**UNITED STATES**

###### **SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 
| **x**      | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                             |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                |
| ** ** | **For the quarterly period ended  March 31, 2008**                                                                                                                                                                                                             |
|       |                                                                                                                                                                                                                                                                |
| ** ** | **OR**                                                                                                                                                                                                                                                              |
|       |                                                                                                                                                                                                                                                                |
| **o**      | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                            |
|       |                                                                                                                                                                                                                                                                |
| ** ** | **For the transition period from                    to                  ** |

 

**CommissionFile No. 0-28582**

 

**CHANNELL COMMERCIAL 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 mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.
| Yes**  **x   No  o |
|-------------------------------------------------------|

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See definitions of “large accelerated filer,”“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of theExchange Act. (Check one):

 

| Large accelerated filer  o                     |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer o                        |   | Smaller reporting  company x |
| (Do not check if a  smaller reporting company) |   |                              |

 

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 May 9, 2008.

 

 

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** **

**PART 1- FINANCIAL INFORMATION**

 

**Item 1.    Financial Statements.**

** **

CHANNELL COMMERCIALCORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME(LOSS)

(UNAUDITED)

*(amountsin thousands, except per share data)*

 
| ** **                                  | ** ** | **Three months ended March 31,** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                  | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
|                                        |       |                                                 |       |   |   |
| Net sales                                   |       | $                                                    | 25,159     |   | $ | 32,853 |   |
| Cost of goods  sold                         |       | 17,788                                               |       | 22,879 |   |
| Gross profit                                |       | 7,371                                                |       | 9,974 |   |
|                                        |       |                                                 |       |   |   |
| Operating  expenses                         |       |                                                 |       |   |   |
| Selling                                     |       | 4,980                                                |       | 5,246 |   |
| General and  administrative                 |       | 3,471                                                |       | 4,223 |   |
| Research and  development                   |       | 391                                                  |       | 429 |   |
| Restructuring  charge                       |       | 405                                                  |       | — |   |
|                                        |       | 9,247                                                |       | 9,898 |   |
|                                        |       |                                                 |       |   |   |
| (Loss) Income  from operations              |       | (1,876                                               | )          | 76 |   |
| Interest income                             |       | 16                                                   |       | 13 |   |
| Interest expense                            |       | (486                                                 | )          | (185 | ) |
| Loss before  income tax benefit             |       | (2,346                                               | )          | (96 | ) |
|                                        |       |                                                 |       |   |   |
| Income tax  benefit                         |       | (464                                                 | )          | (146 | ) |
| Net (loss)  income before minority interest |       | (1,882                                               | )          | 50 |   |
| Minority  interest in loss of subsidiaries  |       | (276                                                 | )          | (65 | ) |
| Net (loss)  income                          |       | $                                                    | (1,606     | ) | $ | 115 |   |
|                                        |       |                                                 |       |   |   |
| Net (loss)  income per share                |       |                                                 |       |   |   |
| Basic and  diluted                          |       | $                                                    | (0.17      | ) | $ | 0.01 |   |
|                                        |       |                                                 |       |   |   |
| Net (loss)  income                          |       | $                                                    | (1,606     | ) | $ | 115 |   |
| Other  comprehensive income, net of tax     |       |                                                 |       |   |   |
| Foreign currency  translation adjustment    |       | 472                                                  |       | 397 |   |
|                                        |       |                                                 |       |   |   |
| Comprehensive  (loss) income                |       | $                                                    | (1,134     | ) | $ | 512 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

2

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CHANNELLCOMMERCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATEDBALANCE SHEETS

(UNAUDITED)

