<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 September 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 November 16, 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
----
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets -
September 30, 1998 and December 31, 1997.......................................... 1
Statements of Operations -
Three Months and Nine Months Ended September 30, 1998 and 1997.. 2
Statements of Cash Flows -
Three Months and Nine Months Ended September 30, 1998 and 1997.. 3
Statements of Stockholders' Equity -
Nine Months Ended September 30, 1998 and
Years Ended December 31, 1997 and 1996............................................. 4
Notes to Interim Financials Statements............................................. 5
Earnings Per Share Computations -
Three Months and Nine Months Ended September 30, 1998 and 1997..................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................. 7
SIGNATURE.......................................................................................... 11
</TABLE>
<PAGE> 3
CHAMPION COMMUNICATION SERVICES, INC.
BALANCE SHEETS
September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1998 1997
------------- -------------
Unaudited
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 146,474 $ 618,335
Accounts and notes receivable, net of allowance of $96,595
at September 30, 1998 and $42,712 at December 31, 1997 730,540 1,016,612
Inventory 450,566 604,522
Prepaid expenses and other 208,205 180,744
------------- -------------
Total Current Assets 1,535,785 2,420,213
------------- -------------
Communications equipment and related assets, net 4,342,056 4,313,910
Notes receivable 33,124 54,340
Other assets, net of amortization 1,664,328 1,039,402
------------- -------------
$ 7,575,293 $ 7,827,865
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 510,615 $ 547,995
Accrued expenses 838,074 774,055
Deferred revenue 494,527 1,213,701
Current maturities of notes payable 321,486 203,599
------------- -------------
Total Current Liabilities 2,164,702 2,739,350
------------- -------------
Long Term Liabilities
Notes payable 310,623 68,353
Customer deposits 1,589 1,589
------------- -------------
Total Long Term Liabilities 312,212 69,942
------------- -------------
Stockholders' Equity
Common stock, $0.01 par value, 20,000,000 shares authorized,
6,119,712 shares issued and outstanding at September 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) (142,083) (208,645)
------------- -------------
Total Stockholders' Equity 5,098,379 5,018,573
------------- -------------
$ 7,575,293 $ 7,827,865
============= =============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 4
CHAMPION COMMUNICATION SERVICES, INC.
STATEMENTS OF OPERATIONS
For the three months and nine months ended September 30, 1998 and 1997
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 2,286,730 $ 1,705,070 $ 6,460,707 $ 8,646,423
----------- ----------- ----------- -----------
Operating expenses:
Cost of sales 1,219,632 1,172,938 3,689,421 3,816,423
Provision for doubtful accounts 18,000 29,500 54,000 95,500
Depreciation and amortization 232,794 229,655 672,123 663,463
General and administrative expenses 672,416 411,717 1,950,760 1,530,014
----------- ----------- ----------- -----------
Total Operating Expenses 2,142,842 1,843,810 6,366,304 6,105,400
----------- ----------- ----------- -----------
Operating Income (Loss) 143,888 (138,740) 94,403 2,541,023
----------- ----------- ----------- -----------
Other income (expenses):
Net gain (loss) on disposal of fixed assets 23,746 (15,072) 55,538 (210,181)
Interest income 4,370 1,954 9,929 19,406
Interest expense (12,333) (6,589) (31,193) (75,985)
----------- ----------- ----------- -----------
Income (Loss) before income taxes 159,671 (158,447) 128,677 2,274,263
Income taxes 55,690 -- 62,115 --
----------- ----------- ----------- -----------
Net income (loss) $ 103,981 $ (158,447) $ 66,562 $ 2,274,263
=========== =========== =========== ===========
Weighted average common shares outstanding 6,119,712 6,103,412 6,114,637 6,103,412
=========== =========== =========== ===========
Net income (loss) per common share $ 0.02 $ (0.03) $ 0.01 $ 0.37
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 5
CHAMPION COMMUNICATION SERVICES, INC.
