##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934



|For the quarterly period ended April 30,
2003 |  | Commission File No. 0-21084
|--------------------------------------------- |  | ---------------------------



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Champion Industries, Inc.

(Exact name of Registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|West Virginia                                                  |  | 55-0717455                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

2450-90 1st Avenue
P.O. Box 2968
Huntington, WV 25728

(Address of principal executive offices)
(Zip Code)


(304) 528-2700

(Registrants telephone number,
including area code)




---



Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yesü
  No  .

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes   Noü.

9,713,913 shares of common stock of the Registrant were outstanding at
April 30, 2003.





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##### 



Champion Industries, Inc.

INDEX

|                              |                                                                                               |  |                                            |    |          |   | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  | ------------------------------------------ | -- | -------- | - | 
|                              |                                                                                               |  |                                            |    | Page No.
|Part I. Financial Information |                                                                                               |  |                                            |   
|                              | Item 1. Financial Statements                                                                  |  |                                            |    |         
|                              |                                                                                               |  | Consolidated Balance Sheets                |    |          | 3 | 
|                              |                                                                                               |  | Consolidated Statements of Operations      |    |          | 5 | 
|                              |                                                                                               |  | Consolidated Statements of Cash Flows      |    |          | 6 | 
|                              |                                                                                               |  | Notes to Consolidated Financial Statements |    |          | 7 | 
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  |                                            | 14 |         
|                              | Item 3a. Quantitative and Qualitative Disclosure About Market Risk                            |  |                                            | 18 |         
|                              | Item 4. Controls and Procedures                                                               |  |                                            | 18 |         
|Part II. Other Information    |                                                                                               |  |                                            |   
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                   |  |                                            | 19 |         
|                              | Item 6. Exhibits and Reports on Form 8-K                                                      |  |                                            | 19 |         
|Signatures                    |                                                                                               |  | 20                                         |   

2



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##### 



PART I  FINANCIAL INFORMATION

Item 1. Financial Statements

Champion Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

|                                                 |                                                                    |  |                               |            |   |             |            |             |   |             |   | 
|------------------------------------------------ | ------------------------------------------------------------------ |  | ----------------------------- | ---------- | - | ----------- | ---------- | ----------- | - | ----------- | - | 
|                                                 |                                                                    |  |                               |            |   | April 30,   |            | October 31,
|                                                 |                                                                    |  |                               |            |   | 2003        |            | 2002       
|                                                 |                                                                    |  |                               |            |   |             |            |            
|ASSETS                                           |                                                                    |  |                               |            |   |             |            |            
|Current assets:                                  |                                                                    |  |                               |            |   |             |            |            
|                                                 | Cash and cash equivalents                                          |  | $                             | 4,106,822  |   |             | $          | 4,507,139   |  
|                                                 | Accounts receivable, net of allowance of $1,096,000 and $1,397,000 |  |                               | 17,378,085 |   |             |            | 18,546,989  |  
|                                                 | Inventories                                                        |  |                               | 11,428,791 |   |             |            | 11,427,581  |  
|                                                 | Other current assets                                               |  |                               | 1,111,735  |   |             |            | 1,745,563   |  
|                                                 | Deferred income tax assets                                         |  |                               | 1,027,059  |   |             |            | 1,027,059   |  
|                                                 |                                                                    |  |                               |            |   |             |            |             |  
|                                                 |                                                                    |  | Total current assets          |            |   | 35,052,492  |            |             |   | 37,254,331  |  
|Property and equipment, at cost:                 |                                                                    |  |                               |            |   |             |            |            
|                                                 | Land                                                               |  |                               | 2,028,372  |   |             |            | 1,028,372   |  
|                                                 | Buildings and improvements                                         |  |                               | 7,238,251  |   |             |            | 6,120,122   |  
|                                                 | Machinery and equipment                                            |  |                               | 37,343,173 |   |             |            | 36,362,178  |  
|                                                 | Equipment under capital leases                                     |  |                               | 983,407    |   |             |            | 983,407     |  
|                                                 | Furniture and fixtures                                             |  |                               | 2,880,584  |   |             |            | 2,872,212   |  
|                                                 | Vehicles                                                           |  |                               | 3,195,196  |   |             |            | 3,082,258   |  
|                                                 |                                                                    |  |                               |            |   |             |            |            
|                                                 |                                                                    |  | 53,668,983                    |            |   |             | 50,448,549 |            
|                                                 |                                                                    |  | Less accumulated depreciation |            |   | (33,277,172 | )          |             |   | (31,442,360 | )
|                                                 |                                                                    |  |                               |            |   |             |            |            
|                                                 |                                                                    |  | 20,391,811                    |            |   |             | 19,006,189 |            
|Cash surrender value of officers life insurance |                                                                    |  | 924,534                       |            |   |             | 947,955    |            
|Goodwill                                         |                                                                    |  | 1,733,750                     |            |   |             | 1,725,941  |            
|Other assets                                     |                                                                    |  | 512,244                       |            |   |             | 573,087    |            
|                                                 |                                                                    |  |                               |            |   |             |            |            
|                                                 |                                                                    |  | 3,170,528                     |            |   |             | 3,246,983  |            
|                                                 |                                                                    |  |                               |            |   |             |            |             |  
|                                                 |                                                                    |  | Total assets                  |            | $ | 58,614,831  |            |             | $ | 59,507,503  |  
|                                                 |                                                                    |  |                               |            |   |             |            |             |  

