**UNITEDSTATES**

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

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**x****                             ****QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended June 30, 2008**

 

**OR**

 

**o****                                ****TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition 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 August 11, 2008.

 

 

 

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**PART 1 - FINANCIAL INFORMATION**

 

**Item 1.****           Financial Statements.**

 

CHANNELL COMMERCIALCORPORATION AND SUBSIDIARIES

CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME(LOSS)

(UNAUDITED)

*(amountsin thousands, except per share data)*

* *
| ** **                                      | ** ** | **Six months ended June 30,** | ** ** | **Three months ended June 30,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                      | ** ** | **2008**                                          | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                            |       |                                              |       |                                                |       |   |   |   |   |
| Net sales                                       |       | $                                                 | 52,109     |                                                | $          | 69,575 |   | $ | 26,950 |   | $ | 36,722 |   |
| Cost of goods  sold                             |       | 36,636                                            |       | 47,674                                              |       | 18,848 |   | 24,795 |   |
| Gross profit                                    |       | 15,473                                            |       | 21,901                                              |       | 8,102 |   | 11,927 |   |
|                                            |       |                                              |       |                                                |       |   |   |   |   |
| Operating  expenses                             |       |                                              |       |                                                |       |   |   |   |   |
| Selling                                         |       | 9,913                                             |       | 11,470                                              |       | 4,933 |   | 6,224 |   |
| General and  administrative                     |       | 7,252                                             |       | 8,074                                               |       | 3,781 |   | 3,851 |   |
| Research and  development                       |       | 772                                               |       | 915                                                 |       | 381 |   | 486 |   |
| Impairment of  goodwill and other intangibles   |       | 3,973                                             |       | —                                              |       | 3,973 |   | — |   |
| Restructuring  charge                           |       | 975                                               |       | —                                              |       | 570 |   | — |   |
|                                            |       | 22,885                                            |       | 20,459                                              |       | 13,638 |   | 10,561 |   |
|                                            |       |                                              |       |                                                |       |   |   |   |   |
| Income (loss)  from operations                  |       | (7,412                                            | )          | 1,442                                               |       | (5,536 | ) | 1,366 |   |
| Interest income                                 |       | 21                                                |       | 21                                                  |       | 5 |   | 8 |   |
| Interest expense                                |       | (996                                              | )          | (483                                                | )          | (510 | ) | (298 | ) |
| Income (loss)  before income tax expense        |       | (8,387                                            | )          | 980                                                 |       | (6,041 | ) | 1,076 |   |
|                                            |       |                                              |       |                                                |       |   |   |   |   |
| Income tax  expense                             |       | 1,716                                             |       | 20                                                  |       | 2,180 |   | 166 |   |
| Net income  (loss) before minority interest     |       | (10,103                                           | )          | 960                                                 |       | (8,221 | ) | 910 |   |
| Minority  interest in loss of subsidiaries      |       | (476                                              | )          | (86                                                 | )          | (200 | ) | (21 | ) |
| Net income  (loss)                              |       | $                                                 | (9,627     | )                                                   | $          | 1,046 |   | $ | (8,021 | ) | $ | 931 |   |
|                                            |       |                                              |       |                                                |       |   |   |   |   |
| Net income  (loss) per share, basic and diluted |       | $                                                 | (1.01      | )                                                   | $          | 0.11 |   | $ | (0.84 | ) | $ | 0.10 |   |
|                                            |       |                                              |       |                                                |       |   |   |   |   |
| Net income  (loss)                              |       | $                                                 | (9,627     | )                                                   | $          | 1,046 |   | $ | (8,021 | ) | $ | 931 |   |
| Other  comprehensive income, net of tax         |       |                                              |       |                                                |       |   |   |   |   |
| Foreign currency  translation adjustment        |       | 687                                               |       | 819                                                 |       | 215 |   | 422 |   |
|                                            |       |                                              |       |                                                |       |   |   |   |   |
| Comprehensive  income (loss)                    |       | $                                                 | (8,940     | )                                                   | $          | 1,865 |   | $ | (7,806 | ) | $ | 1,353 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

2

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CHANNELLCOMMERCIAL CORPORATION AND SUBSIDIARIES

CONDENSEDCONSOLIDATED BALANCE SHEETS

(UNAUDITED)

*(amountsin thousands, except per share data)*

* *
| ** **                                                                                                                                                                                                                | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| ASSETS                                                                                                                                                                                                                    |       |              |       |                  |       |
| Current assets                                                                                                                                                                                                            |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                                |       | $                 | 1,360      |                  | $          | 1,825 |   |
| Restricted cash                                                                                                                                                                                                           |       | —            |       | 282                   |       |
| Accounts  receivable, net of allowance for doubtful accounts of $215 at June 30,  2008 and $281 at December 31, 2007                                                                                            |       | 12,907            |       | 12,807                |       |
| Inventories, net                                                                                                                                                                                                          |       | 16,711            |       | 15,763                |       |
| Prepaid expenses  and other current assets                                                                                                                                                                                |       | 1,084             |       | 1,436                 |       |
| Deferred income  taxes, net                                                                                                                                                                                               |       | 247               |       | 936                   |       |
| Total current assets                                                                                                                                                                                                      |       | 32,309            |       | 33,049                |       |
|                                                                                                                                                                                                                      |       |              |       |                  |       |
| Property and  equipment, net                                                                                                                                                                                              |       | 19,166            |       | 19,036                |       |
| Deferred income  taxes, net                                                                                                                                                                                               |       | —            |       | 642                   |       |
| Goodwill                                                                                                                                                                                                                  |       | 8,422             |       | 10,998                |       |
| Intangible  assets, net                                                                                                                                                                                                   |       | 1,068             |       | 2,128                 |       |
| Other assets                                                                                                                                                                                                              |       | 805               |       | 994                   |       |
|                                                                                                                                                                                                                      |       | $                 | 61,770     |                  | $          | 66,847 |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                 |       |              |       |                  |       |
|                                                                                                                                                                                                                      |       |              |       |                  |       |
| Current  liabilities                                                                                                                                                                                                      |       |              |       |                  |       |
| Accounts payable                                                                                                                                                                                                          |       | $                 | 13,360     |                  | $          | 9,447 |   |
| Short-term debt  (including current maturities of long-term debt)                                                                                                                                                         |       | 14,997            |       | 10,335                |       |
| Current  maturities of capital lease obligations                                                                                                                                                                          |       | 449               |       | 153                   |       |
| Income taxes  payable                                                                                                                                                                                                     |       | 402               |       | 178                   |       |
| Accrued expenses                                                                                                                                                                                                          |       | 5,689             |       | 5,444                 |       |
| Total current  liabilities                                                                                                                                                                                                |       | 34,897            |       | 25,557                |       |
|                                                                                                                                                                                                                      |       |              |       |                  |       |
| Long-term debt  less current maturities                                                                                                                                                                                   |       | 2,725             |       | 7,467                 |       |
| Capital lease  obligations, less current maturities                                                                                                                                                                       |       | 495               |       | 198                   |       |
| Deferred income  taxes                                                                                                                                                                                                    |       | 71                |       | —                |       |
| Other long-term  liabilities                                                                                                                                                                                              |       | 742               |       | 906                   |       |
| Total liabilities                                                                                                                                                                                                         |       | 38,930            |       | 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  June 30, 2008 and December 31, 2007   outstanding - 9,544 shares at June 30, 2008 and December 31,  2007 |       | 98                |       | 98                    |       |
| Additional  paid-in capital                                                                                                                                                                                               |       | 31,226            |       | 31,210                |       |
| Treasury stock -  244 shares at June 30, 2008 and December 31, 2007                                                                                                                                             |       | (1,871            | )          | (1,871                | )          |
| Retained  earnings (accumulated deficit)                                                                                                                                                                                  |       | (9,514            | )          | 113                   |       |
| Accumulated  other comprehensive income -                                                                                                                                                                                 |       |              |       |                  |       |
| Foreign currency  translation                                                                                                                                                                                             |       | 2,901             |       | 2,214                 |       |
| Total stockholders’  equity                                                                                                                                                                                          |       | 22,840            |       | 31,764                |       |
|                                                                                                                                                                                                                      |       | $                 | 61,770     |                  | $          | 66,847 |   |

 

The accompanying notesare an integral part of these financial statements.