*(amountsin thousands, except per share data)*

* *
| ** **                                                                                                                                                                                                                         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                         | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| ASSETS                                                                                                                                                                                                                             |       |               |       |                  |       |
| Current assets                                                                                                                                                                                                                     |       |               |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                                         |       | $                  | 1,706      |                  | $          | 1,825 |   |
| Restricted cash                                                                                                                                                                                                                    |       | —             |       | 282                   |       |
| Accounts  receivable, net of allowance for doubtful accounts of $254 at March 31,  2008 and $281 at December 31, 2007                                                                                                    |       | 12,909             |       | 12,807                |       |
| Inventories, net                                                                                                                                                                                                                   |       | 16,777             |       | 15,763                |       |
| Prepaid expenses  and other current assets                                                                                                                                                                                         |       | 1,586              |       | 1,436                 |       |
| Income taxes  receivable                                                                                                                                                                                                           |       | 274                |       | —                |       |
| Deferred income  taxes, net                                                                                                                                                                                                        |       | 980                |       | 936                   |       |
| Total current assets                                                                                                                                                                                                               |       | 34,232             |       | 33,049                |       |
|                                                                                                                                                                                                                               |       |               |       |                  |       |
| Property and  equipment, net                                                                                                                                                                                                       |       | 18,428             |       | 19,036                |       |
| Deferred income  taxes, net                                                                                                                                                                                                        |       | 672                |       | 642                   |       |
| Goodwill                                                                                                                                                                                                                           |       | 11,442             |       | 10,998                |       |
| Intangible  assets, net                                                                                                                                                                                                            |       | 2,174              |       | 2,128                 |       |
| Other assets                                                                                                                                                                                                                       |       | 875                |       | 994                   |       |
|                                                                                                                                                                                                                               |       | $                  | 67,823     |                  | $          | 66,847 |   |
|                                                                                                                                                                                                                               |       |               |       |                  |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                          |       |               |       |                  |       |
| Current  liabilities                                                                                                                                                                                                               |       |               |       |                  |       |
| Accounts payable                                                                                                                                                                                                                   |       | $                  | 11,497     |                  | $          | 9,447 |   |
| Short-term debt  (including current maturities of long-term debt)                                                                                                                                                                  |       | 11,261             |       | 10,335                |       |
| Current  maturities of capital lease obligations                                                                                                                                                                                   |       | 416                |       | 153                   |       |
| Income taxes  payable                                                                                                                                                                                                              |       | —             |       | 178                   |       |
| Accrued expenses                                                                                                                                                                                                                   |       | 5,195              |       | 5,444                 |       |
| Total current liabilities                                                                                                                                                                                                          |       | 28,369             |       | 25,557                |       |
|                                                                                                                                                                                                                               |       |               |       |                  |       |
| Long-term debt,  less current maturities                                                                                                                                                                                           |       | 6,859              |       | 7,467                 |       |
| Capital lease  obligations, less current maturities                                                                                                                                                                                |       | 420                |       | 198                   |       |
| Other long-term  liabilities                                                                                                                                                                                                       |       | 816                |       | 906                   |       |
| Total  liabilities                                                                                                                                                                                                                 |       | 36,464             |       | 34,128                |       |
|                                                                                                                                                                                                                               |       |               |       |                  |       |
| Commitments and  contingencies                                                                                                                                                                                                     |       | —             |       | —                |       |
| Minority  interest                                                                                                                                                                                                                 |       | 719                |       | 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  March 31, 2008 and December 31, 2007; outstanding – 9,544 shares at  March 31, 2008 and December 31, 2007 |       | 98                 |       | 98                    |       |
| Additional  paid-in capital                                                                                                                                                                                                        |       | 31,220             |       | 31,210                |       |
| Treasury stock –  244 shares in 2008 and 2007                                                                                                                                                                                 |       | (1,871             | )          | (1,871                | )          |
| Retained  earnings (accumulated deficit)                                                                                                                                                                                           |       | (1,493             | )          | 113                   |       |
| Accumulated  other comprehensive income - Foreign currency translation                                                                                                                                                             |       | 2,686              |       | 2,214                 |       |
| Total stockholders’ equity                                                                                                                                                                                                    |       | 30,640             |       | 31,764                |       |
|                                                                                                                                                                                                                               |       | $                  | 67,823     |                  | $          | 66,847 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

3

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CHANNELLCOMMERCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(UNAUDITED)

*(amountsin thousands)*

* *
| ** **                                                                                                        | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                        | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Cash flows from  operating activities:                                                                            |       |                                                 |       |   |   |
| Net income  (loss)                                                                                                |       | $                                                    | (1,606     | ) | $ | 115 |   |
| Adjustments to  reconcile net income (loss) to net cash used in operating activities:                             |       |                                                 |       |   |   |
| Depreciation and  amortization                                                                                    |       | 1,269                                                |       | 1,187 |   |
| Stock-based  compensation                                                                                         |       | 10                                                   |       | 60 |   |
| Loss (gain) on  disposal of fixed assets                                                                          |       | (5                                                   | )          | 23 |   |
| Amortization of  deferred gain on sale leaseback                                                                  |       | (15                                                  | )          | (15 | ) |
| Provision for  doubtful accounts                                                                                  |       | 201                                                  |       | (7 | ) |
| Provision for  inventory obsolescence                                                                             |       | 26                                                   |       | 33 |   |
| Minority  interest in income loss of subsidiaries                                                                 |       | (276                                                 | )          | (65 | ) |
| Changes in  operating assets and liabilities:                                                                     |       |                                                 |       |   |   |
| Accounts  receivable                                                                                              |       | (110                                                 | )          | (4,824 | ) |
| Inventories                                                                                                       |       | (692                                                 | )          | (2,583 | ) |
| Prepaid expenses  and other current assets                                                                        |       | (121                                                 | )          | (25 | ) |
| Income taxes  receivable                                                                                          |       | (453                                                 | )          | 105 |   |
| Other assets                                                                                                      |       | 136                                                  |       | (128 | ) |
| Accounts payable                                                                                                  |       | 1,217                                                |       | 4,795 |   |
| Accrued expenses  and other liabilities                                                                           |       | (457                                                 | )          | 946 |   |
| Net cash used in  operating activities                                                                            |       | (876                                                 | )          | (383 | ) |
|                                                                                                              |       |                                                 |       |   |   |
| Cash flows from  investing activities:                                                                            |       |                                                 |       |   |   |
| Purchase of  property and equipment                                                                               |       | (1,011                                               | )          | (339 | ) |
| Proceeds from  sale of property and equipment                                                                     |       | 1,331                                                |       | 66 |   |
| Net cash  provided by (used in) investing actitivities                                                            |       | 320                                                  |       | (273 | ) |
|                                                                                                              |       |                                                 |       |   |   |
| Cash flows from  financing activities:                                                                            |       |                                                 |       |   |   |
| Repayment of  debt                                                                                                |       | (1,392                                               | )          | (792 | ) |
| Borrowings from  credit facilities                                                                                |       | 1,259                                                |       | 402 |   |
| Borrowings  (repayment) of obligations under capital lease, net                                                   |       | 463                                                  |       | (61 | ) |
| Net cash  provided by (used in) financing activities                                                              |       | 330                                                  |       | (451 | ) |
|                                                                                                              |       |                                                 |       |   |   |
| Effect of exchange  rates on cash                                                                                 |       | (175                                                 | )          | 97 |   |
| Decrease in cash  and cash equivalents                                                                            |       | (401                                                 | )          | (1,010 | ) |
| Cash and cash  equivalents, beginning of period                                                                   |       | 2,107                                                |       | 2,235 |   |
| Cash and cash  equivalents, end of period                                                                         |       | $                                                    | 1,706      |   | $ | 1,225 |   |
| Cash paid during  the period for:                                                                                 |       |                                                 |       |   |   |
| Interest                                                                                                          |       | $                                                    | 499        |   | $ | 289 |   |
| Income taxes                                                                                                      |       | $                                                    | 6          |   | $ | 11 |   |
| Non-cash  investing activities:                                                                                   |       |                                                 |       |   |   |
| Purchases of  property and equipment which are included in obligations under capital leases  and accounts payable |       | $                                                    | 609        |   | $ | 295 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

