<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 March 31, 1999
[ ] 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 April 30, 1999, there were 6,150,622 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>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets -
March 31, 1999 and December 31, 1998.......................................... 1
Statements of Operations -
Three Months Ended March 31, 1999 and 1998 and
Year Ended December 31, 1998.................................................. 2
Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998 and
Year Ended December 31, 1998.................................................. 3
Statements of Stockholders' Equity -
Three Months Ended March 31, 1999 and
Years Ended December 31, 1998 and 1997........................................ 4
Notes to Financial Statements................................................. 5
Earnings Per Share Computations -
Three Months Ended March 31, 1999 and 1998 and
Year Ended December 31, 1998.................................................. 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
March 31, 1999 and December 31, 1998
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1999 1998
----------- -----------
Unaudited
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 149,749 $ 354,116
Accounts receivable net of allowance of $59,336
at March 31, 1999 and $46,408 at December 31, 1998 952,999 779,582
Notes receivable 140,106 122,620
Inventories 457,157 526,665
Prepaid expenses and other 181,408 216,996
----------- -----------
Total Current Assets 1,881,419 1,999,979
----------- -----------
Communications equipment and related assets, net 3,963,923 4,355,347
Notes receivable, long-term 399,109 25,816
Other assets, net of amortization of $362,631 at March 31, 1999 and
$213,467 at December 31, 1998 1,785,298 1,591,328
----------- -----------
$ 8,029,749 $ 7,972,470
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 671,441 $ 733,536
Accrued expenses 778,057 723,236
Deferred revenue 416,363 798,207
Current maturities of notes payable 672,210 288,364
----------- -----------
Total Current Liabilities 2,538,071 2,543,343
----------- -----------
Long Term Liabilities
Notes payable 413,092 339,254
Customer deposits 2,594 2,238
----------- -----------
Total Long Term Liabilities 415,686 341,492
----------- -----------
Stockholders' Equity
Common stock, $0.01 par value, 20,000,000 shares authorized, 6,119,712
shares issued and outstanding at March 31, 1999
and at December 31, 1998 61,197 61,197
Additional paid-in capital 5,179,265 5,179,265
Accumulated Deficit (164,470) (152,827)
----------- -----------
Total Stockholders' Equity 5,075,992 5,087,635
----------- -----------
$ 8,029,749 $ 7,972,470
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-1-
<PAGE> 4
CHAMPION COMMUNICATION SERVICES, INC.
STATEMENTS OF OPERATIONS
For the three months ended March 31, 1999 and 1998 and
the year ended December 31, 1998
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1998
----------- ----------- -----------
Unaudited
<S> <C> <C> <C>
Revenues $ 2,104,100 $ 1,833,575 $ 8,610,256
----------- ----------- -----------
Operating expenses:
Cost of sales 1,239,655 1,143,362 4,825,986
Provision for doubtful accounts 18,000 18,000 72,000
Depreciation and amortization 242,543 207,778 905,245
General and administrative expenses 714,573 641,345 2,743,894
----------- ----------- -----------
Total Operating Expenses 2,214,771 2,010,485 8,547,125
----------- ----------- -----------
Operating Income (Loss) (110,671) (176,910) 63,131
----------- ----------- -----------
Other income (expenses):
Net gain on disposal of fixed assets 114,825 29,457 51,550
Interest income 3,306 3,989 12,408
Interest expense (19,176) (8,800) (53,710)
----------- ----------- -----------
Income (Loss) before income taxes (11,716) (152,264) 73,379
Income taxes (73) 1,425 17,561
----------- ----------- -----------
Net income (loss) ($ 11,643) ($ 153,689) $ 55,818
=========== =========== ===========
Weighted average common shares and common stock
equivalents outstanding 6,119,712 6,104,318 6,115,916
=========== =========== ===========
Basic and diluted net income (loss) per common share $ 0.00 ($ 0.03) $ 0.01
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE> 5
CHAMPION COMMUNICATION SERVICES, INC.
