<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, 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 August 13, 1999, there were 6,150,622 shares of common stock, $0.01
par value, of the registrant issued and outstanding.
Transitional Small Business Disclosure Format
(check one): Yes [ ] No [X]
<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 -
June 30, 1999 and December 31, 1998......................................... 1
Statements of Operations -
Three Months and Six Months Ended June 30, 1999 and 1998.................... 2
Statements of Stockholders' Equity -
Six Months Ended June 30, 1999 and
Years Ended December 31, 1998 and 1997...................................... 3
Statements of Cash Flows -
Three Months and Six Months Ended June 30, 1999 and 1998.................... 4
Notes to Interim Financials Statements...................................... 5
Earnings Per Share Computations -
Three Months and Six Months Ended June 30, 1999 and 1998.................... 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
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1999 1998
-------------- ------------
Unaudited
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 96,981 $ 354,116
Accounts receivable, net of allowance of $76,043
at June 30, 1999 and $46,408 at December 31, 1998 924,967 779,582
Notes receivable 96,737 122,620
Inventories 482,412 526,665
Prepaid expenses and other 141,405 216,996
----------- -----------
Total Current Assets 1,742,502 1,999,979
----------- -----------
Communications equipment and related assets, net 3,920,300 4,355,347
Notes receivable, long-term 379,483 25,816
Other assets, net of amortization of $420,979 at June 30, 1999
and $213,467 at December 31, 1998 1,779,933 1,591,328
----------- -----------
$7,822,218 $ 7,972,470
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable to bank $ 575,000 $ 50,000
Accounts payable 629,493 733,536
Accrued expenses 870,222 723,236
Deferred revenue 343,179 798,207
Current maturities of notes payable 264,312 238,364
----------- -----------
Total Current Liabilities 2,682,206 2,543,343
----------- -----------
Long Term Liabilities
Notes payable 394,122 339,254
Customer deposits 2,594 2,238
----------- -----------
Total Long Term Liabilities 396,716 341,492
----------- -----------
Stockholders' Equity
Common stock, $0.01 par value, 20,000,000 shares authorized,
6,150,622 shares issued and outstanding at June 30, 1999
and 6,119,712 shares issued and outstanding at
December 31, 1998 61,506 61,197
Additional paid-in capital 5,201,211 5,179,265
Accumulated deficit (519,421) (152,827)
----------- -----------
Total Stockholders' Equity 4,743,296 5,087,635
----------- -----------
$7,822,218 $7,972,470
=========== ==========
</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 six months ended June 30, 1999 and 1998
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
--------------------------- -------------------------
<S> <C> <C>
Revenues $1,802,786 $2,340,402 $3,906,886 $4,173,977
---------- ---------- ---------- ----------
Operating expenses:
Cost of sales 1,037,861 1,326,427 2,277,516 2,469,789
Provision for doubtful accounts 18,000 18,000 36,000 36,000
Depreciation and amortization 249,842 231,551 492,385 439,329
General and administrative expenses 861,561 636,999 1,576,134 1,278,344
---------- ---------- ---------- ----------
Total Operating Expenses 2,167,264 2,212,977 4,382,035 4,223,462
---------- ---------- ---------- ----------
Operating Income (loss) (364,478) 127,425 (475,149) (49,485)
---------- ---------- ---------- ----------
Other income (expenses):
Net gain on disposal of fixed assets 25,311 2,335 140,136 31,792
Interest income 11,280 1,570 14,586 5,559
Interest expense (26,065) (10,060) (45,241) (18,860)
---------- ---------- ---------- ----------
Income (loss) before income taxes (353,952) 121,270 (365,668) (30,994)
Income taxes 999 5,000 926 6,425
---------- ---------- ---------- ----------
Net income (loss) ($ 354,951) $ 116,270 ($ 366,594) ($ 37,419)
========== ========== ========== =========
Weighted average common shares and common
stock equivalents outstanding 6,140,432 6,119,712 6,130,129 6,112,057
========== ========== ========== =========
Basic and diluted net income (loss) per
common share ($ 0.06) $ 0.02 ($ 0.06) ($ 0.01)
========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 5
CHAMPION COMMUNICATION SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the six months ended June 30, 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
Issuance of common stock for services 30,910 309 21,946 - 22,255
Net loss for 1999 - - - (366,594) (366,594)
--------- ----------- ---------- ----------- ----------
Balance at June 30, 1999 6,150,622 $ 61,506 $5,201,211 ($ 519,421) $4,743,296
========== =========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 6
CHAMPION COMMUNICATION SERVICES, INC.