4

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CHANNELLCOMMERCIAL CORPORATION AND SUSBSIDIARIES

CONDENSED CONSOLIDATEDSTATEMENT OF STOCKHOLDERS’ EQUITY

Three months ended March 31,2008

(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      |       | —                |       | —      |       | 10                      |       | —           |       | —            |       | —                 |       | —          |       | 10         |       |
|                           |       |                  |       |        |       |                    |       |             |       |              |       |                   |       |            |       |       |       |
| Foreign currency  translation  |       | —                |       | —      |       | —                  |       | —           |       | —            |       | —                 |       | 472             |       | 472        |       |
|                           |       |                  |       |        |       |                    |       |             |       |              |       |                   |       |            |       |       |       |
| Net loss for the  period       |       | —                |       | —      |       | —                  |       | —           |       | —            |       | (1,606                 | )          | —          |       | (1,606     | )          |
|                           |       |                  |       |        |       |                    |       |             |       |              |       |                   |       |            |       |       |       |
| Balance,  March 31, 2008  |       | 9,788                 |       | $           | 98         |                    | $          | 31,220           |       | 244               |       | $                      | (1,871     | )               | $          | (1,493     | )          | $ | 2,686 |   | $ | 30,640 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

5

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CHANNELLCOMMERCIAL CORPORATION

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31,2008 and 2007

*(amountsin thousands, 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 March 31, 2008 and theresults of its operations and cash flows for the three months ended March 31,2008 and 2007.  The results of operationsand cash flows for the three months ended March 31, 2008 and cash flowsfor the three months ended March 31, 2008 are not necessarily indicativeof the results to be expected for any other interim period or the fullyear.  These 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.

 

***RecentAccounting Pronouncements*. **In September 2006, the Financial Accounting Standards Board (“FASB”)issued Statement of Financial Accounting Standards (“SFAS”) No. 157,*  Fair Value Measurements*, whichdefines fair value, establishes a framework for measuring fair value inaccordance with generally accepted accounting principles, and expandsdisclosures about fair value measurements. In February 2008, the FASBissued Staff Position 157-2, which delays the effective date of SFAS No. 157for nonfinancial assets and liabilities, except for those that are recognizedor disclosed at fair value in the financial statements on a recurring basis,until January 1, 2009. The Company adopted SFAS 157 as of January 1,2008, with the exception of the application of the statement to non-recurring,nonfinancial assets and liabilities. The adoption of SFAS 157 did not have amaterial impact on the Company’s consolidated financial positionor results of operations.

 

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

 

In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements — an amendment ofAccounting Research Bulletin (“ARB”) No. 51, which establishes and expandsaccounting and reporting standards for minority interests, which will berecharacterized as noncontrolling interests, in a subsidiary and thedeconsolidation of a subsidiary.  Thisstatement is effective for fiscal years beginning on or after December 15,2008.  Early adoption of this statementis prohibited, and the presentation and disclosure requirements shall beapplied retrospectively for all periods presented.  The Company is currently assessing thepotential impact that the adoption of this statement will have on its financialposition 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 March 31, 2008, theCompany had total unvested stock-based compensation expense of $58.  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 $10 and $60 during the first quarter of 2008 and2007, respectively.  During the threemonths ended March 31, 2008, the Company granted options under its 2003Incentive Stock Plan for the purchase of 24 shares of common stock at aweighted average exercise price of $1.19 per share and a weighted average fairvalue of $0.96 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:

 
| ** **                        | ** ** | **March 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|-----------------------------------|------------|------------------------------|------------|---------------------------------|------------|
|                              |       |                         |       |                            |       |
| Raw Materials                     |       | $                            | 7,403      |                            | $          | 6,786 |   |
| Work-in-Process                   |       | 4,915                        |       | 4,100                           |       |
| Finished Goods                    |       | 5,865                        |       | 6,459                           |       |
|                              |       | 18,183                       |       | 17,345                          |       |
| Less inventory  valuation reserve |       | (1,406                       | )          | (1,582                          | )          |
|                              |       | $                            | 16,777     |                            | $          | 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 three months ended March 31, 2008 and2007*. *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 threemonths ended March 31, 2008, there is no calculation of dilution since theCompany incurred a loss for the period, thereby resulting in the optionsbecoming antidilutive.  For the threemonths ended March 31, 2007, the calculation of dilutive shares from theexercise of stock options resulted in a number of dilutive shares that roundedto less than 1.  The following is areconciliation of the number of shares (denominator) used in the basic anddiluted income (loss) per share computations for three months ended March 31,2008 and 2007:

 
| ** **                        | ** ** | **Three months ended March 31,** | ** ** |
|-----------------------------------|------------|------------------------------------------------------|------------|
| ** **                        | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** **                        | ** ** | ** **                                           | ** ** | **Per Share** | ** ** | ** ** | ** ** | **Per Share** | ** ** |
| ** **                        | ** ** | **Shares**                                           | ** ** | **Amount** | ** ** | **Shares** | ** ** | **Amount** | ** ** |
| Basic income  (loss) per share    |       | 9,544                                                |       | $ | (0.17 | ) | 9,543 |   | $ | 0.01 |   |
| Effect of  dilutive stock options |       | —                                               |       | — |   | — |   | — |   |
| Diluted income  (loss) per share  |       | 9,544                                                |       | $ | (0.17 | ) | 9,543 |   | $ | 0.01 |   |

 

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

* *
| ** **                                  | ** ** | **Three months ended March 31,** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                  | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| * *                                    | * *   | * *                                             | * *   | * * | * * |
| Options to  purchase shares of common stock |       | 1,676                                                |       | 1,748 |   |
| Exercise prices                             |       | $1.18 - $13.75                                       |       | $3.60 - $13.75 |   |
| Expiration dates                            |       | July 2010 –  February 2018            |       | July 2010 –  October 2016 |   |

 

**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:

 

7

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| ** **                             | ** ** | **Three months ended March 31,** | ** ** |
|----------------------------------------|------------|------------------------------------------------------|------------|
| ** **                             | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Revenues from  external customers (1): |       |                                                 |       |   |   |
| Americas                               |       | $                                                    | 15,557     |   | $ | 18,664 |   |
| International                          |       | 9,602                                                |       | 14,189 |   |
|                                   |       | $                                                    | 25,159     |   | $ | 32,853 |   |
| Income (loss)  from operations:        |       |                                                 |       |   |   |
| Americas                               |       | $                                                    | (574       | ) | $ | 466 |   |
| International                          |       | (1,302                                               | )          | (390 | ) |
|                                   |       | $                                                    | (1,876     | ) | $ | 76 |   |
| Interest  expense, net:                |       |                                                 |       |   |   |
| Americas                               |       | $                                                    | 137        |   | $ | 139 |   |
| International                          |       | 333                                                  |       | 33 |   |
|                                   |       | $                                                    | 470        |   | $ | 172 |   |

 

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| (1) Note: | Revenues from Australia exceeded 10% of total  revenues for the three months ended March 31, 2008 and 2007  Revenues from Australia totaled $8,448 and  $12,801 for the three month periods in 2008 and 2007, respectively. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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

 
| ** **              | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------|------------|------------------------------------------------------|------------|
| ** **              | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Product lines:          |       |                                                 |       |   |   |
| Enclosures              |       | $                                                    | 10,760     |   | $ | 13,513 |   |
| Water-related  products |       | 10,715                                               |       | 15,542 |   |
| Connectivity            |       | 3,323                                                |       | 2,500 |   |
| Other                   |       | 361                                                  |       | 1,298 |   |
|                    |       | $                                                    | 25,159     |   | $ | 32,853 |   |

 

**6.****              *IncomeTaxes.***  The effective taxrate is 19.8% for the three months ended March 31, 2008, compared to thestatutory rate of 34%.  The effectiverate is based on the expected rate for the full fiscal year. The income taxbenefit recorded for the three months ended March 31, 2008 is primarily aresult of the losses from the foreign operations of the Company.  The Company has not recorded an income taxbenefit on the loss of the Company’s domestic operations because of the Company’sfederal net operating loss carryforward position and the full valuationallowance 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 is necessary.

 

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 the financialstatements and provides guidance on derecognition, measurement, classification,interest and penalties, accounting in interim periods, disclosure andtransitions issues.  The adoption of FIN48 resulted in no impact to the Company’s consolidated financialstatements.  As of March 31, 2008,the Company had no material unrecognized tax benefits. Based on the informationcurrently available, no significant changes in unrecognized tax benefits areexpected in the next twelve months. As of March 31, 2008, the Companyfiles income tax returns in the U.S. federal jurisdiction and various state andforeign jurisdictions.  The 2002 through2007 tax years remain subject to examination by federal tax authorities whilemost state and foreign jurisdictions remain subject to examination from 2003through 2007.

 

8

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The Company recognizesinterest and penalties related to uncertain tax positions in income taxexpense.  As of March 31, 2008, theCompany had no provisions for interest or penalties related to uncertain taxpositions.

