UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

|ý | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2003; or
|- | ------------------------------------------------------------------------------------------------------------------------------------
|o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.                                           

Commission File Number 0-28582

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CHANNELL COMMERCIAL CORPORATION(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of incorporation)                                         |  | 95-2453261(IRS Employer Identification No.)
|---------------------------------------------------------------------------------------------- |  | -------------------------------------------
|26040 Ynez Road
Temecula, CA 92591(Address of principal executive offices, including zip code)
|Registrant's telephone number, including area code:(909) 719-2600                             

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Securities
registered pursuant to Section 12(b) of the Act:

None

Securities
registered pursuant to Section 12(g) of the Act:

| |  | Title of Class                |  | 
| |  | ----------------------------- |  | 
| |  | Common Stock, $0.01 Par Value |  | 

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Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. ý

On March 2, 2004, the Registrant had 9,127,661 shares of Common Stock outstanding with a par value of $.01 per share. The aggregate market value of the
4,207,531 shares held by non-affiliates of the Registrant was $23,141,421 computed by reference to the price at which the shares were last sold, as of the last business day of the
Registrant's most recently completed second fiscal quarter. Shares of Common Stock held by each officer and director and by each person who may be deemed to be an affiliate have been excluded.

Indicate
by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes o    No ý

DOCUMENTS INCORPORATED BY REFERENCE

Part III
of this Form 10-K incorporates by reference certain information from the Registrant's definitive proxy statement (the "Proxy Statement") for its annual
meeting of stockholders to be held on April 27, 2004.



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TABLE OF CONTENTS

|                     |                                                                                                |     | Page
|-------------------- | ---------------------------------------------------------------------------------------------- | --- | ----
|PART I               |                                                                                                |    
|Item 1.              | Business                                                                                       |     | 1   
|Item 2.              | Properties                                                                                     |     | 7   
|Item 3.              | Legal Proceedings                                                                              |     | 8   
|Item 4.              | Submission of Matters to a Vote of Security Holders                                            |     | 8   
|PART II              |                                                                                                |    
|Item 5.              | Market for Registrant's Common Equity and Related Shareholder Matters                          |     | 9   
|Item 6.              | Selected Financial Data                                                                        |     | 9   
|Item 7.              | Management's Discussion and Analysis of Financial Condition and Results of Operations          |     | 11  
|Item 7a.             | Quantitative and Qualitative Disclosures about Market Risk                                     |     | 27  
|Item 8.              | Financial Statements and Supplementary Data                                                    |     | 28  
|Item 9.              | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |     | 28  
|Item 9a.             | Controls and Procedures                                                                        |     | 28  
|PART III             |                                                                                                |    
|Item 10.             | Executive Officers and Directors of the Registrant                                             |     | 29  
|Item 11.             | Executive Compensation                                                                         |     | 31  
|Item 12.             | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |     | 39  
|Item 13.             | Certain Relationships and Related Transactions                                                 |     | 41  
|Item 14.             | Principal Accounting Fees and Services                                                         |     | 42  
|PART IV              |                                                                                                |    
|Item 15.             | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |     | 43  
|FINANCIAL STATEMENTS |                                                                                                | F-1
|GLOSSARY OF TERMS    |                                                                                                | G-1

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PART I

Item 1.Business

Background

Channell Commercial Corporation (the "Company") was incorporated in Delaware on April 23, 1996, as the successor to Channell Commercial Corporation, a
California corporation. The Company's executive offices are located at 26040 Ynez Road, Temecula, California 92591, and its telephone number at that address is (909) 719-2600.

General

The Company is a designer and manufacturer of telecommunications equipment supplied to broadband and telephone network providers worldwide. Major product lines
include a complete line of thermoplastic and metal fabricated enclosures, advanced copper termination and connectorization products, fiber optic cable management systems, and heat shrink products. The
Company believes it was the first to design, manufacture and market thermoplastic enclosure products for use in the telecommunications industry on a wide scale, and the Company believes it currently
supplies a substantial portion of the enclosure product requirements of a number of major broadband service providers. The Company's enclosure products house, protect and provide access to advanced
telecommunications hardware, including both radio frequency ("RF") electronics and photonics, and transmission media, including coaxial cable, copper wire and optical fibers, used in the delivery of
voice, video and data services. The enclosure products are deployed within the access portion of the local signal delivery network, commonly known as the "outside plant", "local loop" or "last mile",
that connects the network provider's signal origination point or local office with its residential and business customers. The Company's connectivity products provide critical connection points
between cable or network electronics.

Industry

Broadband and local telephone operators are building, rebuilding or upgrading signal delivery networks around the world. These networks are designed to deliver
video, voice and/or data transmissions to individual residences and businesses. Operators deploy a variety of network technologies and architectures, such as HFC, FTTC, DLC and ADSL (see "Glossary of
Terms") to carry broadband and narrowband signals. These architectures are constructed of electronic hardware connected via coaxial cables, copper wires and/or optical fibers, including various access
devices, amplifiers, nodes, hubs and other signal transmission and powering electronics. Many of these devices in the outside plant require housing in secure, protective enclosures and cable
management connectivity systems, such as those manufactured by the Company.

As
critical components of the outside plant, enclosure products provide (i) protection against weather and vandalism, (ii) ready access for technicians who maintain and
manage the outside plant and, (iii) in some cases, provide dissipation of heat generated by the active electronic hardware. Broadband and local telephone network operators place great reliance
on manufacturers of protective enclosures because any material damage to the signal delivery networks is likely to disrupt communications services. Connectivity products provide critical
data-rated connection points which support cost effective service deployment and ensure signal integrity is maintained throughout the network.

The
primary drivers of demand for enclosures in the communications industry are the construction, rebuilding, upgrading and maintenance of signal delivery networks by broadband operators
and local telephone companies. For example, broadband networks are being upgraded and prepared for advanced two-way services such as high-speed Internet access via cable
modems, telephony and PCS transport. Local telephone service providers are employing advanced technologies, such as a variety of digital subscriber line ("DSL") technologies, which
utilize installed copper wires for broadband services. These "local loop" copper wire systems often require significant upgrading and maintenance to provide the

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optimal
throughput necessary to carry high-speed broadband signals, increasing the need for fully sealed outside plant facilities in order to sustain network reliability and longevity.

Business Strategy

The Company's strategy is to capitalize on opportunities in the global communications industry by providing enclosures, connectivity products and other
complementary components to meet the evolving needs of its customers' communications networks. The Company's wide range of products, manufacturing expertise, application-based sales and marketing
approach and reputation for high quality products address key requirements of its customers. Principal elements of the Company's strategy include the following:

Focus on Core Telecommunications Business.The Company will continue to seek to capitalize on its
position as a leading designer, manufacturer and marketer of enclosures and copper wire connectors for the broadband and local telephone industries in the United States and Canada through new product
development for both domestic and international market applications. The Company believes it currently supplies a substantial portion of the enclosure product requirements of a number of major
broadband operators.

The
Company has invested in the development of a broad range of products designed specifically for telephone applications. The Company has successfully marketed its traditional broadband
products to local telephone companies that have been designing and deploying broadband networks to deliver competitive video and data services. The Company will continue to target this market for
growth, both with telephone network operators and with major system OEMs.

Expand International Presence.Management believes international markets offer significant
opportunities for increased sales to both broadband and telephone companies. The Company's principal international markets currently include Canada, Mexico, Asia, the Pacific Rim, the Middle East and
Europe. Trends expected to result in international growth opportunities include the on-going deregulation and privatization of telecommunications in many nations around the world, the
focus of numerous countries on building, expanding and enhancing their communications systems to deliver broadband services in order to participate fully in the information-based global economy, and
multinational expansion by many U.S.-based network carriers. The Company will concentrate on expansion in international markets that are characterized by deregulation or privatization of
telecommunications and by the availability of capital for the construction of signal delivery networks.

Develop New Products and Enter New Markets.The Company continues to leverage its core capabilities
in developing innovative products that meet the evolving needs of its customers. Innovative products offered by the Company include its DSLink modular terminal block, its MAH
Series free-breathing telephony enclosures, the Mini-Rocker insulation displacement copper connectivity products, and a range of Rhino
metal fabricated enclosures. The Company continually invests in ongoing improvement and enhancement projects for the existing products developed by the Company, several of which have received U.S.
patent protection. The Company's products are designed to improve the performance of its customers' outside plant systems. The Company has a proven record in designing, developing and manufacturing
"next generation" products that provide solutions for its
customers and offer advantages over those offered by other suppliers to the industry. The Company also believes its core capabilities are applicable to markets outside the telecommunications industry.

Products

The Company currently markets over 50 product families, with several thousand optional product configurations. The primary functions of the Company's products
designed for the telecommunications industry are cable routing and management, equipment access, heat dissipation and security. The

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Company
believes that it offers one of the most complete lines of outside plant infrastructure products in the telecommunications industry.

Enclosures.The Company manufactures precision-molded, highly engineered and application-specific
thermoplastic and metal fabricated enclosures that are considered state-of-the-industry for many applications, having been field tested and received approvals and
standardization certifications from major broadband and telephone company operators. Most of the Company's products are designed for buried and underground network applications. The Company's
enclosure products provide technicians access to network equipment for maintenance, upgrades and installation of new services. Buried and underground networks and enclosures are generally preferred by
broadband operators for increased network reliability, lower maintenance, improved security, reduced utility right-of-way conflicts, and aesthetic appeal. The enclosure
products, particularly the thermoplastic versions, must provide advanced heat dissipation characteristics increasingly required for the protection of active electronics in many network installations.
The Company is also a designer and manufacturer of metal fabricated enclosures that house advanced electronics, fiber optic cable and power systems for broadband telecommunications networks (branded
as "Rhino Enclosures"). The Company designs and manufactures a series of termination blocks, brackets and cable management devices for mounting inside its enclosure products. To position
itself as a full-line product supplier, the Company also offers a variety of complementary products, including thermoplastic and concrete grade level boxes. These products are typically
purchased by customers as part of a system package and are marketed by the Company through its direct sales force to its customer base. The Company is recognized in the industry for its differentiated
product designs and the functionality, field performance and service life of its products.

Copper Connectivity.The Company is a designer and manufacturer of innovative telephone connectivity
devices. The Company's Insulation Displacement Connector ("IDC") technology provides advanced "tool-less" termination systems for copper wires, the predominant medium used in the "Last
Mile" for telephone services worldwide. These proprietary IDC products environmentally seal network termination points with a high level of reliability. The Company's DSLink modular
terminal block offers telephone service providers a CAT 5 solution to the rising costs of DSL deployment in the local loop. The Company's Mini-Rocker line of
copper connectivity modules, blocks and accessories offer environmentally sealed and Category 5 data rated IDC tool-less circuit installation and have been accepted as a universal
connectivity platform for network applications worldwide.

Fiber Optic Products.The Company offers a range of fiber optic cable management products designed
for use in telephone and broadband networks. These products are particularly well suited for fiber to the premises (FTTP) network architectures. The Company's fiber optic splice cases are used for
organizing, managing and protecting the connection points between separate lengths of fiber optic cable in the outside plant network. Fiber optic cable assemblies and interconnect hardware are used to
connect fiber optic electronics and fiber optic cables primarily for in-building applications. Fiber optic electronic enclosures house optical electronics, power supplies and cables. All
of these products are designed and manufactured by the Company and marketed worldwide.

OEM Programs.The Company has OEM marketing programs through which other manufacturers incorporate
the Company's products as components of their telecommunications systems. These OEM programs generally include exchanges of technical information that the Company can use in developing new products
and improvements and enhancements to existing designs. The Company has established additional relationships with systems integrators and innovative end users that provide valuable product improvement
information.

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Marketing and Sales

The Company markets its products primarily through a direct sales force of technically trained salespeople. The Company employs an application-specific, systems
approach to marketing its products, offering the customer a complete, cost-effective system solution to meet its outside plant requirements. All sales personnel have technical expertise in
the products they market and are supported by the Company's engineering and technical marketing staff.

An
internal sales/customer service department administers and schedules incoming orders, handles requests for product enhancements and service inquiries and supports the Company's direct
sales force. This department maintains direct communications with customers and the Company's field sales and operations personnel.

By
engaging in public relations activities, product literature development, market research and advertising, the marketing department also promotes and positions the Company within both
domestic and international markets. The Company regularly attends, participates and exhibits its products at
industry trade shows and conferences within domestic and international telecommunications markets throughout the year.

Manufacturing Operations

The Company's vertically integrated manufacturing operations enable the Company to control each step in the manufacturing process, including product design and
engineering; design and production of many of its own dies, tools, molds and fixtures.

The
Company's manufacturing expertise enables it to modify its product lines to meet changing market demands, rapidly and efficiently produce large volumes of products, control expenses
and ensure product quality. Management considers the Company's manufacturing expertise a distinct and significant competitive advantage, providing it with the ability to satisfy the requirements of
major customers with relatively short lead-times by promptly booking and shipping orders.

The
Company owns a majority of its manufacturing equipment. Manufacturing processes are performed by trained Company personnel. These manufacturing processes include injection molding,
structural foam molding, rotational molding, metal fabrication, automated discrete connector fabrication, rubber injection, transfer and compression molding, and termination block fabrication. The
Company has implemented several comprehensive process and quality assurance programs, including continuous monitoring of key processes, regular product inspections and comprehensive testing.

The
Company's manufacturing and distribution facilities as of December 31, 2003, include approximately 367,000 square feet in Temecula, California; 7,000 square feet in
Mississauga, Ontario, Canada; 43,000 square feet in Orpington, United Kingdom; and 40,000 square feet in Sydney, Australia. A plan was developed to close all manufacturing operations in the United
Kingdom by mid-year 2004.

Product Development and Engineering

The Company's product development and engineering staff has designed and tested the Company's products and has developed core competencies in telecommunications
outside plant product development and engineering. As a direct result, the Company has been able to develop a broad series of superior products designed to meet the specific needs of
telecommunications companies. Distinguishing characteristics of the Company's products include:



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The
Company's product development approach is applications-based and customer driven. A team comprised of engineering, marketing, manufacturing and direct sales personnel work together
to define, develop and deliver comprehensive systems solutions to customers, focusing on the complete design cycle from product concept through tooling and high-volume manufacturing. The
Company is equipped to conduct many of its own product testing requirements for performance qualification purposes, enabling it to accelerate the product development process. The Company spent
$2.3 million in 2001, $1.6 million in 2002, and $1.9 million in 2003 on research and development.

Customers

The Company sells its products directly to broadband operators and telephone companies throughout the world, principally within developed nations. The Company
also sells its products to OEMs on a global basis. During 2003, the Company's five largest customers accounted for 57.7% of total net sales. In 2003, the Company's five largest customers by
sales in the United States were Comcast, Verizon, Time Warner, Cox and Adelphia. Comcast and Verizon accounted for 27.1% and 10.5%, respectively, of the Company's net sales in 2003. In international
markets, the Company's five largest customers in 2003 by sales were Telstra (Australia), Rogers (Canada), Eircom (Ireland), British Telecom, and Unitelco (Malaysia).

The
Company has historically operated with a relatively small backlog. Sales and operating results in any quarter are primarily dependent upon orders booked and products shipped in the
quarter. The Company's customers generally do not enter into long-term supply contracts providing for future purchase commitments of the Company's products. Rather, the Company believes
that many of its customers periodically review their supply relationships and adjust buying patterns based upon their current assessment of the products and pricing available in the marketplace. From
fiscal period to fiscal period, significant changes in the level of purchases of the Company's products by specific customers can and do result from this periodic assessment.

Intellectual Property

The Company owns substantially all of the patents and other technology employed by it in the manufacture and design of its products. The Company's patents, which
expire through the year 2010, cover various aspects of the Company's products. In addition, the Company has certain trade secrets, know-how and trademarks related to its technology and
products.

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Management
does not believe any single patent or other intellectual property right is material to the Company's success as a whole. The Company maintains an intellectual property
protection program designed to preserve its intellectual property assets.

Competition

The telecommunications industry is highly competitive. The Company's competitors include companies that are much larger than the Company, such as Tyco, 3M,
Marconi, Arris and Corning. The Company believes its competitive advantages include its ability to service national and multi-national customers, its direct sales force, its specialized engineering
resources and its vertically integrated manufacturing operations.

Management
believes the principal competitive factors in the telecommunications equipment market are customer service, new product capabilities, price, product availability, and product
performance.

Competitive
price pressures are common in the industry. In the past, the Company has responded effectively to competition with cost controls through vertical integration utilizing
advanced manufacturing techniques, cost-effective product designs and material selection, and an aggressive procurement approach.

In
the past, certain of the Company's telecommunications customers have required relatively lengthy field testing of new products prior to purchasing such products in quantity. While
field testing can delay the introduction of new products, it can also act as a competitive advantage for those products tested and approved because to a certain extent it creates a barrier to new
product introduction and sales by competitors.

Raw Materials; Availability of Complementary Products

The principal raw materials used by the Company are thermoplastic resins, neoprene rubbers, hot and cold rolled steel, stainless steel, copper and brass. The
Company also uses certain other raw materials, such as fasteners, packaging materials and communications cable. Management believes the Company has adequate sources of supply for the raw materials
used in its manufacturing processes and it attempts to develop and maintain multiple sources of supply in order to extend the availability and encourage competitive pricing of these materials.

Most
plastic resins are purchased under annual or multi-year purchase agreements to stabilize costs and improve supplier delivery performance. Neoprene rubbers are
manufactured using the Company's proprietary formulas. Metal products are supplied in standard stock shapes, coils and custom rollforms.

The
Company also relies on certain other manufacturers to supply products that complement the Company's own product line, such as grade level boxes. The Company believes there are
multiple sources of supply for these products.

Employees

As of December 31, 2003, the Company employed 411 people, of whom 52 were in sales, 317 were in manufacturing operations, 8 were in research and
development and 34 were in administration. The Company considers its employee relations to be good and recognizes its ability to attract and retain qualified employees is an important factor in its
growth and development. None of the Company's employees is subject to a collective bargaining agreement, and the Company has not experienced any business interruption as a result of labor disputes
within the past five years.

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Regulation

The telecommunications industry is subject to regulations in the United States and other countries. Federal and state regulatory agencies regulate most of the
Company's domestic customers. On
February 1, 1996, the United States Congress passed the Telecommunications Act of 1996 that the President signed into law on February 8, 1996. The Telecommunications Act lifted certain
restrictions on the ability of companies, including RBOCs and other customers of the Company, to compete with one another and generally reduced the regulation of the communications industry.

The
Company is also subject to a wide variety of federal, state and local environmental laws and regulations. The Company utilizes, principally in connection with its thermoplastic
manufacturing processes, a limited number of chemicals or similar substances that are classified as hazardous. It is difficult to predict what impact these environmental laws and regulations may have
on the Company in the future. Restrictions on chemical uses or certain manufacturing processes could restrict the ability of the Company to operate in the manner that it currently operates or is
permitted to operate. Management believes that the Company's operations are in compliance in all material respects with current environmental laws and regulations. Nevertheless, it is possible that
the Company may experience releases of certain chemicals to environmental media which could constitute violations of environmental law (and have an impact on its operations) or which could cause the
Company to incur material cleanup costs or other damages. For these reasons, the Company might become involved in legal proceedings involving exposure to chemicals or the remediation of environmental
contamination from past or present operations. Because certain environmental laws impose strict joint and several retrospective liability upon current owners or operators of facilities from which
there have been releases of hazardous substances, the Company could be held liable for remedial measures or other damages (such as liability in personal injury actions) at properties it owns or
utilizes in its operations, even if the contamination were not caused by the Company's operations.

Available Information

The Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports are available as soon as reasonably practicable after they are filed or furnished to the Securities and Exchange Commission ("SEC"), through our Internet website,
www.channellcomm.com. Company filings are also available through a database maintained by the SEC at www.sec.gov.

Item 2.Properties

The Company's facilities approximate 541,000 square feet, of which approximately 52%, 32% and 16% were used for manufacturing, warehouse and office space,
respectively. In Temecula, California, 261,000 square feet of the total 367,000 square feet are leased from William H. Channell, Sr., the Company's Chairman of the Board. (See "Certain Relationships
and Related Transactions", Item 13.) The Company also leases an aggregate of approximately 180,000 square feet of manufacturing, warehouse and office space in Canada, Australia and the United Kingdom.
In November, 2001, the Company announced a restructuring plan (see Financial Statement Footnote H, Restructuring Charge) that, among other things, reduced its facilities utilization in the Americas
and International operations to improve operating efficiencies and reduce facilities expense. In December, 2002, the Company announced additional steps to rationalize international manufacturing
operations to further consolidate manufacturing operations. The Company has completed the majority of its facilities reduction program. Included in the Company's facilities of 541,000 square feet is
84,000 square feet that has been vacated as part of restructuring activities. The Company is attempting to sublease the vacated space. In 2002, the Company completed a sale and leaseback of
approximately 103,000 square feet of manufacturing, warehouse and office space in Temecula, California. The Company sold approximately 43,000 square feet of manufacturing, warehouse and office space
in the United Kingdom in January, 2003. In the

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fourth
quarter of 2003, the Company further evaluated International operations to improve profitability. A plan was developed to close a manufacturing facility in the United Kingdom by
mid-year 2004. The Company considers its current facilities, and its facilities following the completion of the foregoing restructuring activities, to be adequate for its operations.

Item 3.Legal Proceedings

The Company is from time to time involved in ordinary routine litigation incidental to the conduct of its business. The Company regularly reviews all pending
litigation matters in which it is involved and establishes reserves deemed appropriate for such litigation matters. Management believes that no presently pending litigation matters will have a
material adverse effect on its business or on its results of operations.

Item 4.Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

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PART II

Item 5.Market for Registrant's Common Equity and Related Shareholder Matters

The following table sets forth, for the periods indicated, the high and low sale prices for the Company's Common Stock, as reported on the NASDAQ National Market.

High

LowYear Ended December 31, 2002:First Quarter

$
5.54

$
3.25Second Quarter


8.60


5.25Third Quarter


6.88


2.88Fourth Quarter


6.73


3.39Year Ended December 31, 2003:First Quarter

$
5.46

$
3.00Second Quarter


6.42


3.60Third Quarter


6.00


4.31Fourth Quarter


5.10


2.10


The
Company has not declared any dividends subsequent to its initial public offering in July 1996.