 

3

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CHANNELLCOMMERCIAL CORPORATION AND SUBSIDIARIES

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

*(amountsin thousands)*

* *
| ** **                                                                                                        | ** ** | **Six months ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                        | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
|                                                                                                              |       |                                              |       |   |   |
| Cash flows from  operating activities:                                                                            |       |                                              |       |   |   |
| Net income  (loss)                                                                                                |       | $                                                 | (9,627     | ) | $ | 1,046 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities:              |       |                                              |       |   |   |
| Depreciation and  amortization                                                                                    |       | 2,453                                             |       | 2,552 |   |
| Stock-based  compensation                                                                                         |       | 16                                                |       | 121 |   |
| Loss (gain) on  disposal of fixed assets                                                                          |       | (31                                               | )          | 31 |   |
| Amortization of  deferred gain on sale leaseback                                                                  |       | (30                                               | )          | (30 | ) |
| Impairment of  goodwill and other intangibles                                                                     |       | 3,973                                             |       | — |   |
| Deferred income  tax valuation adjustment                                                                         |       | 1,494                                             |       | — |   |
| Provision for  doubtful accounts                                                                                  |       | 178                                               |       | 29 |   |
| Provision for  inventory obsolescence                                                                             |       | 228                                               |       | 179 |   |
| Minority  interest in loss of subsidiaries                                                                        |       | (476                                              | )          | (86 | ) |
| Changes in  operating assets and liabilities:                                                                     |       |                                              |       |   |   |
| Accounts  receivable                                                                                              |       | 162                                               |       | (5,303 | ) |
| Inventories                                                                                                       |       | (483                                              | )          | (4,816 | ) |
| Prepaid expenses  and other current assets                                                                        |       | 405                                               |       | 135 |   |
| Other assets                                                                                                      |       | 230                                               |       | (65 | ) |
| Accounts payable                                                                                                  |       | 3,268                                             |       | 3,086 |   |
| Accrued expenses  and other liabilities                                                                           |       | (160                                              | )          | 1,025 |   |
| Income taxes  payable                                                                                             |       | 204                                               |       | 592 |   |
| Net cash  provided by (used in) operating activities                                                              |       | 1,804                                             |       | (1,504 | ) |
|                                                                                                              |       |                                              |       |   |   |
| Cash flows from  investing activities:                                                                            |       |                                              |       |   |   |
| Purchase of  property and equipment                                                                               |       | (3,023                                            | )          | (1,760 | ) |
| Proceeds from  sale of property and equipment                                                                     |       | 1,374                                             |       | 83 |   |
| Acquisition of  minority interest                                                                                 |       | (9                                                | )          | — |   |
| Net cash used in  investing actitivities                                                                          |       | (1,658                                            | )          | (1,677 | ) |
|                                                                                                              |       |                                              |       |   |   |
| Cash flows from  financing activities:                                                                            |       |                                              |       |   |   |
| Repayment of  debt                                                                                                |       | (2,613                                            | )          | (1,664 | ) |
| Borrowings from  credit facilities                                                                                |       | 1,649                                             |       | 3,640 |   |
| Borrowings  (repayment) of obligations under capital lease, net                                                   |       | 538                                               |       | (34 | ) |
| Net cash  provided by (used in) financing activities                                                              |       | (426                                              | )          | 1,942 |   |
|                                                                                                              |       |                                              |       |   |   |
| Effect of exchange  rates on cash                                                                                 |       | (467                                              | )          | (395 | ) |
| Decrease in cash  and cash equivalents                                                                            |       | (747                                              | )          | (1,634 | ) |
| Cash and cash  equivalents, beginning of period                                                                   |       | 2,107                                             |       | 2,235 |   |
| Cash and cash  equivalents, end of period                                                                         |       | $                                                 | 1,360      |   | $ | 601 |   |
| Cash paid during  the period for:                                                                                 |       |                                              |       |   |   |
| Interest                                                                                                          |       | $                                                 | 1,032      |   | $ | 521 |   |
| Income taxes                                                                                                      |       | $                                                 | 37         |   | $ | 13 |   |
| Non-cash  investing activities:                                                                                   |       |                                              |       |   |   |
| Purchases of  property and equipment which are included in obligations under capital leases  and accounts payable |       | $                                                 | 161        |   | $ | 199 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

4

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CHANNELLCOMMERCIAL CORPORATION AND SUBSIDIARIES

CONDENSEDCONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Six months ended June 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 |       | —                |       | —      |       | —                  |       | —           |       | —            |       | —                 |       | 687             |       | 687        |       |
|                          |       |                  |       |        |       |                    |       |             |       |              |       |                   |       |            |       |       |       |
| Net loss for the  period      |       | —                |       | —      |       | —                  |       | —           |       | —            |       | (9,627                 | )          | —          |       | (9,627     | )          |
|                          |       |                  |       |        |       |                    |       |             |       |              |       |                   |       |            |       |       |       |
| Balance, June  30, 2008       |       | 9,788                 |       | $           | 98         |                    | $          | 31,226           |       | 244               |       | $                      | (1,871     | )               | $          | (9,514     | )          | $ | 2,901 |   | $ | 22,840 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

5

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CHANNELLCOMMERCIAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIALSTATEMENTS

*(amounts inthousands, except per share data)*

 

**1.****              *Unaudited financial statements.**** *In the opinion of management, theaccompanying unaudited condensed consolidated financial statements contain alladjustments (consisting only of normal, recurring adjustments) that arenecessary to present fairly the consolidated financial position of ChannellCommercial Corporation (the “Company”) as of June 30, 2008 and the resultsof its operations for the three months and six months ended June 30, 2008and 2007 and cash flows for the six months ended June 30, 2008 and2007.  The results of operations for thethree months and six months ended June 30, 2008, and cash flows for thesix months ended June 30, 2008 are not necessarily indicative of theresults to be expected for any other interim period or the full year.  These unaudited condensed consolidatedfinancial statements should be read in combination with the Company’s auditedconsolidated financial statements and notes thereto for the year ended December 31,2007, included in the Company’s Annual Report on Form 10-K for the yearended December 31, 2007.

 

***Recent Accounting 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 FinancialStatements — an amendment of Accounting Research Bulletin (“ARB”) No. 51*,which establishes 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.

 

**2.****              *Stock-BasedCompensation. ***Effective January 1,2006 the Company adopted SFAS No. 123R, *Share-BasedPayment*, which requires that compensation expense be recognized overthe requisite service period based on the fair value of the award at the dateof grant.  At June 30, 2008, theCompany had total unvested stock-based compensation expense of $42.  The unvested stock options will vest atvarious intervals over the next 2.9 years. Total stock-based compensation expense, recognized in general andadministrative expenses, was $16 and $121 during the first six months of 2008and 2007, respectively.  During the sixmonths ended June 30, 2008, the Company granted options under its 2003Incentive 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.