See notes to consolidated financial statements.

3



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##### 



Champion Industries, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
(Unaudited)

|                                        |                                                                                                   |                           |                                            |            |           |            |             |            |           |            | 
|--------------------------------------- | ------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------------ | ---------- | --------- | ---------- | ----------- | ---------- | --------- | ---------- | 
|                                        |                                                                                                   |                           |                                            |            | April 30, |            | October 31,
|                                        |                                                                                                   |                           |                                            |            | 2003      |            | 2002       
|                                        |                                                                                                   |                           |                                            |            |           |            |            
|LIABILITIES AND SHAREHOLDERS EQUITY    |                                                                                                   |                           |                                            |            |           |            |             |           
|Current liabilities:                    |                                                                                                   |                           |                                            |            |           |            |             |           
|                                        | Accounts payable                                                                                  |                           | $                                          | 2,351,336  |           |            | $           | 3,258,095  |          
|                                        | Accrued payroll                                                                                   |                           |                                            | 1,363,053  |           |            |             | 2,004,046  |          
|                                        | Taxes accrued and withheld                                                                        |                           |                                            | 1,257,955  |           |            |             | 1,416,900  |          
|                                        | Accrued income taxes                                                                              |                           |                                            | 334,096    |           |            |             | 873,136    |          
|                                        | Accrued expenses                                                                                  |                           |                                            | 765,885    |           |            |             | 819,234    |          
|                                        | Current portion of long-term debt:                                                                |                           |                                            |            |           |            |             |            |          
|                                        |                                                                                                   | Notes payable             |                                            |            | 2,430,222 |            |             |            | 2,615,422 |           
|                                        |                                                                                                   | Capital lease obligations |                                            |            | 202,391   |            |             |            | 195,035   |           
|                                        |                                                                                                   |                           |                                            |            |           |            |             |            |          
|                                        |                                                                                                   |                           | Total current liabilities                  |            |           | 8,704,938  |             |            |           | 11,181,868 | 
|Long-term debt, net of current portion: |                                                                                                   |                           |                                            |            |           |            |             |           
|                                        | Notes payable, term                                                                               |                           |                                            | 2,336,126  |           |            |             | 1,445,837  |          
|                                        | Capital lease obligations                                                                         |                           |                                            | 255,958    |           |            |             | 359,027    |          
|Notes payable, line of credit           |                                                                                                   |                           | 1,000,000                                  |            |           |            |            |           
|Other liabilities                       |                                                                                                   |                           | 427,038                                    |            |           |            | 429,842     |           
|Deferred income tax liability           |                                                                                                   |                           | 3,225,119                                  |            |           |            | 3,225,119   |           
|                                        |                                                                                                   |                           |                                            |            |           |            |             |           
|                                        |                                                                                                   |                           | Total liabilities                          |            |           | 15,949,179 |             |            |           | 16,641,693 | 
|                                        |                                                                                                   |                           |                                            |            |           |            |             |           
|Shareholders equity:                   |                                                                                                   |                           |                                            |            |           |            |             |           
|                                        | Common stock, $1 par value, 20,000,000 shares authorized;
9,713,913 shares issued and outstanding |                           |                                            | 9,713,913  |           |            |             | 9,713,913  |          
|                                        | Additional paid-in capital                                                                        |                           |                                            | 22,242,047 |           |            |             | 22,242,047 |          
|                                        | Retained earnings                                                                                 |                           |                                            | 10,709,692 |           |            |             | 10,909,850 |          
|                                        |                                                                                                   |                           |                                            |            |           |            |             |           
|Total shareholders equity              |                                                                                                   |                           | 42,665,652                                 |            |           |            | 42,865,810  |           
|                                        |                                                                                                   |                           |                                            |            |           |            |             |           
|                                        |                                                                                                   |                           | Total liabilities and shareholders equity |            | $         | 58,614,831 |             |            | $         | 59,507,503 | 
|                                        |                                                                                                   |                           |                                            |            |           |            |             |            |          