The
Company currently anticipates it will retain all available funds to finance its business. The Company does not intend to pay cash dividends in the foreseeable future. Under the terms
of the Company's Loan and Security Agreement, the Company has agreed not to pay any dividends.

As
of March 2, 2004, the Company had 9,127,661 shares of its Common Stock outstanding, held by approximately 1,052 shareholders of record.

Item 6.Selected Financial Data

The selected consolidated financial data presented below for each of the five years in the period ended December 31, 2003, have been derived from audited
consolidated financial statements, which for the most recent three years appear elsewhere herein. The data should be read in conjunction with the

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financial
statements, related notes and other financial information included therein (amounts in thousands, except per share data).

Selected Financial Data(amounts in thousands, except per share data)

|                                                |                            | Year Ended December 31, |        
|----------------------------------------------- | -------------------------- | ----------------------- | -------
|
|OPERATING DATA:                                 |                            |                         |        
|Net sales                                       |                            | $                       | 120,688
|Cost of goods sold                              |                            |                         | 76,115 
|                                                |                            |                         |        
|Gross profit                                    |                            |                         | 44,573 
|Operating expenses                              |                            |                         |        
|                                                | Selling                    |                         |        
|                                                | General and administrative |                         |        
|                                                | Research and development   |                         |        
|                                                | Restructuring charge       |                         |        
|                                                | Asset impairment charge    |                         |        
|                                                | Goodwill impairment charge |                         |        
|                                                |                            |                         |        
|                                                |                            |                         | 26,368 
|                                                |                            |                         |        
|Income (loss) from operations                   |                            |                         | 18,205 
|Interest (expense), net                         |                            |                         | (2,650 
|                                                |                            |                         |        
|Income (loss) before income taxes               |                            |                         | 15,555 
|Income taxes (benefit)                          |                            |                         | 6,221  
|                                                |                            |                         |        
|Net income (loss)                               |                            | $                       | 9,334  
|                                                |                            |                         |        
|NET INCOME (LOSS) PER SHARE:                    |                            |                         |        
|Basic                                           |                            | $                       | 1.03   
|Diluted                                         |                            | $                       | 1.02   
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:  |                            |                         |        
|Basic                                           |                            |                         | 9,094  
|Diluted                                         |                            |                         | 9,111  
|BALANCE SHEET DATA:                             |                            |                         |        
|Current assets                                  |                            | $                       | 48,807 
|Total assets                                    |                            |                         | 114,540
|Total Debt (including current maturities)(4)    |                            |                         | 38,061 
|Stockholders' equity                            |                            |                         | 62,339 
|OTHER DATA:                                     |                            |                         |        
|Gross margin(1)                                 |                            |                         | 36.9   
|Operating margin(2)                             |                            |                         | 15.1   
|EBITDA(3)                                       |                            | $                       | 24,743 
|Capital expenditures (excluding capital leases) |                            |                         | 9,148  
|Cash provided by (used in):                     |                            |                         |        
|                                                | Operating activities       |                         |        
|                                                | Investing activities       |                         |        
|                                                | Financing activities       |                         |        

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Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations

General

The Company is a designer and manufacturer of telecommunications equipment supplied to telephone and broadband network providers worldwide. In addition to Company
manufactured products, the Company markets complementary products manufactured by third parties. The Company sells products directly to broadband operators and telephone companies throughout the
United States, Canada, Australia, United Kingdom and certain other international markets, principally within developed nations. The Company believes that many of its customers periodically review
their supply relationships and consequently the Company can experience significant changes in buying patterns from specific customers between fiscal periods. The Company has historically operated with
a relatively small backlog with sales and operating results in any quarter principally dependent upon orders booked and products shipped in that quarter. The Company's customers generally do not enter
into long-term supply contracts providing for future purchase commitments for the Company's products. These factors, when combined with the Company's operating leverage and the need to
incur certain capital expenditures and expenses in part based upon the expectation of future sales, causes the Company's operating results to be at risk to changing customer buying patterns. If sales
levels in a particular period do not meet the Company's expectations, operating results for that period may be materially and adversely affected.

The
Company uses numerous raw materials in its manufacturing processes. Although management believes that the Company has adequate sources of supply for such raw materials, increases in
the market prices of the Company's raw materials could significantly increase the Company's cost of goods sold and materially adversely affect the Company's profitability. The Company's profitability
may also be materially and adversely affected by decreases in its sales volume because many of the costs associated with the Company's facilities, product development, engineering, tooling and other
manufacturing processes are essentially fixed in nature and must be spread over its sales base in order to maintain historical levels of profitability.

Critical Accounting Policies

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases
its estimates on historical experience and on assumptions that are believed to be reasonable under the circumstances and revises its estimates, as appropriate, when changes in events or circumstances
indicate that revisions may be necessary. Although these estimates are based on management's knowledge of and experience with past and current events and on management's assumptions about future
events, it is possible that they may ultimately differ materially from actual results.

The
critical accounting policies requiring estimates and assumptions that management believes have the most significant impact on the Company's consolidated financial statements are:



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Accounts Receivable Reserves.Allowances for doubtful accounts are maintained for estimated losses
expected to result from the inability of our customers to make required payments. Provisions for estimated sales returns, sales allowances and uncollectible accounts are made at the time of sale based
on (i) the Company's estimate of the rate on which customers take discounts allowed and (ii) the Company's specific assessment of the collectability of all past due accounts. An adverse
change in financial condition of a significant customer or group of customers could materially affect management's estimates related to doubtful accounts.

Allowances for excess and obsolete inventory.The estimates of excess and obsolete inventory are
based on management's assumptions about and analysis of relevant factors including historical sales and usage of items in inventory, current levels of orders and backlog, forecasted demand, product
life cycle and
market conditions. Management does not believe the Company's products are subject to a significant risk of obsolescence in the short term and management believes it has the ability to adjust
production levels in response to declining demand. However, if actual market conditions become less favorable than anticipated by management, additional allowances for excess and obsolete inventory
could be required. In the event management adjusts estimates such as forecasted sales or expected product lifecycles, the value of the Company's inventory may become understated or overstated and
recognition of such understatement or overstatement will affect cost of sales in a future period, which could materially affect the Company's operating results and financial position.

Valuation of goodwill and long-lived assets.Management reviews goodwill and
long-lived assets for impairment when events or changes in circumstances indicate the carrying values may not be fully recoverable. Management assesses potential impairment of the carrying
values of these assets based on market prices, if available, and/or assumptions about and estimates of future cash flows expected to be generated from these assets. Future cash flows may be adversely
impacted by operating performance, market conditions and other factors. An impairment charge would be based on the amount by which the carrying value exceeds fair value. Fair value is estimated by
management based on market prices, if available, and/or forecasted discounted cash flows, using a discount rate commensurate with the risks involved. Assumptions related to future cash flows and
discount rates involve management judgment and are subject to significant uncertainty. If future cash flows, discount rates and other assumptions used in the assessment and measurement of impairment
differ from management's estimates and forecasts, additional impairment charges could be required.

Restructuring Costs.Restructuring costs are recorded in accordance with FASB Statement 146,
Accounting for Costs Associated With Exit or Disposal Activities. One-time severance benefits for employees terminated are recorded at the time management commits to the plan to reduce the
work force, knows the amount of the termination benefit, is unlikely to change the plan and has communicated to employees the intended work force reduction. Liabilities for costs that will continue to
be incurred under a contract for its remaining term without an economic benefit, such as for facility lease payments for premises vacated, are recorded when the Company ceases to use the right
conveyed by the contract. In the case of vacated leased facilities, the liability is based on the future lease payments required under the contract less the estimated future rental income the Company
may earn by subletting the facilities or estimates of costs incurred to terminate a lease with a landlord. These estimates of future sublet income are based on current economic conditions, current
condition of the local leasing market, past experience and judgments supplied by professionals in the local real estate market. These estimates are subject to significant uncertainty and may change.
Additional charges could be required as a result in the changes in estimates.

12

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Accounting for income taxes.Income taxes are recorded for each of the jurisdictions in which the
Company operates. Management records the actual current income tax payable and assesses the temporary differences resulting from differing treatment of items, such as reserves and accruals, for tax
and accounting purposes. These differences result in deferred tax assets and liabilities which are included within the consolidated balance sheet. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become
deductible. In addition, the realization of deferred tax assets is also dependent upon audits by tax authorities of tax filings which may result in a revision to previous amounts claimed. Significant
management judgment is involved in assessing the Company's ability to realize any future benefit from deferred tax assets. In the event that actual results differ from management estimates and
management adjusts these estimates in future periods, the Company's operating results and financial position could be materially affected.

Foreign Currency Translation.The Company has foreign subsidiaries that together accounted for 18.9%
of the Company's net revenues and 27.4% of the Company's assets as of and for the year ended December 31, 2003. In preparing the Company's consolidated financial statements, the Company is
required to translate the financial statements of its foreign subsidiaries from the currencies in which they keep their accounting records into United States dollars. This process results in exchange
gains and losses which, under relevant accounting guidance, are either included within the Company's statement of operations or as a separate part of the Company's net equity under the caption
"cumulative translation adjustment."

Under
relevant accounting guidance, the treatment of these translation gains or losses depends upon management's determination of the functional currency of each subsidiary. This
determination involves consideration of relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary transacts a majority of its transactions,
including billings, financing, payroll and other expenditures, would be considered the functional currency. However, management must also consider any dependency of the subsidiary upon the parent and
the nature of the subsidiary's operations.

If
management deems any subsidiary's functional currency to be its local currency, then any gain or loss associated with the translation of that subsidiary's financial statements is
included in a cumulative translation adjustment. However, if management deems the functional currency to be United States dollars, then any gain or loss associated with the translation of these
financial statements would be included within the Company's statement of operations.

If
the Company disposes of any of its subsidiaries, any cumulative translation gains or losses would be realized into the Company's statement of operations. If management determines that
there has been a change in the functional currency of a subsidiary to United States dollars, then any translation gains or losses arising after the date of the change would be included within the
Company's statement of operations.

Based
on management's assessment of the factors discussed above, the Company considers the functional currency of each of its international subsidiaries to be each subsidiary's local
currency. Accordingly, the Company had cumulative translation losses of $11 that were included as part of accumulated other comprehensive loss within the Company's balance sheet at December 31,
2003. During the year ended December 31, 2003, the Company included translation adjustments of a gain of approximately $1,982 under accumulated other comprehensive income and loss.

If
the Company had determined that the functional currency of its subsidiaries was United States dollars, these gains or losses would have decreased or increased the Company's loss for
the year ended December 31, 2003. The magnitude of these gains or losses depends upon movements in the exchange

13

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rates
of the foreign currencies in which the Company transacted business as compared to the value of the United States dollar. These currencies include the British pound, the Canadian dollar and the
Australian dollar. Any future translation gains or losses could be significantly higher than those the Company recorded for the year ended December 31, 2003.

New Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 changes the classification in the statement of financial position of certain common financial
instruments from either equity or mezzanine presentation to liabilities and requires an issuer of those financial statements to recognize changes in fair value or redemption amount, as applicable, in
earnings. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and is effective for the Company beginning July 1, 2003. The adoption of
SFAS No. 150 did not have a material impact on the Company's results of operations or financial position.

In
January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entitiesan interpretation of ARB No. 51" ("FIN 46"). FIN 46
requires that if an entity has a controlling financial interest in a variable interest entity, the assets, liabilities and results of activities of the variable interest entity should be included in
the consolidated financial statements of the entity. FIN 46 requires that its provisions are effective immediately for all arrangements entered into after January 31, 2003. For those
arrangements entered into prior to January 31, 2003, the FIN 46 provisions are required to be adopted at the end of the first interim or annual period ending after December 15, 2003. The
adoption of FIN 46 did not have a material impact on the Company's results of operations or financial position.

In
July 2002, the FASB issued SFAS No.146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred. Under previous guidance, a liability for an exit cost was recognized at the date of the commitment to an exit plan. The
provisions of this statement will be applied prospectively, as applicable, and are effective for exit or disposal activities that are initiated after December 31, 2002. The Company applied the
provisions of SFAS No. 146, on the 2003 restructuring charge discussed in Financial Statement Footnote H.

In
November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under specified
guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements in this interpretation were effective for financial statements of interim or annual periods ending after December 15, 2002. Additionally, the recognition
of a guarantor's obligation should be applied on a prospective basis to guarantees issued after December 31, 2002. The adoption of FIN 45 did not have a material effect on the Company's
financial position or results of operation.

14

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Results of Operations

The following table sets forth the Company's operating results for the periods indicated expressed as a percentage of net sales.

2001

2002

2003Net Sales

100.0
%
100.0
%
100.0
%Cost of Sales

78.8

67.8

70.5Gross Profit

21.2

32.2

29.5Selling

14.4

10.9

12.4General and administrative

15.9

13.5

10.1Research and development

2.6

1.9

2.5Restructuring charge

3.4

1.4

2.0Asset impairment charge

4.9

2.5

1.6Goodwill impairment charge

13.3

1.2

Income (loss) from operations

(33.3
)
0.8

0.9Interest (expense), net

(4.4
)
(2.4
)
(0.7
)Income (loss) before income taxes

(37.7
)
(1.6
)
0.2Income taxes (benefit)

(9.3
)
2.0

0.3Net income (loss)

(28.4
)%
(3.6
)%
(0.1
)%


Comparison of Year Ended December 31, 2003 with Year Ended December 31, 2002

The Company implemented actions in 2002 and 2003 to restructure the Company due to decreased demand in the telecommunications industry. These actions resulted in
a lower cost structure, a return to a positive income from operations, lower debt and an increase in the Company's cash balance. Shown below are the sales, income from operations, loss per share, debt
and cash balance for each of the last three years:

2001

2002

2003Amounts in million,
except loss per shareNet sales

$
88.7

$
84.8

$
76.5Income (loss) from operations

$
(29.5
)
$
0.7

$
0.7Loss per share

$
(2.78
)
$
(0.34
)
$
(0.01
)Total Debt as of December 31 (loans, capital leases and mortgage)

$
36.8

$
6.5

$
3.9Cash and cash equivalents

$
8.8

$
3.2

$
9.5


In
the fourth quarter of 2003, the Company further evaluated International operations to improve profitability. A plan was developed to close a manufacturing facility in International
operations by mid-year 2004. Additional non-recurring charges were recorded in 2003 as a result of these actions including employee severance benefits, inventory reserves,
impairment of
assets and facility closure cost. The facility closure cost charge is a revision to restructuring costs recorded in the third quarter of 2001 and the fourth quarter of 2002. The revision is due to a
change in the estimated sublease income from vacated facilities based on management's latest estimate.

Net Sales.Net sales decreased $8.3 million or 9.7% from $84.8 million in 2002 to
$76.5 million in 2003. The decrease resulted from a slowdown in equipment purchases by telecommunications service providers in both the Americas and International operations.

15

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Americas
net sales decreased $5.2 million or 7.4% from $70.0 million to $64.8 million. In 2003, two major broadband operators reduced purchases compared to 2002. One
customer reduced purchases as a result of substantially completing its network upgrade program. The second customer reduced purchases in the first half of 2003 due to deterioration in its financial
condition and the need to reduce spending. The second customer resumed purchases at a higher level in the second half of 2003. The declines from broadband customers were partially offset by a 16.6%
increase in sales from the Company's largest telephone customer, Verizon. In addition, the Americas segment sold $1.5 million of slow moving inventory in 2002 as part of the Company's debt
reduction program which also contributed to the period over period sales decline. There were no material sales of slow moving inventory in 2003.

International
net sales decreased $3.1 million or 20.8% from $14.8 million to $11.7 million. The decrease in International sales was due to generally depressed
industry conditions and lower sales of products discontinued as part of the Company's restructuring program.

Sales
to Comcast of $20.7 million in 2003 represented 27.1% of Company sales in the period. Comcast acquired AT&T's broadband business in the fourth quarter of 2002 thereby
increasing its purchases from the Company. The second largest customer in 2003 was Verizon with sales of $8.0 million representing 10.5% of the total. Sales to AT&T of $20.2 million in
2002 represented 23.8% of Company sales for the period. Combined AT&T and Comcast sales for the 2002 period were $23.7 million or 28.0% of the Company's sales in the period. Sales to Time
Warner of $8.3 million in 2002 represented 9.8% of Company sales.

Gross Profit.Gross profit decreased $4.7 million from $27.3 million in 2002 to
$22.6 million in 2003. The decrease is mainly due to the lower sales volume, which resulted in lower manufacturing production rates and higher unabsorbed overhead. A secondary factor was
product mix, predominately in the Americas. The change in product mix was due to: 1) a higher percentage of products purchased externally for resale that the Company sells as a package with
core product lines that have a lower gross profit than enclosures that are manufactured internally, and, 2) a higher percentage of connectivity products that had a lower gross profit than
thermoplastic enclosures. The gross profit of connectivity products was affected by sales of new products whose manufacture is still in the start up phase and thus current product costs are higher
than those anticipated during full scale production.

In
2002, gross profit was reduced by $0.4 million of special charges in the fourth quarter to write down inventory of discontinued products. In 2003, gross profit was reduced by
$0.1 million of special charges to write down inventory as part of the closure of an International manufacturing facility. Excluding the special charges in both years, gross profit decreased
$5.0 million from $27.7 million in 2002 to $22.7 million in 2003.

As
a percentage of net sales, gross profit decreased from 32.2% in 2002 to 29.5% in 2003. Excluding the special charges recorded in both years, gross profit as a percentage of net sales
decreased from 32.7% in 2002 to 29.7% in 2003. The reasons for the decrease are the same as those noted above for gross profit dollars.

Selling.Selling expenses increased $0.2 million or 2.4% from $9.3 million in 2002 to
$9.5 million in 2003. The increase is primarily in freight costs due to higher fuel prices and an increase in full truckload shipments to customers in which the Company pays the freight costs.

As
a percentage of net sales, selling expense increased from 10.9% in 2002 to 12.4% in 2003. The higher percentage is primarily due to the reasons noted above.

General and Administrative.General and administrative expenses decreased $3.7 million or
32.7% from $11.4 million in 2002 to $7.7 million in 2003. The year 2002 included a $2.0 million charge to increase the allowance for bad debt primarily as a result of the Chapter
11 bankruptcy filing of a major broadband customer. Excluding the charge, general and administrative expense decreased by $1.7 million or 18.4%. The decrease is due to cost reductions in
administrative functions primarily within the Americas operations.

As
a percentage of net sales, general and administrative expenses decreased from 13.5% in the 2002 period to 10.1% in the 2003 period. Excluding the charge for bad debt, general and
administrative expenses as a percentage of net sales were 11.1% in the 2002 period and 10.1% in the 2003 period.

16

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Research and Development.Research and development expenses increased $0.3 million or 17.5%
from $1.6 million in 2002 to $1.9 million in 2003. The increase is due to spending on projects for new product development in connectivity and thermoplastic enclosure product lines. As a
percentage of net sales, research and development expenses increased from 1.9% in 2002 to 2.5% in 2003.

Restructuring charge.In the fourth quarter of 2002, the Company initiated actions to improve
profitability in International operations. The actions taken included head count and facility square footage reductions in International operations. In addition, the management of International
operations was consolidated under one management team. Restructuring charges of $1.2 million were recorded in 2002 as a result of these actions.

In
the fourth quarter of 2003, the Company evaluated International operations to improve profitability. A plan was developed to close a manufacturing facility in International operations
by mid-year 2004. Additional restructuring charges of $1.6 million were recorded in the fourth quarter of 2003 for employee severance and facility closure cost. The facility closure
cost charge is a revision to restructuring costs recorded in the third quarter of 2001 and the fourth quarter of 2002. The revision is due to a change in the estimated sublease income from vacated
facilities based on management's latest estimate.

Impairment of Fixed Assets.In 2002, an asset impairment charge of $2.2 million was recorded
for production equipment in International operations as part of the rationalization and downsizing of International manufacturing operations and for tooling associated with products discontinued in
the Americas.

In
2003, an asset impairment charge of $1.2 million was recorded for production equipment in International operations as part of the closure of a manufacturing facility.

Impairment of Goodwill.In 2002, a goodwill impairment charge in the International segment was
recorded for $1.0 million. This impairment charge resulted in the full amortization of the goodwill associated with the A.C. Egerton acquisition.

There
were no goodwill impairment charges in 2003.

Income (Loss) from Operations.As a result of the items discussed above, income from operations was
unchanged at $0.7 million in both 2002 and 2003. Operating margin as a percent of sales increased from 0.8% to 0.9%.

Excluding
the special charges in 2002 and 2003 and the receivable write-off in 2002, income from operations decreased from $7.5 million in 2002 to $3.6 million
in 2003. Operating margins as a percent of sales excluding these costs and charges decreased from 8.8% in 2002 to 4.7% in 2003.

2002

2003Income (Loss) from Operations as reported

$
0.7

$
0.7Adjustments for special charges:Inventory write downs in cost of goods sold


0.4


0.1Allowance for bad debt


2.0


0.0Restructuring charges


1.2


1.6Impairment of fixed assets


2.2


1.2Impairment of goodwill


1.0


0.0Subtotal of adjustments


6.8


2.9Income (Loss) from Operations excl. special charges

$
7.5

$
3.6


17

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The
decrease in income from operations adjusted for the special charges is due to the lower net sales in 2003 and a lower gross profit due to the lower volume and change in product mix.
The decline in gross profit was partially offset by a decrease in general and administrative expense.

Interest Expense, Net.Net interest expense decreased from $2.0 million in 2002 to
$0.6 million in 2003. The decrease was attributable to the lower level of debt in 2003.