 

6

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**3.****              *Inventories.***** Inventories statedat the lower of cost (first-in, first-out method) or market are summarized asfollows:

 
| ** **                        | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
|                              |       |                        |       |                            |       |
| Raw Materials                     |       | $                           | 7,934      |                            | $          | 6,786 |   |
| Work-in-Process                   |       | 5,312                       |       | 4,100                           |       |
| Finished Goods                    |       | 4,867                       |       | 6,459                           |       |
|                              |       | 18,113                      |       | 17,345                          |       |
| Less inventory  valuation reserve |       | (1,402                      | )          | (1,582                          | )          |
|                              |       | $                           | 16,711     |                            | $          | 15,763 |   |

 

**4.****              *Income(loss) per share.***  Basicincome (loss) per share excludes dilution and is computed by dividing netincome (loss) available to common stockholders by the weighted average numberof common shares outstanding for the six months and three months ended June 30,2008 and 2007*. *Dilutedincome (loss) per share reflects the potential dilution that could occur ifdilutive options to acquire common stock were exercised, the proceeds of whichare then presumed to have been used to repurchase outstanding stock using thetreasury stock method.  For the six monthsand three months ended June 30, 2008, there is no calculation of dilutionsince the Company incurred a loss for both periods, thereby resulting in theoptions becoming antidilutive.  Thefollowing is a reconciliation of the number of shares (denominator) used in thebasic and diluted income (loss) per share computations for six months and threemonths ended June 30, 2008 and 2007:

 
| ** **                        | ** ** | **Six months ended June 30,** | ** ** |
|-----------------------------------|------------|---------------------------------------------------|------------|
| ** **                        | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
| ** **                        | ** ** | ** **                                        | ** ** | **Per Share** | ** ** | ** ** | ** ** | **Per Share** | ** ** |
| ** **                        | ** ** | **Shares**                                        | ** ** | **Amount** | ** ** | **Shares** | ** ** | **Amount** | ** ** |
| Basic income  (loss) per share    |       | 9,544                                             |       | $ | (1.01 | ) | 9,543 |   | $ | 0.11 |   |
| Effect of  dilutive stock options |       | —                                            |       | — |   | 1 |   | — |   |
| Diluted income  (loss) per share  |       | 9,544                                             |       | $ | (1.01 | ) | 9,544 |   | $ | 0.11 |   |

 
| ** **                        | ** ** | **Three months ended June 30,** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------|------------|
| ** **                        | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| ** **                        | ** ** | ** **                                          | ** ** | **Per Share** | ** ** | ** ** | ** ** | **Per Share** | ** ** |
| ** **                        | ** ** | **Shares**                                          | ** ** | **Amount** | ** ** | **Shares** | ** ** | **Amount** | ** ** |
| Basic income  (loss) per share    |       | 9,544                                               |       | $ | (0.84 | ) | 9,543 |   | $ | 0.10 |   |
| Effect of  dilutive stock options |       | —                                              |       | — |   | 20 |   | — |   |
| Diluted income  (loss) per share  |       | 9,544                                               |       | $ | (0.84 | ) | 9,563 |   | $ | 0.10 |   |

 

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

* *
| ** **                                  | ** ** | **Six months ended June 30,**   | ** ** |
|---------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                  | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| * *                                    | * *   | * *                                            | * *   | * * | * * |
| Options to  purchase shares of common stock |       | 1,656                                               |       | 1,750 |   |
| Exercise prices                             |       | $1.18 - $13.75                                      |       | $4.15 - $13.75 |   |
| Expiration dates                            |       | July 2010 –  May 2018                |       | July 2010 –  May 2017 |   |
|                                        |       |                                                |       |
| ** **                                  | ** ** | **Three months ended June 30,** | ** ** |
| ** **                                  | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| * *                                    | * *   | * *                                            | * *   | * * | * * |
| Options to  purchase shares of common stock |       | 1,656                                               |       | 1,373 |   |
| Exercise prices                             |       | $1.18 - $13.75                                      |       | $4.65 - $13.75 |   |
| Expiration dates                            |       | July 2010 –  May 2018                |       | July 2010 –May 2017 |   |

 

7

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**5.*****              Segments.***  The operating segments of the Company havebeen aggregated into two geographical reporting segments:  Americas and International.  Americas includes the United States, Centraland South America and Canada. International includes Europe, Africa, the Middle East, Australia andAsia.  The chief operating decision makeris William H. Channell, Jr., President and Chief Executive Officer of theCompany.  The Company’s four productlines are sold in both segments.  Thefollowing tables summarize segment information:

 
| ** **                             | ** ** | **Six months ended June 30,** | ** ** |
|----------------------------------------|------------|---------------------------------------------------|------------|
| ** **                             | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
| Revenues from  external customers (1): |       |                                              |       |   |   |
| Americas                               |       | $                                                 | 31,812     |   | $ | 39,059 |   |
| International                          |       | 20,297                                            |       | 30,516 |   |
|                                   |       | $                                                 | 52,109     |   | $ | 69,575 |   |
| Income (loss)  from operations:        |       |                                              |       |   |   |
| Americas                               |       | $                                                 | (1,594     | ) | $ | 1,871 |   |
| International                          |       | (5,818                                            | )          | (429 | ) |
|                                   |       | $                                                 | (7,412     | ) | $ | 1,442 |   |
| Interest  expense, net:                |       |                                              |       |   |   |
| Americas                               |       | $                                                 | 300        |   | $ | 288 |   |
| International                          |       | 675                                               |       | 174 |   |
|                                   |       | $                                                 | 975        |   | $ | 462 |   |

 

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| (1) Note: | Revenues from Australia exceeded 10% of total  revenues for the six-months ended June 30, 2008 and 2007. Revenues from  Australia totaled $18,118 and $27,844 for the six-month periods in 2008 and  2007, respectively. |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| ** **                             | ** ** | **Three months ended June 30,** | ** ** |
|----------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                             | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| Revenues from  external customers (1): |       |                                                |       |   |   |
| Americas                               |       | $                                                   | 16,255     |   | $ | 20,395 |   |
| International                          |       | 10,695                                              |       | 16,327 |   |
|                                   |       | $                                                   | 26,950     |   | $ | 36,722 |   |
| Income (loss)  from operations:        |       |                                                |       |   |   |
| Americas                               |       | $                                                   | (1,020     | ) | $ | 1,404 |   |
| International                          |       | (4,516                                              | )          | (38 | ) |
|                                   |       | $                                                   | (5,536     | ) | $ | 1,366 |   |
| Interest  expense, net:                |       |                                                |       |   |   |
| Americas                               |       | $                                                   | 164        |   | $ | 148 |   |
| International                          |       | 341                                                 |       | 142 |   |
|                                   |       | $                                                   | 505        |   | $ | 290 |   |

 

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| (1) Note: | Revenues from Australia exceeded 10% of total  revenues for the three-months ended June 30, 2008 and 2007.  Revenues from Australia totaled $9,670 and  $15,043 for the three-month periods in 2008 and 2007, respectively. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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

 