 

**7.*****              Commitments and Contingencies*.**  *EmploymentAgreements**—***In December, 2003 the Companyentered into an employment agreement with William H. Channell Jr., itspresident and chief executive officer. The employment agreement is for an initial five-year term and isautomatically renewed for additional five-year terms unless it is terminated bythe Company or by Mr. Channell, Jr. in accordance with the agreement.Mr. Channell, Jr.’s salary (1) maybe increased from time to time at the discretion of the Board of Directors and (2) willbe increased annually, beginning July 1, 2004, to reflect the mostrecently published annualized percentage increase in the consumer price indexfor the Los Angeles, California area. The agreement also provides that his base salary will not be decreasedbelow $718 (which was the base salary on the original effective date of theagreement).  In addition to basesalary, Mr. Channell, Jr. is entitled to participate in cash andother bonus programs, including the 2003 Incentive Stock Plan, 401(k) planand the 2004 Incentive Bonus Plan. Pursuant to the agreement, the Company is also required to maintaincertain insurance policies for Mr. Channell Jr.’s benefit and he is alsoentitled to certain other benefits, including an automobile allowance, healthinsurance, and vacation and sick leave, in accordance with customary practicesfor senior executive officers.  In theevent that (1) the Company terminates Mr. Channell, Jr.’s employmentwithout “cause,” as defined in the agreement, or (2) Mr. Channell, Jr.terminates his employment with the Company for “good reason,” which is alsospecifically defined in the agreement, then Mr. Channell, Jr. wouldbe entitled to a lump sum payment equal to three times his then current basesalary, all health and life insurance benefits for three years, and acceleratedvesting of any stock options or restricted stock granted to him.  In addition, if the Company terminates Mr. Channell, Jr.’semployment for any reason other than cause, it is required to maintain Mr. Channell, Jr.’sdisability policy, at its expense, until the date on which Mr. Channell, Jr.is 65 years old.  The agreement alsoprovides for certain benefits to Mr. Channell, Jr. upon his death ordisability.

 

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. Channell with medical insurance (to the sameextent such insurance is provided to the Company’s senior executive 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 March 31, 2008, the Company andthe IRS have resolved all outstanding issues except for the one related to an ordinaryworthless stock deduction.  The amount ofthe 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 $3,358 in the firstquarter of 2008 represented 13.5% of the Company’s sales in the period.  Sales to Verizon of $3,657 in the firstquarter of 2007 represented 11.1% of the Company’s sales in the period.

 

Accounts receivablefrom Verizon of $2,329 and $1,128 represented 18.0% and 8.8% of Companyaccounts receivable as of March 31, 2008 and December 31, 2007,respectively.

 

9

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** **

**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 theCompany, and such guaranteed 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 March 31, 2008, the outstanding loanbalance subject to the guarantee totaled approximately $476.  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.

** **

The changes in thecarrying amount of goodwill, the non-compete agreement and the nonamortizabletrademark intangible, are summarized below for the three months ended March 31,2008:

 
| ** **                              | ** ** | ** **   | ** ** | **Non-Compete** | ** ** | **Trademark**  | ** ** |
|-----------------------------------------|------------|--------------|------------|-----------------|------------|----------------|------------|
| ** **                              | ** ** | **Goodwill** | ** ** | **Agreement**   | ** ** | **Intangible** | ** ** |
|                                    |       |         |       |            |       |           |       |
| Balance at  December 31, 2007      |       | $            | 10,998     |            | $          | 1,339          |       | $ | 789 |   |
| Amortization of  non-compete agreement  |       | —       |       | (52             | )          | —         |       |
| Effect of  foreign currency translation |       | 444          |       | 61              |       | 37             |       |
| Balance at  March 31, 2008         |       | $            | 11,442     |            | $          | 1,348          |       | $ | 826 |   |

 

As of March 31,2008, the Company has recorded goodwill of $771 in its Canadian reporting unit,which is part of the Americas segment and $10,671 of goodwill in its BushmanTanks reporting unit, which is part of the International segment.

 

The estimatedamortization expense, based on current intangible balances and the March 31,2008 foreign currency exchange rates, is $213 per year for the next five fiscalyears, and $283 thereafter.

** **

**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 March 31,2008 under the revolving line of credit, term loan and capital expenditurefacility were $5,394, $2,208 and $835, respectively.  As of March 31,2008, outstanding letters of credit totaled $586.

 

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.

 

10

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The loans under theAgreement are guaranteed by Channell Limited, Channell Commercial EuropeLimited and A.C. Egerton (Holdings) Limited, which are direct and indirect subsidiariesof the Company (the “Subsidiary Guarantors”), and are secured by substantiallyall of the assets of the Company and the Subsidiary Guarantors. In addition,any borrowings made by Channell Canada are secured by substantially all of theassets of Channell Canada.  The Agreement contains various financial andoperating covenants that impose limitations on the Company’s ability, amongother things, to incur additional indebtedness, merge or consolidate, sellassets except in the ordinary course of business, make certain investments,enter into leases and pay dividends.  The Agreement requires the Companyto maintain a lockbox on the revolving credit facility.  The Agreementalso generally provides that if there exists an event of default thereunder,the lenders or administrative agents would have the option of accelerating theoutstanding obligations and terminating all commitments thereunder. The Companywas in compliance with all covenants at March 31, 2008; however, thereexisted an event of default under the Agreement as of such date pursuant to thecross-default provision thereof as a result of the defaults under the FacilityAgreement (as defined below) as of such date, which is discussed below.  The Company received a waiver for the eventof default under the Agreement.

 

In October 2007Channell Bushman Pty Limited, a majority-owned subsidiary of the Company (“ChannellBushman”), 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 Agreementterminates on September 30, 2010, unless earlier terminated pursuant tothe terms thereof.

 

The Facility Agreement(denominated in Australian dollars) provides for credit facilities in theaggregate principal amount of $11,934, consisting of: (i) a term loan of$7,344 and (ii) a revolving facility with borrowings of up to $4,590,depending on the level of certain qualifying assets. The term loan is repayablein monthly payments beginning March 2008 based on a 50-month amortizationschedule and a balloon payment due September 30, 2010.  At March 31, 2008, the outstandingbalance under the term loan was $6,059 and the outstanding balance on the revolverwas $3,599.