Income Taxes.Income tax expense decreased from $1.7 million in 2002 to $0.2 million in
2003. The effective tax rate of 130.7% in 2002 compares to 168.3% in 2003. The higher tax expense in 2002 was primarily attributable to an increase in the valuation allowance for deferred tax assets
related to net operating loss carry forwards of foreign subsidiaries. The increase in valuation allowance was due to the uncertainty of future taxable income in these subsidiaries. In both years, the
Company recorded a tax expense for income earned in the Americas. In both years, a tax benefit was not recorded for foreign operating losses in International operations due to the uncertainty of the
realization of the tax loss carry forwards.

Comparison of Year Ended December 31, 2002 with Year Ended December 31, 2001

The Company initiated actions in 2001 and 2002 to reduce debt and to reduce capacity and costs in line with decreased demand in the telecommunications industry.
These actions resulted in a lower cost structure and improved profitability in 2002 compared to 2001. Reductions were achieved in head count, facilities square footage, overhead spending and interest
expense. The decrease in interest expense was due to the lower level of debt in 2002 and a lower average interest rate associated with the Company's credit agreement.

Total
debt (including loans, capital leases and mortgage) decreased from $36.8 million as of December 31, 2001 to $6.5 million as of December 31, 2002. The
reduction in debt was achieved by the sale/leaseback of a building, receipt of a tax refund, sale of excess and obsolete inventory and reduction in receivables. These activities occurred throughout
the year in 2002.

In
the fourth quarter of 2002, the Company evaluated International operations to improve profitability and rationalize manufacturing facilities. As a result of this evaluation, several
actions were taken to further streamline manufacturing and reduce costs. These actions included headcount and facility square footage reductions in International operations. In addition, the
management of International operations was consolidated under one management team. Additional non-recurring charges were recorded in 2002 as a result of these actions. The effects of these
charges and the charges recorded in the fourth quarter of 2002 on each line item in the Consolidated Statement of Operations are included in the following analysis.

Net Sales.Net sales decreased $3.9 million or 4.4% from $88.7 million in 2001 to
$84.8 million in 2002. The decrease resulted from a slowdown in equipment purchases by telecommunications service providers primarily in International operations.

International
net sales decreased $3.7 million or 20.0% from $18.5 million to $14.8 million. Sales in International operations decreased due to the industry slow
down and the exiting of unprofitable product lines.

Gross Profit.Gross profit increased $8.5 million from $18.8 million in 2001 to
$27.3 million in 2002. In 2001, the gross profit was reduced by $8.5 million of special charges in the third quarter for inventory reserves and the costs to exit certain product lines as
part of the Company's restructuring. In 2002, the gross profit was reduced by $0.4 million of special charges in the fourth quarter to write down inventory of discontinued products. Excluding
the special charges in both years, gross profit increased $0.4 million from $27.3 million in 2001 to $27.7 million in 2002.

18

---

As
a percentage of net sales, gross profit increased from 21.2% in 2001 to 32.2% in 2002. Excluding the special charges recorded in both years, gross profit as a percentage of net sales
increased from 30.8% in 2001 to 32.7% in 2002. The improvement is due to the reduced labor and facility costs in 2002 that resulted from the Company's restructuring program.

Selling.Selling expenses decreased $3.6 million or 28.1% from $12.8 million in 2001 to
$9.2 million in 2002. The decrease is the result of cost reductions in selling administration functions that were implemented as part of the Company's restructuring program.

As
a percentage of net sales, selling expense decreased from 14.4% in 2001 to 10.9% in 2002.

General and Administrative.General and administrative expenses decreased $2.6 million or
18.4% from $14.1 million in 2001 to $11.5 million in 2002.

The
2002 expense includes a charge of $2 million primarily to write-off a receivable for a major broadband customer after it filed for Chapter 11 bankruptcy. The 2001
expense includes non-recurring charges of $3.5 million for costs to exit certain product lines, the write-down of prepaid expenses and additions to trade accounts
receivable. Goodwill
amortization of $0.6 million is included in general and administrative expenses for 2001 and was no longer amortized in 2002.

Excluding
the receivable write-off, the non-recurring charges in both years and the goodwill amortization in 2001, general and administrative expenses declined
$0.5 million or 5.0%. The primary reasons for the $0.5 million decrease are reduced head count in administrative functions, lower facilities costs as a result of buildings vacated, and
spending reductions implemented in the Company's restructuring program. These spending reductions were partially offset by higher costs for management incentive bonuses of $0.8 million in 2002.
There were no management incentive bonuses in 2001.

As
a percentage of net sales, general and administrative expenses decreased from 15.9% in 2001 to 13.6% in 2002. Excluding the nonrecurring charges and goodwill amortization mentioned
above, the percentage decreased from 11.3% in 2001 to 11.2% in 2002.

Research and Development.Research and development expenses decreased $0.7 million or 30.4%
from $2.3 million in 2001 to $1.6 million in 2002. The decrease is the result of moving and consolidating some of the international research and development functions into U.S.
operations, which reduced head count and facilities, as well as reduced spending due to depressed industry conditions. As a percentage of net sales, research and development expenses decreased from
2.6% in 2001 to 1.9% in 2002.

Restructuring charge.In 2001, the Company reduced head count and closed facilities due to a slow
down in the telecommunications industry and recorded a restructuring charge of $3.0 million. The restructuring resulted in the elimination of 116 management, administrative, sales and
manufacturing positions. Facilities space vacated included manufacturing and distribution space in International operations and warehouse space in the Americas.

In
the fourth quarter of 2002, the Company further evaluated its International operations with the intent to improve profitability. As a result, the Company initiated actions that
resulted in additional head count, costs and facilities reductions in International operations. In addition, the management of International operations was consolidated under one management team.
Restructuring charges of $1.2 million were recorded in 2002 as a result of these actions.

Impairment of Fixed Assets.In the third quarter of 2001, the Company recorded an asset impairment
charge of $4.3 million as a result of restructuring activities to reduce manufacturing capacity and costs worldwide. Certain production equipment, tooling and leasehold improvements were idled
or sold as a result of these measures.

19

---

In
2002, an additional asset impairment charge of $2.2 million was recorded for production equipment in International operations as part of the rationalization and downsizing of
manufacturing operations and for tooling associated with products discontinued in the Americas.

Impairment of Goodwill.In 2001, an impairment of goodwill charge was recorded for
$11.8 million as a result of restructuring activities that reduced the level of International operations and the decision to exit certain product lines.

In
2002, a goodwill impairment charge in the International segment was recorded for $1.0 million. This impairment charge results in the full amortization of the goodwill
associated with the A.C. Egerton acquisition.

Income (Loss) from Operations.As a result of the items discussed above, income from operations
increased $30.2 million from a loss of ($29.5) million in 2001 to income of $0.7 million in 2002. Operating margin as a percent of sales increased from (33.3%) to 0.8%. Excluding the
special charge in 2001 and 2002, amortization of goodwill in 2001, and the receivable write-off in 2002, income from operations increased from $2.2 million in 2001 to
$7.4 million in 2002. Operating margins as a percent of sales excluding these costs and charges increased from 2.5% in 2001 to 8.7% in 2002.

Interest Expense, Net.Net interest expense decreased from $3.9 million in 2001 to
$2.0 million in 2002. The decrease was attributable to the lower level of debt in 2002 and a lower average interest rate associated with the Company's credit agreement.

Income Taxes.Income tax expense increased from a tax benefit of ($8.2) million in 2001 to a tax
expense of $1.7 million in 2002. In 2001, the tax benefit resulted from the tax deductibility of certain cost and charges associated with the Company's restructuring. In 2002, a tax expense was
recorded for income earned in the U.S. In 2002, a tax benefit was not recorded for foreign operating losses due to the uncertainty of the realization of the tax loss carry forward. In addition, the
Company increased its valuation allowance for deferred tax assets related to net operating loss carry forwards of foreign subsidiaries.

Liquidity and Capital Resources

Cash and cash equivalents on December 31, 2003 were $9.5 million, an increase of $6.3 million from the December 31, 2002 balance of
$3.2 million. The increase in cash was primarily due to cash generated from operations and the sale of a building in the U.K. Cash generated by operating activities was
$7.1 million in 2003 compared to $19.8 million in 2002. The Company received an income tax refund of $4.9 million in 2002 as a result of its net loss of $25.2 million in
2001.

Net
cash provided by investing activities was $1.2 million in 2003 as compared to net cash provided by investing activities of $4.4 million in 2002. The Company generated
net proceeds of $6.2 million from a sale and leaseback of a building in the Americas segment in 2002. In 2003, the Company sold a building in the International segment for $2.2 million
in cash.

Net
cash used in financing activities in 2003 was ($2.7) million, primarily for the repayment of debt. Net cash used in financing activities in 2002 was ($29.8) million, primarily for
the repayment of debt.

Accounts
receivable decreased from $10.2 million at December 31, 2002 to $10.1 million at December 31, 2003. In terms of days sales outstanding, accounts
receivable decreased from 46 days at December 31, 2002 to 44 days at December 31, 2003.

Inventories
increased from $7.8 million at December 31, 2002, to $8.9 million at December 31, 2003. Inventory write-offs due to discontinued
products were $0.1 million in 2003 compared to

20

---

$0.4 million
in 2002. Days inventory on hand increased from 49 days at December 31, 2002 to 55 days at December 31, 2003.

Accounts
payable decreased from $5.8 million at December 31, 2002 to $5.1 million at December 31, 2003 as days payables decreased from 37 days to
32 days, respectively.

The
Board of Directors, on April 1, 1998, having determined such action to be in the best interest of the Company, authorized a stock repurchase plan of up to $2.0 million
worth of Company stock. The plan was subsequently increased to $2.75 million by the Board on December 1, 2000. The Company repurchased 22,985 shares at a cost of approximately
$0.2 million in 1999; 30,900 shares of its common stock at a cost of approximately $0.2 million in 2000; and 52,300 shares of its common stock at a cost of $0.3 million in 2001.
The Company did not repurchase stock in 2002 or 2003.

The
Company entered into a three year Loan and Security Agreement with an asset-based lender on September 25, 2002. The Loan and Security Agreement's term loan of
$4.7 million and initial revolver balance of $2.1 million as well as $9.6 million in cash were used to repay in full the prior Credit Agreement. Total debt of $16.4 million
under the prior Credit Agreement was repaid. The three year
term loan is repayable in quarterly payments based on a five-year amortization schedule with a balloon repayment at maturity.

Under
the Loan and Security Agreement, the outstanding balance bears interest payable monthly at a variable rate based on either LIBOR or the lender's base rate. The weighted average
interest rate under the Loan and Security Agreement at December 31, 2003 was 3.02%.

The
Loan and Security Agreement contains various financial and operating covenants that impose limitations on the Company's ability, among other things, to incur additional indebtedness,
merge or consolidate, sell assets except in the ordinary course of business, make certain investments, enter into leases and pay dividends. The Company is also required to comply with a fixed charge
coverage ratio financial covenant among others. The Company was in compliance as of December 31, 2003 with the covenants of the Loan and Security Agreement.

Contractual
obligations, consisting principally of payment for noncancellable operating lease obligations, long term debt and capital leases. Future payments required under these
contractual obligations have been summarized in the notes to the financial statements as follows: (i) lease commitmentsNote N, (ii) long term
debtNote F, and (iii) capital lease obligationsNote G.

The
Company believes that cash flow from operations should be sufficient to fund the Company's capital expenditure and working capital requirements through 2004.

21

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Contractual Obligations and Other Commitments

The following table summarizes the Company's contractual obligations and other commitments as of December 31, 2003:

|                               |  | 2004   |  | 2005
to 2006 |  | 2007
to 2008 |  | 2009 and
Thereafter |  | Total 
|------------------------------ |  | ------ |  | ------------ |  | ------------ |  | ------------------- |  | ------
|Contractual Obligations        |  |        |  |              |  |              |  |                     |  |       
|Long Term Debt(1)              |  | 952    |  | 2,830        |  |             |  |                    |  | 3,782 
|Capital Lease Obligations      |  | 65     |  | 82           |  |             |  |                    |  | 147   
|Operating Lease Obligations(2) |  | 2,535  |  | 3,477        |  | 2,105        |  | 3,000               |  | 11,117
|Employment Contracts(3)        |  | 768    |  | 1,512        |  | 1,407        |  |                    |  | 3,687 
|Purchase Obligations(4)        |  | 6,628  |  |             |  |             |  |                    |  | 6,628 
|                               |  |        |  |              |  |              |  |                     |  |       
|                               |  | 10,948 |  | 7,901        |  | 3,512        |  | 3,000               |  | 25,361
|                               |  |        |  |              |  |              |  |                     |  |       

---

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements consist of operating leases, employment contracts and purchase obligations as described above. In addition, as
discussed in Footnote M to the Consolidated Financial Statements, the Company guaranteed debt of the Company's principal stockholder and Chairman of the Board of approximately $754 in 1997. The
guaranteed debt was incurred in connection with construction of the facilities leased to the Company and is collateralized by said facilities. The loan amount subject to the unsecured guarantee is
expected to decline before expiring in 2017. It is not practicable to estimate the fair value of the guarantee; however, the Company does not anticipate that it will incur losses as a result of this
guarantee. The Company has not recorded a liability for this guarantee. If the principal stockholder were to default on the outstanding loan balance, the Company may be required to repay the remaining
principal balance. The maximum potential amount the Company would be required to pay is equal to the outstanding principal and interest balance of the loan to the stockholder. At December 31,
2003, the outstanding loan balance subject to the guarantee totaled $613.

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Forward-Looking Statements and Risk Factors

Certain statements contained in this Annual Report on Form 10-K are "forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Act"), which provides certain "safe harbor" provisions for forward-looking statements. All forward-looking statements made in this Annual Report on
Form 10-K are made pursuant to the Act. Forward-looking statements include statements which are predictive in nature; which depend upon or refer to future events or conditions; or
which include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," or variations or negatives thereof or by similar or comparable words or phrases. In addition, any
statement concerning future financial performance, ongoing business strategies or prospects, and possible future Company actions that may be provided by management are also forward-looking statements
as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about the Company; and
economic and market factors in the countries in which the Company does business, among other things. These statements are not guarantees of future performance, and the Company has no specific
intentions to update these statements.

Actual
events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal important risk factors that
could cause the Company's actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, the risk factors discussed below.

Obsolescence and Technological Change.The communications industry is in a state of rapid
technological change. The introduction of new technologies, network architectures or changes in industry standards can render the Company's existing products or products under development obsolete or
unmarketable. For example, satellite, wireless and other communication technologies under development or currently being deployed may represent a threat to copper, coaxial and fiber optic-based
systems by reducing the need for wire-line networks. Further, while management anticipates that a number of factors, including network capacity requirements, existing investments in
wire-line networks, security and long-term cost effectiveness, will result in growth of wire-line networks, there can be no assurance that future advances or
further development of these or other new technologies will not have a material adverse effect on the Company's business. The Company's growth strategies are designed, in part, to take advantage of
opportunities that the Company believes are emerging as a result of the development of enhanced voice, video, data and other transmission networks, and high-speed Internet access in the
telecommunications industry. There can be no assurance that demand resulting from these emerging trends will continue or that the Company's products will be met with market acceptance.

Importance of New Product Development to Growth.A significant factor in the Company's ability to grow and remain competitive will be its
ability to anticipate changes in technology and industry standards, and to successfully develop and introduce new products on a timely basis. New product development often requires
long-term forecasting of market trends, development and implementation of new designs and processes, and substantial capital commitment. Trends toward consolidation of the communications
industry and convergence of technologies may require the Company to quickly adapt to rapidly changing market conditions and customer requirements.

The
Company's manufacturing and marketing expertise has enabled it to successfully develop and market new products in the past. However, any failure by the Company to anticipate or
respond in a cost-effective and timely manner to technological developments or changes in industry standards or customer requirements, or any significant delays in product development or
introduction, could have a material adverse effect on the Company's business, operating results and financial condition.

Concentration of Customers; Limited Backlog.The telecommunications industry is concentrated. A
relatively small number of customers account for a large percentage of the Company's available market.

23

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Consequently,
the Company's five largest customers accounted for 57.2% and 57.7% of the Company's total net sales in 2002 and 2003, respectively. Comcast accounted for 27.1% of the Company's total net
sales in 2003. Comcast accounted for 28.0% of the Company's sales in 2002. Verizon accounted for 10.5% of the Company's total net sales in 2003. Mergers and acquisitions in the telecommunications
industry, which are expected to continue, not only increase the concentration of the industry and of the Company's customer base but also from time to time delay customers' capital expenditures as
newly merged service providers consolidate operations. In the event one of the Company's major customers were to terminate purchases of the Company's products, the Company's operating results would be
adversely affected.

The
Company's customers typically require prompt shipment of the Company's products within a narrow timeframe. As a result, the Company has historically operated with a relatively small
backlog. Sales and operating results in any quarter are principally dependent upon orders booked and products shipped in that quarter. Further, the Company's customers generally do not enter into
long-term supply contracts providing for future purchase commitments for the Company's products. These factors, when combined with the Company's operating leverage (see "Operating
Leverage" below) and the need to incur certain capital expenditures and expenses in part based upon the expectation of future sales, may place the Company's operating results at risk to changing
customer buying patterns. If sales levels in a particular period do not coincide with the Company's expectations, operating results for that period may be materially and adversely affected.

Dependence on the Telecommunications Industry.The Company expects that sales to the
telecommunications industry will continue to represent a substantial portion of its total sales. Demand for products within this industry depends primarily on capital spending by service providers for
constructing, rebuilding, maintaining or upgrading their systems. The amount of capital spending and, therefore, the Company's sales and profitability, are affected by a variety of factors, including
general economic conditions, access by service providers to financing, government regulation of service providers, demand for services and technological developments in the telecommunications
technology. While the industry generally experienced above average growth in the late 1990's, since 2001 the telecommunications equipment industry has been materially adversely affected by service
providers' reductions of their capital expenditures.

The
Company's success is dependent upon continued demand by the communications industry for products used in signal transmission systems which may be affected by factors beyond the
Company's control, including the convergence of video, voice, and data transmission systems occurring within the broadband and telephone markets, continuing consolidation of companies within those
markets and the provision of Internet access by broadband operators and local telephone companies.

Price Fluctuations of Raw Materials; Availability of Complementary Products.The Company's cost of
sales may be materially affected by increases in the market prices of the raw materials, including resins, used in the Company's manufacturing processes. The Company does not engage in hedging
transactions for such materials, although it periodically enters into purchase agreements for certain raw materials for as much as one year or more. There can be no assurance that price increases in
raw materials can be passed on to the Company's customers through increases in product prices. In addition, in order to position itself as a full-line product supplier, the Company relies
on certain manufacturers to supply products, including grade level boxes that complement the products manufactured by the Company. Although the Company believes there are multiple sources of supply
for these products, disruptions or delays in the supply of such products could have a material adverse effect on sales of the Company's own products.

Energy Costs and Availability.The Company's cost of sales may be materially affected by increases in
the market prices of electricity, natural gas and water used in the Company's manufacturing processes. California is the site of the Company's largest manufacturing operation. The energy costs of

24

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California
manufacturing firms may increase. There exists the possibility of interruption(s) in the supply of energy to California's manufacturing firms. There can be no assurance that the Company's
energy costs can be passed on to the Company's customers through increases in product prices. Further, disruptions or delays in the supply of electricity, natural gas and water to the Company could
have a material adverse effect on sales of the Company's products.

Acquisitions and Failure to Integrate Acquired Businesses.In the event the Company pursues any
acquisitions, there can be no assurance that the Company will be able to identify and acquire attractive acquisition candidates, profitably manage any such acquired businesses or successfully
integrate such acquired businesses into the Company without substantial costs, delays or other problems. Acquisitions involve a number of special risks, including, but not limited to, adverse
short-term effects on the Company's reported financial condition or results of operations, diversion of management's attention, dependence on retention, hiring and training of key
personnel, risks associated with unanticipated problems or liabilities and amortization of acquired intangible assets, some or all of which could have a material adverse effect on the Company's
business, financial condition or results of operations.

In
addition, there can be no assurance that any businesses acquired in the future will be profitable at the time of acquisition or will achieve sales and profitability justifying the
Company's investment therein or that the Company will realize the synergies expected from such acquisitions.

The
failure to obtain any or all of the desired results from acquisitions could have a material adverse effect on the Company's business, financial condition and results of operations.

Operating Leverage.Because the fixed costs of facilities, product development, engineering, tooling
and manufacturing are a relatively high percentage of total costs, the Company's ability to operate profitably is dependent on generating a sufficient volume of product sales, thereby spreading fixed
costs over the sales base. Due to this "operating leverage", a reduction in sales or the rate of sales growth has had in the past and could have in the future a disproportionately adverse effect on
the Company's financial results.

Seasonality and Fluctuations in Operating Results.The Company's business is seasonal in nature, with
the first and fourth quarters generally reflecting lower sales due to the impact of adverse weather conditions on construction projects that may alter or postpone the needs of customers for delivery
of the Company's products. In addition, first quarter sales may also reflect customer delays in implementation of their annual capital expenditure plans. The Company's operating results may also
fluctuate significantly from quarter to quarter due to several other factors, including the volume and timing of orders from and shipments to major customers, the timing of new product introductions
and deployment as well as the availability of products by the Company or its competitors, the overall level of capital expenditures by broadband operators and telephone companies, market acceptance of
new and enhanced versions of the Company's products, variations in the mix of products the Company sells, and the availability and costs of raw materials.

Risks Associated with International Operations.International sales, including export sales from U.S.
operations, accounted for 27.2%, 23.8% and 21.2% of the Company's net sales in 2001, 2002 and 2003, respectively. Due to its international sales, the Company is subject to the risks of conducting
business internationally, including unexpected changes in or impositions of legislative or regulatory requirements, fluctuations in the U.S. dollar which could materially adversely affect U.S. dollar
revenues or operating expenses, tariffs and other barriers and restrictions, longer collection cycles, greater difficulty in accounts receivable collection, potentially adverse taxes and the burdens
of complying with a variety of international laws and communications standards. The Company is also subject to general geopolitical risks, such as political and economic instability and changes in
diplomatic and trade relationships, in connection with its international operations. There can be no assurance that these risks of conducting business internationally will not have a material adverse
effect on the Company's business.

