly not subject toexchange rate fluctuations. The Company has minimal foreign currencytransaction gains or losses. The Company has not engaged in forward purchasesof foreign currency and other similar contracts to reduce its economic exposureto changes in exchange rates because the associated risk is not consideredsignificant.

 

20

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**Item 4T.****            Controlsand Procedures.**

 

**Evaluationof Disclosure Controls and Procedures**

 

The Company maintainsdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities and Exchange Act of 1934 (the “Exchange Act”))that are designed to ensure that information required to be disclosed in theCompany’s Exchange Act reports is recorded, processed, summarized, and reportedwithin the time periods specified in the rules and forms of the Securitiesand Exchange Commission regulations, and that such information is accumulatedand communicated to the Company’s management, including its Chief ExecutiveOfficer and Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure.  As of March 31, 2008, the managementof the Company carried out an assessment of the Company’s disclosure controlsand procedures and concluded that they were not effective as of the end of theperiod covered by this report.

 

One of the Company’ssubsidiaries, Bushman Tanks, was previously a closely-held, family run businesswith mostly manual controls in place.  During the process of assessing thestatus of the internal control infrastructure, the Company previouslyidentified significant deficiencies in internal controls that rose to the levelof “material weaknesses” in financial closing cycle.

 

As a result of theweaknesses identified in management’s evaluation, the Company committed to:

 

1.              Design/implementand document control procedures adequate to support the Company’s day-to-dayaccounting and the financial closing and reporting process.

 

2.              Strengthencontrols and procedures to require formal reviews and sign-offs evidencingreview and approval of each journal entry, account reconciliation andaccounting analysis by an individual at a more senior level who possesses therequisite skills and is independent of the preparation of the entry orreconciliation.

 

Therefore, remediation ofthe material weaknesses in financial closing, revenue and purchasing cycles isnot yet complete.

 

**Changesin Internal Control Over Financial Reporting**

 

There has been no changein the Company’s internal control over financial reporting that occurred in thequarterly period covered by this report that has materially affected, or isreasonably likely to materially affect, the Company’s internal control over financialreporting.

 

**PART II - OTHER INFORMATION**

 

**Item 1.****                    LegalProceedings.**

 

The Company is from timeto time involved in ordinary routine litigation incidental to the conduct ofits business. The Company regularly reviews all pending litigation matters in whichit is involved and establishes reserves deemed appropriate for such litigationmatters. Management believes that no presently pending litigation matters arelikely to have a material adverse effect on the Company’s financial statementsor results of operations, taken as a whole.

 

**Item 1A.****           RiskFactors.**

 

Not applicable.

 

**Item 2.****                    UnregisteredSales of Equity Securities and Use of Proceeds**.

 

Not applicable.

 

**Item 3.****                    DefaultsUpon Senior Securities.**

 

Not applicable.

 

**Item 4.****                    Submissionof Matters to a Vote of Security Holders.**

 

Not applicable.

 

**Item 5.****                    OtherInformation.**

 

Not applicable.

 