8

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| ** **              | ** ** | **Six months ended June 30,** | ** ** |
|-------------------------|------------|---------------------------------------------------|------------|
| ** **              | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
|                    |       |                                              |       |   |   |
| Product lines:          |       |                                              |       |   |   |
| Enclosures              |       | $                                                 | 21,488     |   | $ | 30,039 |   |
| Water-related  products |       | 22,142                                            |       | 31,693 |   |
| Connectivity            |       | 7,622                                             |       | 5,263 |   |
| Other                   |       | 857                                               |       | 2,580 |   |
|                    |       | $                                                 | 52,109     |   | $ | 69,575 |   |

 
| ** **              | ** ** | **Three months ended June 30,** | ** ** |
|-------------------------|------------|-----------------------------------------------------|------------|
| ** **              | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
|                    |       |                                                |       |   |   |
| Product lines:          |       |                                                |       |   |   |
| Enclosures              |       | $                                                   | 10,728     |   | $ | 16,526 |   |
| Water-related  products |       | 11,427                                              |       | 16,151 |   |
| Connectivity            |       | 4,299                                               |       | 2,763 |   |
| Other                   |       | 496                                                 |       | 1,282 |   |
|                    |       | $                                                   | 26,950     |   | $ | 36,722 |   |

 

**6.****              *IncomeTaxes.***  The effective taxrate is (20.5%) for the six months ended June 30, 2008, compared to thestatutory rate of 34%. The effective rate is based on the expected rate for thefull fiscal year. The income tax expense recorded for the six months ended June 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 domesticdeferred tax assets continues to be necessary. In addition, during the first six months of 2008, the Bushman Tanksreporting unit experienced materially lower revenues which adversely affectedoperating results, and also negatively affected projections of futureearnings.  Due to these results andBushman Tanks’ accumulated losses, management has also concluded that a fullvaluation allowance is necessary against the net deferred tax asset of theBushman Tanks reporting unit in Australia.

 

The Company adopted theprovisions of FASB Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes,*(“FIN 48”) an interpretation ofSFAS No. 109*,* on January 1, 2007.  FIN 48 prescribes a recognition thresholdthat a tax position is required to meet before being recognized in thefinancial statements and provides guidance on derecognition, measurement,classification, interest and penalties, accounting in interim periods,disclosure and transitions issues.  Theadoption of FIN 48 resulted in no impact to the Company’s consolidatedfinancial statements.  As of June 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 June 30, 2008, theCompany files income tax returns in the U.S. federal jurisdiction and variousstate and foreign jurisdictions.  The2002 through 2007 tax years remain subject to examination by federal taxauthorities 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 June 30, 2008, theCompany had no provisions for interest or penalties related to uncertain taxpositions.

 

**7.*****              Commitments and Contingencies*.**  *Employment Agreements**—*** In June, 2008 the Company entered into anamended and restated employment agreement with William H. Channell, Jr.,its president and chief executive officer.  The employment agreement isfor an initial five-year term and is automatically renewed for additionalfive-year terms unless it is terminated by the Company or by Mr. Channell, Jr.in accordance with the agreement.  Mr. Channell, Jr.’s basesalary under the agreement is $836,000 and may be increased from time to timeat the 

 

9

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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.(i) was entitled to receive a cash bonus of $300,000 in June 2008 and(ii) if employed by the Company on July 1, 2008, is entitled toreceive a cash bonus of $200,000 payable in July 2008.  Pursuant tothe agreement, the Company is also required to maintain certain insurancepolicies for Mr. Channell, Jr.’s benefit and he is also entitled tocertain other benefits, including an automobile allowance, health insurance,and vacation and sick leave, in accordance with customary practices for seniorexecutive officers.  In the event that (1) theCompany terminates Mr. Channell, Jr.’s employment without “cause,” asdefined in the agreement, (2) Mr. Channell, Jr. terminates hisemployment with the Company for “good reason,” which is also specifically definedin the agreement, or (3)  the Company decides not to renew the Agreementat the end of the initial five-year term or during any subsequent five-yearterm, then Mr. Channell, Jr. would be entitled to a lump sum paymentequal to three times his then current base salary, all health and lifeinsurance benefits for three years, and accelerated vesting of any stockoptions 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.

 

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*. **TheFederal income taxes of the Company for the years ended December 31, 2003and 2004 are currently under examination by the Internal Revenue Service (“IRS”).  As of June 30, 2008, the Company and theIRS have resolved all outstanding issues except for the one related to anordinary worthless stock deduction.  Theamount of the benefit under dispute is approximately $3,000.  Thenet benefit recognized for this position was approximately $300 with theremaining benefit offset by the valuation allowance that has been establishedagainst the deferred tax asset.  The Company does not anticipate amaterial adverse impact on its financial statements for this item.

 

***Termination of Transportation and Logistics Services by Primary FreightProvider for Bushman Tanks Business. ***Asof October 12, 2006, the primary freight provider for the Company’sBushman Tanks water storage tank manufacturing and distribution businessunilaterally withdrew its transportation and logistics services.  Accordingly, the agreement with the freightprovider has been terminated, and Bushman Tanks has reserved its rights inrelation to any damages it suffers as a result of the termination of suchservices.  The freight provider claimsthat Bushman Tanks 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.

 

***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 $6,411in the first halfof 2008 represented 12.3% of the Company’s sales in the period.  Sales to Verizon of $5,947 in the first halfof 2007 represented 8.5% of the Company’s sales in the period.

 

Sales to Verizonof $3,053 in the second quarter of 2008 represented 11.3% of the Company’ssales in the period.  Sales to Verizon of$2,290 million in second quarter of 2007 represented 6.2% of the Company’ssales in the period.

 

Accountsreceivable from Verizon of $1,639 and $1,128 represented 12.4% and 8.8% ofCompany accounts receivable as of June 30, 2008 and December 31,2007, respectively.

 

**9*.******              Guarantees.***  In 1997, the Company guaranteed debt of theChannell Family Trust, one of its principal stockholders, of approximately $754incurred in connection with construction of one of the facilities leased to the

 

10

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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 June 30, 2008, the outstanding loanbalance subject to the guarantee totaled approximately $468.  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.**       ***Goodwilland Other Intangible Assets.*** The balance of goodwill and intangible assets on the Company’s balancesheet fluctuates from period to period due to the application of foreigncurrency translation to United States dollars in calculating the balance ofgoodwill and other intangible assets of the Company’s foreignsubsidiaries.  SFAS No. 142, *Goodwill and Other Intangible Assets,* requires that goodwilland certain intangibles are not to be amortized, but instead be reviewed atleast 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 thisimpairment of goodwill is the decrease in revenues, gross margins and operatingincome, which have been negatively impacted by unusually high levels ofrainfall and a large decline in market demand, which resulted in revisions ofprojected future earnings and cash flows.  The fair value of the BushmanTanks reporting unit, and the non-compete agreement and non-amortizabletrademark intangible, were estimated using a combination of valuationtechniques, including the expected present value of future cash flows.Measurement of the impairment loss is an estimate, and continued increases inraw materials costs in excess of the expectations of management, or othernegative events or circumstances, could result in additional impairment ofgoodwill in future reporting periods.

 

The changes in thecarrying amount of goodwill, the non-compete agreement and the non-amortizabletrademark intangible, are summarized below for the six months ended June 30,2008:

 
| ** **                              | ** ** | ** **   | ** ** | **Non-Compete** | ** ** | **Trademark**  | ** ** |
|-----------------------------------------|------------|--------------|------------|-----------------|------------|----------------|------------|
| ** **                              | ** ** | **Goodwill** | ** ** | **Agreement**   | ** ** | **Intangible** | ** ** |
|                                    |       |         |       |            |       |           |       |
| Balance at  December 31, 2007      |       | $            | 10,998     |            | $          | 1,339          |       | $ | 789 |   |
| Amortization of  non-compete agreement  |       | —       |       | (107            | )          | —         |       |
| Impairment                              |       | (2,864       | )          | (647            | )          | (462           | )          |
| Purchase price  adjustment              |       | (537         | )          |            |       |           |       |
| Effect of  foreign currency translation |       | 825          |       | 99              |       | 57             |       |
| Balance at  June 30, 2008          |       | $            | 8,422      |            | $          | 684            |       | $ | 384 |   |

 

As of June 30, 2008,the Company has recorded goodwill of $781 in its Canadian reporting unit, whichis part of the Americas segment and $7,641 of goodwill in its Bushman Tanksreporting unit, which is part of the International segment.