25

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Competition.The industries in which the Company operates are highly competitive. The level and
intensity of competition may increase in the future. The Company's competitors include companies that are much larger than the Company, such as Tyco, 3M, Marconi, Arris and Corning. The Company's
business strategy includes increased focus on telephone connectivity. There can be no assurance that the Company will be able to compete successfully against its competitors, most of whom have access
to greater financial resources than the Company.

Disruptions at the Company's Manufacturing Facility; Lease with Related Party.The majority of the
Company's manufacturing operations are currently located at the Company's facilities in Temecula, California, which also includes the Company's principal warehouse and corporate office operations. The
Company's success depends in large part on the orderly operation of these facilities. Because the Company's manufacturing operations and administrative departments are concentrated at this facility, a
fire, earthquake, power interruption or other disaster at this facility could materially and adversely affect its business and results of operations. The Company maintains property insurance on this
facility as well as business interruption insurance.

The
Company currently leases a portion of its Temecula facilities from William H. Channell, Sr., a principal stockholder and Chairman of the Board of the Company. The Company believes
the terms of these leases are no less favorable than would be available from an unrelated third party after arm's length negotiations. Although the Company has renewal options through the year 2015
under these leases, there can be no assurance that the Company and Mr. Channell, Sr. will be able to agree on additional renewal terms for the properties currently leased by the Company. The
failure of the Company to renew the leases would require the Company to relocate its existing facilities, which could have a material adverse effect on the Company's business, financial condition or
results of operations.

Dependence on Key Personnel.The future success of the Company depends in part on its ability to
attract and retain key executive, engineering, marketing and sales personnel. Key personnel of the Company include William H. Channell, Sr., Chairman of the Board, William H. Channell, Jr., President
and Chief Executive Officer and the other executive officers of the Company. The market for qualified personnel in the communications industry is competitive and the loss of certain key personnel
could have a material adverse effect on the Company. The Company has employment contracts with William H. Channell, Jr. and William H. Channell, Sr.

Changing Regulatory Environment.The communications industry is subject to regulation in the United
States and other countries. Federal and state agencies regulate most of the Company's domestic customers. Changes in current or future laws or regulations, in the United States or elsewhere, could
materially adversely affect the Company's business.

Uncertain Ability to Manage Industry Volatility.The Company's business has required and is expected
to continue to require significant Company resources in terms of personnel, management and other infrastructure. The Company's ability to manage effectively the volatility of the telecommunications
industry requires it to attract, train, motivate and manage new employees successfully, to integrate new employees into its overall operations and to continue to improve its operational, financial and
management information systems.

Environmental Matters.The Company is subject to a wide variety of federal, state and local
environmental laws and regulations and uses a limited number of chemicals that are classified or could be classified as hazardous or similar substances. Although management believes that the Company's
operations are in compliance in all material respects with current environmental laws and regulations, the Company's failure to comply with such laws and regulations could have a material adverse
effect on the Company.

26

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Selected Quarterly Financial Data

Set forth below is certain unaudited quarterly financial information. (See also Footnote Q to the Financial Statements included elsewhere herein.) The Company
believes that all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly, and in accordance with generally accepted
accounting principles, the selected quarterly information when read in conjunction with the Financial Statements.

|                                  |  | Year Ended
December 31, 2002 |        | Year Ended
December 31, 2003 |  
|--------------------------------- |  | ---------------------------- | ------ | ---------------------------- | -
|
|
|Net sales                         |  | $                            | 19,841 |                              | $
|Gross profit                      |  |                              | 6,482  |                              |  
|Income (loss) from operations     |  |                              | 1,920  |                              |  
|Income (loss) before income taxes |  |                              | 1,150  |                              |  

Item 7a.Quantitative and Qualitative Disclosures about Market Risk

The market risk inherent in the Company's market risk sensitivity instruments is the potential loss arising from adverse changes in interest rates and foreign
currency exchange rates. All financial instruments held by the Company and described below are held for purposes other than trading.

Market Risk

The Company's Loan and Security Agreement allows the outstanding balance to bear interest at a variable rate based on the lender's base rate. The credit facility
exposes operations to changes in short-term interest rates since the interest rates on the credit facility are variable.

If
the variable rates on the Company's Loan and Security Agreement were to increase by 1% from the rate at December 31, 2003, and if the Company had borrowed during all of fiscal
2003 the maximum amount ($25.0 million) at any time in 2003 under its credit facility at the increased interest rate, the Company's interest expense would have increased, and net loss would
have increased by $0.2 million. A marginal income tax rate of 38.0% was used in this analysis. This analysis does not consider the effects of economic activity on the Company's sales and
profitability in such an environment.

Foreign Exchange Risk

The Company has assets and liabilities outside the United States that are subject to fluctuations in foreign currency exchange rates. Assets and liabilities
outside the United States are primarily located in the United Kingdom, Australia and Canada. The Company's investment in foreign subsidiaries with a functional currency other than the U.S. dollar are
generally considered long-term. Accordingly, the Company does not hedge these net investments. The Company also purchases a limited portion of its raw materials from foreign countries.
These purchases are generally denominated in U.S. dollars and are accordingly not subject to exchange rate fluctuations. The Company has not engaged in forward foreign exchange and other similar
contracts to reduce its economic exposure to changes in exchange rates because the associated risk is not considered significant.

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Item 8.Financial Statements and Supplementary Data

Consolidated Financial Statements of Channell Commercial Corporation are as follows:

|Report of Independent Certified Public Accountants                                                                                                    |  | F-1
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---
|Consolidated Balance Sheets as of December 31, 2002 and December 31, 2003                                                                             |  | F-2
|Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2001, December 31, 2002, and December 31, 2003 |  | F-3
|Consolidated Statement of Stockholders' Equity for the years ended December 31, 2001, December 31, 2002, and December 31, 2003                        |  | F-4
|Consolidated Statements of Cash Flows for the years ended December 31, 2001, December 31, 2002, and December 31, 2003                                 |  | F-5
|Notes to Consolidated Financial Statements                                                                                                            |  | F-6

Financial
statement schedules are as follows:

Schedule IIValuation
and Qualifying Accounts

All
remaining schedules are omitted because they are not applicable, or the required information is included in the financial statements or the notes thereto.

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There has been no Form 8-K filed reporting a change of accountants or reporting disagreements on any matter of accounting principle, practice,
financial statement disclosure or auditing scope or procedure.

Item 9A.Controls and Procedures

Based on their evaluation as of December 31, 2003 (the "Evaluation Date"), the Company's principal executive officer and principal financial officer have
concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended) are effective to ensure that material information relating to the Company and its consolidated subsidiaries is recorded, processed, summarized, reported and made known to the
Company's management, including the Company's principal executive and financial officers, on a timely basis by others within the Company and its consolidated subsidiaries.

To
satisfy their responsibility for financial reporting, the Company's CEO and CFO have established internal controls for financial reporting which they believe are adequate to provide
reasonable assurance that the Company's assets are protected from loss. These internal controls are reviewed by the Company's management in order to ensure compliance. In addition, the Company's Audit
Committee meets regularly with management and the independent accountants to review accounting, auditing and financial matters. The Audit Committee and the independent accountants have free access to
each other, with or without management being present.

There
has been no change in the Company's internal control over financial reporting during the three months ended December 31, 2003 that has materially affected, or is reasonably
likely to materially affect, internal control over financial reporting.

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PART III

Item 10.Executive Officers and Directors of the Registrant

The following table sets forth information with respect to the Company's executive officers and directors and their ages as of March 4, 2004.

|Name                     |  | Age |  | Positions                                      
|------------------------ |  | --- |  | -----------------------------------------------
|William H. Channell, Sr. |  | 76  |  | Chairman of the Board and Director             
|William H. Channell, Jr. |  | 46  |  | President, Chief Executive Officer and Director
|Jacqueline M. Channell   |  | 72  |  | Secretary and Director                         
|Bruce Glidden            |  | 75  |  | Director                                       
|Guy Marge                |  | 60  |  | Director                                       
|Dana Brenner             |  | 61  |  | Director                                       
|Edward J. Burke          |  | 48  |  | Vice President, Corporate Engineering          
|Timothy Hankinson        |  | 51  |  | Managing Director, International               
|John B. Kaiser           |  | 52  |  | Vice President, North American Sales           
|Thomas Liguori           |  | 45  |  | Chief Financial Officer                        
|Andrew M. Zogby          |  | 43  |  | Vice President, Corporate Marketing            

The
Company's Board of Directors was comprised of six members at March 4, 2004. The directors of the Company are staggered into three classes, with the directors in a single class
elected at each annual meeting of stockholders to serve for a term of three years or until their successors have been elected and qualified. The authorized number of members of the Board of Directors
is currently seven. The executive officers of the Company serve at the pleasure of the Board of Directors.

William
H. Channell, Sr., the son of the Company's founder, James W. Channell, has been the Chairman of the Board since July, 1996. From 1966 to November, 2001 and from July, 2002 to
December, 2003 Mr. Channell, Sr. was Chief Executive Officer. Mr. Channell, Sr. is a co-trustee of the Channell Family Trust, which is a principal stockholder of the Company,
and is the husband of Jacqueline M. Channell and the father of William H. Channell, Jr. His term as a Director expires in 2005.

William
H. Channell, Jr. has been President and Chief Executive Officer since December, 2003. He was President and Chief Operating Officer of the Company from 1996 to December, 2003. He
has been a Director of the Company since 1984. Since joining the Company in 1979, Mr. Channell, Jr. has held the positions of Executive Vice President, Director of Marketing and National Sales
Manager. Mr. Channell, Jr. is a principal stockholder of the Company and is the son of William H. Channell, Sr. and Jacqueline M. Channell. His term as a Director expires in 2006.

Jacqueline
M. Channell is Secretary and has been a Director since 1966 except for approximately three months in 2001. She is a co-trustee of the Channell Family Trust, which
is a principal stockholder of the Company, and is the wife of William H. Channell, Sr. and the mother of William H. Channell, Jr. Mrs. Channell's term as a Director expires in 2006.

Bruce
Glidden became a Director of the Company in April, 2002. Mr. Glidden was with U.S. Steel for 29 years. From 1981 to 1985, he was President of U.S. Steel's American
Bridge Division. In 1985, Mr. Glidden founded Glidden & Co., Ltd., a consulting firm serving the engineering profession and the construction industry. Mr. Glidden's term as
a Director expires in 2004.

Guy
Marge became a Director of the Company in August, 2002. Mr. Marge is President and Chief Executive Officer of Western Brass Industries, Inc. and Storm
Industries, Inc. From 1988 to 2001, Mr. Marge was Chief Executive Officer of the Milhous Group, Inc., a manufacturer of plastic, metal-formed and pre-cast concrete
products. From 1978 to 1988, Mr. Marge held executive management

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positions
with Kearney-National, Inc., The United Groups, Inc., and Uniroyal Technology Corporation. Mr. Marge's term as a Director expires in 2004.

Dana
Brenner became a Director of the Company in March, 2003. Mr. Brenner is the managing partner of Brenner, Bigler & Associates, an accounting firm with offices in
Woodland Hills and Blythe, California, focused on medium and small businesses as well as individuals. Mr. Brenner has over 35 years of public accounting experience with companies in
various industries including manufacturing, construction, real estate, mortgage banking and credit unions. Mr. Brenner's term as a Director expires in 2005.

Edward
J. Burke has been the Company's Vice President, Corporate Engineering since May, 1996 and has served in various similar capacities with the Company since 1984. Mr. Burke
has held various technical positions in the thermoplastic product engineering and tooling design field since 1978.

Timothy
Hankinson joined the Company in 1998 as Managing Director, Australia and Asia as a result of the acquisition of A.C. Egerton PLC. Mr. Hankinson had been Managing Director
of A.C. Egerton PLC since 1991. Prior to 1991, Mr. Hankinson had served as General Manager of an Australian aircraft manufacturer. Mr. Hankinson became Managing Director, International
in December, 2002.

John
B. Kaiser has been the Company's Vice President, North American Sales since 1999. He held the position of Director of Marketing for the Company from 1987 to 1991 and he was Vice
President, Broadband Division from 1995 through 1998. Between 1991 and 1995, Mr. Kaiser held the position of District Manager, Southern California, for the General Polymers Division of Ashland
Chemical, a thermoplastics distributor, where his responsibilities included general management of district operations, including sales, warehousing, procurement and logistics.

Thomas
Liguori has been the Company's Chief Financial Officer since April, 2000. Mr. Liguori joined the Company from Dole Food Company, where he served as Chief Financial Officer
of Dole Europe in Paris, France. From 1992 to 1996 he held various financial positions with Teledyne Inc., including Vice President, Finance for a manufacturer of consumer and industrial
products. From 1986 to 1992 Mr. Liguori was a management consultant with Deloitte & Touche. He has over 20 years of financial, accounting and management experience.

Andrew
M. Zogby has been the Company's Vice President, Corporate Marketing since March, 1996. Prior to joining the Company, Mr. Zogby was Director of Strategic Marketing,
Broadband Connectivity Group for ADC Telecommunications, a publicly traded telecommunications equipment supplier to both telephone and broadband network providers worldwide. He had been with ADC
Telecommunications since 1990. Mr. Zogby has held various technical marketing positions in the telecommunications equipment industry since 1984.

Compensation of Directors

Directors who are also officers of the Company (except as indicated below) receive no additional compensation for their services as directors. Prior to 2003, the
Company's non-management directors received compensation consisting of an annual retainer fee of $25,000 plus $1,000 for attendance at any meeting of the Board of Directors or any
committee thereof, plus direct out-of-pocket costs related to such attendance. Effective January of 2003, the fee for committee meetings was reduced to $500.
Mrs. Channell also receives non-management director retainer and attendance fees. In addition, pursuant to the Company's 1996 Incentive Stock Plan (as described below), each
non-management director (including Mrs. Channell) received options to acquire 1,000 shares of the Company's Common Stock with an exercise price equal to the Initial Public Offering
price, and on the date of each of the Company's annual stockholder meetings after the Initial Public Offering, each non-management director (including non-executive officers
who serve as directors) serving on the Board of Directors

30

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immediately
following such meeting are to receive options to acquire an additional 1,000 shares of the Company's Common Stock with an exercise price equal to the market value of the Common Stock on
the date such options are granted. These options will become exercisable at a rate of 331/3% per year commencing on the first anniversary of the date of issuance and will have a term of
10 years.

Audit Committee Financial Expert

The Board of Directors has determined that Mr. Dana Brenner qualifies as a "financial expert" within the meaning of SEC rules. Mr. Brenner is the
managing partner of Brenner, Bigler & Associates, an accounting firm with offices in Woodland Hills and Blythe, California. Mr. Brenner has over 35 years of public accounting
experience with companies in various industries, including manufacturing, construction, real estate, mortgage banking and credit unions.

Code of Ethics

The Company has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K. This Code of Ethics applies to its principal
executive officer, principal financial officer and principal accounting officer. This Code of Ethics is being filed as Exhibit 14 to this Annual Report on Form 10-K. If the
Company makes substantive amendments to this Code of Ethics or grants any waiver, including any implicit waiver, the Company will disclose the nature of such amendment or waiver on its website within
five days of such amendment or waiver.

Section 16(a) Beneficial Ownership Reporting Compliance

Information required by Item 405 of Regulation S-K is incorporated by reference to the Company's Proxy Statement relating to its 2004 annual
meeting of stockholders.

Item 11.Executive Compensation

Summary Compensation Table

The
following table sets forth the annual and long-term compensation of the Company's Chief Executive Officer and the four additional most highly compensated executive
officers for the years ended December 31, 2001, 2002 and 2003 (collectively, the "Named Officers").

|                                                                              |  |                |  | Annual Compensation     |  |                        |        |            |     |       |  |                    |     |       | 
|----------------------------------------------------------------------------- |  | -------------- |  | ----------------------- |  | ---------------------- | ------ | ---------- | --- | ----- |  | ------------------ | --- | ----- | 
|
|
|William H. Channell, Sr.(2)
Chairman of the Board
and Chief Executive Officer |  | 2003
2002
2001 |  | 248,077

239,455       |  | 

                  |        | 
15,500
 | (3) | 

 |  | 1,000
1,000
      | (9) | 

 | 
|William H. Channell, Jr.(2)
President and Chief
Executive Officer             |  | 2003
2002
2001 |  | 656,109
508,300
598,000 |  | 261,206
447,500
67,260 | (4)(5) | 

      |     | 

 |  | 1,267,800

50,000 | (9) | 

 | 
|Thomas Liguori
Chief Financial Officer                                        |  | 2003
2002
2001 |  | 197,925
185,250
188,200 |  | 80,340
60,060
        |        | 

      |     | 

 |  | 50,000

44,140    | (9) | 

 | 
|John B. Kaiser
Vice President,
North American Sales                           |  | 2003
2002
2001 |  | 161,200
147,250
150,589 |  | 66,960
47,740
        |        | 

      |     | 

 |  | 145,270

7,470    | (9) | 

 | 
|Andrew M. Zogby
Vice President,
Corporate Marketing                           |  | 2003
2002
2001 |  | 179,777
164,305
168,030 |  | 21,100
53,269
        |        | 

      |     | 

 |  | 148,550

8,310    | (9) | 

 | 
|Edward J. Burke
Vice President,
Corporate Engineering                         |  | 2003
2002
2001 |  | 148,412
138,908
142,057 |  | 60,242
45,035
        |        | 

      |     | 

 |  | 148,550

8,310    | (9) | 

 | 

---

31

---

1996 Incentive Stock Plan

The Company's 1996 Incentive Stock Plan (the "1996 Stock Plan") currently permits the granting to the Company's key employees, Directors and other service
providers of (i) options to purchase shares of the Company's Common Stock and (ii) shares of the Company's Common Stock that are subject to certain vesting and other restrictions
("Restricted Stock"). Initially, a maximum of 750,000 shares of Common Stock were reserved for issuance under the 1996 Stock Plan. In 1999, the 1996 Stock Plan was amended to allow a maximum of
1,500,000 shares to be issued under the 1996 Stock Plan.

The
1996 Stock Plan is administered by the Compensation Committee of the Board of Directors. The aggregate number of stock options or shares of Restricted Stock that may be granted to
any single participant under the 1996 Stock Plan during any fiscal year of the Company is 100,000. The purpose of the 1996 Stock Plan is to secure for the Company and its stockholders the benefits
arising from stock ownership by key employees, directors and other service providers selected by the Compensation Committee.

All
options granted under the 1996 Stock Plan are non-transferable and exercisable in installments determined by the Compensation Committee, except that each option is to be
exercisable in minimum annual installments of 20% commencing with the first anniversary of the option's grant date. Each option granted has a term specified in the option agreement, but all options
expire no later than ten years from the date of grant. Options under the 1996 Stock Plan may be designated as "incentive stock options" for federal income tax purposes or as options which are not
qualified for such treatment, or "non-qualified stock options". In the case of incentive stock options, the exercise price must be at least equal to the fair market value of the stock on
the date the option is granted. The exercise price of a non-qualified option need not be equal to the fair market value of the stock at the date of grant, but may be granted with any
exercise price which is not less than 85% of the fair market value at the time the option is granted, as the Compensation Committee may determine. The aggregate fair market value (determined at the
time the options are granted) of the shares covered by incentive stock options granted to any employee under the 1996 Stock Plan (or any other plan of the Company) which may become exercisable for the
first time in any one calendar year may not exceed $100,000.

Upon
exercise of any option, the purchase price must generally be paid in full either in cash or by certified or cashier's check. However, in the discretion of the Compensation
Committee, the terms of a stock option grant may permit payment of the purchase price by means of (i) cancellation of indebtedness owed by the Company, (ii) delivery of shares of Common
Stock already owned by the optionee (valued at fair market value as of the date of exercise), (iii) delivery of a promissory note secured by the shares issued, (iv) delivery of a portion
of the shares issuable upon exercise (i.e.,

32

---

exercise
for the "spread" on the option payable in shares), or (v) any combination of the foregoing or any other means permitted by the Compensation Committee.

Any
grants of restricted stock will be made pursuant to Restricted Stock Agreements, which will provide for vesting of shares at a rate to be determined by the Compensation Committee
with respect to each grant of restricted stock. Until vested, shares of restricted stock are generally non-transferable and are forfeited upon termination of employment. The Company has
not made any grants of restricted stock.

In
January, 2003, the Board of Directors approved an offer allowing current employees and non-employee directors to exchange all of their outstanding options granted under
the 1996 Stock Plan for new options to be granted under the 2003 Stock Plan or any other stock option plan that may be adopted by the Company. At the time the Board approved the offer, certain
employees' and non-employee directors' outstanding options had exercise prices that were significantly higher than the current market price of the Company's common stock. The Board of
Directors made the offer in order to provide these option holders with the benefit of owning options that, over time, may have a greater potential to increase in value. The Board of Directors believes
that this will create better performance incentives for these option holders. The offer expired on March 20, 2003. A total of 1,326,890 options to purchase shares of the Company were accepted
for exchange and cancelled on March 20, 2003. The 2003 Incentive Stock Plan was approved at the Annual Meeting of Stockholders on April 25, 2003. On September 24, 2003, a total of
1,324,090 new options were exchanged for options cancelled in March, 2003.

Eligible
option holders who participated in the offer received a new option on the new grant date in exchange for each old option that was validly tendered and accepted for exchange. The
number of shares covered by each new option was equal to the number of shares covered by the old options, and the vested status and vesting schedule of the old options was preserved and continued. The
exercise price of the new options was equal to the closing sale price of the Company's common stock as reported on the Nasdaq National Market on the grant date of the new options.

2003 Incentive Stock Plan

The Company's 2003 Incentive Stock Plan (the "2003 Stock Plan") currently permits the granting of (i) incentive stock options to purchase shares of the
Company's Common Stock to employees of the Company and the Company's subsidiaries and (ii) nonqualified stock options to purchase shares of the Company's Common Stock to employees, Directors
and consultants of the Company and the Company's subsidiaries. The 2003 Stock Plan also permits the granting of shares of the Company's Common Stock ("Stock Awards") that are subject to vesting
restrictions based on continued employment or attainment of performance goals ("Restricted Stock") to employees, Directors and consultants of the Company and the Company's subsidiaries. Incentive
stock options and nonqualified stock options are granted subject to the terms of a stock option agreement entered into between the participant and the Company. A maximum of 3,100,000 shares of Company
Common Stock are reserved for issuance under the 2003 Stock Plan.

