<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
{X} Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the
Quarter Ended June 30, 1997.
Or
{ } Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the
Transition Period From __________ to __________
Commission File Number 000-29032
---------
CHAMPION COMMUNICATION SERVICES, INC.
DELAWARE 76-0448005
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1610 WOODSTEAD COURT
SUITE 330 77380
(Address of Principal Offices) (Zip Code)
(281) 362-0144
(Registrant's Telephone Number, including area code.)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Exchange on which Registered
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
Title of Each Class Name of Exchange on which Registered
Common Stock, par value $.01 per share
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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of the Form 10-KSB or any amendment to this Form 10-KSB. Yes[X] No[ ]
State issuer's revenues for is most recent fiscal year. $7,136,582.
As of August 13, 1997, there were 6,103,412 shares of common stock, $0.01 par
value, of the registrant issued and outstanding.
<PAGE> 2
CHAMPION COMMUNICATION SERVICES, INC.
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets -
June 30, 1997 and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Statements of Operations -
Three Months and Six Months Ended June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . .2
Statements of Cash Flows -
Three Months and Six Months Ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . 3
Statement of Stockholders' Equity -
Six Months Ended June 30, 1997 and Years Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Interim Financials Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-10
Earnings Per Share Computations -
Three Months and Six Months Ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of operations . . . . . . . . . . . . . . . . . . . . . 12-14
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
CHAMPION COMMUNICATION SERVICES, INC.
BALANCE SHEETS
June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1997 1996
----------- ----------
Unaudited
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 457,549 $ 1,087,440
Accounts receivable, net of allowance of $63,656 and $51,606
at June 30, 1997 and December 31, 1996 respectively 504,236 900,061
Inventory 196,840 457,409
Prepaid expenses and other 120,849 70,315
----------- -----------
Total Current Assets 1,279,474 2,515,225
----------- -----------
Communications equipment and related assets, net 5,167,550 5,475,081
----------- -----------
Other assets 1,007,075 607,999
----------- -----------
$ 7,454,099 $ 8,598,305
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 404,448 $ 446,525
Accrued expenses 778,212 690,718
Deferred revenue 918,866 1,586,625
Current maturities of notes payable 113,667 185,785
Current maturities of notes payable to stockholder -- 1,179,046
----------- -----------
Total Current Liabilities 2,215,193 4,088,699
----------- -----------
Long Term Liabilities
Notes payable 68,291 151,166
Notes payable to stockholder -- 1,620,535
----------- -----------
Total Long Term Liabilities 68,291 1,771,701
----------- -----------
Stockholders' Equity
Common stock, $0.01 par value, 20,000,000 shares authorized,
6,103,412 shares issued and outstanding at
June 30, 1997 and December 31, 1996 61,034 61,034
Additional paid-in capital 5,166,184 5,166,184
Accumulated earnings (deficit) (56,603) (2,489,313)
----------- -----------
Total Stockholders' Equity 5,170,615 2,737,905
----------- -----------
$ 7,454,099 $ 8,598,305
=========== ===========
</TABLE>
-1-
See accompanying notes to financial statements.
<PAGE> 4
CHAMPION COMMUNICATION SERVICES, INC.
STATEMENTS OF OPERATIONS For the
three months and six months ended June 30, 1997 and 1996
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<C> <C> <C> <C>
Revenues $ 1,746,326 $ 1,862,458 $ 6,941,353 $ 3,889,027
----------- ----------- ----------- -----------
Operating expenses:
Cost of sales 1,065,206 1,444,838 2,643,485 2,904,767
Provision for doubtful accounts 33,000 25,458 66,000 52,500
Depreciation and amortization 213,986 194,442 433,808 383,281
General and administrative expenses 489,364 591,972 1,118,297 1,201,145
----------- ----------- ----------- -----------
Total Operating Expenses 1,801,556 2,256,710 4,261,590 4,541,693
----------- ----------- ----------- -----------
Operating Income (Loss) (55,230) (394,252) 2,679,763 (652,666)
----------- ----------- ----------- -----------
Other income (expenses):
Net gain (loss) on disposal of fixed assets (5,379) (2,699) (195,109) (611)
Interest income 7,750 2,489 17,452 7,970
Interest expense (7,725) (66,167) (69,396) (132,146)
----------- ----------- ----------- -----------
Income (Loss) before income taxes (60,584) (460,629) 2,432,710 (777,453)
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) ($ 60,584) ($ 460,629) $ 2,432,710 ($ 777,453)
=========== =========== =========== ===========
Weighted average common shares and common stock
equivalents outstanding 6,103,412 4,733,562 6,103,412 4,724,048
=========== =========== =========== ===========
Net income (loss) per common share ($ 0.01) ( 0.10) $ 0.40 ($ 0.16)
=========== =========== =========== ===========
</TABLE>
-2-
See accompanying notes to financial statements.
