<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
{X} Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Quarter Ended June 30, 1998
{ } Transition Report Under Section 13 or 15(d) of the
Exchange Act for the transition period from to
------- -------
Commission File Number 000-29032
---------
CHAMPION COMMUNICATION SERVICES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 76-0448005
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1610 WOODSTEAD COURT
SUITE 330
THE WOODLANDS, TEXAS 77380
(Address of Principal Executive Offices) (Zip Code)
(281) 362-0144
(Issuer's Telephone Number, including area code.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
As of August 6, 1998, there were 6,119,712 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
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets -
June 30, 1998 and December 31, 1997 ............................... 1
Statements of Operations -
Three Months and Six Months Ended June 30, 1998 and 1997 .......... 2
Statements of Cash Flows -
Three Months and Six Months Ended June 30, 1998 and 1997 .......... 3
Statements of Stockholders' Equity -
Six Months Ended June 30, 1998 and
Years Ended December 31, 1997 and 1996 ............................ 4
Notes to Interim Financials Statements ............................ 5
Earnings Per Share Computations -
Three Months and Six Months Ended June 30, 1998 and 1997 .......... 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations .............. 7
SIGNATURE ........................................................................... 10
</TABLE>
<PAGE> 3
CHAMPION COMMUNICATION SERVICES, INC.
BALANCE SHEETS
June 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1998 1997
----------- -----------
Unaudited
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 137,535 $ 618,335
Accounts and notes receivable, net of allowance of $78,250
at June 30, 1998 and $42,712 at December 31, 1997 1,043,311 1,016,612
Inventory 538,792 604,522
Prepaid expenses and other 236,746 180,744
----------- -----------
Total Current Assets 1,956,384 2,420,213
----------- -----------
Communications equipment and related assets, net 4,315,458 4,313,910
Notes receivable 40,346 54,340
Other assets, net of amortization 1,582,055 1,039,402
----------- -----------
$ 7,894,243 $ 7,827,865
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 546,151 $ 547,995
Accrued expenses 1,080,634 774,055
Deferred revenue 772,725 1,213,701
Current maturities of notes payable 220,195 203,599
----------- -----------
Total Current Liabilities 2,619,705 2,739,350
----------- -----------
Long Term Liabilities
Notes payable 278,551 68,353
Customer deposits 1,589 1,589
----------- -----------
Total Long Term Liabilities 280,140 69,942
----------- -----------
Stockholders' Equity
Common stock, $0.01 par value, 20,000,000 shares authorized, 6,119,712
shares issued and outstanding at June 30, 1998
and 6,103,412 shares issued and outstanding at December 31, 1997 61,197 61,034
Additional paid-in capital 5,179,265 5,166,184
Accumulated earnings (deficit) (246,064) (208,645)
----------- -----------
Total Stockholders' Equity 4,994,398 5,018,573
----------- -----------
$ 7,894,243 $ 7,827,865
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-1-
<PAGE> 4
CHAMPION COMMUNICATION SERVICES, INC.
STATEMENTS OF OPERATIONS
For the three months and six months ended June 30, 1998 and 1997
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Revenues $ 2,340,402 $ 1,746,326 $ 4,173,977 $ 6,941,353
----------- ----------- ----------- -----------
Operating expenses:
Cost of sales 1,326,427 1,065,206 2,469,789 2,643,485
Provision for doubtful accounts 18,000 33,000 36,000 66,000
Depreciation and amortization 231,551 213,986 439,329 433,808
General and administrative expenses 636,999 489,364 1,278,344 1,118,297
----------- ----------- ----------- -----------
Total Operating Expenses 2,212,977 1,801,556 4,223,462 4,261,590
----------- ----------- ----------- -----------
Operating Income (Loss) 127,425 (55,230) (49,485) 2,679,763
----------- ----------- ----------- -----------
Other income (expenses):
Net gain (loss) on disposal of fixed assets 2,335 (5,379) 31,792 (195,109)
Interest income 1,570 7,750 5,559 17,452
Interest expense (10,060) (7,725) (18,860) (69,396)
----------- ----------- ----------- -----------
Income (Loss) before income taxes 121,270 (60,584) (30,994) 2,432,710
Income taxes 5,000 -- 6,425 --
----------- ----------- ----------- -----------
Net income (loss) $ 116,270 $ (60,584) $ (37,419) $ 2,432,710
=========== =========== =========== ===========
Weighted average common shares outstanding 6,119,712 6,103,412 6,112,057 6,103,412
=========== =========== =========== ===========
Net income (loss) per common share $ 0.02 $ (0.01) $ (0.01) $ 0.40
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE> 5
CHAMPION COMMUNICATION SERVICES, INC.