21

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**Item 6.****                    Exhibits.**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.1                 |       | Restated  Certificate of Incorporation of the Company (Exhibit 3.1)(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.2                 |       | Bylaws of the  Company, as amended as of December 17, 2007 (32)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4                   |       | Form of  Common Stock Certificate (Exhibit 4)(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.1                |       | Tax Agreement  between the Company and the Existing Stockholders (Exhibit 10.1)(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.2*               |       | Channell Commercial  Corporation 1996 Incentive Stock Plan (including forms of Stock Option  Agreements and Restricted Stock Agreement) (Exhibit 10.2)(1)                                                                                                                                                                                                                                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.3*               |       | Channell  Commercial Corporation 2003 Incentive Stock Plan (including forms of Stock  Option Agreement and Restricted Stock Agreement)(6)                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.4*               |       | Channell  Commercial Corporation 2004 Incentive Bonus Plan(8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.5                |       | Loan and  Security Agreement dated as of September 25, 2002 by and among the  Company, Channell Commercial Canada Inc., Fleet Capital Corporation, Fleet  Capital Canada Corporation and, under the circumstances set forth therein,  Fleet National Bank, London U.K. Branch, trading as Fleet Boston Financial,  and the U.K. Borrowers (as defined therein, if any) (Exhibit 99)(5)                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.6                |       | Investment and Shareholders  Agreement dated August 2, 2004 by and among Channell Bushman Pty Ltd and  Australia and New Zealand Banking Group Ltd. (Exhibit 10.3.4)(10)                                                                                                                                                                                                                                                                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.7*               |       | Employment  Agreement dated July 8, 1996 between the Company and William H.  Channell, Sr. (Exhibit 10.8)(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.8*               |       | Channell Commercial Corporation 1996  Performance-Based Annual Incentive Compensation Plan (Exhibit 10.10)(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.9                |       | Lease dated December 22, 1989 between the  Company and the Channell Family Trust (as successor in interest to William H.  Channell, Sr.), as amended (Exhibit 10.11)(1)                                                                                                                                                                                                                                                                                                                                                                                      |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.10               |       | Lease dated May 29, 1996 between the Company  and the Channell Family Trust (Exhibit 10.12)(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.11               |       | Third Amendment to Lease dated December 22,  1989 between the Company and the Channell Family Trust (as successor in  interest to William H. Channell, Sr.), effective as of June 1, 2005  (Exhibit 99.1)(11)                                                                                                                                                                                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.12               |       | Form of Indemnity Agreement  (Exhibit 10.17)(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.13               |       | Form of Agreement Regarding Intellectual  Property (Exhibit 10.18)(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.14               |       | 401(k) Plan of the Company  (Exhibit 10.19)(3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.15               |       | A.C. Egerton (Holdings) PLC Share Purchase Agreement  (Exhibit 2)(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.16               |       | Lease dated June 27, 2002 between the Company  and Ynez Street, Ltd. (Exhibit 10.29)(4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.17*              |       | Amendment to Employment Agreement dated  December 9, 2003 between the Company and William H. Channell, Sr.  (Exhibit 10.19)(7)                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.18*              |       | Employment Agreement dated December 9, 2003  between the Company and William H. Channell, Jr. (Exhibit 10.20)(7)                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.19               |       | Share and Asset Purchase Agreement dated as of  July 14, 2004 by and among Australia’s Bushman Tanks Pty Ltd, Douglas  Robin Young, Richard James Young, Lokan Nominees Pty Ltd and Lenbridge Grange  Pty Ltd, Belsiasun Pty Ltd and Elcarva Pty Ltd, the holders of all the  outstanding shares of Bushmans Group Pty Ltd, Hold-On Industries Australia  Pty Ltd, Australian Bushman Tanks Pty Ltd, and Polyrib Tanks Pty Ltd, on the  one hand, and Channell Commercial Corporation and Channell Bushman Pty  Limited, on the other hand (Exhibit 99.2)(9) |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.20*              |       | Employment Letter dated June 27, 2005 between  the Company and Jerry Collazo (Exhibit 99.2)(12)                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.21*              |       | Long-Term Incentive Plan for William H.  Channell, Jr. (Exhibit 10.1)(13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.22               |       | Waiver and Third Amendment to Loan and Security  Agreement dated as of November 18, 2005 by and among the Company,  Channell Commercial Canada Inc., Channell Limited, Channell Commercial Europe  Limited, Bank of America, N.A., BABC Global Finance Inc., Bank of America,  N.A., and the lenders party to the Loan and Security Agreement dated as of  September 25, 2002 (as amended) (Exhibit 10.25)(14)                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.23               |       | Assignment and Assumption Agreement dated  November 18, 2005 by and between Banc of America Leasing and Capital,  LLC and Bank of America, N.A. (relating to U.S. Loan and Security Agreement)  (Exhibit 10.26)(14)                                                                                                                                                                                                                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.24               |       | Waiver and Fourth Amendment to Loan and Security  Agreement dated as of February 28, 2006 by and among the Company, Bank  of America, N.A., BABC Global Finance Inc., Bank of America, N.A. and the  lenders party to the Loan and Security Agreement dated as of  September 25, 2002 (as amended) (Exhibit 10.1)(15)                                                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.25               |       | Lease dated July 13, 2006 between Channell Pty  Ltd and Ing Management Ltd (Exhibit 10.32)(16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