<PAGE> 5
CHAMPION COMMUNICATION SERVICES, INC.
STATEMENTS OF CASH FLOWS
For the three months and six months ended June 30, 1997 and 1996
Unaudited
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 60,584) ($460,629) $ 2,432,710 ($ 777,453)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 213,986 194,442 433,808 383,281
Bad debt expense 33,000 25,458 66,000 52,500
Loss (gain) on disposal/sale of fixed assets 5,379 2,699 195,109 611
Change in assets and liabilities:
Accounts receivable 32,901 86,031 395,825 261,065
Inventory 18,111 85,707 260,570 69,465
Prepaid expenses (35,836) 99,237 (50,534) 95,559
Other assets (331,148) (123,796) (399,076) (239,587)
Accounts payable (85,225) 158,543 (42,078) 560,508
Accrued expenses (45,773) 133,115 87,494 (401,828)
Deferred revenue (108,664) (29,926) (667,759) (630,862)
----------- --------- ----------- -----------
Net cash provided by (used in) operating
activities (363,853) 170,881 2,712,069 (626,741)
----------- --------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment (253,764) (198,667) (484,002) (335,947)
Proceeds from sale of fixed assets 26,000 6,337 96,616 --
----------- --------- ----------- -----------
Net cash used in investing activities (227,764) (192,330) (387,386) (335,947)
----------- --------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of stock -- -- -- --
Proceeds from sale of warrants -- -- -- --
Proceeds from the issuance of subscribed stock -- -- -- 51,944
Repayment of notes payable (90,340) (38,647) (2,954,574) (61,094)
----------- --------- ----------- -----------
Net cash provided by financing activities (90,340) (38,647) (2,954,574) (9,150)
----------- --------- ----------- -----------
Net increase in cash and cash equivalents (681,957) (60,096) (629,891) (971,838)
Cash and cash equivalents at beginning of period 1,139,506 260,712 1,087,440 1,172,454
----------- --------- ----------- -----------
Cash and cash equivalents at end of period $ 457,549 $ 200,616 $ 457,549 $ 200,616
=========== ========= =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 7,001 $ 7,783 $ 155,349 $ 14,958
=========== ========= =========== ===========
</TABLE>
-3-
See accompanying notes to financial statements.
<PAGE> 6
CHAMPION COMMUNICATION SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the six months ended June 30, 1997 and
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Common Common Additional Total
stock Common stock paid-in Accumulated Stockholders'
shares stock subscribed capital deficit Equity
--------- ------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 4,258,000 $37,540 $ 5,040 $ 2,086,420 ($ 12,350) $ 2,116,650
--------- ------- ------- ----------- ----------- -----------
Conversion of Common stock
subscribed to Common stock -- 5,040 (5,040) (5,981) -- (5,981)
Issuance of Common stock 437,085 4,371 -- 585,694 -- 590,065
Common stock subscribed -- -- 385 51,559 -- 51,944
Issuance of Common stock
warrants -- -- -- 719,000 -- 719,000
Net loss for 1995 -- -- -- -- (857,999) (857,999)
--------- ------- ------- ----------- ----------- -----------
Balance at December 31, 1995 4,695,085 $46,951 $ 385 $ 3,436,692 ($ 870,349) $ 2,613,679
========= ======= ======= =========== =========== ===========
Conversion of Common stock
subscribed to Common stock 38,477 385 (385) -- -- --
Issuance of Common stock 769,850 7,698 -- 1,735,492 -- 1,743,190
Conversion of Common stock
warrants 600,000 6,000 -- (6,000) -- --
Net loss for 1996 -- -- -- -- (1,618,964) (1,618,964)
--------- ------- ------- ----------- ----------- -----------
Balance at December 31, 1996 6,103,412 $61,034 $ -- $ 5,166,184 ($2,489,313) $ 2,737,905
========= ======= ======= =========== =========== ===========
Net income for 1997 (unaudited) -- -- -- -- 2,432,710 2,432,710
--------- ------- ------- ----------- ----------- -----------
Balance at June 30, 1997 (unaudited) 6,103,412 $61,034 $ -- $5,166,184 ($ 56,603) $ 5,170,615
========= ======= ======= =========== =========== ===========
</TABLE>
-4-
See accompanying notes to financial statements.