The
2003 Stock Plan is administered by the Compensation Committee of the Board of Directors. The aggregate number of stock options that may be granted to any single participant under the
2003 Stock Plan during any fiscal year of the Company is 1,000,000. The purpose of the 2003 Stock Plan is to secure for the Company and its stockholders the benefits arising from stock ownership by
employees, directors and consultants selected by the Compensation Committee.

Options
granted under the 2003 Stock Plan are non-transferable other than by will or by the laws of descent or distribution and exercisable, during the lifetime of the
participant, only by the participant at times and under conditions determined by the Compensation Committee. Each option granted has a term specified in the stock option agreement, but all options
expire no later than ten years from the

33

---

date
of grant. Options under the 2003 Stock Plan may be designated as "incentive stock options" for federal income tax purposes or as "nonqualified stock options." In the case of incentive stock
options, the exercise price must be at least equal to the fair market value of the share of Company Common Stock on the date the option is granted. The exercise price of a nonqualified stock option
need not be equal to the fair market value of the share of Company Common Stock on the date of grant, but may be granted, at the discretion of the Compensation Committee, at any exercise price which
is not less than 85% of the fair market value at the time the option is granted. The aggregate fair market value (determined at the time the options are granted) of the shares of Company Common Stock
covered by incentive stock options granted to any employee under the 2003 Stock Plan (or any other plan of the Company) which may become exercisable for the first time in any one calendar year may not
exceed $100,000.

Upon
exercise of an option, the purchase price must generally be paid in full in cash or by cashiers check. However, at the discretion of the Compensation Committee, the terms of a stock
option agreement may permit payment of the purchase price by means of (i) delivery of shares of Common
Stock already owned by the participant (valued at fair market value as of the date of exercise), (ii) to the extent permitted by applicable law, delivery of a promissory note secured by the
shares issued, (iii) delivery of a portion of the shares issuable upon exercise (i.e., exercise for the "spread" on the option payable in shares), or (iv) any combination of the
foregoing or any other means permitted by the Compensation Committee.

Grants
of Stock Awards are made pursuant to a restricted stock agreement entered into between the Company and the participant. A stock agreement provides (i) the rate at which
shares of Restricted Stock will vest and (ii) any other terms and restrictions deemed appropriate by the Compensation Committee. Until vested, shares of Restricted Stock are generally
non-transferable and forfeitable upon termination of employment.

In
the event of a merger, reorganization or sale of substantially all of the assets of the Company, the Compensation Committee, may, in its discretion, do one or more of the following:
(i) shorten the period during which options are exercisable, (ii) accelerate any vesting schedule to which an option or Stock Award is subject; (iii) arrange to have the surviving
or successor entity assume the Stock Awards and the options or grant replacement options or (iv) cancel options or Stock Awards upon payment to the participants in cash, with respect to each
option or Stock Award to the extent then exercisable or vested, of an amount that is equal to the excess of the fair market value of the Company's Common Stock (at the effective time of the merger,
reorganization, sale or other event) over (in the case of options) the exercise price of the option.

The
Board of Directors may at any time amend, alter or suspend or terminate the 2003 Stock Plan. No amendment, alteration or suspension or termination of the 2003 Stock Plan may impair
the rights of a participant, unless mutually agreed to by the Company and the participant.

34

---

Options/SAR Grants Table

The following table sets forth the stock options granted to the Named Officers for the year ended December 31, 2003.

|Name                     |  | Number of
Securities
Underlying
Options/SARs
Granted |        | % of Total
Options/SARs
Granted to
Employees
in Fiscal Year
2003 |     | Exercise
On Base
Price
($/Sh) |                | Expiration Date |                                           | Potential Realized
Value at
Assumed Annual
Rates of Stock Price
Appreciation of
Option Term (3)
|------------------------ |  | ---------------------------------------------------- | ------ | ---------------------------------------------------------------- | --- | ----------------------------- | -------------- | --------------- | ----------------------------------------- | -----------------------------------------------------------------------------------------------
|
|William H. Channell, Sr. |  | 1,000                                                | (1)    | 0.0                                                              | %   | $                             | 4.84           |                 | September 2013                            |                                                                                                
|William H. Channell, Jr. |  | 321,400
596,400
350,000                              | (2)(1) | 13.8
25.5
15.0                                                   | %%% | $$$                           | 4.75
4.84
4.15 |                 | January 2013
September 2013
December 2013 |                                                                                                
|Thomas Liguori           |  | 50,000                                               |        | 2.1                                                              | %   | $                             | 4.75           |                 | January 2013                              |                                                                                                
|John B. Kaiser           |  | 50,000
95,270                                        | (2)(1) | 2.1
4.1                                                          | %%  | $$                            | 4.75
4.84      |                 | January 2013
September 2013               |                                                                                                
|Andrew M. Zogby          |  | 50,000
100,060                                       | (2)(1) | 2.1
4.3                                                          | %%  | $$                            | 4.75
4.75      |                 | January 2013
September 2013               |                                                                                                
|Edward J. Burke          |  | 50,000
98,550                                        | (2)(1) | 2.1
4.2                                                          | %%  | $$                            | 4.75
4.84      |                 | January 2013
September 2013               |                                                                                                

---

Aggregated Option/SAR Exercises in Last Fiscal Year and December 31, 2003 Option/SAR Values

The following table sets forth the number and value of outstanding stock options at December 31, 2003.

35

---

No
options were exercised in 2003.

|                         |  |   |  |   |  | Number of Shares
Underlying Unexercised
Options/SARs
at December 31, 2003 |  |         |  |  
|------------------------ |  | - |  | - |  | ------------------------------------------------------------------------- |  | ------- |  | -
|
|
|
|
|William H. Channell, Sr. |  | 0 |  | 0 |  | 334                                                                       |  | 666     |  | $
|William H. Channell, Jr. |  | 0 |  | 0 |  | 258,334                                                                   |  | 688,066 |  | $
|Thomas Liguori           |  | 0 |  | 0 |  | 54,428                                                                    |  | 64,712  |  | $
|John B. Kaiser           |  | 0 |  | 0 |  | 42,781                                                                    |  | 52,489  |  | $
|Andrew M. Zogby          |  | 0 |  | 0 |  | 47,291                                                                    |  | 52,769  |  | $
|Edward J. Burke          |  | 0 |  | 0 |  | 46,201                                                                    |  | 52,349  |  | $

Profit Sharing and Savings Plans

The Company maintains a plan, established in 1993, in accordance with Section 401(k) of the Internal Revenue Code. Under the terms of this plan, eligible
employees may make voluntary contributions to the extent allowable by law. Employees of the Company are eligible to participate in the plan after 90 days of employment. Matching contributions
by the Company to this plan are discretionary and will not exceed that allowable for Federal income tax purposes. The Company's contributions are vested over five years in annual increments.

Employment Contracts

The Company in December, 2003 entered into a five year employment agreement, renewable every five years, with William H. Channell, Jr. Mr. Channell, Jr.'s
annual salary is $718,320 (subject to an annual cost of living adjustment). Mr. Channell, Jr. is entitled to participate in the Stock Plan, the 401(k) Plan and the Incentive Compensation Plan.
Additionally, the employment agreement provides for incentive compensation to Mr. Channell, Jr., based upon personal performance objectives and increases in the Company's market capitalization
over a three-year period. Mr. Channell, Jr. is also entitled to certain other benefits paid for by the Company, including an automobile allowance, health insurance and sick leave,
in accordance with the Company's customary practices for senior executive officers.    In the event that the Company were to terminate Mr. Channell, Jr. without cause (as defined in
the agreement), or Mr. Channell, Jr. were to terminate his employment for good reason (also as defined in the agreement and including, without limitation, a change of control of the Company),
then Mr. Channell, Jr. would be entitled to a lump sum payment equal to three times his then current base salary, all health and life insurance benefits for three years, and accelerated vesting
of any stock options or restricted stock granted to him.

The
Company amended in December, 2003 the employment agreement with Mr. Channell, Sr. originally entered into in July, 1996. Mr. Channell, Sr.'s annual salary starting in
December, 2003 is $50,000. Mr. Channell, Sr.'s benefits include (i) during the term of the agreement, the payment of premiums for a term disability policy providing for $250,000 in
annual benefits in the case of his temporary or permanent disability, (ii) during the lifetime of Mr. Channell, Sr. and his wife, Jacqueline M. Channell, medical insurance for each of
Mr. and Mrs. Channell comparable to that provided to the Company's senior executive officers, (iii) during Mr. Channell, Sr.'s lifetime, a portion of the premiums on a
$1,500,000 life insurance policy owned by Mr. Channell, Sr., under which Mrs. Channell is the beneficiary, and (iv) an automobile allowance.

Incentive Compensation Plan

Effective beginning in the Company's 1996 fiscal year, the Board of Directors adopted the Company's 1996 Performance-Based Annual Incentive Compensation Plan (the
"Incentive Plan").

36

---

Eligible
participants consist of key employees of the Company. The Incentive Plan is administered by the Compensation Committee of the Board of Directors. The amount of awards granted under the
Incentive Plan are determined based on an objective computation of the actual performance of the Company relative to pre-established performance goals. Measures of performance may include
level of sales, EBITDA, net income, income from operations, earnings per share, return on sales, expense reductions, return on capital, stock appreciation, return on equity, invention, design or
development of proprietary products or improvements thereto (patented or otherwise), or sales of such proprietary products or improvements or profitability achieved from sales of proprietary products
or improvements. Awards under the Incentive Plan are payable in cash or, at the election of the Compensation Committee, Common Stock of the Company. Mr. William H. Channell, Jr., the Company's
President and Chief Executive Officer, receives a bonus based on the factors above. The bonus was earned and payable based on continued service in subsequent years for fiscal year 2001 and prior. In
2002, the Compensation Committee changed the bonus to be earned and payable in the current year. The Compensation Committee may establish a bonus pool from which all awards under the Incentive Plan
may be granted as well as individual, non-bonus pool awards.

The
Company's executive compensation program is administered by the Compensation Committee of the Board of Directors. As of March 4, 2004, the members of this Committee included
Mr. Guy Marge, as Chairperson, Mr. William H. Channell, Sr. and Mr. Dana Brenner. It is the responsibility of the Committee to review and approve the Company's executive
compensation plans and policies and to monitor these compensation programs in relation to the performance of the particular executive and the overall performance of the Company.

In
February 2003, the Company offered current employees and non-employee directors an opportunity to exchange their outstanding options granted under the 1996 Stock
Plan. The tender offer expired on March 20, 2003. Pursuant to the offer, a total of 1,326,890 options were cancelled on March 20, 2003. On September 24, 2003, a total of 1,324,090
new options were exchanged for options cancelled in March 2003. (See "Executive Compensation1996 Incentive Stock Plan", Item 11.)

37

---



The following is a line graph presentation comparing the Company's cumulative total return since the Initial Public Offering in July 1996 to December 31, 2003 with the
performance of the NASDAQ market, the S & P Industrials and a similar Industry Index for the same period.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*AMONG CHANNELL COMMERCIAL CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX
THE S & P COMMUNICATIONS EQUIPMENT INDEX AND THE S & P INDUSTRIALS INDEX

CHART



38

---



Board Meetings and Committees

The Board of Directors held ten meetings during the fiscal year ending December 31, 2003. The Board has two standing committees: the Audit Committee and
the Compensation Committee, both established in June 1996. The Board does not have a Nominating Committee. The Audit Committee recommends
engagement of the Company's independent accountants, approves the services performed by such accountants and reviews and evaluates the Company's accounting systems and its system of internal
accounting controls. All members of the Audit Committee are independent as defined by NASD rule 4200(a)(14). Mr. Brenner is the managing partner of Brenner, Bigler & Associates,
an accounting firm with offices in Woodland Hills and Blythe, California. Mr. Brenner has over 35 years of public accounting experience with companies in various industries, including
manufacturing, construction, real estate, mortgage banking and credit unions.The Board has adopted a written charter for the Audit Committee. The Compensation Committee makes recommendations to the
full Board of Directors regarding levels and types of compensation of the Company's executive officers and administers the 1996 Stock Plan, the 2003 Stock Plan and the Incentive Compensation Plan. See
"Executive Compensation" and "Description of Certain Plans". In 2003, the Audit Committee met three times and the Compensation Committee met five times in performing their responsibilities. In 2003,
no director failed to attend at least 75% of the aggregate number of Board and Committee meetings during the period of his or her service.

Compensation Committee Interlocks and Insider Participation in Compensation Decisions

During 2003, members of the Company's Compensation Committee consisted of Messrs. Guy Marge as Chairman, William H. Channell, Sr., and Dana Brenner. No
additional information concerning the Compensation Committee or the Company's executive officers is required by Item 402 of Regulation S-K.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required by Item 201(d) of Regulation S-K is incorporated by reference to the Company's Proxy Statement relating to the 2004 Annual
Meeting of Stockholders.

39

---

The
following table sets forth certain information concerning those persons who are known by management of the Company to be beneficial owners of more than 5% of the Company's
outstanding common stock (as provided to the Company by such persons or the record holder of such shares).

|                                                                                                                                    |  | Amount and Nature of
Beneficial Ownership |  |         | 
|----------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- |  | ------- | 
|
|William H. Channell, Sr. and
Jacqueline M. Channell, as co-trustees
of the Channell Family Trust
26040 Ynez Road
Temecula, CA 92591 |  | 3,250,830                                 |  | 6,335   | 
|William H. Channell, Jr.
26040 Ynez Road
Temecula, CA 92591                                                                         |  | 715,250                                   |  | 382,134 | 
|Rutabaga Capital Management, LLC
64 Broad Street
Boston, MA 02109                                                                   |  | 977,650                                   |  |        | 
|Fidelity Management & Research Co.
82 Devon Street
Boston, MA 02109                                                                 |  | 912,524                                   |  |        | 
|State of Wisconsin Investment Board
P.O. Box 7842
Madison, WI 53707                                                                 |  | 701,300                                   |  |        | 
|Wellington Management Company, LLP
75 State Street
Boston, MA 02109                                                                 |  | 613,900                                   |  |        | 
|The Taylor Family Trust
1450 Ravenswood Lane
Riverside, CA 92506                                                                    |  | 469,960                                   |  |        | 
|Carrie S. Channell
18 Buena Vista Avenue
Mill Valley, CA 94941                                                                      |  | 450,000                                   |  |        | 

---

40

---

Security Ownership of Management

The following table sets forth certain information, as of March 2, 2004, concerning the beneficial ownership of common stock by the Company's directors and
Named Officers, and all directors and executive officers of the Company as a group.

|                                                                       |  | Amount and Nature of Beneficial Ownership |  |         | 
|---------------------------------------------------------------------- |  | ----------------------------------------- |  | ------- | 
|
|William H. Channell, Sr.                                               |  | 3,250,830                                 |  | 334     | 
|Jacqueline M. Channell                                                 |  | 0                                         |  | 6,001   | 
|William H. Channell, Jr.                                               |  | 715,250                                   |  | 382,134 | 
|Thomas Liguori                                                         |  | 30,300                                    |  | 71,095  | 
|Bruce Glidden                                                          |  | 1,000                                     |  | 668     | 
|Guy Marge                                                              |  | 0                                         |  | 334     | 
|Dana Brenner                                                           |  | 0                                         |  | 334     | 
|Edward J. Burke                                                        |  | 1,000                                     |  | 62,934  | 
|John B. Kaiser                                                         |  | 890                                       |  | 59,514  | 
|Andrew M. Zogby                                                        |  | 900                                       |  | 64,024  | 
|Total Listed Individually                                              |  | 4,000,170                                 |  | 647,372 | 
|All present directors and executive officers as a group (11 in number) |  | 4,000,170                                 |  | 675,539 | 

---

Item 13.Certain Relationships and Related Transactions

The Company has two leases for approximately 261,000 square feet of manufacturing, warehouse and office space in Temecula, California, with William H. Channell,
Sr., a principal stockholder and Chairman of the Board of the Company. The term of the first lease is through December 31, 2005, with two five-year renewal options. Additionally, an
adjacent 100,000 square foot building was constructed and completed in 1996. Subsequent to December 31, 1996, the Company guaranteed debt of Mr. Channell, Sr. of approximately
$0.8 million incurred in connection with construction of the building. The loan amount subject to the guarantee is expected to decline before expiring in 2016. At December 31, 2003, the
outstanding loan balance subject to the guarantee totaled $0.6 million. It is not practicable to estimate the fair value of the guarantee; however, the Company does not anticipate that it will
incur losses as a result of this guarantee. This building is also being leased from Mr. Channell, Sr. through 2005, with two five-year renewal options. Both leases provide for
payments of insurance, repairs, maintenance and property taxes. Rent expense paid under the leases was $1.2 million, $1.3 million and $1.3 million for the years ended
December 31, 2001, 2002 and 2003, respectively. The Company believes that the terms of these leases are no less favorable to the Company than could be obtained from an independent third party.
As part of the restructuring plan announced in the third quarter of 2001, the Company has vacated warehouse space in one of the facilities. The Company intends to sublease the vacated warehouse space.

In
January, 2001, the Company guaranteed personal debt of William H. Channell, Jr., the Company's President and Chief Executive Officer, of $0.6 million. In connection with this
guarantee, William H. Channell, Jr. paid the Company a fee equal to 1% of the loan balance and provided as collateral to the Company 300,000 shares of Company stock. It was not practicable to estimate
the fair value of the guarantee. The guarantee was canceled by the lender in March, 2002.

41

---

In
May, 2002 the Company sold its RF line of passive electronic devices to RMS Communications, Inc., which is owned by Gary Napolitano, a former officer of the Company. A sale in
the amount of $800,000 was recorded. RMS Communications, Inc. paid the Company $125,000 in cash at the time of sale, and the remaining $675,000 is payable in monthly installments through
June 30, 2003, bearing interest at 7% per annum. The account is currently in arrears. The amount due from RMS Communications, Inc. included in accounts receivable at December 31,
2003 is $337,494. The Company has security interest in the inventory and a personal guarantee from Mr. Napolitano and believes the amount will be paid in full.

In
2003, the Company paid $72,912 to Carolyn Channell for consulting services. Mrs. Channell is the wife of William H. Channell, Jr., the Company's President and Chief Executive
Officer. Mrs. Channell consults on insurance coverage matters for the Company.

Item 14.Principal Accounting Fees and Services

The information required by Item 14 of Form 10-K is incorporated by reference to the Company's definitive proxy statement for the 2004 Annual
Meeting of Stockholders.

42

---



PART IV

Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K



|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                                          
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Restated Certificate of Incorporation of the Company (1)                                                                                                                                                                                                                                                                                                             
|3.2            |  | Bylaws of the Company (1)                                                                                                                                                                                                                                                                                                                                            
|4              |  | Form of Common Stock Certificate (1)                                                                                                                                                                                                                                                                                                                                 
|10.1           |  | Tax Agreement between the Company and the Existing Stockholders (1)                                                                                                                                                                                                                                                                                                  
|10.2.1         |  | Channell Commercial Corporation 1996 Incentive Stock Plan (including form of Stock Option Agreements and Restricted Stock Agreement) (1)                                                                                                                                                                                                                             
|10.2.2         |  | Channell Commercial Corporation 2003 Incentive Stock Plan (8)                                                                                                                                                                                                                                                                                                        
|10.3           |  | 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) (6)
|10.4           |  | Employment Agreement between the Company and William H. Channell, Sr. (1)                                                                                                                                                                                                                                                                                            
|10.5           |  | Employment Agreement between the Company and William H. Channell, Jr. (1)                                                                                                                                                                                                                                                                                            
|10.6           |  | Channell Commercial Corporation 1996 Performance-Based Annual Incentive Compensation Plan (1)                                                                                                                                                                                                                                                                        
|10.7           |  | Lease dated December 22, 1989 between the Company and William H. Channell, Sr., as amended (1)                                                                                                                                                                                                                                                                       
|10.8           |  | Lease dated May 29, 1996 between the Company and the Channell Family Trust (1)                                                                                                                                                                                                                                                                                       
|10.9           |  | Lease dated October 26, 2000 between the Company and Belston Developments Inc. (4)                                                                                                                                                                                                                                                                                   
|10.10          |  | Lease Agreement dated as of March 1, 1996 between Winthrop Resources Corp. and the Company (1)                                                                                                                                                                                                                                                                       
|10.11          |  | Form of Indemnity Agreement (1)                                                                                                                                                                                                                                                                                                                                      
|10.12          |  | Form of Agreement Regarding Intellectual Property (1)                                                                                                                                                                                                                                                                                                                
|10.13          |  | 401(k) Plan of the Company (3)                                                                                                                                                                                                                                                                                                                                       
|10.14          |  | A.C. Egerton (Holdings) PLC Share Purchase Agreement (2)                                                                                                                                                                                                                                                                                                             
|10.15          |  | Amendment to Employment Agreement between the Company and William H. Channell, Jr., dated December 31, 1998 (3)                                                                                                                                                                                                                                                      
|10.16          |  | Further Amendment to Employment Agreement between the Company and William H. Channell, Jr., dated July 15, 2002 (5)                                                                                                                                                                                                                                                  
|10.17          |  | Lease dated June 27, 2002 between the Company and Ynez Street, Ltd (5)                                                                                                                                                                                                                                                                                               
|               |  |                                                                                                                                                                                                                                                                                                                                                                      

43

---

|10.18 |  | Mutual Specific and General Release between the Company and Richard A. Cude, dated August 2, 2002 (7)                                                                               
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.19 |  | Amendment to Employment Agreement between the Company and William H. Channell, Sr., dated December 9, 2003 (9)                                                                      
|10.20 |  | Employment Agreement between the Company and William H. Channell, Jr., dated December 9, 2003 (9)                                                                                   
|14    |  | Channell Commercial Corporation Code of Business Conduct and Ethics (9)                                                                                                             
|23    |  | Consent of Certified Public Accountants (9)                                                                                                                                         
|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. (9)                                               
|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. (9)                                               
|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 Thomas Liguori, CFO. (9)

---

44

---



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board
of Directors and Stockholders
Channell Commercial Corporation

We
have audited the consolidated balance sheets of Channell Commercial Corporation as of December 31, 2002 and 2003, and the related consolidated statements of operations and
comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Channell Commercial Corporation as of
December 31, 2002 and 2003, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of America.