 

Under the FacilityAgreement, the outstanding balance of the term loan bears interest payablemonthly at a variable rate based on the Lender’s base rate.

 

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. In March 2008, Channell Bushman enteredinto a sale and leaseback transaction with an equipment finance company withrespect to its truck fleet.  The net proceeds from the sale of $1,276 wereused to pay down the term loan under the Facility Agreement.

 

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, appointing a receiver over the assets of Channell Bushmanand the Channell Bushman Subsidiaries with the power to, among other things,sell the assets, and causing 100% of the shares of each Channell BushmanSubsidiary to be registered in its name. The Lender may also declare theoutstanding obligations under the Facility Agreement immediately due andpayable should any change of control in Channell Bushman or any ChannellBushman Subsidiary occur.

 

The initial principalpayment under the term loan, due March 31, 2008, was made on April 14,2008.   The delay in payment was grantedby the Lender while it was engaged in discussions with Channell Bushmanregarding its business plan.

*** ***

As of March 31, 2008Channell Bushman was not in compliance with the financial covenants under theFacility Agreement and was in default thereunder as a result of having borrowedfunds in excess of those permitted by the borrowing base calculations of theFacility Agreement (the “Borrowing Base Default”).  In May 2008, 

 

11

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Channell Bushman enteredinto an amendment to the Facility Agreement which, among other things,provides: (i) for payment of $338 by Channell Bushman to the Lender tocure the Borrowing Base Default, (ii) that Channell Bushman must pay infull (without any prepayment or other fee) all amounts owing under the FacilityAgreement no later than October 26, 2008, (iii) for a financialcovenant related to the ratio of the total loan principal outstanding under theFacility Agreement to the total amount of Channell Bushman receivables,inventory and property and equipment, and in the event that such covenant isnot maintained as of each testing date for such covenant, a mandatoryprepayment of the loans under the Facility Agreement in the amounts specifiedtherein, (iv) for a waiver, as of the date of the amendment and in thefuture, of (a) the financial covenants in section 9.13 of the FacilityAgreement (which are replaced in their entirety by the financial covenantdescribed 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.

 

In March 2008,Channell Pty Limited and Bushman Group Pty Limited, which are indirect subsidiariesof the Company, entered into a new loan and security agreement with acommercial bank in Australia. The Agreement (denominated in Australian dollars)includes equipment financing facilities of $918, performance guarantees, creditcard facilities and payroll processing facilities. The loans under theAgreement are secured by all the assets of Channell Pty Limited.  The Agreement replaces a similar Agreementthat Channell Pty Limited and Bushman Group Pty Limited had with anothercommercial bank in Australia.

 

The Agreement containsvarious operating covenants that impose limitations on Channell Pty Limited andBushman Group Pty Limited’s ability, among other things, to merge orconsolidate, sell assets except in the ordinary course of business, and paydividends.

 

**12.****       *Restructuring Charge. *** In the first quarter of 2008, the Company announceda restructuring plan in an effort to further reduce costs and align headcountand facilities with expected business levels. The restructuring charge for thefirst quarter of 2008 totaled $405. The principal actions in the restructuringplan involve a reduction of headcount and rationalization of facilities. Therestructuring plan in the U.S. resulted in the elimination of 80 management,administrative, sales and manufacturing positions and was substantiallycompleted by March 31, 2008. The major components of the restructuringcharge are as follows:

 
| Employee  severance and related benefit costs        |   | $      | 234    |   |
|------------------------------------------------------|--------|--------|--------|--------|
|                                                 |   |   |   |
| Costs associated  with rationalization of facilities |   | 171    |   |
|                                                 |   | $      | 405    |   |

 

**S*everance. ***TheCompany had a total reduction of 80 employees, which is approximately 20% ofthe total U.S. workforce. The reductions affected employees in the followingareas: factory direct labor, factory support, management, administrative andsales.

*** ***

***Costs Associated with Rationalization of Facilities. ***The Company hasincurred costs of $193 related to an approximate 88 square foot reduction inmanufacturing floor space, which is approximately 25% of the Company’s squarefootage in the U.S.   Additional costsrelated to the rationalization of facilities of approximately $220 are expectedto be incurred in the second quarter of 2008. The rationalization effort includes consolidation of machinery andequipment into a reduced amount of manufacturing space and disposal of excessmachinery and equipment.

 

13. ***Subsequent Event.*** Unusually highlevels of rainfall in parts of Australia, beginning in the latter part of 2007and continuing into 2008, resulted in a decline in market demand that resultedin materially lower first quarter revenues in the Company’s Australianoperations.  As a result of theforegoing, in April 2008, Channell Bushman announced and undertook arestructuring plan.  In connection withthe restructuring plan, the headcount for Channell Bushman’s operations wasreduced by approximately 25%, and severance costs of approximately $225 wereincurred.  In addition, the scale ofoperations was reduced at three of Channell Bushman’s operating facilities.

 

**Item 2.    Management’s Discussion and Analysis of Financial Condition andResults of Operations.**

 

### **Introduction and Overview**

### ** **

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

 

12

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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 regulatory factors at the local, state,and federal government levels.  Recently, portions of Australia haveexperienced significant rainfall which, if continued, could continue tonegatively affect the sales of the Company’s product.

 

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 continues to be long-term growthopportunities within both the communications infrastructure equipment and watertank markets.