 

The estimatedamortization expense, based on current intangible balances and the June 30,2008 foreign currency exchange rates, is $109 per year for the next five fiscalyears, and $139 thereafter.

 

11

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**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).

 

The term loan isrepayable in monthly payments based on a 60-month amortization schedule and aballoon payment due June 30, 2010.  The capital expenditure loans will be repayable in equal monthlyinstallments equal to the original principal amount of the loan divided by 60,with the remaining outstanding balance due on June 30, 2010.  The balances outstanding at June 30,2008 under the revolving line of credit, term loan and capital expenditurefacility were $5,465, $2,066 and $1,143, respectively.  As of June 30,2008, outstanding letters of credit totaled $536.

 

Under the Agreement, theoutstanding balance of the term loan and the revolver each bears interestpayable monthly at a variable rate based on either LIBOR or the lender’s baserate, which was 5% as of June 30, 2008.

 

The loans under theAgreement are guaranteed by Channell Limited, Channell Commercial EuropeLimited and A.C. Egerton (Holdings) Limited, which are direct and indirectsubsidiaries of the Company (the “Subsidiary Guarantors”), and are secured bysubstantially all of the assets of the Company and the Subsidiary Guarantors.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 wasin compliance with all covenants at June 30, 2008 except for one covenantrelated to permissible operating leases, for which it received a waiver fromthe lender.

 

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 ofShares) (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 in May 2008 (see below for adescription of the amendment),

 

The Facility Agreement(denominated in Australian dollars) provides for credit facilities in theaggregate principal amount of $12,506, consisting of: (i) a term 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 is repayablein monthly payments that began March 2008 based on a 50-month amortizationschedule and a balloon payment due September 30, 2010.  At June 30, 2008, the outstandingbalance under the term loan was $5,580 and the outstanding balance on therevolver was $3,446.

 

Under the FacilityAgreement, the outstanding balance of the term loan bears interest payablemonthly at a variable rate based on the Lender’s base rate, which was 7.85% asof June 30, 2008.

 

The obligations ofChannell Bushman under the Facility Agreement are guaranteed by the ChannellBushman Subsidiaries and are secured by all assets of Channell Bushman and theChannell Bushman Subsidiaries.

 

The Facility Agreementand Security Agreement contain various financial and operating covenants thatimpose limitations on Channell Bushman and the Channell Bushman Subsidiaries’ability to, among other things, incur or guarantee additional indebtedness,merge or consolidate, sell assets except in the ordinary course of business,make certain investments, issue or redeem shares, transfer ownership of theshare capital of the Channell Bushman Subsidiaries, grant further securityinterests, and pay dividends. The Facility Agreement and Security Agreementprovide that on the occurrence of an event of default, the Lender may declarethe outstanding obligations under the Facility Agreement immediately due andpayable, terminate its commitments under the Facility Agreement and enforce itsrights under its security interests, including taking possession of andotherwise acting as owner of the assets of Channell Bushman and the ChannellBushman Subsidiaries, 

 

12

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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. The Lendermay also declare the outstanding obligations under the Facility Agreementimmediately due and payable should any change of control in Channell Bushman orany 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 agreement.The agreement (denominated in Australian dollars) includes equipment financingfacilities with an outstanding balance of $854 as of June 30, 2008, performanceguarantees, credit card facilities and payroll processing facilities. The loansunder the agreement are secured by all the assets of Channell Pty Limited.  The agreement replaces a similar agreementthat Channell Pty Limited and Bushman Group Pty Limited previously had withanother commercial bank in Australia. The agreement contains various operating covenants that imposelimitations on Channell Pty Limited and Bushman Group Pty Limited’s ability,among other things, to merge or consolidate, sell assets except in the ordinarycourse of business, 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 US$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 Channell Bushmanreceivables, inventory and property and equipment, and in the event that suchcovenant is not maintained as of each testing date for such covenant, amandatory 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 reporting requirementscontained in the Facility Agreement 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.  As a result of the accelerated due date, theCompany has reclassified $5,618 of long-term debt to short-term debt.  The Company was in compliance with allcovenants at June 30, 2008.

 

**12.  *Restructuring Charge. *** In the first half of 2008, the Companyannounced restructuring plans, primarily in the United States and Australia, inan effort to further reduce costs and align headcount and facilities withexpected business levels. The restructuring charge for the first half of 2008totaled $975. The principal actions in the restructuring plans involvereduction of headcount and rationalization of facilities. The restructuringplan in the U.S. resulted in the elimination of 80 management, administrative,sales and manufacturing positions and was substantially completed by March 31,2008.   The restructuring plan inAustralia, 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** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                           | ** ** | **June 30, 2008**      | ** ** | **March 31, 2008** | ** ** |
| Employee  severance and related benefit costs        |       | $                                | 300        |   | $ | 234 |   |
| Costs associated  with rationalization of facilities |       | 270                              |       | 171 |   |
|                                                 |       | $                                | 570        |   | $ | 405 |   |

 

**S*everance. ***TheCompany had a total reduction of 140 employees, which included approximately20% of the total U.S. workforce and 33% of the total Australian workforce.  The reductions affected employees in thefollowing areas: factory direct labor, factory support, management,administrative and sales.

 

***Costs Associated with Rationalization of Facilities. ***The Company hasincurred costs of $441 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 rationalizationeffort includes consolidation of machinery and equipment into a reduced amountof manufacturing space and disposal of excess machinery and equipment.

 

**13.**  ***Acquisition. *** In June, the Company acquired the remaining 25% ownership interest in itsBushman Tanks subsidiary, which is a manufacturer of rotational molded plastic(polyethylene) water storage tanks.  The 

 

13

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consideration wasapproximately $10 and the difference between the purchase price and net assetsacquired was allocated to goodwill and resulted in a reduction of goodwill of$537.

 

**Item 2.****    Management’s Discussion andAnalysis of Financial Condition and Results of Operations.**

 

### **Introduction and Overview**

### ** **

Channell Commercial Corporation (the “Company”) is a designer andmanufacturer of telecommunications equipment supplied to communications networkoperators worldwide and water storage tanks distributed in consumer marketsthroughout Australia.  Major product lines include a complete line ofthermoplastic and 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 by declining economic conditions inAustralia, and the housing sector in particular.

 

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.

 

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.

 

**Results of Operations**

 

**Comparison of the Six MonthsEnded June 30, 2008 with the Six Months Ended June 30, 2007**

 

***NetSales*.**  Net salesin the first half of 2008 were $52.1 million, a decrease of $17.5 million or25.1% compared to the first half of 2007. The decrease is due to lower demand for the Company’s products in bothof the Company’s reporting segments.

 

Americas net sales were$31.8 million in the first half of 2008, a decrease of $7.3 million or 18.7%from the same period in 2007.  Thedecrease was due primarily to a lower volume of sales to the Company’s coretelecom 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 $20.3 million in the first half of 2008, a decrease of $10.2 million or33.4% from the same period in 2007.  Thelower sales volume was primarily a result of a large decline in market demandfor the Company’s water storage tanks due to unusually high levels of rainfallin Australia, less attractive regulatory incentives and a general decline inthe Australian economy.