We
have also audited Schedule II of Channell Commercial Corporation for each of the three years in the period ended December 31, 2003. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set forth therein.

|                      |  | 
|--------------------- |  | 
|/s/GRANT THORNTON LLP |  | 

Los
Angeles, California
February 6, 2004

F-1

---



CHANNELL COMMERCIAL CORPORATION        CONSOLIDATED BALANCE SHEETS        December 31,  (amounts in thousands)

|                                                       |                                                                                                                                                                     | 2002                      |        | 2003   |       
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------ | ------ | ------
|ASSETS                                                 |                                                                                                                                                                     |                           |        |        |       
|CURRENT ASSETS                                         |                                                                                                                                                                     |                           |        |        |       
|                                                       | Cash and cash equivalents                                                                                                                                           |                           | $      | 3,162  |       
|                                                       | Accounts receivable, net                                                                                                                                            |                           |        | 10,156 |       
|                                                       | Inventories                                                                                                                                                         |                           |        | 7,757  |       
|                                                       | Deferred income taxes                                                                                                                                               |                           |        | 1,037  |       
|                                                       | Prepaid expenses and other current assets                                                                                                                           |                           |        | 1,090  |       
|                                                       | Income taxes receivable                                                                                                                                             |                           |        | 247    |       
|                                                       |                                                                                                                                                                     |                           |        |        |       
|                                                       |                                                                                                                                                                     | Total current assets      |        |        | 23,449
|PROPERTY AND EQUIPMENT, net                            |                                                                                                                                                                     |                           | 25,431 |        |       
|DEFERRED INCOME TAXES                                  |                                                                                                                                                                     |                           | 4,367  |        |       
|INTANGIBLE ASSETS, net of amortization of $207 in 2002 |                                                                                                                                                                     |                           | 504    |        |       
|OTHER ASSETS                                           |                                                                                                                                                                     |                           | 412    |        |       
|                                                       |                                                                                                                                                                     |                           |        |        |       
|                                                       |                                                                                                                                                                     | $                         | 54,163 |        | $     
|                                                       |                                                                                                                                                                     |                           |        |        |       
|LIABILITIES AND STOCKHOLDERS' EQUITY                   |                                                                                                                                                                     |                           |        |        |       
|CURRENT LIABILITIES                                    |                                                                                                                                                                     |                           |        |        |       
|                                                       | Accounts payable                                                                                                                                                    |                           |        | 5,820  |       
|                                                       | Short term debt (including current maturities of long term debt)                                                                                                    |                           |        | 952    |       
|                                                       | Current maturities of capital lease obligations                                                                                                                     |                           |        | 694    |       
|                                                       | Accrued restructuring liability                                                                                                                                     |                           |        | 2,155  |       
|                                                       | Accrued expenses                                                                                                                                                    |                           |        | 3,625  |       
|                                                       |                                                                                                                                                                     |                           |        |        |       
|                                                       |                                                                                                                                                                     | Total current liabilities |        |        | 13,246
|LONG-TERM DEBT, less current maturities                |                                                                                                                                                                     |                           | 4,877  |        |       
|CAPITAL LEASE OBLIGATIONS, less current maturities     |                                                                                                                                                                     |                           | 25     |        |       
|DEFERRED GAIN ON SALE LEASEBACK TRANSACTION            |                                                                                                                                                                     |                           | 574    |        |       
|COMMITMENTS AND CONTINGENCIES                          |                                                                                                                                                                     |                           |       |        |       
|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9,369 in 2002 and 9,372 in 2003; outstanding9,125 shares in 2002 and 9,128 shares in 2003 |                           |        | 94     |       
|                                                       | Additional paid-in capital                                                                                                                                          |                           |        | 28,655 |       
|                                                       | Treasury stock244 shares in 2002 and 2003                                                                                                                          |                           |        | (1,871 | )     
|                                                       | Retained earnings                                                                                                                                                   |                           |        | 10,556 |       
|Accumulated other comprehensive loss                   |                                                                                                                                                                     |                           |        |        |       
|                                                       | Foreign currency translation                                                                                                                                        |                           |        | (1,993 | )     
|                                                       |                                                                                                                                                                     |                           |        |        |       
|Total stockholders' equity                             |                                                                                                                                                                     |                           | 35,441 |        |       
|                                                       |                                                                                                                                                                     |                           |        |        |       
|                                                       |                                                                                                                                                                     | $                         | 54,163 |        | $     
|                                                       |                                                                                                                                                                     |                           |        |        |       

The
accompanying notes are an integral part of these financial statements.

F-2

---

CHANNELL COMMERCIAL CORPORATION        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)        Year ended December 31,  (amounts in thousands, except per share data)

|                                              |                                          | 2001                                              |                    | 2002    |         | 2003    |       
|--------------------------------------------- | ---------------------------------------- | ------------------------------------------------- | ------------------ | ------- | ------- | ------- | ------
|Net sales                                     |                                          | $                                                 | 88,698             |         | $       | 84,785  |       
|Cost of goods sold                            |                                          |                                                   | 69,892             |         |         | 57,450  |       
|                                              |                                          |                                                   |                    |         |         |         |       
|Gross profit                                  |                                          |                                                   | 18,806             |         |         | 27,335  |       
|                                              |                                          |                                                   |                    |         |         |         |       
|Operating expenses                            |                                          |                                                   |                    |         |         |         |       
|                                              | Selling                                  |                                                   |                    | 12,789  |         |         | 9,246 
|                                              | General and administrative               |                                                   |                    | 14,124  |         |         | 11,452
|                                              | Research and development                 |                                                   |                    | 2,331   |         |         | 1,619 
|                                              | Restructuring charge                     |                                                   |                    | 2,999   |         |         | 1,228 
|                                              | Asset impairment charge                  |                                                   |                    | 4,322   |         |         | 2,154 
|                                              | Goodwill impairment charge               |                                                   |                    | 11,772  |         |         | 966   
|                                              |                                          |                                                   |                    |         |         |         |       
|                                              |                                          |                                                   | 48,337             |         |         | 26,665  |       
|                                              |                                          |                                                   |                    |         |         |         |       
|                                              |                                          | Income (loss) from operations                     |                    |         | (29,531 | )       |       
|Interest income                               |                                          |                                                   | 72                 |         |         | 89      |       
|Interest expense                              |                                          |                                                   | (3,946             | )       |         | (2,088  | )     
|                                              |                                          |                                                   |                    |         |         |         |       
|                                              |                                          | Income (loss) before income tax expense (benefit) |                    |         | (33,405 | )       |       
|Income tax expense (benefit)                  |                                          |                                                   | (8,207             | )       |         | 1,737   |       
|                                              |                                          |                                                   |                    |         |         |         |       
|                                              |                                          |                                                   | Net loss           |         | $       | (25,198 | )     
|                                              |                                          |                                                   |                    |         |         |         |       
|                                              |                                          |                                                   | Net loss per share |         |         |         |       
|                                              |                                          |                                                   |                    | Basic   |         | $       | (2.78 
|                                              |                                          |                                                   |                    |         |         |         |       
|                                              |                                          |                                                   |                    | Diluted |         | $       | (2.78 
|                                              |                                          |                                                   |                    |         |         |         |       
|Net loss                                      |                                          |                                                   | (25,198            | )       |         | (3,066  | )     
|Other comprehensive income (loss), net of tax |                                          |                                                   |                    |         |         |         |       
|                                              | Foreign currency translation adjustments |                                                   |                    | (937    | )       |         | 688   
|                                              |                                          |                                                   |                    |         |         |         |       
|Comprehensive net income (loss)               |                                          | $                                                 | (26,135            | )       | $       | (2,378  | )     
|                                              |                                          |                                                   |                    |         |         |         |       

The
accompanying notes are an integral part of these financial statements.

F-3

---



CHANNELL COMMERCIAL CORPORATION        CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY        Years ended December 31, 2001, 2002 and 2003  (amounts in thousands)

|                                   |  | Common Stock |  |   |    | Treasury stock |   |        |  | Accumulated
other
comprehensive
Income (loss) |  |   |       
|---------------------------------- |  | ------------ |  | - | -- | -------------- | - | ------ |  | --------------------------------------------- |  | - | ------
|
|
|Balance, January 1, 2001           |  | 9,269        |  | $ | 93 |                | $ | 28,334 |  | 192                                           |  | $ | (1,576
|Treasury stock acquired            |  |             |  |   |   |                |   |       |  | 52                                            |  |   | (295  
|Foreign currency translation       |  |             |  |   |   |                |   |       |  |                                              |  |   |      
|Net loss for the year              |  |             |  |   |   |                |   |       |  |                                              |  |   |      
|                                   |  |              |  |   |    |                |   |        |  |                                               |  |   |       
|Balance, December 31, 2001         |  | 9,269        |  | $ | 93 |                | $ | 28,334 |  | 244                                           |  | $ | (1,871
|Exercise of employee stock options |  | 100          |  |   | 1  |                |   | 321    |  |                                              |  |   |      
|Foreign currency translation       |  |             |  |   |   |                |   |       |  |                                              |  |   |      
|Net loss for the year              |  |             |  |   |   |                |   |       |  |                                              |  |   |      
|                                   |  |              |  |   |    |                |   |        |  |                                               |  |   |       
|Balance, December 31, 2002         |  | 9,369        |  | $ | 94 |                | $ | 28,655 |  | 244                                           |  | $ | (1,871
|Exercise of employee stock options |  | 3            |  |   |   |                |   | 9      |  |                                              |  |   |      
|Foreign currency translation       |  |             |  |   |   |                |   |       |  |                                              |  |   |      
|Net loss for the year              |  |             |  |   |   |                |   |       |  |                                              |  |   |      
|                                   |  |              |  |   |    |                |   |        |  |                                               |  |   |       
|Balance, December 31, 2003         |  | 9,372        |  | $ | 94 |                | $ | 28,664 |  | 244                                           |  | $ | (1,871
|                                   |  |              |  |   |    |                |   |        |  |                                               |  |   |       

The
accompanying notes are an integral part of these financial statements.

F-4

---

CHANNELL COMMERCIAL CORPORATION        CONSOLIDATED STATEMENTS OF CASH FLOWS        Year ended December 31,  (amounts in thousands)

|                                             |                                                                                 | 2001                                            |                                           | 2002                                                |        | 2003   |        
|-------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ------ | ------ | -------
|Cash flows from operating activities:        |                                                                                 |                                                 |                                           |                                                     |        |        |        
|                                             | Net loss                                                                        |                                                 | $                                         | (25,198                                             | )      | $      | (3,066 
|                                             | Adjustments to reconcile net loss to net cash provided by operating activities: |                                                 |                                           |                                                     |        |        |        
|                                             |                                                                                 | Depreciation and amortization                   |                                           |                                                     | 8,557  |        |        
|                                             |                                                                                 | Asset impairment charge                         |                                           |                                                     | 4,322  |        |        
|                                             |                                                                                 | Goodwill impairment charge                      |                                           |                                                     | 11,772 |        |        
|                                             |                                                                                 | Loss on disposal of fixed assets                |                                           |                                                     | 353    |        |        
|                                             |                                                                                 | Amortization of deferred gain on sale leaseback |                                           |                                                     |       |        |        
|                                             |                                                                                 | Deferred income taxes                           |                                           |                                                     | (3,709 | )      |        
|                                             |                                                                                 | Changes in assets and liabilities:              |                                           |                                                     |        |        |        
|                                             |                                                                                 |                                                 | Accounts receivable                       |                                                     |        | 10,157 |        
|                                             |                                                                                 |                                                 | Inventories                               |                                                     |        | 11,330 |        
|                                             |                                                                                 |                                                 | Prepaid expenses and other current assets |                                                     |        | 304    |        
|                                             |                                                                                 |                                                 | Income taxes receivable                   |                                                     |        | (2,889 | )      
|                                             |                                                                                 |                                                 | Other assets                              |                                                     |        | 69     |        
|                                             |                                                                                 |                                                 | Accounts payable                          |                                                     |        | (3,348 | )      
|                                             |                                                                                 |                                                 | Restructuring liability                   |                                                     |        | 1,408  |        
|                                             |                                                                                 |                                                 | Accrued expenses                          |                                                     |        | 836    |        
|                                             |                                                                                 |                                                 |                                           |                                                     |        |        |        
|                                             |                                                                                 |                                                 |                                           | Net cash provided by operating activities           |        |        | 13,964 
|                                             |                                                                                 |                                                 |                                           |                                                     |        |        |        
|Cash flows from investing activities:        |                                                                                 |                                                 |                                           |                                                     |        |        |        
|                                             | Purchase of property and equipment                                              |                                                 |                                           | (3,153                                              | )      |        | (1,886 
|                                             | Proceeds from sale of property and equipment                                    |                                                 |                                           |                                                    |        |        | 6,232  
|                                             |                                                                                 |                                                 |                                           |                                                     |        |        |        
|                                             |                                                                                 |                                                 |                                           | Net cash (used in) provided by investing activities |        |        | (3,153 
|                                             |                                                                                 |                                                 |                                           |                                                     |        |        |        
|Cash flows from financing activities:        |                                                                                 |                                                 |                                           |                                                     |        |        |        
|                                             | Repayment of debt                                                               |                                                 |                                           | (2,553                                              | )      |        | (35,133
|                                             | Proceeds from issuance of long-term debt                                        |                                                 |                                           | 2,500                                               |        |        | 6,742  
|                                             | Payment of capital lease obligations                                            |                                                 |                                           | (2,579                                              | )      |        | (1,763 
|                                             | Purchase of treasury stock                                                      |                                                 |                                           | (295                                                | )      |        |       
|                                             | Exercise of employee stock options                                              |                                                 |                                           |                                                    |        |        | 322    
|                                             |                                                                                 |                                                 |                                           |                                                     |        |        |        
|                                             |                                                                                 |                                                 |                                           | Net cash used in financing activities               |        |        | (2,927 
|                                             |                                                                                 |                                                 |                                           |                                                     |        |        |        
|Effect of exchange rates on cash             |                                                                                 |                                                 | (35                                       | )                                                   |        | 119    |        
|                                             |                                                                                 |                                                 |                                           |                                                     |        |        |        
|                                             |                                                                                 |                                                 |                                           | Increase (decrease) in cash and cash equivalents    |        |        | 7,849  
|Cash and cash equivalents, beginning of year |                                                                                 |                                                 | 913                                       |                                                     |        | 8,762  |        
|                                             |                                                                                 |                                                 |                                           |                                                     |        |        |        
|Cash and cash equivalents, end of year       |                                                                                 | $                                               | 8,762                                     |                                                     | $      | 3,162  |        
|                                             |                                                                                 |                                                 |                                           |                                                     |        |        |        
|Cash paid during the year for:               |                                                                                 |                                                 |                                           |                                                     |        |        |        
|Interest                                     |                                                                                 | $                                               | 3,801                                     |                                                     | $      | 1,608  |        
|                                             |                                                                                 |                                                 |                                           |                                                     |        |        |        
|Income taxes                                 |                                                                                 | $                                               | 752                                       |                                                     | $      | 1,122  |        
|                                             |                                                                                 |                                                 |                                           |                                                     |        |        |        

The
accompanying notes are an integral part of these financial statements.

F-5

---



CHANNELL COMMERCIAL CORPORATION        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2001, 2002 and 2003  (amounts in thousands, except per share data)

NOTE ADESCRIPTION OF BUSINESS

The Company is a designer and manufacturer of telecommunications equipment supplied to broadband and telephone network providers worldwide. Major product lines
include a complete line of thermoplastic and metal fabricated enclosures, advanced copper termination and connectorization products and fiber optic cable management. The Company's enclosure products
house, protect and provide access to advanced telecommunications hardware, including both radio frequency electronics and photonics, and transmission media, including coaxial cable, copper wire and
optical fibers, used in the delivery of voice, video and data services. The enclosure products are deployed within the portion of a local signal delivery network, commonly known as the "outside plant"
or "local loop", that connects the network provider's signal origination office with residences and businesses.

NOTE BSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

EstimatesIn preparing financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include accounts receivables reserves, the inventory valuation reserve,
restructuring accruals associated with vacated facilities, valuation of goodwill and long lived assets and the deferred tax asset valuation allowance. Actual results could differ from those estimates
and the differences could be material.

Basis of ConsolidationThe consolidated financial statements include the accounts of the Company and its subsidiaries. All
significant intercompany transactions and balances have been eliminated.

Foreign Currency TranslationAssets and liabilities of foreign operations are translated into U.S. dollars at current exchange
rates. Income and expenses are translated into U.S. dollars at average rates of exchange prevailing during the period. Adjustments resulting from translating foreign functional currency financial
statements into U.S. dollars are included in other comprehensive income. Foreign currency transaction gains and losses are included in general and administrative expenses. Transactions gains and
losses were not significant in 2001, 2002 and 2003.

Cash and Cash EquivalentsFor purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash in banks
and short-term investments with original maturities of 90 days or less.

InventoriesInventories are stated at the lower of cost or market. Cost is determined by the first-in,
first-out method of accounting. Cost includes material, direct production costs, and factory overhead costs.

Property and EquipmentProperty and equipment are stated at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. Capital lease assets are amortized using the straight-line method over the useful lives of the assets. Expenditures for all
maintenance and repairs are charged against income. Additions, major renewals and replacements that increase the useful lives of assets are capitalized. Amortization of leasehold improvements is
computed using the straight-line method over the shorter of the lease term or the estimated useful life of the leasehold improvements.

F-6

---

Impairment of Long-Lived AssetsWhen events or circumstances indicate the carrying value of a
long-lived asset may be impaired, the Company estimates the future undiscounted cash flows to be derived from the asset to assess whether or not a potential impairment exists. If the
carrying value exceeds our estimate of future undiscounted cash flows, we then calculate the impairment as the excess of the carrying value of the asset over our estimate of its fair market value.

Intangible AssetsIn June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," which supersedes APB Opinion No. 17, "Intangible Assets." SFAS 142 eliminates the requirement to
amortize goodwill and indefinite-lived intangible assets, requiring instead that those assets be measured for impairment at least annually, and more often when events indicate that an impairment
exists. Intangible assets with finite lives will continue to be amortized over their useful lives. SFAS 142 applies to goodwill and intangible assets arising from transactions completed before
and after the Statement's effective date. The Company has adopted this Standard as of January 1, 2002. In applying SFAS 142, the Company has performed the transitional reassessment and
impairment tests required as of January 1, 2002, and determined that the goodwill and trademarks of the Company have indefinite lives and that there was no impairment on these assets. The
Company discontinued amortizing these assets on January 1, 2002. At the time of adoption, the Company had accumulated amortization pertaining to goodwill of $10,303.

Below
is the calculation of reported net income (loss) adjusted for the effect of amortization expense for the year ended December 31, 2001 (in thousands):

Year ended December 31,2001Per Share AmountAmount

Basic

DilutedReported net loss

$
(25,198
)
$
(2.78
)
$
(2.78
)Add back amortization of goodwill


696


0.08


0.08Adjusted net loss

$
(24,502
)
$
(2.70
)
$
(2.70
)


In
December 2002, the Company reported an impairment of goodwill of $966 associated with International operations. The increase in intangible assets for the year ended
December 31, 2003 is due to changes in foreign currency rates.

Revenue Recognition and Accounts Receivable ReservesRevenues include sales and fees earned on sales by licensees and are
recognized when title passes and the risks and rewards of ownership have passed to the customer, based on the terms of sale. Title passes generally upon shipment. Provisions for estimated sales
returns, sales allowances and uncollectible accounts are made at the time of sale based on (i) the Company's estimate of the rate on which customers take discounts allowed and (ii) the
Company's specific assessment of the collectability of all past due accounts.

F-7

---

Shipping CostsShipping and handling costs are charged to expense as incurred. Total shipping costs of $1,752, $1,170 and
$1,336 are included in selling expenses for 2001, 2002 and 2003, respectively.

Income taxesDeferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and the amounts recognized for income tax purposes. These deferred income taxes are measured by applying currently enacted income tax rates. A valuation
allowance reduces deferred income tax assets when it is more likely than not that some portion or all of the deferred income tax assets will not be realized.

Income (loss) per shareBasic income (loss) per share excludes dilution and is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted income per share reflects the potential dilution that could occur if options to
acquire common stock were exercised.

The
following is a reconciliation of the number of shares (denominator) used in the basic and diluted income (loss) per share computations:

|                                 |  | 2001  |  | 2002 |       | 2003 |      
|-------------------------------- |  | ----- |  | ---- | ----- | ---- | -----
|
|Basic loss per share             |  | 9,050 |  | $    | (2.78 | )    | 9,048
|Effect of dilutive stock options |  |      |  |      |      |      |     
|                                 |  |       |  |      |       |      |      
|Diluted loss per share           |  | 9,050 |  | $    | (2.78 | )    | 9,048
|                                 |  |       |  |      |       |      |      

The
following options were not included in the computation of diluted income (loss) per share due to their antidilutive effect:

|                                           |  | 2001                      |  | 2002                 |  | 2003                     
|------------------------------------------ |  | ------------------------- |  | -------------------- |  | -------------------------
|Options to purchase shares of common stock |  | 1,092                     |  | 917                  |  | 1,894                    
|Exercise prices                            |  | $3.05 - $13.75            |  | $3.05 - $13.75       |  | $3.16 - $13.75           
|Expiration dates                           |  | July 2006 - December 2011 |  | July 2006 - May 2012 |  | July 2006 - December 2013

Fair value of financial instrumentsThe carrying amount of cash, accounts receivable, accounts payable, accrued expenses and
short-term borrowings approximates fair value because of the short maturity of these financial instruments. Long-term obligations are carried at amounts that approximate fair
value. The estimated fair value of the long-term obligations is based on borrowing rates currently available to the Company for loans with similar terms and maturities.