22

----

 
| 10.26* |   | Employment Letter dated August 31, 2006 between  the Company and Patrick E. McCready (Exhibit 10.1)(17)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.27  |   | Loan and Security Agreement dated August 11,  2006 and effective August 25, 2006, by and among Channell Bushman Pty  Ltd, Bushmans Group Pty Ltd, certain other subsidiaries of the Company, and  National Australia Bank Ltd (Exhibit 10.1)(18)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.28  |   | Loan and Security Agreement dated November 8,  2006 and effective November 15, 2006, by and among Channell Bushman Pty  Ltd, Bushmans Group Pty Ltd, certain other subsidiaries of the Company, and  National Australia Bank Ltd (Exhibit 10.1)(19)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.29  |   | Loan and Security Agreement dated February 2,  2007 and effective February 7, 2007 by and among Channell Bushman Pty  Ltd, Bushmans Group Pty Ltd, certain other subsidiaries of the Company, and  National Australia Bank Ltd (Exhibit 10.1) (20)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.30  |   | Waiver and Fifth Amendment to Loan and Security  Agreement dated as of February 12, 2007 by and among the Company and the  other borrowers thereunder, Bank of America, N.A., BABC Global Finance Inc.,  Bank of America, N.A. and the lenders party to the Loan and Security  Agreement dated as of September 25, 2002 (as amended)  (Exhibit 10.1)(21)                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.31  |   | Sixth Amendment to Loan and Security Agreement dated  as of April 2, 2007 by and among the Company and the other borrowers  thereunder, Bank of America, N.A., BABC Global Finance Inc., Bank of America,  N.A. and the lenders party to the Loan and Security Agreement dated as of  September 25, 2002 (as amended)(Exhibit 10.37)(23)                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.32  |   | Loan and Security Agreement dated  May 16, 2007, by and among Channell Bushman Pty Ltd, Bushmans Group Pty  Ltd, certain other subsidiaries of the Company, and National Australia Bank  Ltd (Exhibit 10.1)(24)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.33  |   | Seventh Amendment to Loan and Security Agreement,  dated as of June 26, 2007, by and among the Company, Channell Commercial  Canada Inc., Channell Limited, Channell Commercial Europe Limited, Bank of  America, N.A. (as assignee of Banc of America Leasing and Capital, LLC,  successor-in-interest to Fleet Capital Corporation), as administrative agent,  BABC Global Finance Inc. (as assignee of Fleet Capital Global  Finance, Inc., as assignee of Fleet Capital Canada Corporation), as  Canadian agent, Bank of America, N.A. (as successor-in-interest to Fleet  National Bank, London U.K. Branch), as UK agent, and the lenders party to the  Loan and Security Agreement dated as of September 25, 2002 (as amended)  (Exhibit 10.1)(25) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.34  |   | Amendment to Loan and Security Agreement dated July 24, 2007, and  effective July 25, 2007, by and among Channell Bushman Pty Ltd, Bushmans  Group Pty Ltd, certain other subsidiaries of the Company, and National  Australia Bank Ltd (Exhibit 10.1)(26)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.35  |   | Amended and Restated Loan and Security Agreement dated July 30,  2007, by and among Bank of America, N.A., Bank of America, Canada Branch, the  Company and Channell Commercial Canada Inc. (Exhibit 10.1)(27)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.36  |   | Amendment to Loan and Security Agreement dated August 27, 2007, and  effective August 28, 2007, by and among Channell Bushman Pty Ltd,  Bushmans Group Pty Ltd, certain other subsidiaries of the Company, and  National Australia Bank Ltd (Exhibit 10.1)(28)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.37  |   | Letter dated September 28, 2007 from National Australia Bank Ltd to  Channell Bushman Pty Ltd, Bushmans Group Pty Ltd and certain other  subsidiaries of the Company (Exhibit 10.1)(29)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.38  |   | Facility  Agreement dated October 3, 2007, by and among Channell Bushman Pty  Limited, Bushmans Group Pty Limited, Australian Bushman Tanks Pty Limited,  Bushmans Engineering Pty Limited, Polyrib Tanks Pty Limited and Australian  Executor Trustees Limited as custodian for the Causeway Australasian Private  Debt Opportunities Fund (Exhibit 10.1)(30)                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.39  |   | Fixed and Floating Charge (Incorporating an Equitable Mortgage of Shares)  dated October 3, 2007, by and among Channell Bushman Pty Limited,  Bushmans Group Pty Limited, Australian Bushman Tanks Pty Limited, Bushmans  Engineering Pty Limited, Polyrib Tanks Pty Limited and Australian Executor  Trustees Limited as custodian for the Causeway Australasian Private Debt  Opportunities Fund (Exhibit 10.2)(30)                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.40  |   | Loan and Security Agreement dated October 8, 2007, and effective  October 9, 2007, by and among Channell Pty Limited, Bushmans Group Pty  Limited and National Australia Bank Limited (Exhibit 10.3)(30)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