STATEMENTS OF CASH FLOWS
For the months ended March 31, 1999 and 1998
and the year ended December 31, 1998
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1998
----------- ----------- -----------
Unaudited
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 11,643) ($ 153,689) $ 55,818
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 242,543 207,778 905,245
Bad debt expense 18,000 18,000 72,000
Common stock issued for services -- -- 13,244
Loss (gain) on disposal/sale of fixed assets (114,825) (29,457) (51,550)
Change in assets and liabilities:
Accounts receivable (186,345) (6,466) 110,713
Inventory 69,508 36,887 77,856
Prepaid expenses 35,588 (21,833) (36,252)
Notes receivable (390,779) 5,351 28,524
Accounts payable (62,095) 43,345 185,541
Accrued expenses 54,821 226,828 (50,819)
Deferred revenue (381,844) (391,543) (415,494)
----------- ----------- -----------
Net cash provided by (used in) operating activities (727,071) (64,799) 894,826
----------- ----------- -----------
Cash flows from investing activities:
Dispositions (additions) to property and equipment 445,076 (233,750) (1,009,783)
Proceeds from sale of fixed assets 123,578 237,125 451,243
Additions to other assets (343,134) (399,639) (568,281)
----------- ----------- -----------
Net cash provided by (used in) investing activities 225,520 (396,264) (1,126,821)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 442,856 133,944 443,464
Repayment of notes payable (145,672) (122,355) (475,688)
----------- ----------- -----------
Net cash provided by (used in) financing activities 297,184 11,589 (32,224)
----------- ----------- -----------
Net decrease in cash and cash equivalents (204,367) (449,474) (264,219)
Cash and cash equivalents at beginning of period 354,116 618,335 618,335
----------- ----------- -----------
Cash and cash equivalents at end of period $ 149,749 $ 168,861 $ 354,116
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Taxes ($ 74) $ 1,425 $ 65,115
=========== =========== ===========
Interest $ 24,136 $ 8,800 $ 48,147
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE> 6
CHAMPION COMMUNICATION SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 1999 and
For the years ended December 31, 1998 and 1997
<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, 1997 6,103,412 $ 61,034 $ 5,166,184 ($ 208,645) $ 5,018,573
Issuance of common stock for services 16,300 163 13,081 -- 13,244
Net income for 1998 -- -- -- 55,818 55,818
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 6,119,712 61,197 5,179,265 (152,827) 5,087,635
Net loss for 1999 -- -- -- (11,643) (11,643)
----------- ----------- ----------- ----------- -----------
Balance at March 31, 1999 6,119,712 $ 61,197 $ 5,179,265 ($ 164,470) $ 5,075,992
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE> 7
CHAMPION COMMUNICATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999
(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 ended March 31, 1999 and 1998 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, 1998.
The differences between accounting principles generally accepted in the
United States and Canada would not have a material impact on the accompanying
financial statements.
-5-
<PAGE> 8
CHAMPION COMMUNICATION SERVICES, INC.
EARNINGS PER SHARE COMPUTATIONS
For the three months ended March 31, 1999 and 1998 and
For the year ended December 31, 1998
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1998
----------- ----------- -----------
Unaudited
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income (loss) applicable to common stock ($ 11,643) ($ 153,689) $ 55,818
----------- ----------- -----------
Shares used in earnings per share computations 6,119,712 6,104,318 6,115,916
Net income (loss) per weighted average common share $ 0.00 ($ 0.03) $ 0.01
=========== =========== ===========
DILUTED EARNINGS PER SHARE
Net income (loss) applicable to common stock ($ 11,643) ($ 153,689) $ 55,818
----------- ----------- -----------
Shares used in earnings per share computation 6,119,712 6,104,318 6,115,916
Net income (loss) per weighted average common share $ 0.00 ($ 0.03) $ 0.01
=========== =========== ===========
COMPUTATION OF SHARES USED IN EARNINGS PER SHARE
COMPUTATIONS - BASIC
Outstanding common shares at beginning of period 6,119,712 6,103,412 6,103,412
Weighted average common shares issued during period -- 906 12,504
----------- ----------- -----------
Weighted average common shares used in earnings
per share computation 6,119,712 6,104,318 6,115,916
=========== =========== ===========
COMPUTATION OF SHARES USED IN EARNINGS PER SHARE
COMPUTATIONS - DILUTED
Outstanding common shares at beginning of period 6,119,712 6,103,412 6,103,412
Weighted average common shares issued during period -- 906 12,504
----------- ----------- -----------
Weighted average common shares used in earnings
per share computation 6,119,712 6,104,318 6,115,916
=========== =========== ===========
</TABLE>
-6-
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations - Quarters ended March 31, 1999 and 1998
Revenues for the quarter ended March 31, 1999 were $2,104,000 compared
with $1,834,000 for the quarter ended March 31, 1998. There were no spectrum
sales during the first quarter of 1999 compared to $200,000 recorded in the same
quarter 1998. Dispatch revenues increased $144,000 to $1,426,000 for the quarter
ended March 31, 1999 from $1,282,000 in the same quarter 1998. 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 increased $332,000 or 97% for the first quarter 1999 as compared
with first quarter 1998. This revenue increase consisted of equipment sales
increase of $212,000, service revenue increase of $65,000 and rental revenue
increase of $55,000 for the first quarter 1999.