Accounting for Stock-Based CompensationStatement of Financial Accounting Standards No. 148, "Accounting for Stock Based CompensationTransition and Disclosure on Amendment of
SFAS 123", encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to
continue to account for stock-based

F-8

---

compensation
using the intrinsic value method prescribed in previously issued standards. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock.

Compensation
cost has not been significant for 2001, 2002 and 2003. In February 2003, the Company offered current employees and non-employee directors an opportunity
to exchange their outstanding options granted under the 1996 Stock Plan. The tender offer expired on March 20, 2003. Pursuant to the offer, a total of 1,326,890 options were cancelled on
March 20, 2003. On September 24, 2003, a total of 1,324,090 new options were exchanged for those cancelled in March 2003. Eligible option holders who participated in the "Offer to
Exchange" were granted a new option for each old cancelled option. For each new option granted, the vesting status and vesting schedule of the old option was preserved. The weighted average fair value
of the options issued in September 2003 was $1.91. The weighted average exercise price was $4.84. In accordance with the guidance of SFAS No. 148, the compensation on a proforma basis is
recognized for each of the new options granted under the "Offer to Exchange" that is either fully or partially vested as of year end December 31, 2003.

Had
compensation cost for the plan been determined based on the fair value of the options at the grant dates based on the above method, the Company's net loss and loss per share would
have been:

Net loss per shareNet
LossBasic

Diluted2001As reported

$
(25,198
)
$
(2.78
)
$
(2.78
)Pro forma

$
(25,536
)
$
(2.82
)
$
(2.82
)2002As reported

$
(3,066
)
$
(0.34
)
$
(0.34
)Pro forma

$
(3,371
)
$
(0.37
)
$
(0.37
)2003As reported

$
(86
)
$
(0.01
)
$
(0.01
)Pro forma

$
(1,001
)
$
(0.11
)
$
(0.11
)


Recent Accounting PronouncementsIn May 2003, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 changes the
classification in the statement of financial position of certain common financial instruments from either equity or mezzanine presentation to liabilities and requires an issuer of those financial
statements to recognize changes in fair value or redemption amount, as applicable, in earnings. SFAS No. 150 is effective for financial instruments entered into or modified after May 31,
2003 and is effective for the Company beginning July 1, 2003. The adoption of SFAS No. 150 did not have a material impact on the Company's results of operations or financial position.

In
January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entitiesan interpretation of ARB No. 51" ("FIN 46"). FIN 46
requires that if an entity has a controlling financial interest in a variable interest entity, the assets, liabilities and results of activities of

F-9

---

the
variable interest entity should be included in the consolidated financial statements of the entity. FIN 46 requires that its provisions are effective immediately for all arrangements entered into
after January 31, 2003. For those arrangements entered into prior to January 31, 2003, the FIN 46 provisions are required to be adopted at the end of the first interim or annual period
ending after December 15, 2003. The adoption of FIN 46 did not have a material impact on the Company's results of operations or financial position.

In
July 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement requires
that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under previous guidance, a liability for an exit cost was recognized at the date
of the commitment to an exit plan. The provisions of this statement will be applied prospectively, as applicable, and are effective for exit or disposal activities that are initiated after
December 31, 2002. The Company applied the provisions of SFAS No. 146, on the 2003 restructuring charge discussed in Note H to the financial statements.

In
November 2002 the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under specified
guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements in this interpretation were effective for financial statements of interim or annual periods ending after December 15, 2002. Additionally, the recognition
of a guarantor's obligation should be applied on a prospective basis to guarantees issued after December 31, 2002. The adoption of FIN 45 did not have a material effect on the Company's
financial position or results of operation.

ReclassificationsCertain prior period amounts have been reclassified for comparison with 2003 presentation.

NOTE CINVENTORIES

Inventories are summarized as follows:

2002

2003Raw materials

$
3,324

$
2,895Work-in-process


2,374


2,468Finished goods


2,059


3,492$
7,757

$
8,855


F-10

---

NOTE DPROPERTY AND EQUIPMENT

Property
and equipment are summarized as follows:

2002

2003

Estimated
useful livesMachinery and equipment

$
57,435

$
58,719

3 - 10 yearsOffice furniture and equipment


2,978


3,145

3 - 7 yearsLeasehold improvements


2,893


2,929

15 - 20 yearsBuilding and building improvements


2,312




30 years65,618


64,793Less accumulated depreciation and amortization


(40,187
)

(47,629
)$
25,431

$
17,164


Included
in machinery and equipment is $10,874 and $174 of equipment under capital lease at December 31, 2002 and 2003. Accumulated amortization of assets under capital lease
totaled $7,208 and $51 at December 31, 2002 and 2003, respectively. Capital lease assets of $10,696 were re-classified to owned assets under machinery and equipment in 2003 as the
associated purchase options were exercised. See Note G.

As
a result of the restructuring activities in the third quarter of 2001 to reduce manufacturing costs, headcount and facilities, certain production equipment, tooling and leasehold
improvements were idled or sold. An impairment review of these assets was conducted. In the third quarter of 2001, the Company adjusted the carrying value of this production equipment, tooling and
leasehold improvements resulting in a non-cash impairment charge of $4,322. The 2001 impairment charge includes approximately $2,322 for equipment, production tooling and leasehold
improvements in International operations and, $2,000 for production equipment and building improvements in the Americas.

As
a result of the restructuring activities in the fourth quarter of 2002 to rationalize international operations and reduce manufacturing costs, certain production equipment, tooling
and leasehold improvements were idled or sold. An impairment review of these assets was conducted. In the fourth quarter of 2002, the Company adjusted the carrying value of their production equipment
and tooling and leasehold improvements, resulting in a non-cash impairment charge of $2,154. The 2002 impairment charge includes approximately $1,665 for equipment in the International
operations and $489 for production tooling in the Americas.

In
the fourth quarter of 2003, a plan was developed to close an additional manufacturing facility in the International operations by mid-year 2004. An impairment review of
the assets located in the facility was conducted. In the fourth quarter of 2003, the Company adjusted the carrying value of production equipment, tooling and leasehold improvements resulting in a non
cash impairment charge of $1,238 for equipment in International operations.

In
January 2003, the Company entered into a sale of a facility in International operations located in Orpington, Kent, United Kingdom. The proceeds from the sale totaled $2,441
and resulted in a pretax loss of $110 which is included in general and administrative expense. Terms of the sale included a provision for the Company to lease back the facility for one year at no
charge. Included in the proceeds was prepaid rent for one year which totaled $213. The resulting lease was accounted for as an operating lease in fiscal 2003.

F-11

---

NOTE EACCRUED EXPENSES

Accrued expenses consist of the following:

2002

2003Accrued vacation

$
621

$
841Accrued bonus


260


229Other


2,744


3,170$
3,625

$
4,240


NOTE FLONG-TERM DEBT

Long-term debt consists of the following:

|                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | 2002 |       | 2003
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ----
|Revolving credit facility with asset-based lender. Amounts borrowed under this facility bear interest at a variable rate based on either the lender's Base Rate or LIBOR. The weighted average interest rate under the
revolving credit facility was 4.5% at December 31, 2002. There was no balance outstanding under the revolving line of credit at December 31, 2003.                                                                     |  | $    | 1,095 |     
|Term Loan with asset-based lender. Term Loan has a three year term and is repayable in equal quarterly payments based on a five year amortization schedule with a balloon payment at maturity. Amounts borrowed under this facility bear interest at a
variable rate based on either the lender's Base Rate or LIBOR. The weighted average interest rate under the term loan was 3.84% and 3.02% at December 31, 2002 and 2003, respectively. |  |      | 4,712 |     
|Automobile loan payable in monthly principal and interest installments of $1 through April, 2005. The note is non-interest bearing and is collateralized by the automobile.                                                                                                                                                                                                                                                                   |  |      | 22    |     
|                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |      |       |     
|                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |      | 5,829 |     
|Less current maturities                                                                                                                                                                                                                                                                                                                                                                                                                       |  |      | 952   |     
|                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |      |       |     
|                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | $    | 4,877 |     
|                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |      |       |     

The
Company had a senior credit facility with two banks through September, 2002. The outstanding balance bore interest, payable quarterly, at a variable rate of 2.5% over the
administrative agent bank's base rate. The loan was collateralized by substantially all of the Company's assets and up to 65% of the capital stock of the Company's subsidiaries. In March 2002,
the Company made a $3,000 principal
payment. In addition, scheduled principal payments of $4,250 were made on March 31, 2002 and June 30, 2002. The remaining balance was repaid in September, 2002.

The
Company entered into a three year Loan and Security Agreement with an asset-based lender on September 25, 2002. Maximum borrowings available under this facility total $25,000.
The Agreement has a $1,000 sub-limit for letters of credit. As of December 31, 2003, outstanding letters of credit totaled $827. The Loan and Security Agreement contains various
financial and operating covenants that impose limitations on the Company's ability, among other things, to incur additional indebtedness, merge or consolidate, sell assets except in the ordinary
course of business, make certain investments, enter into leases and pay dividends. The Company is also required to comply with a fixed charge coverage ratio and other financial covenants. The
Agreement requires the Company to maintain a lockbox. The lockbox receipts automatically reduce the outstanding balance of the revolving credit

F-12

---

balance,
if any. There was no balance outstanding under the revolving line of credit at December 31, 2003. The Company was in compliance as of December 31, 2003 with the covenants of the
Loan and Security Agreement.

Long-term
debt at December 31, 2003 is schedule to mature as follows:

Year

Amount2004

$
9522005


2,830Thereafter


$
3,782


NOTE GCAPITAL LEASE OBLIGATIONS

The Company leases certain machinery and equipment under various agreements which are classified as capital leases. The leases expire on various dates through
December 2006. Future minimum payments, by year, are as follows:

Year

Amount2004

$
652005


292006


53147Less amount representing interest


23124Less current maturities


57$
67


NOTE HRESTRUCTURING CHARGES

2001 Restructuring Charge

In the third quarter of 2001, the Company announced a restructuring plan in an effort to further reduce costs and align headcount and facilities with expected
business levels. The additional restructuring charge totaled $2,999. The principal actions in the restructuring plan involve the closure of facilities and a reduction of headcount. The restructuring
plan resulted in the elimination of 116 management, administrative, sales and manufacturing positions and was substantially completed by December 31, 2001. The major components of the 2001
restructuring charge are as follows:

Employee severance and related benefit costs

$
935Costs associated with vacated and sold facilities


1,959Lease cancellations and other asset sales


105$
2,999


SeveranceThe Company had a total reduction of 116 employees, approximately 20% of the total force. The reductions affected 85
employees in the International operations, consisting of factory direct labor, factory support, management, administrative and sales positions, 31 people in the Americas, consisting of management,
administrative and sales positions.

F-13

---

Costs Associated with Vacated and Sold FacilitiesThe Company has accrued $1,959, consisting principally of the costs of the
remaining payments on leased facilities to be vacated less anticipated future income from subleases. In the International operations, the manufacturing and distribution facility in Warrington, U.K.
was closed. One half of the manufacturing and distribution facility in Sydney, Australia was vacated. In the Americas, warehouse space in a leased facility was vacated and a separate facility that the
Company owned was sold as part of a sale and leaseback agreement in 2002.

Lease Cancellations and Other Asset SalesThe Company terminated various auto leases, office equipment leases, and software
maintenance contracts, and sold vehicles that were no longer needed. The lease cancellations and vehicle sales resulted in costs of approximately $105.

2002 Restructuring Charge

In the fourth quarter of 2002, the Company announced a restructuring plan to rationalize International manufacturing operations. As part of the plan, various
manufacturing operations in the International segment were either consolidated or outsourced. The management of all International operations was consolidated under the Managing Director,
International. The restructuring charge totaled $1,228. The major components of the 2002 restructuring charge are as follows:

Employee severance and related benefit cost

$
163Cost associated with vacated facilities


1,065$
1,228


SeveranceThe Company had a reduction of employees in the International operations. The reduction was associated with the
reduced level of manufacturing operations in the International operation going forward.

Cost Associated with Vacated FacilitiesThe Company has accrued $1,065 consisting principally of the costs of the remaining
payments on leased facilities vacated less anticipated future income from sublease. All of the facilities are located in the United Kingdom. The accrual represents additional amounts the Company
anticipated to be incurred in addition to those originally accrued in the 2000 and 2001 restructuring. The additional accrual is necessary due to market conditions in the United Kingdom which have
made it difficult to sublet the properties.

F-14

---

2003 Restructuring Charge

In the fourth quarter of 2003, the Company further evaluated International operations to improve profitability. A plan was developed to close a manufacturing
facility in International operations by mid-year 2004. As part of the plan, there is a reduction in the number of employees in the International operations. The restructuring charge
totaled $1,565. The major components of the 2003 restructuring charge are as follows:

Employee severance and related benefit cost

$
209Cost associated with vacated facilities


1,356$
1,565


SeveranceThe Company had a reduction of 39 employees in the International operations as a result of the decision to
consolidate manufacturing operations.

Cost Associated with Vacated FacilitiesThe Company has accrued $1,356 consisting principally of the costs to terminate an
existing lease agreement and the costs of the remaining payments on a second vacated leased facility less anticipated future income from sublease. The facilities are located in the United Kingdom. The
accrual represents additional amounts the Company anticipated to be incurred in addition to those originally accrued in the 2000, 2001 and 2002 restructurings. The additional accrual is necessary due
to market conditions in the United Kingdom which have made it difficult to sublet the properties and terminate leases.

The
restructuring charges were determined based on formal plans approved by the Company's management using the best information available to it at the time. The amounts the Company may
ultimately incur could differ materially as the restructuring initiative is executed. The changes in the accrual for restructuring charges during 2001, 2002 and 2003 are summarized in the table below:

|                                                               |  | Facilities |        | Workforce
Reduction |   | Professional
Services and
Other Charges |   | Total |     
|-------------------------------------------------------------- |  | ---------- | ------ | ------------------- | - | --------------------------------------- | - | ----- | ----
|Restructuring accrual balance at January 1, 2001               |  | $          | 788    |                     | $ | 535                                     |   | $     |    
|Charges to operations in twelve months ended December 31, 2001 |  |            | 1,959  |                     |   | 935                                     |   |       | 105 
|Costs incurred in twelve months ended December 31, 2001        |  |            | (403   | )                   |   | (1,394                                  | ) |       | (105
|                                                               |  |            |        |                     |   |                                         |   |       |     
|Restructuring accrual balance at December 31, 2001             |  |            | 2,344  |                     |   | 76                                      |   |       |    
|Charges to operations in twelve months ended December 31, 2002 |  |            | 1,065  |                     |   | 163                                     |   |       |    
|Costs incurred in twelve months December 31, 2002              |  |            | (1,314 | )                   |   | (179                                    | ) |       |    
|                                                               |  |            |        |                     |   |                                         |   |       |     
|Restructuring accrual balance at December 31, 2002             |  | $          | 2,095  |                     | $ | 60                                      |   | $     |    
|Charges to operations in twelve months ended December 31, 2003 |  |            | 1,356  |                     |   | 209                                     |   |       |    
|Costs incurred in twelve months ended December 31, 2003        |  |            | (810   | )                   |   | (53                                     | ) |       |    
|                                                               |  |            |        |                     |   |                                         |   |       |     
|Restructuring accrual balance at December 31, 2003             |  | $          | 2,641  |                     | $ | 216                                     |   | $     |    
|                                                               |  |            |        |                     |   |                                         |   |       |     

NOTE IGOODWILL IMPAIRMENT CHARGE

Pursuant to its policy, the Company reviews the carrying value of goodwill whenever events and circumstances indicate that the carrying value of a business may
not be recoverable from the estimated

F-15

---

future
cash flow expected to result from its use and eventual disposition. As a result of the restructuring activities that reduce the level of foreign operations and the decision to exit certain
product lines, an impairment review of goodwill was conducted. The goodwill impairment review included a valuation analysis of the relevant operations as a basis of measurement of the goodwill
impairment charge. In the third quarter of 2001, the Company adjusted the carrying value of goodwill resulting in a non-cash impairment charge of $11,772. In the fourth quarter of 2002,
the Company adjusted the carrying value of the goodwill in the Company's International operations resulting in a non-cash impairment charge of $966.

NOTE JINCOME TAXES

The components of income tax expense (benefit) are as follows:

2001

2002

2003CurrentFederal

$
(4,941
)
$
347

$
834State


50


92


95Foreign


393


105


32(4,498
)

544


961DeferredFederal


(2,172
)

1,158


(594
)State


(1,316
)

(857
)

(155
)Foreign


(221
)

892


(3,709
)

1,193


(749
)Total income tax expense (benefit)

$
(8,207
)
$
1,737

$
212


The
components of income (loss) before income tax expense were as follows:

2001

2002

2003United States

$
(7,985
)
$
5,146

$
4,609Foreign


(25,420
)

(6,475
)

(4,483
)$
(33,405
)
$
(1,329
)
$
126


A
reconciliation from the U.S. Federal statutory income tax rate to the effective income tax rate for the years ended December 31, is as follows:

|                                                                   |  | 2001 |    | 2002 |    | 2003 |   
|------------------------------------------------------------------ |  | ---- | -- | ---- | -- | ---- | --
|U.S. Federal statutory rate                                        |  | (34  | )% | (34  | )% | (34  | )%
|State income taxes, net of federal tax benefit                     |  | (5   | )  | (5   | )  | (5   | ) 
|Tax settlement (Note N)                                            |  |     |    |     |    | 15   |   
|Research and development tax credit                                |  |     |    |     |    | (360 | ) 
|Nondeductible expenses                                             |  | 1    |    | 1    |    | 61   |   
|Foreign operating losses with no benefit provided                  |  | 11   |    | 164  |    | 398  |   
|Effect of subsidiaries taxes at other than the U.S. statutory rate |  | 2    |    | 5    |    | 93   |   
|                                                                   |  |      |    |      |    |      |   
|                                                                   |  | (25  | )% | 131  | %  | 168  | % 
|                                                                   |  |      |    |      |    |      |   

F-16

---

In
2003, the Company analyzed its research and development (R&D) activities for the years 2000, 2001, 2002 and 2003 and has changed its estimate of the R&D tax credit available to offset
its federal income tax liability for the tax years 2000, 2001, 2002 and 2003. The change in the estimate had the effect of reducing income tax expense by approximately $454 in the year ended
December 31, 2003, equivalent to $0.05 per basic and diluted share.

Significant
components of the Company's deferred tax assets and liabilities are as follows:

2002

2003AssetsPatents

$
609

$
498Allowance for bad debts


209


105Inventory capitalization


168


83Vacation pay


266


360Accrued liabilities and reserves


390


238Deferred gain on sale leaseback


246


220Restructuring charge


546


1,179Impairment charge


4,424


4,551State tax credits and loss carryforwards


684


734Foreign tax credit and loss carryforwards


5,387


5,888Valuation allowance


(5,387
)

(5,888
)7,542


7,968LiabilitiesState taxes


756


794Accelerated depreciation


1,382


1,0212,138


1,815Net deferred tax asset

$
5,404

$
6,153


The
classification of the net deferred tax asset between current and non-current is as follows:

2002

2003Net current assets

$
1,037

$
876Net long-term asset


4,367


5,277Net deferred tax asset

$
5,404

$
6,153


At
December 31, 2003, the Company had approximately $19,229 of international operating loss carryforwards (primarily in the United Kingdom and Australia) with a potential tax
benefit of $5,888. These loss carryforwards do not expire. The Company has recorded a 100% valuation allowance at December 31, 2002 and 2003 on the deferred tax asset relating to the foreign
net operating loss carryforwards because of uncertainty regarding its realization. The ultimate realization of the remaining deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. Based on
the historical domestic taxable income and projections for future taxable income over periods that the deferred assets are deductible, management believes it is more likely than not that the Company
will realize the benefits of these deductible differences, net of valuation allowances as of December 31, 2003. The amount of the

F-17

---

deferred
tax assets considered realizable, however, could materially change in the near future if estimates of future taxable income during the carryforward period are changed.

NOTE KSTOCKHOLDERS' EQUITY

In July 1996, the Company adopted the 1996 Incentive Stock Plan (the 1996 Stock Plan), under which it was authorized to issue non-qualified
stock options and incentive stock options to key employees, directors and consultants to purchase up to an aggregate of 750 shares of the Company's common stock. The options have a term of ten years
and generally become fully vested by the end of the third year. In May 1999, the 1996 Stock Plan was amended to increase the authorized number of shares to 1,500.

In
January, 2003, the Board of Directors approved an offer allowing current employees and non-employee directors to exchange all of their outstanding options granted under
the 1996 Stock Plan for new options to be granted under the 2003 Stock Plan or any other stock option plan that may be adopted by the Company. The 2003 Incentive Stock Plan was approved at the Annual
Meeting of Stockholders on April 25, 2003. The authorized shares under the 2003 Incentive Stock Plan are 3,100.

A
total of 1,327 options to purchase shares of the Company were accepted for exchange and cancelled on March 20, 2003. On September 24, 2003, a total of 1,324 new options
were exchanged for options cancelled in March, 2003.

Eligible
option holders who participated in the offer received a new option on the new grant date in exchange for each old option that was validly tendered and accepted for exchange. The
number of shares covered by each new option was equal to the number of shares covered by the old options, and the vested status and vesting schedule of the old options was preserved and continued. The
exercise price of the new options was equal to the closing sale price of the Company's common stock as reported on the Nasdaq National Market on the grant date of the new options.