<PAGE> 7
CHAMPION COMMUNICATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited
(1) Summary of Significant Accounting Policies
(a) Description of Business
Champion Communication Services, Inc. (the Company)
is a provider of high powered community repeater dispatch
services operating within the 450 - 512 MHz and 800 MHz
frequency band in the United States. The Company's customers
consist primarily of business and government agencies located
in both metropolitan and rural geographic regions. The
Company provides customers with equipment sales and service,
and radio rentals.
(b) Basis of Presentation
The accompanying financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States. The differences between
accounting principles generally accepted in the United States
and Canada would not have a material impact on the
accompanying financial statements.
The financial statements for the six months ended
June 30, 1997 and 1996 are unaudited and, in the opinion of
management, include all adjustments necessary (which consist
of only normal recurring adjustments) for a fair presentation
of the financial position, results of operations and cash
flows for the interim periods. The financial information and
results of operations for the six months ended June 30, 1997
are not necessarily indicative of the financial position or
results of operations that may be expected at and for the year
ended December 31, 1997 or for any future periods.
(c) Cash and Cash Equivalents
For purposes of the statements of cash flows, the
Company considers all highly liquid financial instruments
purchased with an original maturity of three months or less to
be cash equivalents.
(d) Inventory
The Company's inventory consists primarily of two-way
radios, parts and accessories. The Company uses the average
cost method of accounting for inventory. The balance recorded
at June 30, 1997 and December 31, 1996 is the lower of average
cost or market. The Company also included $278,000 of costs
for spectrum to be sold in 1997 in the December 31, 1996
inventory balance.
-5-
<PAGE> 8
CHAMPION COMMUNICATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Unaudited
(1) Summary of Significant Accounting Policies, (continued)
(e) Communications Equipment and Related Assets
Communications equipment and related assets are
recorded at cost. Depreciation is computed on a straight-line
basis over the estimated useful lives of the assets ranging
from five years for other fixed assets to ten years for
communications equipment.
(f) Income Taxes
In accordance with U.S. generally accepted accounting
principles, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period
that includes the enactment date.
(g) Fair Value of Financial Instruments
Fair value estimates are made at discrete points in
time based on relevant market information. These estimates
may be subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be
determined with precision.
The Company believes that the carrying amounts of its
current assets and current liabilities approximate the fair
value of such items due to their short-term nature. The
carrying amount of long- term debt approximates its fair value
because the interest rates approximate market and there has
been no significant change in the credit risk of the Company.
(h) Revenue Recognition
The standard industry billing cycle for radio
dispatch service is generally for three, six and twelve month
intervals. The Company defers amounts billed in advance and
recognizes revenue as the related services are provided.
-6-
<PAGE> 9
CHAMPION COMMUNICATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Unaudited
(1) Summary of Significant Accounting Policies, (continued)
(i) Differences Between Generally Accepted Accounting Principles
in the United States and Canada
The Company prepares its financial statements in
accordance with generally accepted accounting principles in
the United States. The following summarizes significant
differences between United States and Canadian generally
accepted accounting principles:
(i) Income Taxes: Generally accepted accounting principles in
Canada require the deferred method of accounting for income
taxes with the calculation of deferred tax assets and
liabilities through the application of historical tax rates.
Benefits attributable to net operating loss carryforwards
cannot be recorded unless there is virtual certainty that such
net operating loss carryforwards will be utilized.
(ii) Earnings (Loss) per Common Share: Generally accepted
accounting principles in Canada require that common stock
equivalents not be included in the earnings (loss) per share
calculation. As noted above, common stock equivalents have
been ignored due to their antidilutive effect.
(2) Notes Payable
During the year ended December 31, 1996, the Company incurred
installment notes payable of $256,982 to finance certain communication
equipment purchases. At June 30, 1997 and December 31, 1996, the
total balance outstanding related to the installment notes payable was
$176,089 and $322,161, respectively. The notes are payable in monthly
installments and mature from 1997 to 1999. The notes bear interest at
rates ranging from 11% to 12.75% per year and are secured by
communications equipment.