STATEMENTS OF CASH FLOWS
For the three months and six months ended June 30, 1998 and 1997
Unaudited
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 116,270 $ (60,584) $ (37,419) $ 2,432,710
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 231,551 213,986 439,329 433,808
Bad debt expense 18,000 33,000 36,000 66,000
Common stock issued for services 13,244 -- 13,244 --
Loss (gain) on disposal/sale of fixed assets (2,335) 5,379 (31,792) 195,109
Change in assets and liabilities:
Accounts receivable (56,233) 32,901 (62,699) 395,825
Inventory 28,843 18,111 65,730 260,570
Prepaid expenses and other (34,169) (35,836) (56,002) (50,534)
Notes receivable 8,643 -- 13,994 --
Accounts payable (45,189) (85,225) (1,844) (42,078)
Accrued expenses 79,751 (45,773) 306,579 87,494
Deferred revenue (49,433) (108,664) (440,976) (667,759)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities 308,943 (32,705) 244,144 3,111,145
----------- ----------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment (208,472) (253,764) (442,222) (484,002)
Other assets, net of amortization (105,014) (331,148) (504,653) (399,076)
Proceeds from sale of fixed assets 11,500 26,000 248,625 96,616
----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities (301,986) (558,912) (698,250) (786,462)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings 7,532 -- 141,476 --
Repayment of notes payable (45,815) (90,340) (168,170) (2,954,574)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities (38,283) (90,340) (26,694) (2,954,574)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (31,326) (681,957) (480,800) (629,891)
Cash and cash equivalents at beginning of period 168,861 1,139,506 618,335 1,087,440
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 137,535 $ 457,549 $ 137,535 $ 457,549
=========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,260 $ 7,001 $ 10,060 $ 155,349
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE> 6
CHAMPION COMMUNICATION SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the six months ended June 30, 1998 and
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Additional Accumulated Total
stock Common paid-in earnings Stockholders'
shares stock capital (deficit) Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 6,103,412 $ 61,034 $ 5,166,184 $(2,489,313) $ 2,737,905
=========== =========== =========== =========== ===========
Net income for 1997 -- -- -- 2,280,668 2,280,668
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 6,103,412 $ 61,034 $ 5,166,184 $ (208,645) $ 5,018,573
=========== =========== =========== =========== ===========
Issuance of Common stock 16,300 163 13,081 -- 13,244
Net loss for 1998 -- -- -- (37,419) (37,419)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1998 (unaudited) 6,119,712 $ 61,197 $ 5,179,265 $ (246,064) $ 4,994,398
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE> 7
CHAMPION COMMUNICATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
financial statements for the three months and six months ended June 30, 1998 and
1997 are unaudited and, in the opinion of management, reflect all adjustments
which are necessary for a fair statement of the financial position, results of
operations and cash flows as of and for the interim periods. Such adjustments
consist of only items of a normal recurring nature. The results of operations
for the interim periods are not necessarily indicative of the financial position
or results of operations expected for the full fiscal year or for any other
future periods. These financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Company's annual
report and Form 10-KSB for the year ended December 31, 1997.
The differences between accounting principles generally accepted in the
United States and Canada would not have a material impact on the accompanying
financial statements.
2. Non-Cash Financing
During the first six months ended June 30, 1998, repeaters were acquired
in exchange for $136,000 of indebtedness to The Associates, Inc. Additional
property, equipment, and other assets were acquired during the second quarter in
exchange for $125,000 of indebtedness.
-5-
<PAGE> 8
CHAMPION COMMUNICATION SERVICES, INC.