 

**Results of Operations**

** **

**Comparison of the Three MonthsEnded March 31, 2008 with the Three Months Ended March 31, 2007**

** **

***NetSales*.**  Net salesin the first quarter of 2008 were $25.2 million, a decrease of $7.7 million or23.4% compared to the first 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$15.6 million in the first quarter of 2008, a decrease of $3.1 million or 16.6%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 $9.6 million in the first quarter of 2008, a decrease of $4.6 million or32.4% from the same period in 2007.  Thelower sales volume was primarily a result of decreased demand for the Company’swater storage tanks due to unusually high levels of rainfall in Australia.

 

Sales to Verizon of $3.3million in the first quarter of 2008 represented 13.5% of Company sales in theperiod.  Sales to Verizon of $3.7 millionin the first quarter of 2007 represented 11.1% of Company sales in theperiod.  Sales to Verizon have historicallyfluctuated from period to period. Accordingly, the Company cannot accurately predict what sales to Verizonwill be for the remainder of 2008.

 

***GrossProfit*.**  Grossprofit in the first quarter of 2008 was $7.4 million, a decrease of $2.6million or 26.0% compared to the first 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 $0.9 million from $5.8 million in the firstquarter of 2007 to $4.9 million in the first quarter of 2008.  Gross profit of $2.5 million in the firstquarter of 2008 in the International segment was $1.7 million lower than in thecorresponding 2007 period.

 

As a percentage of netsales, gross profit decreased from 30.4% in the first quarter of 2007 to 29.3%in the first quarter of 2008.  Thedecrease is primarily due to a decrease in the gross profit percentage in theInternational segment from 29.6% in the first quarter of 2007 to 25.9% in thefirst quarter of 2008.  This decrease isprimarily due to the lower revenues in Australia, which resulted in reducedabsorption of fixed costs.  Offsettingthe decrease in the gross profit percentage in the International segment was anincrease in the gross profit percentage in the Americas segment from 30.9% inthe first quarter of 2007 to 31.4% in the first quarter of 2008.  This increase was primarily due to the costreductions associated with the Company’s U.S. restructuring activities.

 

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***Selling*.**  Selling expenses were $5.0 million in thefirst quarter of 2008, a decrease of $0.2 million or 3.8% from the firstquarter of 2007.

 

As a percentage of netsales, selling expenses increased from 16.0% in the first quarter of 2007 to19.8% 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.

 

***Generaland Administrative*.** General and administrative expenses were $3.5 million in the firstquarter of 2008, a decrease of $0.7 million or 16.7% from the first quarter of2007.  The decrease is due primarily tolower general and administrative expenses of approximately $0.5 million in theInternational segment, of which $0.2 million related to lower compensation andbenefits and $0.1 million was related to reduced professional fees.  The reduction in the Americas segment of $0.2million included lower incentive compensation expense of $0.3 million, offset byother expenses of $0.1 million.

 

As a percentage of netsales, general and administrative expense increased from 12.9% in the firstquarter of 2007 to 13.8% in the corresponding 2008 period as a result of thesmall decrease in general and administrative expenses compared to the largerdecrease in revenues.

 

***Researchand Development*.** Research and development expenses were $0.4 million in the first quarterof 2008 and 2007.

 

As a percentage of netsales, research and development expenses increased from 1.3% in the firstquarter of 2007 to 1.6% in the first quarter of 2008 as a result of decreasedrevenues.

 

***RestructuringCharge.**** *The Company recorded $0.4 millionof restructuring costs in the first quarter of 2008.  Included in the costs were $0.2 million forseverance and $0.2 million for facilities rationalization expenses all of whichwere primarily related to the Americas segment. The rationalization effort includes consolidation of machinery andequipment into a reduced amount of manufacturing space and disposal of excessmachinery and equipment.

 

***Income(Loss) from Operations*.** As a result of the items discussed above, loss from operations was($1.9) million in the first quarter of 2008 compared to income from operationsof $0.1 million in the first quarter of 2007. Operating margin as a percent of sales was (7.5%) in the first quarterof 2008 compared to 0.2% in the corresponding 2007 period.

 

***InterestExpense, Net*.** Interest expense, net of interest income, was $0.5 million in the firstquarter of 2008 and $0.2 million in the first quarter of 2007.

 

***IncomeTaxes*.**  There wasan income tax benefit of $0.5 million in the first quarter of 2008 compared toan income tax benefit of $0.1 million in the first quarter of 2007.  The effective tax rate was 19.8% in the firstquarter of 2008 and 152.1% in the first quarter of 2007.  Since the Company has a full valuationallowance on the realization of the domestic net deferred tax asset, no taxexpense or benefit is currently being recorded on the results of operations inthe U.S.  The tax benefit recorded inboth years was a result of the loss in the Company’s foreign operations.

 

**Liquidity and Capital Resources**

 

Net cash used inoperating activities was ($0.9) million for the three months ended March 31,2008, compared to ($0.4) million for the three months ended March 31,2007.  The cash used in operatingactivities in 2008 was primarily due to the ($1.6) million net loss along witha net use of cash of ($0.5) million related to the change in the operatingassets and liabilities offset by $1.2 million in non-cash deductions, most ofwhich were for depreciation and amortization.

 

Net cash provided by(used in) investing activities was $0.3 million for the quarter ended March 31,2008 and ($0.3) million for the quarter ended March 31, 2007.  Proceeds from a sale-leaseback transaction of$1.3 million in 2008 were offset by purchases of property and equipment of $1.0million.