During 1995, the Company entered into a revolving note payable
with a maximum credit line of $100,000 bearing interest at 17.9% after
90 days. At June 30, 1997 and December 31, 1996, the outstanding
balances on the credit line were $5,869 and $14,790, respectively.
The credit line is being used to finance the acquisition of inventory
and is repaid when inventory is sold or at the agreed upon date. Each
advance expires 360 days from the date of the advance.
-7-
<PAGE> 10
CHAMPION COMMUNICATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Unaudited
(2) Notes Payable, (continued)
In 1994, Champion Communications Company (CCC) advanced the
Company $3,177,506 for the acquisition of base stations and the
related customers. On November 15, 1995, $377,925 of the note and
$162,075 of accrued interest payable was converted to 400,000 shares
of common stock at $1.35 per share. The remaining balance of
$2,799,581 was paid in full in March 1997. The note bore interest at a
prime rate, (8.25% at December 31, 1996), and was secured by the
Company's communications equipment and spectrum. CCC is a Subchapter S
corporation, wholly owned by Albert F. Richmond, Chief Executive
Officer and a founding stockholder of the Company.
The combined aggregate maturities of the installment notes
payable and the note payable to stockholder for each of the five years
following December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 65,631
1998 76,524
1999 39,803
2000 -
2001 -
--------
$181,958
========
</TABLE>
(3) Related Party Transactions
No related party general and administrative expenses were
incurred during the year ended December 31, 1996. During the year
ended 1995, the Company incurred approximately $62,000 in general and
administrative expenses (primarily personnel charges) allocated from
Olympic Natural Gas Company, a company in which Albert F. Richmond
served as Chief Executive Officer during 1995.
Additionally, during 1995 the Company allocated approximately
$23,000 in general and administrative expenses to Olympic Natural Gas
Company.
The Company is currently using an 800 MHz trunking license
belonging to CCC. The Company exercised its option to purchase the
license on April 1, 1997.
-8-
<PAGE> 11
CHAMPION COMMUNICATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Unaudited
(4) Stockholders' Equity
On September 25, 1996, the Company sold 619,350 shares of
common stock in a Canadian initial public offering at $2.73 (Cdn.
$3.70) per share. In connection with the initial public offering, an
additional 150,500 shares of common stock were sold at $2.73 per share
to 41 investors by the Company.
In conjunction with the 769,850 common shares issued on
September 25, 1996, each share of common stock sold included one
common share purchase warrant. The warrants are exercisable at Cdn.
$5.00 per share any time before March 25, 1998. The Company has the
right to accelerate conversion of the warrants if the average price
for the common stock is at least Cdn. $5.50 for ten consecutive days.
The Company granted options to the underwriting agent of the
Canadian initial public offering to purchase 50,000 common shares for
a period of eighteen months from the completion of the public offering
at Cdn. $3.70 per share.
Upon the completion of the initial public offering, a third
party was granted options, in conjunction with the special warrant
offering, to purchase 60,000 common shares during the period of three
years from September 25, 1996 at a price of Cdn. $3.70 per share.
Of the 6,103,412 issued and outstanding shares of common stock
at June 30, 1997 and December 31, 1996, 3,110,400 shares owned by the
chief executive officer and president were placed in escrow with
Equity Transfer Services, Inc., in connection with the Company's
initial public offering in Canada. The securities are to be released
from escrow as follows: 10% on April 30, 1997, 20% on each of April
30, 1998, April 30, 1999, and April 30, 2000; and 30% on April 30,
2001.
During 1996, 38,477 shares of common stock, which were
subscribed as of December 31, 1995, were issued at $1.35 per share.
The 504,000 shares of subscribed common stock as of December 31, 1994
were issued during early 1995.
During November 1995, 600,000 special warrants were issued to
third parties for $1.35 per share, totaling $729,000, net of offering
expenses. The primary terms of the special warrants include the
exchange of one special warrant for one common share in the capital of
Champion for no additional consideration. On October 2, 1996, these
warrants were converted to 600,000 shares of common stock.
-9-
<PAGE> 12
CHAMPION COMMUNICATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Unaudited
(5) Major Suppliers
The Company has entered into dealer agreements with two
principal communication equipment suppliers. Both dealer agreements
may be terminated at any time by the suppliers or the Company without
cost. Termination of either of these agreements would have a
materially adverse effect on the Company.