EARNINGS PER SHARE COMPUTATIONS
For the three months and six months ended June 30, 1998 and 1997
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------------------------- ---------------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income (loss) applicable to common stock $ 116,270 $ (60,584) $ (37,419) $ 2,432,710
Shares used in earnings per share computations 6,119,712 6,103,412 6,112,057 6,103,412
Net income (loss) per weighted average common share $ 0.02 $ (0.01) $ (0.01) $ 0.40
========== =========== =========== ===========
DILUTED EARNINGS PER SHARE
Net income (loss) applicable to common stock $ 116,270 $ (60,584) $ (37,419) $ 2,432,710
Shares used in earnings per share computation 6,119,712 6,103,412 6,112,057 6,103,412
Net income (loss) per weighted average common share $ 0.02 $ (0.01) $ (0.01) $ 0.40
========== =========== =========== ===========
</TABLE>
COMPUTATION OF SHARES USED IN EARNINGS PER SHARE
COMPUTATIONS - BASIC
<TABLE>
<S> <C> <C> <C> <C>
Outstanding common shares at beginning of period 6,119,712 6,103,412 6,103,412 6,103,412
Weighted average common shares issued during period -- -- 8,645 --
--------- --------- --------- ---------
Weighted average common shares used in earnings
per share computation 6,119,712 6,103,412 6,112,057 6,103,412
========= ========= ========= =========
</TABLE>
COMPUTATION OF SHARES USED IN EARNINGS PER SHARE
COMPUTATIONS - DILUTED
<TABLE>
<S> <C> <C> <C> <C>
Outstanding common shares at beginning of period 6,119,712 6,103,412 6,103,412 6,103,412
Weighted average common shares issued during period -- -- 8,645 --
--------- --------- --------- ---------
Weighted average common shares used in earnings
per share computation 6,119,712 6,103,412 6,112,057 6,103,412
========= ========= ========= =========
</TABLE>
-6-
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations - Quarters ended June 30, 1998 and 1997
Revenues for the quarter ended June 30, 1998 were $2,340,000 compared with
$1,746,000 for the quarter ended June 30, 1997. The second quarter 1998 reflects
spectrum sales of $400,000, or $230,000 more than recorded in the same quarter
1997. Dispatch revenues increased $140,000 to $1,389,000 for the quarter ended
June 30, 1998 from $1,249,000 in the same quarter 1997. This increase reflects
the successful implementation of trunking offset by the reduction of revenues
due to sales of non-strategic sites. Equipment sales, service and rental
revenues were up $224,000 for the second quarter 1998 as compared with second
quarter 1997 due to establishing and acquiring sales and service centers in
metro markets.
Total operating expenses increased $411,000 for the second quarter ended
June 30, 1998 as compared with the second quarter ended June 30, 1997. The cost
of spectrum sales was $110,000 for the second quarter 1998 as compared with
$6,000 for the same period in 1997, an increase of $104,000. The cost of
dispatch revenue was up $49,000 for the quarter ended June 30, 1998 from the
quarter ended June 30, 1997, due to newly installed systems. The costs of
equipment sales, service and rental increased $107,000 or 50% from $214,000 for
the second quarter 1997 to $321,000 for the second quarter 1998.
Depreciation and amortization for the quarter ended June 30, 1998 was
$232,000, an increase of $18,000 or 8% from $214,000 reported for the quarter
ended June 30, 1997, due to the disposition of various non strategic repeater
sites netted with new construction and acquisition of licenses.
General and administrative expenses were up $148,000 to $637,000 from
$489,000. This increase is primarily attributable to establishing regional
offices in the Dallas/Ft. Worth, Chicago, San Jose, and Baltimore areas.
The net income for the quarter ended June 30, 1998 was $116,000 as
compared with a net loss of $61,000 for the quarter ended June 30, 1997.
Management anticipates that revenue derived from the sale of spectrum will
continue during the third and fourth quarters of 1998. However, there can be no
assurance that such sales will continue, and factors which could limit the
Company's ability to derive revenue from spectrum sales include the Company's
inability to acquire spectrum on favorable terms, reduced demand for spectrum,
regulatory restraints, competition, and the Company's inability to negotiate
sales of spectrum on favorable terms.
Results of Operations - Six months ended June 30, 1998 and 1997
Revenues for the six months ended June 30, 1998 were $4,174,000
compared with $6,941,000 for the six months ended June 30, 1997. During the six
months ended June 30, 1998, the Company recorded spectrum sales of $600,000, or
$3,130,000 less than it recorded in the same period 1997.
-7-
<PAGE> 10
Dispatch revenues increased $150,000 to $2,671,000 for the six months ended June
30, 1998 from $2,521,000 in the same period 1997. This increase reflects
expansion of trunking in metro areas. Equipment sales, service and rental
revenues were up $206,000 for the first half 1998 as compared with the first
half 1997 due to establishing and acquiring sales and service in metro markets.
Total operating expenses decreased $38,000 for the first six months ended
June 30, 1998 as compared with the first six months ended June 30, 1997. The
cost of spectrum sales was $202,000 for the first half 1998 as compared with
$431,000 for the same period in 1997, a reduction of $229,000. The costs of
equipment sales, service and rental increased $80,000 or 17% from $456,000 for
the first half of 1997 to $536,000 for the same period 1998 due to new
acquisitions.