23

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| 10.41  |   | Lease dated September 13, 2007 between the Company, on the one hand,  and William H. Channell, Jr. and Carolyn Channell, on the other hand  (Exhibit 10.47)(31)                                                                                                                             |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                       |
| 10.42  |   | Amendment No. 2 to Lease dated May 1996 between the Company and  the Channell Family Trust, dated as of November 12,  2007(Exhibit 10.48)(31)                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                       |
| 10.43  |   | First Amendment to Amended and Restated Loan and Security Agreement,  dated as of November 27, 2007, by and among Bank of America, N.A., Bank  of America, Canada Branch, the Company and Channell Commercial Canada  Inc.(32)                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                       |
| 10.44* |   | Employment Letter dated October 23, 2007  between the Company and Christopher Glenn(32)                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                       |
| 10.45* |   | Employment Letter dated February 5, 2008  between the Company and Robert Swelgin(32)                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                       |
| 10.46  |   | Business  Finance Agreement effective March 12, 2008 between Channell Pty Limited  and Westpac Banking Corporation(32)                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                       |
| 10.47  |   | Business Finance Agreement effective March 12,  2008 between Bushman Group Pty Limited and Westpac Banking Corporation(32)                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                       |
| 10.48  |   | Amendment to Facility Agreement effective  May 2, 2008, by and among Channell Bushman Pty Ltd, certain subsidiaries  of Channell Bushman Pty Ltd, and Australian Executor Trustees Limited, as  custodian for the Causeway Australasian Private Debt Opportunities Fund  (Exhibit 10.1)(33)      |
|   |   |                                                                                                                                                                                                                                                                                                       |
| 10.49* |   | Amended and Restated Employment Agreement, dated as  of June 1, 2008, by and between Channell Commercial Corporation and  William H. Channell, Jr. (Exhibit 99.1)(34)                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                       |
| 10.50  |   | Amendment to Facility Agreement effective  October 24, 2008, by and among Channell Bushman Pty Ltd, certain  subsidiaries of Channell Bushman Pty Ltd, and Australian Executor Trustees  Limited, as custodian for the Causeway Australasian Private Debt  Opportunities Fund (Exhibit 10.1)(35) |
|   |   |                                                                                                                                                                                                                                                                                                       |
| 10.51* |   | Employment Agreement dated as of November 1,  2008, by and between Channell Commercial Corporation and Guy Marge  (Exhibit 99.1) (36)                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                       |
| 14     |   | Channell Commercial Corporation Code of Business  Conduct and Ethics (Exhibit 14)(7)                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                       |
| 18     |   | Letter dated March 30, 2007 from  Deloitte & Touche LLP, regarding change in Accounting Principle  (Exhibit 18.2) (22)                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                       |
| 31.1   |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a)/Rule 15d-14(a) under the Securities and  Exchange Act of 1934(37)                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                       |
| 31.2   |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a)/Rule 15d-14(a) under the Securities and  Exchange Act of 1934(37)                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                       |
| 32.1   |   | Certification pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 906 of the Sarbanes-  Oxley Act of 2002 by William H. Channell, Jr., CEO and Patrick E.  McCready, CFO(37)                                                                                                 |

 

----

* Management contract or compensatory plan orarrangement.