STATEMENTS OF CASH FLOWS
For the three months and six months ended June 30, 1999 and 1998
Unaudited
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
------------------------- -------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 354,951) $ 116,270 ($ 366,594) ($ 37,419)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 249,842 231,551 492,385 439,329
Bad debt expense 18,000 18,000 36,000 36,000
Common stock issued for services 22,255 - 22,255 -
Gain on disposal/sale of fixed assets (25,311) (2,335) (140,136) (31,792)
Change in assets and liabilities:
Accounts receivable 11,325 (56,233) (175,020) (62,699)
Inventory (25,255) 28,843 44,253 65,730
Prepaid expenses 40,003 (34,169) 75,591 (56,002)
Notes receivable 62,995 8,643 (327,784) 13,994
Accounts payable (41,948) (45,189) (104,043) (1,844)
Accrued expenses 92,165 79,751 146,986 306,579
Deferred revenue (73,184) (49,433) (455,028) (440,976)
---------- --------- --------- --------
Net cash provided by (used in) operating
activities (24,064) 295,699 (751,135) 230,900
---------- --------- --------- --------
Cash flows from investing activities:
Additions to property and equipment (787,337) (195,228) (342,311) (428,978)
Proceeds from sale of fixed assets 627,250 11,500 750,828 248,625
Dispositions (additions) to other assets 63,102 (105,014) (280,032) (504,653)
---------- --------- --------- --------
Net cash provided by (used in) investing
activities ( 96,985) (288,742) 128,485 (685,006)
---------- --------- --------- --------
Cash flows from financing activities:
Proceeds from issuance of notes payable 122,144 7,532 565,000 141,476
Repayment of notes payable ( 53,863) (45,815) (199,535) (168,170)
---------- --------- --------- --------
Net cash provided by (used in) financing
activities 68,281 (38,283) 365,465 (26,694)
---------- --------- --------- --------
Net decrease in cash and cash equivalents (52,768) (31,326) (257,185) (480,800)
Cash and cash equivalents at beginning of period 149,749 168,861 354,166 618,335
---------- --------- --------- --------
Cash and cash equivalents at end of period $ 96,981 $ 137,535 $ 96,981 $137,535
========== ========= ========= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Taxes $ 1,000 $ 5,000 $ 926 $ 6,425
---------- --------- --------- --------
Interest $ 25,054 $ 1,260 $ 49,190 $ 10,060
========== ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 7
CHAMPION COMMUNICATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999
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, 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.
2. Non-cash Transactions
During the first six months ended June 30, 1999, radio rental
inventory and service property and equipment were acquired in exchange for
$235,500 of indebtedness.
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<PAGE> 8
CHAMPION COMMUNICATION SERVICES, INC.
EARNINGS PER SHARE COMPUTATIONS
For the three months and six
months ended June 30, 1999 and 1998
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income (loss) applicable to common stock ($ 354,951) $ 116,270 ($ 366,594) ($ 37,419)
Shares used in earnings per share computations 6,140,432 6,119,712 6,130,129 6,112,057
Net income (loss) per weighted average common share ($ 0.06) $ 0.02 ($ 0.06) ($ 0.01)
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE
Net income (loss) applicable to common stock ($ 354,951) $ 116,270 ($ 366,594) ($ 37,419)
---------- ---------- --------- ----------
Shares used in earnings per share computation 6,140,432 6,119,712 6,130,129 6,112,057
Net income (loss) per weighted average common share ($ 0.06) $ 0.02 ($ 0.06) ($ 0.01)
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
COMPUTATION OF SHARES USED IN EARNINGS PER SHARE
COMPUTATIONS - BASIC
<S> <C> <C> <C> <C>
Outstanding common shares at beginning of period 6,119,712 6,119,712 6,119,712 6,103,412
Weighted average common shares issued during period 20,720 - 10,417 8,645
--------- --------- --------- ---------
Weighted average common shares used in earnings
per share computation 6,140,432 6,119,712 6,130,129 6,112,057
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
COMPUTATION OF SHARES USED IN EARNINGS PER SHARE
COMPUTATIONS - DILUTED
<S> <C> <C> <C> <C>
Outstanding common shares at beginning of period 6,119,712 6,119,712 6,119,712 6,103,412
Weighted average common shares issued during period 20,720 - 10,417 8,645
--------- --------- --------- ---------
Weighted average common shares used in earnings
per share computation 6,140,432 6,119,712 6,130,129 6,112,057
========= ========= ========= =========
</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 June 30, 1999 and 1998
Revenues for the quarter ended June 30, 1999 were $1,803,000 compared
with $2,340,000 for the quarter ended June 30, 1998. The second quarter
1999 reflects no spectrum sales, or $400,000 less than recorded in the same
quarter 1998. Dispatch revenues increased $15,000 to $1,404,000 for the
quarter ended June 30, 1999 from $1,389,000 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 were down $142,000, or 26%, for the second
quarter 1999 as compared with second quarter 1998.