Depreciation and amortization for the six months ended June 30, 1998 was
$439,000, a minimal increase of $5,000 from $434,000 reported for the six months
ended June 30, 1997.
General and administrative expenses were up $160,000 to $1,278,000 from
$1,118,000. This increase is primarily attributable to establishing regional
offices in the Dallas/Ft. Worth, Chicago, San Jose, and Baltimore areas.
The net loss for the period ended June 30, 1998 was $37,000 as compared
with net income of $2,433,000 for the period ended June 30, 1997 due to greater
spectrum sales achieved in 1997. Management anticipates that revenue derived
from the sale of spectrum will continue during the third and fourth quarters of
1998. However, there can be no assurance that spectrum sales will continue, and
factors which could reduce the Company's ability to generate revenue through
spectrum sales include the Company's inability to acquire spectrum on favorable
terms, demand for spectrum, regulatory restraints, competition, and the
Company's inability to negotiate sales of spectrum on favorable terms.
Financial Condition and Liquidity
The Company had $137,000 in cash and cash equivalents at June 30, 1998 as
compared with $618,000 at December 31, 1997. The working capital of the Company
at June 30, 1998 was a negative $663,000 as compared with a negative $319,000 at
December 31, 1997. The decrease is attributable to capital expenditures to
construct sites and the acquisition of twenty-two frequencies in Arizona.
Cash flows from operating activities were $296,000 and a negative $33,000
for the quarters ended June 30, 1998 and 1997, respectively, and $231,000 and
$3,111,000 for the six months ended June 30, 1998 and 1997, respectively. The
cash flows from operating activities in 1997 included the closing of several
spectrum sales simultaneously.
The Company is seeking additional funding for expansion through long-term
senior debt and equity financing in the third quarter 1998; however, there can
be no assurance of the Company's ability to obtain any such financing on
acceptable terms.
-8-
<PAGE> 11
Year 2000
The Company, like many companies, faces the Year 2000 Issue. This is a
result of computer programs being written using two digits rather than four (for
example, "98" for 1998) to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. In some cases, the new date will cause
computers to stop operating, while in other cases, incorrect output may result.
The Company has evaluated the impact of Year 2000 and believes that there is
little business risk attributable to the Year 2000 issue.
Forward-Looking Information
This Quarterly Report on Form 10-QSB includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statement of historical information provided herein are
forward-looking and may contain information about financial results, economic
conditions, trends and known uncertainties. The Company cautions the reader that
actual results could differ materially from those expected by the Company
depending on the outcome of certain factors, including without limitation (i)
fluctuations in the Company's inventory and loan balances, competition,
operating risk, acquisition and expansion risk, liquidity and capital
requirements, and the effect of government regulations, and (ii) adverse changes
in the market for the Company's services. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligations to release publicly the
results of any revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereon, including without
limitation, changes in the Company's business strategy or planned capital
expenditures, or to reflect the occurrence of unanticipated events.
-9-
<PAGE> 12
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: /s/ PAMELA R. COOPER
---------------------------------------------
Pamela R. Cooper
Chief Financial Officer, Treasurer and
Controller
Date: August 6, 1998
-10-
<PAGE> 13
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 137,535
<SECURITIES> 0
<RECEIVABLES> 1,121,561
<ALLOWANCES> 78,250
<INVENTORY> 538,792
<CURRENT-ASSETS> 1,956,384
<PP&E> 6,469,200
<DEPRECIATION> 2,153,742
<TOTAL-ASSETS> 7,894,243
<CURRENT-LIABILITIES> 2,619,705
<BONDS> 0
0
0
<COMMON> 61,197
<OTHER-SE> 4,933,201
<TOTAL-LIABILITY-AND-EQUITY> 7,894,243
<SALES> 0
<TOTAL-REVENUES> 4,173,977
<CGS> 0
<TOTAL-COSTS> 2,469,789
<OTHER-EXPENSES> 1,717,673
<LOSS-PROVISION> 36,000
<INTEREST-EXPENSE> 18,860
<INCOME-PRETAX> (49,485)
<INCOME-TAX> 6,425
<INCOME-CONTINUING> (62,786)
<DISCONTINUED> 0
<EXTRAORDINARY> 31,792
<CHANGES> 0
<NET-INCOME> (37,419)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