-10-
<PAGE> 13
CHAMPION COMMUNICATION SERVICES, INC.
EARNINGS PER SHARE COMPUTATIONS
For the three months and six months ended June 30, 1997 and 1996
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------ ----------- ----------- -----------
PRIMARY EARNINGS PER SHARE
<S> <C> <C> <C> <C>
Net income (loss) applicable to common stock ($ 60,584) ($ 460,629) $2,432,710 ($ 777,453)
Shares used in earnings per share computations 6,103,412 4,733,562 6,103,412 4,724,048
Net income (loss) per weighted average common share ($ 0.01) ($ 0.10) $ 0.40 ($ 0.16)
========== ========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE
Net income (loss) applicable to common stock ($ 60,584) ($ 460,629) $2,432,710 ($ 777,453)
---------- ---------- ---------- ----------
Shares used in earnings per share computation 6,103,412 4,733,562 6,103,412 4,724,048
Net income (loss) per weighted average common share ($ 0.01) ($ 0.10) $ 0.40 ($ 0.16)
========== ========== ========== ==========
</TABLE>
COMPUTATION OF SHARES USED IN EARNINGS PER SHARE
COMPUTATIONS - PRIMARY
<TABLE>
<S> <C> <C> <C> <C>
Outstanding common shares at beginning of period 6,103,412 4,695,085 6,103,412 4,695,085
Weighted average common shares issued during period -- 38,477 -- 28,963
--------- --------- --------- ---------
Weighted average common shares used in earnings
per share computation 6,103,412 4,733,562 6,103,412 4,724,048
========= ========= ========= =========
</TABLE>
COMPUTATION OF SHARES USED IN EARNINGS PER SHARE
COMPUTATIONS - FULLY DILUTED
<TABLE>
<S> <C> <C> <C> <C>
Outstanding common shares at beginning of period 6,103,412 4,695,085 6,103,412 4,695,085
Weighted average common shares issued during period -- 38,477 -- 28,963
--------- --------- --------- ---------
Weighted average common shares used in earnings
per share computation 6,103,412 4,733,562 6,103,412 4,724,048
========= ========= ========= =========
</TABLE>
-11-
<PAGE> 14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations - Quarters ended June 30, 1997 and 1996
Revenues were $1,740,000 for the quarter ended June 30, 1997 compared
with $1,860,000 for the quarter ended June 30, 1996. This was a decrease of
6%. Network services experienced a reduction of $100,000 from 1996 to 1997 as
a result of reduced dispatch revenues due to community repeater removals and
sales and attrition of customers. Equipment sales, service and rental revenues
decreased $190,000 or 37% from the second quarter of 1996 due to the
elimination of direct sales and the service division and increased competition
in the current market for radio rentals. During the second quarter of 1997 the
Company had spectrum sales revenue of $170,000 compared with no sales during
the same quarter of 1996.
Costs and expenses were $1,800,000 for the quarter ended June 30,
1997, down 20% from $2,250,000 for the same quarter of 1996. Network services
is enjoying the residual effects of tower rent reductions and repair and
maintenance reductions due to renegotiated tower rental rates and repeater
removals of $130,000. Due to the elimination of direct sales and service,
costs and expenses were down 55% or $280,000. General and administrative costs
have also declined from the second quarter of 1996 by $60,000 for
capitalization of employee expenses that relate to the acquisition and clearing
of spectrum and other reductions of $10,000. Depreciation, amortization and
the provision for doubtful accounts has increased $30,000 from $220,000 for the
quarter ended June 30, 1996 to $250,000 for the quarter ended June 30, 1997.
Depreciation and amortization will continue to increase as systems are
constructed and placed into service.
For the quarter ended June 30, 1997, the Company incurred interest
expense of $8,000 compared with $66,000 for the same quarter in 1996. This
reduction in interest expense is a result of the retirement of the note payable
to Champion Communications Company.
The net loss for the quarter ended June 30, 1997 was $60,000, a
reduction of $400,000 from the net loss of $460,000 for the quarter ended June
30, 1996. This reduction is due principally to the reduced tower rent costs,
the reduction in general and administrative expenses and the spectrum sales
closed in the second quarter of 1997.