 
| (1)    |   | Incorporated by reference to the indicated exhibits  filed in connection with the Company’s Registration Statement on Form S-1  (File No. 333-03621). |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                 |
| (2)    |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on May 18, 1998.                                |
|   |   |                                                                                                                                                                 |
| (3)    |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 10-K on March 31, 1999.                             |
|   |   |                                                                                                                                                                 |
| (4)    |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 10-Q on August 12, 2002.                            |
|   |   |                                                                                                                                                                 |
| (5)    |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on October 1, 2002.                             |
|   |   |                                                                                                                                                                 |
| (6)    |   | Incorporated by reference  to Appendix B filed in connection with the Company’s Definitive Proxy  Statement on March 26, 2003.                             |
|   |   |                                                                                                                                                                 |
| (7)    |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 10-K on March 5, 2004.                              |
|   |   |                                                                                                                                                                 |
| (8)    |   | Incorporated by reference  to Appendix B filed in connection with the Company’s Definitive Proxy  Statement on April 16, 2004.                             |
|   |   |                                                                                                                                                                 |
| (9)    |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on August 6, 2004.                              |
|   |   |                                                                                                                                                                 |
| (10)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 10-Q on November 15, 2004.                          |

 

24

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| (11)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on June 15, 2005.      |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                        |
| (12)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on June 28, 2005.      |
|   |   |                                                                                                                                        |
| (13)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on September 9, 2005.  |
|   |   |                                                                                                                                        |
| (14)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 10-Q on November 21, 2005. |
|   |   |                                                                                                                                        |
| (15)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on March 6, 2006.      |
|   |   |                                                                                                                                        |
| (16)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 10-Q on August 17, 2006.   |
|   |   |                                                                                                                                        |
| (17)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on September 8, 2006.  |
|   |   |                                                                                                                                        |
| (18)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on September 21, 2006. |
|   |   |                                                                                                                                        |
| (19)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on November 17, 2006.  |
|   |   |                                                                                                                                        |
| (20)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on February 8, 2007.   |
|   |   |                                                                                                                                        |
| (21)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on February 15, 2007.  |
|   |   |                                                                                                                                        |
| (22)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 10-K on April 2, 2007.     |
|   |   |                                                                                                                                        |
| (23)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 10-Q on May 15, 2007.      |
|   |   |                                                                                                                                        |
| (24)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on May 18, 2007.       |
|   |   |                                                                                                                                        |
| (25)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on June 29, 2007.      |
|   |   |                                                                                                                                        |
| (26)   |   | Incorporated by reference to the  indicated exhibits filed in connection with the Company’s Form 8-K on  July 31, 2007.      |
|   |   |                                                                                                                                        |
| (27)   |   | Incorporated by reference to the  indicated exhibits filed in connection with the Company’s Form 8-K on  August 3, 2007.     |
|   |   |                                                                                                                                        |
| (28)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on September 4, 2007.  |
|   |   |                                                                                                                                        |
| (29)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on October 4, 2007.    |
|   |   |                                                                                                                                        |
| (30)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on October 10, 2007.   |
|   |   |                                                                                                                                        |
| (31)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 10-Q on November 14, 2007. |
|   |   |                                                                                                                                        |
| (32)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 10-K on March 28, 2008.    |
|   |   |                                                                                                                                        |
| (33)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on May 8, 2008.        |
|   |   |                                                                                                                                        |
| (34)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on June 6, 2008.       |
|   |   |                                                                                                                                        |
| (35)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on October 30, 2008.   |
|   |   |                                                                                                                                        |
| (36)   |   | Incorporated by reference  to the indicated exhibits filed in connection with the Company’s  Form 8-K on November 12, 2008.  |
|   |   |                                                                                                                                        |
| (37)   |   | Filed herewith.                                                                                                                             |

 

25

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SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
| Dated:  November 14,  2008 | CHANNELL  COMMERCIAL CORPORATION                  |
|--------------------------------------|---------------------------------------------------|
|                                 | (Registrant)                                      |
|                                 |                                              |
|                                 |                                              |
|                                 | By:                                               |   / s/ Patrick E. McCready |
|                                 | Patrick E.  McCready                              |
|                                 | Chief Financial  Officer                          |
|                                 | (Duly authorized  officer and principal financial |
|                                 | officer of the  Registrant)                       |

 

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