See notes to consolidated financial statements.

4



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##### 



Champion Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)

|                                             |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |            |            | 
|-------------------------------------------- | ------------------------------------ | ------------------- | --------- | ------------------ | ---------- | ---------------- | --------- | ---------- | ---------- | ---- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                                             |                                      |                     |           | Three Months Ended |            | Six Months Ended
|                                             |                                      |                     |           | April 30,          |            | April 30,       
|                                             |                                      |                     |           | 2003               |            | 2002             |           | 2003       |            | 2002
|                                             |                                      |                     |           |                    |            |                  |           |            |            |     
|Revenues:                                    |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |           
|                                             | Printing                             |                     | $         | 23,904,047         |            |                  | $         | 24,641,820 |            |      | $          | 46,510,694 |            |   | $          | 47,499,429 |           
|                                             | Office products and office
furniture |                     |           | 5,425,140          |            |                  |           | 6,027,208  |            |      |            | 11,437,434 |            |   |            | 12,960,141 |           
|                                             |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |           
|                                             |                                      | Total revenues      |           |                    | 29,329,187 |                  |           |            | 30,669,028 |      |            |            | 57,948,128 |   |            |            | 60,459,570 | 
|Cost of sales:                               |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |           
|                                             | Printing                             |                     |           | 17,276,671         |            |                  |           | 17,486,285 |            |      |            | 33,810,597 |            |   |            | 34,013,755 |           
|                                             | Office products and office
furniture |                     |           | 3,560,676          |            |                  |           | 4,149,123  |            |      |            | 7,727,942  |            |   |            | 9,109,103  |           
|                                             |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |           
|                                             |                                      | Total cost of sales |           |                    | 20,837,347 |                  |           |            | 21,635,408 |      |            |            | 41,538,539 |   |            |            | 43,122,858 | 
|                                             |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |           
|Gross profit                                 |                                      |                     | 8,491,840 |                    |            |                  | 9,033,620 |            |            |      | 16,409,589 |            |            |   | 17,336,712 |           
|Selling, general and
administrative expenses |                                      |                     | 7,572,601 |                    |            |                  | 7,660,744 |            |            |      | 15,028,285 |            |            |   | 15,445,030 |           
|                                             |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |           
|Income from operations                       |                                      |                     | 919,239   |                    |            |                  | 1,372,876 |            |            |      | 1,381,304  |            |            |   | 1,891,682  |           
|Other income (expense):                      |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |           
|                                             | Interest income                      |                     |           | 595                |            |                  |           | 3,271      |            |      |            | 2,048      |            |   |            | 9,784      |           
|                                             | Interest expense                     |                     |           | (53,416            | )          |                  |           | (118,105   | )          |      |            | (105,440   | )          |   |            | (230,559   | )         
|                                             | Other                                |                     |           | 21,264             |            |                  |           | 26,463     |            |      |            | 46,787     |            |   |            | 56,583     |           
|                                             |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |           
|                                             |                                      |                     | (31,557   | )                  |            |                  | (88,371   | )          |            |      | (56,605    | )          |            |   | (164,192   | )         
|                                             |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |           
|Income before income taxes                   |                                      |                     | 887,682   |                    |            |                  | 1,284,505 |            |            |      | 1,324,699  |            |            |   | 1,727,490  |           
|                                             | Income taxes                         |                     |           | (370,769           | )          |                  |           | (533,790   | )          |      |            | (553,469   | )          |   |            | (719,144   | )         
|                                             |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |           
|Net income                                   |                                      | $                   | 516,913   |                    |            | $                | 750,715   |            |            | $    | 771,230    |            |            | $ | 1,008,346  |           
|                                             |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |            |           
|Earnings per share                           |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |           
|                                             | Basic                                |                     | $         | 0.05               |            |                  | $         | 0.08       |            |      | $          | 0.08       |            |   | $          | 0.10       |           
|                                             |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |            |           
|                                             | Diluted                              |                     | $         | 0.05               |            |                  | $         | 0.08       |            |      | $          | 0.08       |            |   | $          | 0.10       |           
|                                             |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |            |           
|Weighted average shares
outstanding:         |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |           
|                                             | Basic                                |                     |           | 9,714,000          |            |                  |           | 9,714,000  |            |      |            | 9,714,000  |            |   |            | 9,714,000  |           
|                                             |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |            |           
|                                             | Diluted                              |                     |           | 9,750,000          |            |                  |           | 9,737,000  |            |      |            | 9,740,000  |            |   |            | 9,731,000  |           
|                                             |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |            |           
|Dividends per share                          |                                      | $                   | 0.05      |                    |            | $                | 0.05      |            |            | $    | 0.10       |            |            | $ | 0.10       |           
|                                             |                                      |                     |           |                    |            |                  |           |            |            |      |            |            |            |   |            |            |           