 

Net cash provided by(used in) financing activities was $0.3 million for the three months ended March 31,2008 compared to ($0.5) million for the three months ended March 31,2007.  The increase was due to theCompany’s higher borrowings under the Company’s credit facilities in thecurrent quarter as compared to the higher repayment of debt relative to theborrowings in the corresponding 2007 period.

 

Cash and cash equivalentson March 31, 2008 were $1.7 million as compared to $2.1 million at December 31,2007.

 

Net accounts receivableincreased to $12.9 million at March 31, 2008 from $12.8 million at December 31,2007 due to the higher volume of sales during March 2008 compared to December 2007.  In terms of days sales outstanding, accountsreceivable increased from 39 days at December 31, 2007 to 46 days at March 31,2008.  The increase in days salesoutstanding is due to a higher percentage of sales occurring at the end of thefirst quarter in 2008 as compared to the end of the fourth quarter of 2007.

 

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Inventories increased to$16.8 million at March 31, 2008 from $15.8 million at December 31,2007 due to the higher volume of manufacturing activity at the end of the firstquarter of 2008 compared to the fourth quarter of 2007.  Days inventory increased from 68 days at December 31,2007 to 85 days at March 31, 2008.

 

Accounts payableincreased from $9.4 million at December 31, 2007 to $11.5 million at March 31,2008 due to the higher volume of activity at the end of the first quarter of2008.  Days payables were 41 days at December 31,2007 and 58 days at March 31, 2008 due to the increase in accounts payableat the end of the first quarter.

 

As of March 31, 2008Channell Bushman Pty Limited, a subsidiary of the Company (“Channell Bushman”),was not in compliance with the financial covenants under the facility agreementgoverning its outstanding term loan and revolver (the “Facility Agreement”) andwas in default thereunder as a result of having borrowed funds in excess ofthose permitted by the borrowing base calculations of the Facility Agreement(the “Borrowing Base Default”). These defaults were due in large part tomaterially lower first quarter revenues in the Company’s Australianoperations.  Unusually high levels ofrainfall in parts of Australia, beginning in the latter part of 2007 andcontinuing into 2008, resulted in a decline in market demand that contributedto the decrease in revenues.  As a resultof the foregoing, in April 2008, Channell Bushman announced and undertooka restructuring plan.  In connection withthe restructuring plan, the headcount for the Company’s Channell Bushmanoperations was reduced by approximately 25%, and severance costs ofapproximately $225 were incurred.  Inaddition, the scale of operations was reduced at three of Channell Bushman’soperating facilities.

 

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

 

Management anticipatesthat the material reduction in revenues for the Company’s Channell Bushmanoperations will continue over the near term. Management believes there are several alternatives to address this short-termissue and is currently evaluating these alternatives.  If the reduction in revenue continues for anextended period and management’s restructuring efforts do not sufficientlyimprove the operating results, the future operating structure of Channell Bushman,including its credit facilities, may be adversely affected.

 

Except as noted abovewith respect to Channell Bushman, the Company believes that cash flow fromoperations and the Company’s existing debt facilities described in Note 11should be sufficient to fund the Company’s capital expenditure and workingcapital requirements 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 March 31, 2008, the outstanding loanbalance subject to the guarantee totaled $476.

 

**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.

 

15

----

 

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) arelatively small number of telecommunications customers account for a largepercentage of the Company’s available market; (4) the Company expects thatsales to the telecommunications industry will continue to represent asubstantial portion of its total sales, and the demand for products within thisindustry depends primarily on capital spending by service providers; (5) theCompany’s cost of sales may be materially affected by increases in the marketprices of the raw materials used in the Company’s manufacturing processes;  (6) the Company’s water-related salescould be materially affected by weather conditions and government regulation; (7) theCompany is subject to the risks of conducting business internationally; and (8) theindustries in which 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 September 2010.  In March 2008, two of theCompany’s Australian subsidiaries entered into a Loan and Security Agreementwith a commercial bank in Australia, which contains two equipment financing facilities,performance guarantees, credit card facilities and payroll processingfacilities.  These agreements allow forthe outstanding balance to bear interest at a variable rate based on the lender’sbase rate.  The credit facilities expose the Company to changes inshort-term interest rates since the interest rates on the credit facility arevariable.

 

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 $0.05 million perquarter.  This analysis does not considerthe effects of economic activity on the Company’s sales and profitability insuch an environment.

 

16

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**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/implement and documentcontrol procedures adequate to support the Company’s day-to-day accounting andthe financial closing and reporting process.

 

2.     Strengthen controls andprocedures 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 appropriate for such litigation matters.  Management believes that no presently pendinglitigation matters are likely to have a material adverse effect on the Company’sfinancial statements or results of operations, taken as a whole.

 

**Item 1A. Risk Factors.**

 

Not applicable.

 

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

 

Not applicable.

 

17

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

 

Not applicable.

 

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

 

Not applicable.

 

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

 

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)                                                                                                                                                                                                                                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 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) |

 

18

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| 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, 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

19

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| 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)                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 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(33)                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 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(33)                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 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(33)                                                                                                                                                                                                                       |

 

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*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.                              |

 

20

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| (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.     |
|   |                                                                                                                                        |
| (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)   | Filed herewith.                                                                                                                             |

 

21

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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:  May 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)                       |
|                                |                                                   |  |  |

 

22

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