Total cost of sales decreased $289,000 for the second quarter ended
June 30, 1999 as compared with the second quarter ended June 30, 1998. The
cost of dispatch revenue decreased $44,000 for the quarter ended June 30,
1999 from the quarter ended June 30, 1998, due to the reduced tower rent
and maintenance costs as a result of the sale of non-strategic sites. The
costs of equipment sales, service and rental decreased $134,000 or 42% from
$322,000 for the second quarter 1998 to $187,000 for the second quarter
1999, primarily due to decreased equipment sales during the quarter. The
remaining decrease of $111,000 in cost of sales for the second quarter
resulted from no spectrum sales being closed during the period.
Depreciation and amortization for the quarter ended June 30, 1999 was
$250,000, an increase of $18,000 or 8% from $232,000 reported for the
quarter ended June 30, 1998, due to the disposition of various non
strategic repeater sites netted with new construction and acquisition of
licenses.
General and administrative expenses were up $225,000 to $862,000 from
$637,000. The increase is primarily attributable to relocating the
Woodlands sales, service, and rental offices and growth in the regional
offices.
The net loss for the quarter ended June 30, 1999 was $355,000 as
compared with a net income of $116,000 for the quarter ended June 30, 1998.
Although there were no spectrum sales during the quarter, management
anticipates that revenue derived from the sale of spectrum will be realized
during the third and fourth quarters of 1999. 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, 1999 and 1998
Revenues for the six months ended June 30, 1999 were $3,907,000
compared with $4,174,000 for the six months ended June 30, 1998, a decrease
of 6%. There were no spectrum sales during the first six months of 1999
compared to $600,000 recorded in the same period 1998. Dispatch revenues
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<PAGE> 10
increased $159,000 to $2,830,000 for the six months ended June 30, 1999
from $2,671,000 in the same period 1998. This increase of 6% reflects
expansion of trunking in metro areas. Equipment sales, service and rental
revenues increased 22%, or $190,000 for the first half 1999 as compared
with the first half 1998 due to establishing and acquiring sales and
service offices in metro markets.
Total cost of sales decreased $192,000 for the first six months ended
June 30, 1999 as compared with the first six months ended June 30, 1998.
The cost of dispatch revenue increased $13,000 for the first six months
while cost of spectrum sales decreased $202,000 as a result of no sales
during this period. The costs of equipment sales, service and rental
decreased $3,000 from $536,000 for the first half of 1998 to $533,000 for
the same period 1999.
Depreciation and amortization for the six months ended June 30, 1999
was $492,000, an increase of $53,000 from $439,000 reported for the six
months ended June 30, 1998.
General and administrative expenses were up $298,000 to $1,576,000
from $1,278,000. This increase is primarily attributable to relocating the
Woodlands sales, service, and rental offices and adding staff in the
regional offices.
The net loss for the period ended June 30, 1999 was $367,000 as
compared with net loss of $37,000 for the period ended June 30, 1998 as a
result of no spectrum sales to date. Management anticipates that revenue
derived from the sale of spectrum will increase during the third and fourth
quarters of 1999. 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 $97,000 in cash and cash equivalents at June 30, 1999
as compared with $354,000 at December 31, 1998. The working capital of the
Company at June 30, 1999 was a negative $940,000 as compared with a
negative $543,000 at December 31, 1998. The decrease is attributable to
expansion at the regional level.
Cash flows from operating activities were a negative $24,000 and a
positive $296,000 for the quarters ended June 30, 1999 and 1998,
respectively, and a negative $751,000 and a positive $231,000 for the six
months ended June 30, 1999 and 1998, respectively. The cash flows from
operating activities in 1998 included the closing of several spectrum
sales.
During the first six months of 1999, the Company made draws on its
line of credit totaling $525,000 bearing interest at prime plus one percent
per annum.
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<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, "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 and is addressing
these issues. 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 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 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: August 13, 1999
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<PAGE> 14
EXHIBIT INDEX
27 -- FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 96,981
<SECURITIES> 0
<RECEIVABLES> 1,001,010
<ALLOWANCES> 76,043
<INVENTORY> 482,412
<CURRENT-ASSETS> 1,742,502
<PP&E> 6,226,850
<DEPRECIATION> 2,306,549
<TOTAL-ASSETS> 7,822,218
<CURRENT-LIABILITIES> 2,682,206
<BONDS> 0
0
0
<COMMON> 61,506
<OTHER-SE> 4,681,790
<TOTAL-LIABILITY-AND-EQUITY> 7,822,218
<SALES> 0
<TOTAL-REVENUES> 3,906,886
<CGS> 0
<TOTAL-COSTS> 2,277,516
<OTHER-EXPENSES> 2,068,519
<LOSS-PROVISION> 36,000
<INTEREST-EXPENSE> 45,241
<INCOME-PRETAX> (475,149)
<INCOME-TAX> 926
<INCOME-CONTINUING> (505,804)
<DISCONTINUED> 0
<EXTRAORDINARY> 140,136
<CHANGES> 0
<NET-INCOME> (366,594)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