STATEMENTS OF CASH FLOWS
For the three months and nine months ended September 30, 1998 and 1997
Unaudited
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 103,981 ($ 158,447) $ 66,562 $ 2,274,263
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 232,794 229,655 672,123 663,463
Bad debt expense 18,000 29,500 54,000 95,500
Common stock issued for services -- -- 13,244 --
Loss (gain) on disposal/sale of fixed assets (23,746) 15,072 (55,538) 210,181
Change in assets and liabilities:
Accounts receivable 294,888 (46,166) 232,189 349,659
Inventory 88,226 133,917 153,956 394,487
Prepaid expenses and other 28,541 24,817 (27,461) (25,717)
Notes receivable 7,222 -- 21,216 --
Accounts payable (35,536) 38,541 (37,380) (3,536)
Accrued expenses (242,560) (33,756) 64,019 53,738
Deferred revenue (278,198) (443,357) (719,174) (1,111,116)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities 193,612 (210,224) 437,756 2,900,922
----------- ----------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment (84,640) -- (526,862) (480,816)
Other assets, net of amortization (120,273) (187,853) (624,926) (586,929)
Proceeds from sale of fixed assets 35,266 62,539 283,891 155,968
----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities (169,647) (125,314) (867,897) (911,777)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings 38,001 110,000 179,477 110,000
Repayment of notes payable (53,027) (102,503) (221,197) (3,057,077)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities (15,026) 7,497 (41,720) (2,947,077)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 8,939 (328,041) (471,861) (957,932)
Cash and cash equivalents at beginning of period 137,535 457,549 618,335 1,087,440
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 146,474 $ 129,508 $ 146,474 $ 129,508
=========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 10,930 $ 6,070 $ 20,990 $ 100,781
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 6
CHAMPION COMMUNICATION SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the nine months ended September 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 -- -- -- 66,562 66,562
----------- ----------- ----------- ----------- -----------
Balance at September 30, 1998 (unaudited) 6,119,712 $ 61,197 $ 5,179,265 $ (142,083) $ 5,098,379
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 7
CHAMPION COMMUNICATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 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 on 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 nine months ended September 30, 1998, repeaters were
acquired in exchange for $239,000 of indebtedness to The Associates, Inc. and
Lease Corporation of America. Additional property, equipment, and other assets
were acquired during this period in exchange for $163,000 of indebtedness.
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<PAGE> 8
CHAMPION COMMUNICATION SERVICES, INC.
EARNINGS PER SHARE COMPUTATIONS
For the three months and nine months ended September 30, 1998 and 1997
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income (loss) applicable to common stock $ 103,981 $ (158,447) $ 66,562 $ 2,274,263
Shares used in earnings per share computations 6,119,712 6,103,412 6,114,637 6,103,412
Net income (loss) per weighted average common share $ 0.02 $ (0.03) $ 0.01 $ 0.37
============= ============= ============= =============
DILUTED EARNINGS PER SHARE
Net income (loss) applicable to common stock $ 103,981 $ (158,447) $ 66,562 $ 2,274,263
Shares used in earnings per share computation 6,119,712 6,103,412 6,114,637 6,103,412
Net income (loss) per weighted average common share $ 0.02 $ (0.03) $ 0.01 $ 0.37
============= ============= ============= =============
</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 -- -- 11,225 --
------------- ------------- ------------- -------------
Weighted average common shares used in earnings
per share computation 6,119,712 6,103,412 6,114,637 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 -- -- 11,255 --
------------- ------------- ------------- -------------
Weighted average common shares used in earnings
per share computation 6,119,712 6,103,412 6,114,637 6,103,412
============= ============= ============= =============
</TABLE>
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<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations - Quarters ended September 30, 1998 and 1997
Revenues for the quarter ended September 30, 1998 were $2,287,000 compared
with $1,705,000 for the quarter ended September 30, 1997. The third quarter 1998
reflects spectrum sales of $493,000, compared with $5,000 for the third quarter
1997. Dispatch revenues increased $204,000 to $1,483,000 for the quarter ended
September 30, 1998 from $1,279,000 in the same quarter 1997. This increase
continues to underscore the implementation of trunking. Equipment sales, service
and rental revenues were $117,000 less for the third quarter 1998 as compared
with the third quarter 1997.
Total operating expenses increased $299,000 for the third quarter ended
September 30, 1998 as compared with the third quarter ended September 30, 1997.
The cost of spectrum sales was $121,000 for the third quarter 1998 as compared
with zero expense for the same period in 1997. The cost of dispatch revenue was
up $54,000 for the quarter ended September 30, 1998 from the quarter ended
September 30, 1997, due to tower rent increases and finder's fees incurred in
the third quarter. The costs of equipment sales, service and rental decreased
$129,000 or 46% from $281,000 for the third quarter 1997 to $152,000 for the
third quarter 1998 as a result of reduced sales of equipment.
Depreciation and amortization for the quarter ended September 30, 1998 was
$233,000, an increase of $3,000, or 1%, from $230,000 reported for the quarter
ended September 30, 1997, due to new construction.
General and administrative expenses were up $249,000 to $672,000 from
$412,000. 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 September 30, 1998 was $104,000 as
compared with a net loss of $158,000 for the quarter ended September 30, 1997.
Management anticipates that revenue derived from the sale of spectrum will
continue during the fourth quarter 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 - Nine months ended September 30, 1998 and 1997
Revenues for the nine months ended September 30, 1998 were $6,461,000
compared with $8,646,000 for the nine months ended September 30, 1997. During
the nine months ended September 30, 1998, the Company recorded spectrum sales of
$1,093,000, or $2,642,000 less than it recorded in the same period 1997.