 

Sales to Verizon of $6.4million in the first half of 2008 represented 12.3% of Company sales in the period.  Sales to Verizon of $5.9 million in the firsthalf of 2007 represented 8.5% of Company sales in the period.  Sales to Verizon are expected to be asignificant portion of the Company’s sales for the remainder of 2008.

 

***GrossProfit*.**  Grossprofit in the first half of 2008 was $15.5 million, a decrease of $6.4 millionor 29.2% compared to the first half of 2007. The decrease was due primarily to decreased revenues in both of theCompany’s reporting 

 

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segments.  Gross profit in the Americas segmentdecreased $3.1 million from $12.9 million in the first half of 2007 to $9.8million in the first half of 2008.  Grossprofit of $5.7 million in the first half of 2008 in the International segmentwas $3.3 million lower than in the corresponding 2007 period.

 

As a percentage of netsales, gross profit decreased from 31.5% in the first half of 2007 to 29.7% inthe first half of 2008.  The decrease isprimarily due to a decrease in the gross profit percentage in the Americassegment from 32.9% in the first half of 2007 to 30.8% in the first half of2008.  This decrease is primarily due tothe lower revenues in the U.S., which resulted in reduced absorption of fixedcosts, along with an increase in raw material costs related to increasedcommodity prices.  The gross profitpercentage also decreased in the International segment from 29.7% in the firsthalf of 2007 to 28.1% in the first half of 2008.  This decrease was primarily due to the lowerrevenues in Australia.

 

***Selling*.**  Selling expenses were $9.9 million in thefirst half of 2008, a decrease of $1.6 million or 13.9% from the first half of2007.  The decrease is primarily a resultof the lower revenues.

 

As a percentage of netsales, selling expenses increased from 16.5% in the first half of 2007 to 19.0%in the corresponding 2008 period.  Thehigher percentage is primarily due to the small decrease in total sellingexpenses compared to the larger decrease in revenues, because a portion of theselling expenses are fixed costs.

 

***Generaland Administrative*.** General and administrative expenses were $7.3 million in the first halfof 2008, a decrease of $0.8 million or 9.9% from the first half of 2007.  The decrease is due primarily to lowergeneral and administrative expenses of approximately $0.8 million in theInternational segment, of which $0.4 million related to lower compensation andbenefits and $0.2 million related to lower consulting expenses for upgrades toinformation systems than in the prior year.

 

As a percentage of netsales, general and administrative expense increased from 11.6% in the firsthalf of 2007 to 14.0% in the corresponding 2008 period as a result of the smalldecrease in general and administrative expenses compared to the larger decreasein revenues.

 

***Researchand Development*.** Research and development expenses were $0.8 million in the first half of2008, a decrease of $0.1 million or 11.1% from the first half of 2007.

 

As a percentage of netsales, research and development expenses increased from 1.3% in the first halfof 2007 to 1.5% in the first half of 2008 as a result of decreased revenues.

 

***Impairmentof Goodwill and Other Intangibles*.**  Intangible impairment expense was $4.0million in the first six months of 2008, compared to no impairment in thecorresponding 2007 period.  Theimpairment was related to the Company’s Bushman Tanks reporting unit inAustralia.  The Company recorded $2.9million impairment expense related to goodwill, $0.6 million related to thecarrying value of the non-compete agreement, and $0.5 million related to thecarrying value of the trademark intangible. The primary cause for this impairment was the decrease in revenues,gross margins and operating income, which have been negatively impacted by alarge decline in market demand, which resulted in revisions of projected futureearnings and cash flows.

 

***RestructuringCharge.**** *The Company recorded $1.0 millionof restructuring costs in the first half of 2008.  Included in the costs were $0.3 million forseverance in the Americas segment and $0.3 million for severance in theInternational segment along with $0.4 million for facilities rationalizationexpenses all of which were primarily related to the Americas segment.  The rationalization effort includesconsolidation of machinery and equipment into a reduced amount of manufacturingspace and disposal of excess machinery and equipment.  The Company expects to have additionalrestructuring costs of approximately $125 in the second half of 2008.

 

***Income(Loss) from Operations*.** As a result of the items discussed above, loss from operations was($7.4) million in the first half of 2008 compared to income from operations of$1.4 million in the first half of 2007. Operating margin as a percent of sales was (14.2%) in the first half of2008 compared to 2.1% in the corresponding 2007 period.

 

***InterestExpense, Net*.** Interest expense, net of interest income, was $1.0 million in the firsthalf of 2008 and $0.5 million in the first half of 2007.  The increase in interest expense is due tothe increased level of borrowing compared to the same period of the prior yearalong with higher interest rates in the International segment.

 

***IncomeTaxes*.**  There wasan income tax expense of $1.7 million in the first half of 2008 compared to anincome tax expense of twenty thousand dollars in the first half of 2007.  The effective tax rate was (20.5%) in thefirst half of 2008 and 2.0% in the first half of 2007.  The tax expense in the first half of 2008 isprimarily the result of placing a full valuation allowance on the realizationof the net deferred tax asset in the Bushman Tanks reporting unit inAustralia.  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.

 

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**Comparison of the Three MonthsEnded June 30, 2008 with the Three Months Ended June 30, 2007**

 

***NetSales*.**  Net salesin the second quarter of 2008 were $27.0 million, a decrease of $9.7 million or26.4% compared to the second quarter of 2007. The decrease is due to lower demand for the Company’s products in bothof the Company’s reporting segments.

 

Americas net sales were$16.3 million in the second quarter of 2008, a decrease of $4.1 million or20.1% from the same period in 2007.  Thedecrease was due primarily to a lower volume of sales to the Company’s coretelecom 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 $10.7 million in the second quarter of 2008, a decrease of $5.6 million or34.4% from the same period in 2007.  Thelower sales volume was primarily a result of a large decline in market demandfor the Company’s water storage tanks due to unusually high levels of rainfallin Australia and less attractive regulatory incentives.

 

Sales to Verizon of $3.0million in the second quarter of 2008 represented 11.3% of Company sales in theperiod.  Sales to Verizon of $2.3 millionin the second quarter of 2007 represented 6.2% of Company sales in theperiod.  Sales to Verizon are expected tobe a significant portion of the Company’s sales for the remainder of 2008.

 

***GrossProfit*.**  Grossprofit in the second quarter of 2008 was $8.1 million, a decrease of $3.8million or 31.9% compared to the second quarter of 2007.  The decrease was due to lower gross profitdollars resulting from the decreased revenues in both of the Company’sreporting segments.  Gross profit dollarsin the Americas segment decreased $2.2 million from $7.1 million in the secondquarter of 2007 to $4.9 million in the second quarter of 2008.  Gross profit of $3.2 million in the secondquarter of 2008 in the International segment was $1.6 million lower than in thecorresponding 2007 period.

 

As a percentage of netsales, gross profit decreased from 32.5% in the second quarter of 2007 to 30.0%in the second quarter of 2008.  Thedecrease is primarily due to a decrease in the gross profit percentage in theAmericas segment from 34.7% in the second quarter of 2007 to 30.1% in thesecond quarter of 2008.  This decrease isprimarily due to the lower revenues in the U.S., which resulted in reducedabsorption of fixed costs along with an increase in raw material costs relatedto increased commodity prices. Offsetting the decrease in the gross profit percentage in the Americassegment was an increase in the gross profit percentage in the Internationalsegment from 29.7% in the second quarter of 2007 to 30.0% in the second quarterof 2008.  This increase was primarily dueto the cost reductions associated with the Company’s restructuring activitiesin Australia.