Plan
transactions are as follows:

|                                            |  | 2001  |   | 2002 |       | 2003
|------------------------------------------- |  | ----- | - | ---- | ----- | ----
|
|Options outstanding January 1,              |  | 849   |   | $    | 11.30 |     
|Granted                                     |  | 274   |   |      | 5.20  |     
|Exercised                                   |  |      |   |      |      |     
|Cancelled                                   |  | (31   | ) |      | 11.86 |     
|                                            |  |       |   |      |       |     
|Options outstanding December 31,            |  | 1,092 |   | $    | 9.78  |     
|                                            |  |       |   |      |       |     
|Options available for grant at December 31, |  | 376   |   |      |       |     

Weighted
average fair values of options granted during the years are as follows:

|                                                      |  | 2001 |      | 2002 |   | 2003
|----------------------------------------------------- |  | ---- | ---- | ---- | - | ----
|Exercise price is below market price at date of grant |  |      |     |      |   |    
|Exercise price equals market price at date of grant   |  | $    | 2.30 |      | $ | 4.09

F-18

---

The
following information applies to options outstanding at December 31, 2003:

Range of exercise prices

Number
outstanding

Weighted
average
remaining
contractual
life (years)

Weighted
average
exercise
price$3.16 - $3.60

61

8

$
3.33$4.15 - $4.86

1,736

10


4.70$6.50 - $13.75

97

6


10.421,894

10

$
4.95


At
December 31, 2003, 815 of the 1,894 options outstanding are exercisable by the optionee.

At
December 31, 2002, 746 of the 917 options outstanding were exercisable by the optionee.

The
fair value of options at date of grant was estimated using the Black-Scholes model with the following weighted average assumptions:

2001

2002

2003Expected life (years)

5 years

5 years

5 yearsRisk-free interest rate

5.5%

3.0%

3.0%Expected volatility

40%

40%

40%Expected dividend yield








NOTE LRETIREMENT PLAN

The Company established a retirement plan in accordance with section 401(k) of the Internal Revenue Code. Under the terms of this plan, eligible employees
may make voluntary contributions to the extent allowable by law. Employees of the Company are eligible after 90 days of employment. Matching contributions by the Company to this plan are
discretionary and will not exceed that allowable for Federal income tax purposes. The Company's contributions are vested over five years in equal increments. The accompanying statements of operations
include contribution expense of $125, $0 and $134 for the years ended December 31, 2001, 2002 and 2003, respectively.

F-19

---

NOTE MRELATED PARTY TRANSACTIONS

The Company leases two of its three facilities in Temecula, California from the Company's principal stockholder and Chairman of the Board. The leases provide for
payments of insurance, repairs, maintenance and property taxes, and extend through 2005. The Company has two five-year renewal options to extend the terms of both leases to 2015. Rent
expense paid under the leases was $1,169, $1,253 and $1,284 for the years ended December 31, 2001, 2002 and 2003, respectively. As a part of the restructuring plan announced in the third
quarter of 2001, the Company has vacated warehouse space in one of the facilities. The Company has periodically sublet the vacated warehouse space as market conditions permit.

In
1997, the Company guaranteed debt of the Company's principal stockholder and Chairman of the Board of approximately $754. The guaranteed debt was incurred in connection with
construction of the facilities leased to the Company and is collateralized by said facilities. The loan amount subject to the unsecured guarantee is expected to decline before expiring in 2017. It is
not practicable to estimate the fair value of the guarantee; however, the Company does not anticipate that it will incur losses as a result of this guarantee. The Company has not recorded a liability
for this guarantee. If the principal stockholder were to default on the outstanding loan balance, the Company may be required to repay the remaining principal balance. The maximum potential amount the
Company would be required to pay is equal to the outstanding principal and interest balance of the loan to the stockholder. At December 31, 2003, the outstanding loan balance subject to the
guarantee totaled $613.

In
January, 2001, the Company guaranteed personal debt of William H. Channell, Jr., the Company's President and Chief Operating Officer of $650. The guarantee was terminated in
March 2002. In connection with this guarantee, William H. Channell, Jr. paid the Company a fee equal to 1% of the loan balance and provided as collateral to the Company 300,000 shares of
Company stock.

The
Company purchased insurance through Talbot Agency Inc. in 2001, 2002, and 2003. Roy H. Taylor, President of Talbot Agency Inc. is a co-trustee of the Taylor
Family Trust, a beneficial owner of more than 5% of the Company's outstanding stock. The total premiums and fees paid for insurance obtained through the Talbot Agency for the years ended
December 31, 2001, 2002 and 2003 was $1,265, $253 and $45 respectively, which included commissions earned.

In
May, 2002 the Company sold its RF line of passive electronic devices to RMS Communications, Inc., which is owned by Gary Napolitano, a former officer of the Company. A sale in
the amount of $800
was recorded. RMS Communications, Inc. paid the Company $125 in cash at the time of sale, and the remaining $675 is payable in monthly installments through June 30, 2003, bearing
interest at 7% per annum. The amount due from RMS Communications, Inc. included in accounts receivable at December 31, 2003 is $337. The account is currently in arrears. The Company has
security interest in the inventory and a personal guarantee from Mr. Napolitano and believes the amount will be paid in full.

In
2003, the Company paid $73 to Carolyn Channell for consulting services. Mrs. Channell is the wife of William H. Channell, Jr., the Company's President and Chief Executive
Officer. Mrs. Channell consults on insurance coverage matters for the Company.

NOTE NCOMMITMENTS AND CONTINGENCIES

LeasesThe Company leases manufacturing and office space and
machinery & equipment under several operating leases expiring through 2012. Rent expense under all operating leases amounted to $2,188, $2,665 and 3,061 for the years ended December 31,
2001, 2002 and 2003, respectively. Total future minimum rental payments under noncancellable operating leases as of December 31, 2003,

F-20

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including
the operating leases with the related party discussed in Note M and the vacated facilities discussed in Note H, are as follows:

Year

Amount2004

$
2,5352005


2,4102006


1,0672007


1,0442008


1,061Thereafter


3,000$
11,117


In
addition to these minimum rental commitments, certain of these operating leases provide for payments of insurance, repairs and maintenance and property taxes.

In
June, 2002, the Company entered into a sale and leaseback agreement for a warehouse facility located in Temecula, California. The proceeds from the sale totaled approximately $6,200
and resulted in a pretax deferred gain of $604. The resulting lease is being accounted for as an operating lease. The lease base term is ten years with two five-year options at rental
amounts to be adjusted to the fair market rental value at the end of the base term. A portion of the proceeds from the sale was used to pay the outstanding mortgage balance on the facility of $4,036.
In fiscal 2002, the Company recorded income of $30 related to the amortization of the deferred gain leaving an unamortized balance of $574 at December 31, 2002. In 2003, the Company recorded
income of $61 related to the amortization of the deferred gain leaving an unamortized balance is $513 at December 31, 2003.

Employment AgreementsThe Company in December, 2003 entered into a five year employment agreement,
renewable every five years, with William H. Channell, Jr. Mr. Channell, Jr.'s annual salary is $718,320 (subject to an annual cost of living adjustment). Mr. Channell, Jr. is entitled to
participate in the Stock Plan, the 401(k) Plan and the Incentive Compensation Plan. Mr. Channell, Jr. is also entitled to certain other benefits paid for by the Company, including an automobile
allowance, health insurance and sick leave, in accordance with the Company's customary practices for senior executive officers.    In the event that the Company were to terminate
Mr. Channell, Jr. without cause (as defined in the agreement), or Mr. Channell, Jr. were to terminate his employment for good reason (also as defined in the agreement and including,
without limitation, a change of control of the Company), then Mr. Channell, Jr. would be entitled to a lump sum payment equal to three times his then current base salary, all health and life
insurance benefits for three years, and accelerated vesting of any stock options or restricted stock granted to him.

The
Company amended in December, 2003 the employment agreement with Mr. Channell, Sr. originally entered into in July, 1996. Mr. Channell, Sr.'s annual salary starting in
December, 2003 is $50,000. Mr. Channell, Sr.'s benefits include (i) during the term of the agreement, the payment of premiums for a term disability policy providing for $250,000 in
annual benefits in the case of his temporary or permanent disability, (ii) during the lifetime of Mr. Channell, Sr. and his wife, Jacqueline M. Channell, medical insurance for each of
Mr. and Mrs. Channell comparable to that provided to the Company's senior executive officers, (iii) during Mr. Channell, Sr.'s lifetime, a portion of the premiums on a
$1,500,000 life insurance policy owned by Mr. Channell, Sr., under which Mrs. Channell is the beneficiary, and (iv) an automobile allowance.

TaxesThe Federal income taxes of the Company for the years ended December 31, 1997, 1998,
2000, and 2001 are currently under examination by the Internal Revenue Service (IRS). In July 2002,

F-21

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the
IRS issued the proposed result of their examination for the years ended December 31, 1997 and 1998, which increases the 1997 income tax amount due by $315 related to transfer pricing for
sales to the Company's Canadian subsidiary. In November 2003, The IRS agreed to reduce the transfer pricing assessment for the 1997 and 1998 tax years to $19 which was accrued at
December 31, 2003. Management believes that the ultimate outcome of IRS audits for the years ended 2000 and 2001 will not have a material adverse impact on the Company's consolidated results of
operations or financial position.

In
2001, the State of Texas issued a report assessing the Company additional sales and use tax of $1,600, including interest. The Company has appealed the assessment and is currently
providing the State of Texas with documentation to support the Company's contention that the transactions did not require the Company to remit sales and use tax to the State of Texas. The State of
Texas has agreed to a reduction of the amount owed to $600. The Company has paid the State of Texas $400. The Company believes that it has meritorious defenses to the remaining claim of $200 and
intends to vigorously defend its position. The Company believes that the ultimate outcome of this examination will not result in a material impact on the Company's consolidated results of operations
or financial position.

NOTE OCREDIT CONCENTRATIONS AND MAJOR CUSTOMERS

The Company maintains cash balances in financial institutions located in the United States, Canada, Australia and the United Kingdom. Cash balances held in
financial institutions in the U.K. totaled $894 and $343 at December 31, 2002 and 2003, respectively. Cash balances held in financial institutions in Australia. totaled $863 and $2,539 at
December 31, 2002 and 2003, respectively. Cash balances held in financial institutions in Canada was not significant at December 31, 2002 and 2003. Cash balances held in financial
institutions located in the United States may, at times, exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant
credit risk on cash and cash equivalents.

The
telecommunications industry is concentrated, with relatively few customers accounting for a large percentage of the Company's available market. Consequently, the Company's five
largest customers (by sales volume) accounted for 44.1%, 57.2% and 57.7% of the Company's total net sales in 2001, 2002 and 2003, respectively. Time Warner accounted for 11.2% of the Company's total
net sales in 2001. Comcast accounted for 28% of the Company's net sales in 2002. Comcast and Verizon accounted for 27.1% and 10.5%, respectively, of the Company's net sales in 2003. Mergers and
acquisitions in the telecommunications industry are not only increasing the concentration of the industry and of the
Company's customer base, but also from time to time delay customers' capital expenditures as newly merged services providers consolidate their operations. The Company generally extends credit to these
customers. Its exposure to credit risk is affected by conditions in the telecommunications industry. The Company controls credit risk through credit approvals, credit limits and monitoring procedures
but does not generally require collateral. The Company experienced significant credit loss in 2002 due to bankruptcy declared by one of the Company's major broadband customers.

NOTE PSEGMENT AND GEOGRAPHIC INFORMATION

The Company's predominant business is the manufacturing and distribution of telecommunications equipment. As a result of rationalizing and streamlining
International operations, the Company changed its segment reporting in 2003. There are now two segments: Americas and International. Americas includes the United States, Central and South America and
Canada. International includes

F-22

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Europe,
Africa, Middle East, Australia and Asia. Some of the previous reporting segments have been combined due to their reduced size as a result of the general downturn in the telecommunications
industry, the rationalization of various product lines within the former segments and changes in the management structure of the Company. The new reporting segments reflect current management
structure and the reporting used internally by executive management. The following tables summarize segment information:

|                                     |                     | 2001 |         | 2002    |   | 2003   |       
|------------------------------------ | ------------------- | ---- | ------- | ------- | - | ------ | ------
|Revenues from unrelated entities(1): |                     |      |         |         |   |        |       
|                                     | Americas(2)         |      | $       | 70,167  |   | $      | 69,963
|                                     | International       |      |         | 18,531  |   |        | 14,822
|                                     |                     |      |         |         |   |        |       
|                                     |                     | $    | 88,698  |         | $ | 84,785 |       
|                                     |                     |      |         |         |   |        |       
|Income (loss) from operations:       |                     |      |         |         |   |        |       
|                                     | Americas            |      | $       | (4,002  | ) | $      | 6,995 
|                                     | International       |      |         | (25,529 | ) |        | (6,325
|                                     |                     |      |         |         |   |        |       
|                                     |                     | $    | (29,531 | )       | $ | 670    |       
|                                     |                     |      |         |         |   |        |       
|Interest income:                     |                     |      |         |         |   |        |       
|                                     | Americas            |      | $       | 72      |   | $      | 89    
|                                     | International       |      |         |        |   |        |      
|                                     |                     |      |         |         |   |        |       
|                                     |                     | $    | 72      |         | $ | 89     |       
|                                     |                     |      |         |         |   |        |       
|Interest expense:                    |                     |      |         |         |   |        |       
|                                     | Americas            |      | $       | 3,639   |   | $      | 1,663 
|                                     | International       |      |         | 307     |   |        | 425   
|                                     |                     |      |         |         |   |        |       
|                                     |                     | $    | 3,946   |         | $ | 2,088  |       
|                                     |                     |      |         |         |   |        |       
|Income tax expense (benefit):        |                     |      |         |         |   |        |       
|                                     | Americas            |      | $       | (6,780  | ) | $      | 1,737 
|                                     | International       |      |         | (1,427  | ) |        |      
|                                     |                     |      |         |         |   |        |       
|                                     |                     | $    | (8,207  | )       | $ | 1,737  |       
|                                     |                     |      |         |         |   |        |       
|Identifiable assets:                 |                     |      |         |         |   |        |       
|                                     | Americas            |      | $       | 62,334  |   | $      | 40,060
|                                     | International(3)(4) |      |         | 23,428  |   |        | 14,103
|                                     |                     |      |         |         |   |        |       
|                                     |                     | $    | 85,762  |         | $ | 54,163 |       
|                                     |                     |      |         |         |   |        |       
|Depreciation and amortization:       |                     |      |         |         |   |        |       
|                                     | Americas            |      | $       | 6,783   |   | $      | 6,011 
|                                     | International       |      |         | 1,774   |   |        | 1,774 
|                                     |                     |      |         |         |   |        |       
|                                     |                     | $    | 8,557   |         | $ | 7,785  |       
|                                     |                     |      |         |         |   |        |       
|                                     |                     |      |         |         |   |        |       

F-23

---

|Capital expenditures: |               |   |       |       |   |       |       |   |       |    
|--------------------- | ------------- | - | ----- | ----- | - | ----- | ----- | - | ----- | ---
|                      | Americas      |   | $     | 1,862 |   | $     | 1,346 |   | $     | 790
|                      | International |   |       | 1,291 |   |       | 540   |   |       | 413
|                      |               |   |       |       |   |       |      
|                      |               | $ | 3,153 |       | $ | 1,886 |       | $ | 1,203 |    
|                      |               |   |       |       |   |       |      

---

The
Company had revenues from external customers from the following product lines:

2001

2002

2003Enclosures

$
68,994

$
65,748

$
60,308Connectivity


13,499


10,525


8,169Other


6,205


8,512


8,060Total

$
88,698

$
84,785

$
76,537


NOTE QQUARTERLY FINANCIAL DATA (Unaudited)

Summarized quarterly financial data for 2001, 2002 and 2003 follows:

|     |                            | First
Quarter |   | Second
Quarter |       | Third
Quarter |        | Fourth
Quarter |  
|---- | -------------------------- | ------------- | - | -------------- | ----- | ------------- | ------ | -------------- | -
|2001 |                            |               |   |                |       |               |        |                |  
|     | Net sales                  |               | $ | 21,967         |       | $             | 25,762 |                | $
|     | Gross profit               |               |   | 6,512          |       |               | 8,383  |                |  
|     | Net income (loss)(1)       |               |   | (1,271         | )     |               | 352    |                |  
|     | Income (loss) per share(1) |               |   |                |       |               |        |                |  
|     |                            | Basic         |   |                | (0.14 | )             |        | 0.04           |  
|     |                            | Diluted       |   |                | (0.14 | )             |        | 0.04           |  
|
|2002 |                            |               |   |                |       |               |        |                |  
|     | Net sales                  |               | $ | 19,841         |       | $             | 25,823 |                | $
|     | Gross profit               |               |   | 6,482          |       |               | 9,988  |                |  
|     | Net income (loss)(2)       |               |   | 496            |       |               | 820    |                |  
|     | Income (loss) per share(2) |               |   |                |       |               |        |                |  
|     |                            | Basic         |   |                | 0.05  |               |        | 0.09           |  
|     |                            | Diluted       |   |                | 0.05  |               |        | 0.09           |  
|     |                            |               |   |                |       |               |        |                |  

F-24

---

|     |                            | First
Quarter |   | Second
Quarter |       | Third
Quarter |        | Fourth
Quarter |  
|---- | -------------------------- | ------------- | - | -------------- | ----- | ------------- | ------ | -------------- | -
|2003 |                            |               |   |                |       |               |        |                |  
|     | Net sales                  |               | $ | 16,218         |       | $             | 20,285 |                | $
|     | Gross profit               |               |   | 4,482          |       |               | 6,449  |                |  
|     | Net income (loss)(3)       |               |   | (288           | )     |               | 1,068  |                |  
|     | Income (loss) per share(3) |               |   |                |       |               |        |                |  
|     |                            | Basic         |   |                | (0.03 | )             |        | 0.12           |  
|     |                            | Diluted       |   |                | (0.03 | )             |        | 0.12           |  

---

F-25

---

CHANNELL COMMERCIAL CORPORATION    SCHEDULE II    VALUATION AND QUALIFYING ACCOUNTS    (Amounts in thousands)

|Column A                      |  | Column B |   | Column C |     | Column D |   | Column E |   |  
|----------------------------- |  | -------- | - | -------- | --- | -------- | - | -------- | - | -
|
|
|Accounts receivables reserves |  | (2003    | ) | $        | 623 |          | $ | (232     | ) | $
|                              |  | (2002    | ) |          | 102 |          |   | 2,065    |   |  
|                              |  | (2001    | ) |          | 104 |          |   | 1,751    |   |  
|Inventory valuation reserve   |  | (2003    | ) | $        | 340 |          |   | 569      |   | $
|                              |  | (2002    | ) |          | 38  |          |   | 302      |   |  
|                              |  | (2001    | ) |          | 20  |          |   | 8,500    |   |  

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GLOSSARY OF TERMS

ADSL (Asymmetric Digital Subscriber Line):A standard allowing digital broadband signals and standard telephone service to be
transmitted up to 12,000 feet over a twisted copper pair.

Broadband:Transmission rates in excess of 1.544 mega bits per second typically deployed for delivery of
high-speed data, video and voice services. Also, a system for distributing television programming by a cable network rather than by broadcasting electromagnetic radiation.

Cable Modem:Electronic transmission device placed on the broadband network, located at end user locations, providing
two-way, high-speed data service capability, including internet access for subscribers.

Coaxial Cable:The most commonly used means of transmitting cable television signals. It consists of a cylindrical outer
conductor (shield) surrounding a center conductor held concentrically in place by an insulating material.

DLC (Digital Loop Carrier):Telecommunications transmission technology which multiplexes multiple individual voice circuits
onto copper or fiber cables.

DSL (Digital Subscriber Line):Generic descriptor covering various versions of DSL services delivered over copper wires.
Included are HDSL and ADSL services.

Fiber Node:Refers to the equipment that terminates the fiber cables originating from the host digital terminal. This network
element converts the optical signals to their coax electrical, RF equivalents. Synonymous with optical network interface (ONI).

Fiber Optics:The process of transmitting infrared and visible light frequencies through a low-loss glass fiber
with a transmitting laser or LED and a photo diode receiver.

FTTC (Fiber-To-The-Curb):In a long distance network consisting of fiber optics,
fiber-to-the-curb refers to the fiber optics running from the distribution plant to the curb, at which point copper is used for the
curb-to-home connection.

HDSL (High bit rate Digital Subscriber Line):By using sophisticated coding techniques, a large amount of information may be
transmitted over copper. The HDSL scheme uses such coding over four copper wires and is primarily intended for high capacity bi-directional business services.

Headend:The primary transmission point in a cable system supplying the hubs and trunk cables.

HFC (Hybrid Fiber Coax):A type of distribution plant that utilizes fiber optics to carry service from a CO to the carrier
serving area, then coaxial cable within the CSA to or close to the individual residences.

ONU (Optical Network Unit):The curb mounted electronics device which converts fiber optic signals to electrical for service
delivery or copper wires.

PCS (Personal Communications Services):Any service offered on a personal communications network. These include basic
telephone, voice mail, paging and others. Personal communications networks operate in the 1800-2000 mHz range, utilizing low power cells compared to traditional cellular technology.

RBOC (Regional Bell Operating Company):A term for the regional holding companies created when AT&T divested the Bell
operating companies.

RF (Radio Frequency):An electromagnetic wave frequency intermediate between audio frequencies and infrared frequencies used
especially in wireless telecommunications and broadband transmission.

G-1

---

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K Annual Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Temecula, State of California, on March 4, 2004.

| |  | CHANNELL COMMERCIAL CORPORATION a Delaware corporation
| |  | ------------------------------------------------------
| |  | By                                                    

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Form 10-K Annual Report has been signed by the following persons in the capacities indicated
below as of March 4, 2004.

|Signature                                          |  | Capacity in Which Signed                          
|-------------------------------------------------- |  | --------------------------------------------------
|                                                   |  |                                                   
|/s/WILLIAM H. CHANNELL, SRWilliam H. Channell, Sr. |  | Chairman of the Board and Director                
|/s/WILLIAM H. CHANNELL, JRWilliam H. Channell, Jr. |  | President and Chief Executive Officer and Director
|/s/JACQUELINE M. CHANNELLJacqueline M. Channell    |  | Secretary and Director                            
|/s/BRUCE GLIDDENBruce Glidden                      |  | Director                                          
|/s/GUY MARGEGuy Marge                              |  | Director                                          
|/s/DANA BRENNERDana Brenner                        |  | Director                                          
|/s/THOMAS LIGUORIThomas Liguori                    |  | Chief Financial Officer                           

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