Results of Operations - Six months ended June 30, 1997 and 1996
Revenues were $6,940,000 for the first six months of 1997, a 78%
increase from the revenues of $3,890,000 for the same period in 1996. The
increase was the result of sales of spectrum of $3,730,000 in 1997 as compared
with no spectrum sales for the first six months of 1996. Dispatch revenues
decreased 7%, or 190,000 from 1996 to 1997 due to removal and sales of
community repeaters and attrition of customer units. Equipment sales, service
and rental revenues decreased $490,000 or 48% from the same period in 1996 to
1997 due to the elimination of direct sales and the service division from the
Company.
-12-
<PAGE> 15
Costs and expenses were $2,640,000 for the six months ended June 30,
1997, down 8% from $2,900,000 for the six months ended June 30, 1996. The
overall decrease in costs is a result of a $620,000 decrease in the costs of
equipment sales and service resulting from the elimination of direct sales and
service division, the costs of the sale of spectrum in 1997 of $430,000 and a
decrease in network services expenses of $70,000. The change in network
services expenses is a decrease of $150,000 in tower rents due to removed and
renegotiated tower rentals, the addition of service operations to network
services ($60,000), and increased finder's fees ($20,000) due to new LTR
subscriber units.
Depreciation and amortization expense has increased $50,000 from
$380,000 for 1996 to $430,000, up 13%, as a result of construction and
installation of new LTR systems.
For the period ended June 30, 1997, the Company recorded a loss on the
sale of assets of $25,000 as compared with no net gain or loss for the period
ended June 30, 1996. The Company has held assets in inventory for
refurbishment and enhancement to be reused at new buildout locations. During
the first half of 1997 the Company identified assets in this inventory that
would not be economically advantageous to reuse. In the quarter ended June 30,
1997, the Company recognized a loss on the disposal of these assets in the
amount of $170,000 compared with no loss for the same period in 1996.
Interest expense for the period ended June 30, 1997 was $70,000
compared with $130,000 for the period ended June 30, 1996, down $60,000 or 46%.
The decrease in interest expense is a result of the repayment of the note
payable to Champion Communications Company in March 1997.
The net income for the six months ended June 30, 1997 is $2,430,000
compared with the net loss of $780,000 for the six months ended June 30, 1996
up $3,210,000, principally due to the sale of spectrum.
Financial Condition and Liquidity
The Company had $460,000 in cash and cash equivalents at June 30, 1997
as compared with $1,090,000 at December 31, 1996. The working capital of the
Company was a negative $940,000 at June 30, 1997 as compared with a negative
$1,570,000 at December 31, 1996. The increase in working capital is attributed
to the first quarter spectrum sale proceeds and the repayment of the note
payable to Champion Communications Company.
Cash flows from operating activities were a negative $400,000 and
$170,000 for the quarters ended June 30, 1997 and 1996, respectively. Cash
flows from operating activities were $2,710,000 and a negative $630,000 for the
six months ended June 30, 1997 and 1996, respectively.
-13-
<PAGE> 16
The Company anticipates that the remaining sales agreements for
non-core 800 MHz band systems will provide additional funds required. Although
the Company has executed new contracts for the sale of non-core 800 MHz band
systems and non-strategic communication installations, there is no assurance
that the Company will be able to continue to sell non-core systems. Failure to
do so could have a material adverse effect on the Company's cash flow and
expansion abilities. The Company anticipates procuring additional funding for
expansion through long-term senior debt and equity or mezzanine financing in
the last quarter of 1997.
As of June 30, 1997, the Company owed $180,000 to three commercial
lenders with varying repayment terms.
-14-
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
CHAMPION COMMUNICATION SERVICES, INC.
By:
------------------------------------
Pamela R. Cooper
Chief Financial Officer,
Treasurer and Controller
Date: August 13, 1997
-15-
<PAGE> 18
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 457,549
<SECURITIES> 0
<RECEIVABLES> 567,892
<ALLOWANCES> 63,656
<INVENTORY> 196,840
<CURRENT-ASSETS> 1,279,474
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,454,099
<CURRENT-LIABILITIES> 2,215,193
<BONDS> 0
0
0
<COMMON> 61,034
<OTHER-SE> 5,109,581
<TOTAL-LIABILITY-AND-EQUITY> 7,454,099
<SALES> 6,941,353
<TOTAL-REVENUES> 6,941,353
<CGS> 0
<TOTAL-COSTS> 4,261,590
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 66,000
<INTEREST-EXPENSE> 69,396
<INCOME-PRETAX> 2,432,710
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,432,710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,432,710
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