 

***Selling*.**  Selling expenses were $4.9 million in thesecond quarter of 2008, a decrease of $1.3 million or 21.0% from the secondquarter of 2007.   The decrease isprimarily a result of the lower revenues.

 

As a percentage of netsales, selling expenses increased from 16.9% in the second quarter of 2007 to18.1% in the corresponding 2008 period. The higher percentage is primarily due to the small decrease in totalselling expenses compared to the larger decrease in revenues, because a portionof the selling expenses are fixed costs.

 

***Generaland Administrative*.** General and administrative expenses were $3.8 million in the secondquarter of 2008, a slight decrease of $0.1 million or 2.6% from the secondquarter of 2007.  Lower general andadministrative expenses of approximately $0.3 million in the Internationalsegment during the second quarter of 2008 related primarily to lowercompensation and benefits.  The reductionin the International segment was offset by an increase of $0.2 million in theAmericas segment relating to higher incentive compensation expenses.

 

As a percentage of netsales, general and administrative expense increased from 10.6% in the secondquarter of 2007 to 14.1% in the corresponding 2008 period as a result of thesmall decrease in general and administrative expenses compared to the largerdecrease in revenues.

 

***Researchand Development*.**  Researchand development expenses were $0.4 million in the second quarter of 2008, adecrease of $0.1 million or 20.0% from the second quarter of 2007.

 

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

 

***Impairmentof Goodwill and Other Intangibles*.**  Intangible impairment expense was $4.0million in the second quarter of 2008, compared to no impairment in thecorresponding 2007 period.  Theimpairment was related to the Company’s Bushman Tanks reporting unit inAustralia.  The Company recorded $2.9million impairment related to goodwill, $0.6 million related to the carryingvalue of the non-compete agreement, and $0.5 million related to the carryingvalue of the trademark intangible.  Theprimary cause for this impairment was the decrease in revenues, gross marginsand operating income, which have been negatively impacted by a large decline inmarket demand, which resulted in revisions of projected future earnings andcash flows.

 

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***RestructuringCharge.**** *The Company recorded $0.6 millionof restructuring costs in the second quarter of 2008.  Included in the costs were $0.1 million forseverance in the Americas segment and $0.3 million for severance in theInternational segment, along with $0.2 million for facilities rationalizationexpenses all of which were primarily related to the Americas segment.  The rationalization effort includesconsolidation of machinery and equipment into a reduced amount of manufacturingspace and disposal of excess machinery and equipment.

 

***Income(Loss) from Operations*.** As a result of the items discussed above, loss from operations was($5.5) million in the second quarter of 2008 compared to income from operationsof $1.4 million in the second quarter of 2007. Operating margin as a percent of sales was (20.4%) in the second quarterof 2008 compared to 3.7% in the corresponding 2007 period.

 

***InterestExpense, Net*.** Interest expense, net of interest income, was $0.5 million in the secondquarter of 2008 and $0.3 million in the second quarter of 2007.  The increase in interest expense is due tothe higher level of borrowing compared to the same period of the prior yearalong with higher interest rates in the International segment.

 

***IncomeTaxes*.**  There wasan income tax expense of $2.2 million in the second quarter of 2008 compared toan income tax expense of $0.2 million in the second quarter of 2007.  The effective tax rate was (36.1%) in thefirst quarter of 2008 and 15.4% in the second quarter of 2007.   The tax expense in the second quarter of2008 is primarily a result of placing a full valuation allowance on therealization of the net deferred tax asset in the Bushman Tanks reporting unitin Australia. Since the Company has a full valuation allowance on therealization of the domestic net deferred tax asset, no tax expense or benefitis currently being recorded on the results of operations in the U.S.  The tax benefit recorded in both years was aresult of the loss in the Company’s foreign operations.

 

**Liquidity and Capital Resources**

 

Net cash provided byoperating activities was $1.8 million for the six months ended June 30,2008, compared to net cash used in operating activities of ($1.5) million forthe six months ended June 30, 2007. The cash provided by operating activities in the first half of 2008 wasprimarily due to the ($9.6) million net loss, offset by a net increase in cashof $3.6 million related to the change in the operating assets and liabilities,mainly attributable to a $3.2 million increase in accounts payable, and by $7.8million in non-cash deductions which included $4.0 million of intangiblesimpairment expense, $1.5 million related to the valuation allowance on the netdeferred tax asset and $2.5 million of depreciation and amortization expense.

 

Net cash used ininvesting activities was ($1.7) million for the six months ended June 30,2008 and ($1.7) million for the six months ended June 30, 2007.  Proceeds from a sale-leaseback transaction of$1.3 million in 2008 were offset by purchases of property and equipment of $3.0million.

 

Net cash provided by(used in) financing activities was ($0.4) million for the six months ended June 30,2008 compared to $1.9 million for the six months ended June 30, 2007.  This decrease was due to the Company’sreduced borrowings in 2008 relative to 2007 and higher repayment of debt.

 

Cash and cash equivalentson June 30, 2008 were $1.4 million as compared to $2.1 million at December 31,2007.

 

Net accounts receivableincreased to $12.9 million at June 30, 2008 from $12.8 million at December 31,2007 due to the higher volume of sales during the month of June 2008compared to the month of December 2007. The Americas segment increased $1.0 million while the Internationaldecreased $0.9 million.  In terms of dayssales outstanding, accounts receivable increased from 39 days at December 31,2007 to 43 days at June 30, 2008. The increase in days sales outstanding is due to a higher percentage ofsales occurring at the end of the second quarter of 2008 as compared to the endof the fourth quarter of 2007.

 

Inventories increased to$16.7 million at June 30, 2008 from $15.8 million at December 31,2007 due to the higher volume of manufacturing activity at the end of thesecond quarter of 2008 compared to the fourth quarter of 2007 and increasedcosts for certain raw materials.  TheAmericas segment increased $1.5 million while the International segment decreased$0.4 million.  Days inventory increasedfrom 68 days at December 31, 2007 to 80 days at June 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 $13.4 million at June 30,2008 due to the higher volume of activity at the end of the second quarter of2008.  Days payables were 41 days at December 31,2007 and 64 days at June 30, 2008 due to working capital management andincreased capital spending at the end of the second quarter.

 

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 

 

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first and second quarterrevenues in the Company’s Australian operations. As a result of the foregoing,in April 2008, Channell Bushman announced and undertook a restructuringplan.  In connection with therestructuring plan, the headcount for the Company’s Australian operations wasreduced by approximately 33%, and severance costs of approximately $250 wereincurred.  In addition, the scale ofoperations was reduced 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 US$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. Management iscurrently meeting with other lenders in order to refinance the outstandingFacility Agreement balance by October 26, 2008. The Company is consideringother strategic alternatives in the event it is unable to refinance the debtoutstanding under the Facility Agreement by October 26, 2008.  However, if the Company is unable torefinance such debt it may have a significant impact on the operations,liquidity and financial results of Channell Bushman.