Dispatch revenues increased $355,000 to $4,155,000 for the nine months ended
September 30, 1998 from $3,800,000 in the same period 1997. This increase
reflects
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<PAGE> 10
expansion of trunking in metro areas. Equipment sales, service and rental
revenues were up $82,000 for the first nine months of 1998 as compared with the
first nine months of 1997 due to establishing and acquiring sales and service in
metro markets.
Total operating expenses increased $261,000 for the first nine months
ended September 30, 1998 as compared with the first nine months ended September
30, 1997. The cost of spectrum sales was $324,000 for the nine months ended
September 30, 1998 as compared with $431,000 for the same period in 1997, a
decrease of $107,000. The costs of equipment sales, service and rental decreased
$49,000 or 7% from $737,000 for the first nine months of 1997 to $688,000 for
the same period of 1998. Dispatch expenses have increased $30,000 from the nine
months ended September 30, 1997 to September 30, 1998 due to net increases in
finder's fees and tower rent expenses.
Depreciation and amortization for the nine months ended September 30, 1998
was $672,000, a minimal increase of $9,000 from $663,000 reported for the nine
months ended September 30, 1997.
General and administrative expenses were up $379,000 to $2,005,000 from
$1,626,000. 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 period ended September 30, 1998 was $67,000 as
compared with net income of $2,274,000 for the period ended September 30, 1997
due to greater spectrum sales achieved in 1997. Management anticipates that
revenue derived from the sale of spectrum will continue during the fourth
quarter 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.
Income tax expense for 1998 reflects alternative minimum tax assessments
incurred on the spectrum sales recognized in 1997.
Financial Condition and Liquidity
The Company had $146,000 in cash and cash equivalents at September 30,
1998 as compared with $618,000 at December 31, 1997. The working capital of the
Company at September 30, 1998 was a negative $629,000 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 $194,000 and a negative $210,000
for the quarters ended September 30, 1998 and 1997, respectively, and $438,000
and $2,901,000 for the nine months ended September 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
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<PAGE> 11
equity financing in the fourth quarter 1998; however, there can be no assurance
of the Company's ability to obtain any such financing on acceptable terms.
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. The Company recognizes that it must take action to
ensure that its operations will be not adversely impacted by Year 2000 software
failures.
The Company has completed an evaluation of the impact of Year 2000 issues,
which identified only minor Year 2000 problems. The Company will prepare a
remediation plan to address these issues in the first quarter of 1999. The
costs associated with the remediation plan will not have a material impact on
the Company's operations.
The Company has also undertaken a plan to evaluate the effect of the Year
2000 problem on the Company's most significant customers and suppliers, and thus
indirectly on the Company. At this time, the Company has not assessed the
potential adverse effect, if any, on the Company with respect to its customers
and suppliers. The Company will obtain assurances from major suppliers and
customers regarding their compliance with the Year 2000 issue.
In addition to reviewing the Company's information technology systems, the
Company will review its non-information technology and systems that may include
embedded chips for the Year 2000 compliance. The Company's preliminary
assessments indicate that, due to the nature of the Company's operations, these
technology systems do not represent an area of risk relative to Year 2000
readiness.
The Company has begun, but not yet completed, a comprehensive analysis of
the operational problems and costs (including loss of revenues) that would be
reasonably likely to result from the failure by the Company and certain third
parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. A contingency plan has not been developed for dealing with the
most reasonably likely worst case scenario, and such scenario has not yet been
clearly identified. The Company currently plans to complete such analysis and
contingency planning by December 31, 1999.
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
fluctuations in the Company's tower rental expenses, inventory and loan
balances, competition, operating risk, acquisition and expansion risk, liquidity
and capital requirements, and the effect of government regulations, adverse
changes in the market for the Company's equipment sales, services and rentals,
and the Company's ability to acquire and sell spectrum on favorable terms.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak
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<PAGE> 12
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.
-10-
<PAGE> 13
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: November 16, 1998
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<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 146,474
<SECURITIES> 0
<RECEIVABLES> 827,135
<ALLOWANCES> 96,595
<INVENTORY> 450,566
<CURRENT-ASSETS> 1,535,785
<PP&E> 6,649,462
<DEPRECIATION> 2,307,407
<TOTAL-ASSETS> 7,575,293
<CURRENT-LIABILITIES> 2,164,702
<BONDS> 0
0
0
<COMMON> 61,197
<OTHER-SE> 5,037,182
<TOTAL-LIABILITY-AND-EQUITY> 7,575,293
<SALES> 0
<TOTAL-REVENUES> 6,460,707
<CGS> 0
<TOTAL-COSTS> 3,689,421
<OTHER-EXPENSES> 2,622,883
<LOSS-PROVISION> 54,000
<INTEREST-EXPENSE> 31,193
<INCOME-PRETAX> 94,403
<INCOME-TAX> 62,115
<INCOME-CONTINUING> 73,139
<DISCONTINUED> 0
<EXTRAORDINARY> 55,538
<CHANGES> 0
<NET-INCOME> 66,562
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