Costs and expenses increased $96,000 for the first quarter ended March 31,
1999 as compared with the first quarter ended March 31, 1998. The cost of
dispatch revenue increased $10,000 for the quarter ended March 31, 1999 from the
quarter ended March 31, 1998. The costs of equipment sales, service and rental
increased $132,000, or 62% to $346,000 for the first quarter 1999 from $214,000
for the first quarter 1998, corresponding to the increased revenues.
Depreciation and amortization for the quarter ended March 31, 1999 was
$243,000, an increase of $35,000, or 17% from $208,000 reported for the quarter
ended March 31, 1998, due to new construction and acquisition of licenses netted
with the disposition of various non strategic repeater sites.
General and administrative expenses were up $73,000 to $714,000 from
$641,000. This increase is primarily attributable to the establishment of a
regional office in San Jose, California.
Interest expense was $19,000 for the quarter ended March 31, 1999,
compared with $9,000 for the same quarter 1998 due to increased borrowing during
the first quarter 1999, as compared with the first quarter 1998. The Company
reported a gain on the sale and disposal of assets in the amount of $115,000 for
the first quarter 1999 as compared with a gain of $29,000 for the first quarter
1998.
The net loss for the quarter ended March 31, 1999 was $12,000 as compared
with a loss of $154,000 for the first quarter ended March 31, 1998.
Financial Condition and Liquidity
The Company had $150,000 in cash and cash equivalents at March 31, 1999 as
compared with $354,000 at December 31, 1998. The working capital of the Company
at March 31, 1999 was a negative $657,000 as compared with a negative $543,000
at December 31, 1998. The Company continues to fund capital expenditures from
operations.
-7-
<PAGE> 10
During the first quarter of 1999, notes receivable increased by $391,000
over the first quarter of 1998 as a result of selling 112 rural community
repeaters. Interest on the note is at 10% based on a seven year amortization
period with a balloon repayment of $278,000 due in March 2002.
Net loss increased by depreciation and amortization was $231,000 for the
quarter ended March 31, 1999, compared with $54,000 for the quarter ended March
31, 1998, while the cash flows from operating activities were a negative
$727,000 and a negative $65,000 for the quarters ended March 31, 1998 and 1998,
respectively.
Cash provided by investing activities was $226,000 as of March 31, 1999 as
compared with $396,000 used in investing activities as of March 31, 1998.
Cash provided by financing activities was $297,000 at March 31, 1999 and
$12,000 at March 31, 1998. During the first quarter of 1999, the Company
borrowed additional funds from its credit line on a revolving note payable. At
March 31, 1999, the outstanding balance on the credit line was $350,000.
The Company continues its overall business plan to migrate from the rural
community repeater areas to the metropolitan trunked repeaters which includes
the sale of non-productive assets. These anticipated proceeds will replace the
already funded capital expansion from operations. There can be no assurance of
the Company's ability to sell the non-productive and rural assets or its ability
to sell on favorable 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, "99" for 1999) 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 is preparing a
remediation plan to address these issues in the second quarter of 1999. The
Company does not expect the costs associated with the remediation plan to 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 plans to 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
-8-
<PAGE> 11
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 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:
--------------------------------------
Pamela R. Cooper
Chief Financial Officer, Treasurer and
Controller
Date: May 14, 1999
-10-
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 149,749
<SECURITIES> 0
<RECEIVABLES> 1,012,335
<ALLOWANCES> 59,336
<INVENTORY> 457,157
<CURRENT-ASSETS> 1,881,419
<PP&E> 6,207,965
<DEPRECIATION> 2,244,042
<TOTAL-ASSETS> 8,029,749
<CURRENT-LIABILITIES> 2,538,071
<BONDS> 0
0
0
<COMMON> 61,197
<OTHER-SE> 5,014,795
<TOTAL-LIABILITY-AND-EQUITY> 8,029,749
<SALES> 0
<TOTAL-REVENUES> 2,104,100
<CGS> 0
<TOTAL-COSTS> 1,239,655
<OTHER-EXPENSES> 957,116
<LOSS-PROVISION> 18,000
<INTEREST-EXPENSE> 19,176
<INCOME-PRETAX> (110,671)
<INCOME-TAX> (73)
<INCOME-CONTINUING> (126,541)
<DISCONTINUED> 0
<EXTRAORDINARY> 114,825
<CHANGES> 0
<NET-INCOME> (11,643)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