 

Management anticipatesthat the material reduction in revenues for the Channell Bushman operationswill continue over the near term. Management has undertaken various restructuring actions to address thisissue, which have reduced operating losses in the second quarter of 2008excluding intangible impairment charges. However, if the reduction in revenue continues for an extended period ormanagement’s restructuring efforts do not sufficiently improve the operatingresults, Channell Bushman’s liquidity position, including its ability to borrowunder its credit facilities, may be adversely 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 half of2008.  During this period the Company’sU.S. revenues were below expected revenue levels due to overall economicconditions and, in particular, the decline in new home construction.  As a result of the further decline inrevenues, the Company is undertaking restructuring actions in the third quarterof 2008 primarily related to reduction in work force.   In addition, the Company is alsoexperiencing increased costs for raw materials such as metal and plasticresins.   If the decline in U.S. revenuecontinues for an extended period, management’s restructuring efforts do notsufficiently improve the operating results or the Company is unsuccessful inrecovering increased raw material costs by passing on incremental priceincreases to customers, the liquidity of the Company’s U.S. operations,including the ability to borrow under the Company’s credit facilities, may beaffected.

 

Except as noted abovewith respect to Channell Bushman and the Company’s U.S. operations, the Companybelieves that cash flow from operations, proceeds from the sale of certainassets and the Company’s existing debt facilities described in Note 11 shouldbe sufficient to fund the Company’s capital expenditure and working capitalrequirements for the next twelve months.

 

**Off-Balance Sheet Arrangements**

 

The Company’s off-balancesheet arrangements consist of operating leases, employment contracts andpurchase obligations.  In addition, theCompany guaranteed the debt of the Channell Family Trust of approximately $754in 1997.  The guaranteed debt wasincurred in connection with construction of the facilities leased to theCompany and is collateralized by said facilities.  The loan amount subject to the unsecuredguarantee is expected to decline before expiring in 2017.  The Company does not anticipate that it willincur losses as a result of this guarantee and has not recorded a liability forsuch guarantee.  If the Channell FamilyTrust were to default on the outstanding loan balance, the Company might berequired to repay the remaining principal balance.  The maximum potential amount the Companywould be required to pay is equal to the outstanding principal and interestbalance of the loan to the Channell Family Trust.  At June 30, 2008, the outstanding loanbalance subject to the guarantee totaled $468.

 

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**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 inaccordance with accounting principles generally accepted in the United Statesof America.  The preparation of thesefinancial statements requires the Company to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and 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 uncertainty inherent in these matters, actual resultscould differ from the estimates the Company uses in applying the criticalaccounting 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 that the Company makeestimates in the preparation of its financial statements as of a 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.  All forward-looking statements made hereinare made pursuant to the Act. Forward-looking statements include statements which are predictive innature; which depend upon or refer to future events or conditions; or whichinclude words such as “expects,” “anticipates,” “intends,” “plans,” “believes,”“estimates,” or variations or negatives thereof or by similar or comparablewords or phrases.  In addition, anystatement concerning future financial performance, ongoing business strategiesor prospects, and possible future Company actions that may be provided bymanagement are also forward-looking statements as defined by the Act.  Forward-looking statements are based oncurrent expectations and projections about future events and are subject torisks, uncertainties, and assumptions about the Company; and economic andmarket factors in the countries in which the Company does business, among otherthings.  These statements are notguarantees of future performance, and the Company has no specific intentions toupdate these statements.  Actual eventsand results may differ materially from those expressed or forecasted inforward-looking statements due to a number of factors including, among others: (1) thecommunications industry is in a state of rapid technological change, which canrender the Company’s products obsolete or unmarketable; (2) any failure bythe Company to anticipate or respond to technological developments or changesin industry 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) a relativelysmall number of telecommunications customers account for a large percentage ofthe Company’s available market; (4) the Company expects that sales to thetelecommunications industry will continue to represent a substantial portion ofits total sales, and the demand for products within this industry dependsprimarily on capital spending by service providers; (5) the Company’s costof sales may be materially affected by increases in the market prices of theraw 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 and uncertainties areoutlined in the Company’s filings with the Securities and Exchange Commission,including its most recent Annual Report on Form 10-K.

 

**Item 3.     Quantitative and 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.  All financial instruments held by the Companydescribed below are held for purposes other 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 October 2008.  In March 

 

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2008, two of the Company’sAustralian subsidiaries entered into a Loan and Security Agreement with acommercial bank in Australia, which contains two equipment financingfacilities, performance guarantees, credit card facilities and payrollprocessing facilities.  These agreementsallow for the outstanding balance to bear interest at a variable rate based onthe lender’s base rate.  The credit facilities expose the Company tochanges in short-term interest rates since the interest rates on the creditfacility 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 $50 per quarter.  This analysis does not consider the effectsof economic activity on the Company’s sales and profitability in such anenvironment.

 

**Exchange Rate Sensitivity**

 

The Company has assetsand liabilities outside the United States that are subject to fluctuations inforeign currency exchange rates.  Assetsand liabilities outside the United States are primarily located in the UnitedKingdom, Australia, and Canada.  TheCompany’s investment in foreign subsidiaries with a functional currency otherthan the U.S. dollar is generally considered long-term.  Accordingly, the Company does not hedge theseinvestments.  The Company also purchasesa limited portion of its raw materials from foreign countries.  These purchases are generally denominated inU.S. dollars and are accordingly not subject to exchange ratefluctuations.  The Company has minimalforeign currency transaction gains or losses. The Company has not engaged in forward purchases of foreign currency andother similar contracts to reduce its economic exposure to changes in exchangerates because the associated risk is not considered significant.

 

**Item 4T.     Controls and 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.               Strengthen controlsand procedures to require formal reviews and sign-offs evidencing review andapproval of each journal entry, account reconciliation and accounting analysisby an individual at a more senior level who possesses the requisite skills andis independent of the preparation of the entry or reconciliation.

 

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 overfinancial reporting.

 

**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 regularlyreviews all pending litigation matters in which it is involved and establishesreserves deemed 

 

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appropriate for suchlitigation matters.  Management believesthat no presently pending litigation matters are likely to have a materialadverse effect on the Company’s financial statements or results of operations,taken as a whole.

 

**Item 1A.  Risk Factors.**

 

Not applicable.

 

**Item 2.****    Unregistered Sales of EquitySecurities and Use of Proceeds**.

 

Not applicable.

 

**Item 3.****    Defaults Upon SeniorSecurities.**

 

Not applicable.

 

**Item 4.****    Submission of Matters to aVote of Security Holders.**

 

On May 29,2008 the Company held its 2008 Annual Meeting of Stockholders in Temecula,California.  Dana J. Brenner wasre-elected to the Company’s board of directors. The term of office for the following directors continued after theAnnual Meeting: William H. Channell, Jr., Guy Marge, and Jacqueline M.Channell.

 

At theAnnual Meeting, the stockholders of the Company approved the proposal to electthe following director to serve on the Company’s board of directors, to holdoffice for a term of three years:

 
| **Director**    | ** ** | **Number of Votes for** | ** ** | **Number of Votes Withheld** | ** ** |
|-----------------|------------|----------------------------------------|------------|---------------------------------------------|------------|
|            |       |                                   |       |                                        |       |
| Dana J. Brenner |       | 6,701,974                              |       | 2,277,857                                   |       |

 

**Item 5.****    Other Information.**

 

Not applicable.

 

**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)                                                                                                                                                                                                          |

 

21

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| 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 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,                                                                                                                                                                                                                                                                                                                                                              |

 

22

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|   |   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

23

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| 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)                      |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                       |
| 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(35)                                                     |
|   |   |                                                                                                                                                                                                       |
| 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(35)                                                     |
|   |   |                                                                                                                                                                                                       |
| 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(35) |

 

----

*Management contract or compensatory plan or arrangement.

 
| (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.                          |
| (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.                              |

 

24

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| (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) |   | 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: August 13,  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)                            |

 

26

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