See notes to consolidated financial statements.

5



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##### 



| |  |                                            |  |  |  |  |  | 
| |  | ------------------------------------------ |  |  |  |  |  | 
| |  | Champion Industries, Inc. and Subsidiaries
| |  | Consolidated Statements of Cash Flows     
| |  | (Unaudited)                               

|                                                                              |                                    |                            |            |                  |           |      |            |           |            |  
|----------------------------------------------------------------------------- | ---------------------------------- | -------------------------- | ---------- | ---------------- | --------- | ---- | ---------- | --------- | ---------- | -
|                                                                              |                                    |                            |            | Six Months Ended
|                                                                              |                                    |                            |            | April 30,       
|                                                                              |                                    |                            |            | 2003             |           | 2002
|                                                                              |                                    |                            |            |                  |           |     
|Cash flows from operating activities:                                         |                                    |                            |            |                  |           |      |            |          
|Net income                                                                    |                                    | $                          | 771,230    |                  |           | $    | 1,008,346  |          
|Adjustments to reconcile net income to cash
provided by operating activities: |                                    |                            |            |                  |           |      |            |          
|                                                                              | Depreciation and amortization      |                            |            | 2,026,944        |           |      |            | 2,074,096 |           
|                                                                              | Gain on sale of assets             |                            |            | (4,450           | )         |      |            | (6,341    | )         
|                                                                              | Increase in deferred compensation  |                            |            | 7,149            |           |      |            | 8,936     |           
|                                                                              | Bad debt expense                   |                            |            | (16,466          | )         |      |            | 244,029   |           
|                                                                              | Changes in assets and liabilities: |                            |            |                  |           |      |            |           |           
|                                                                              |                                    | Accounts receivable        |            |                  | 1,185,370 |      |            |           | 1,235,805  |  
|                                                                              |                                    | Inventories                |            |                  | (1,210    | )    |            |           | 252,371    |  
|                                                                              |                                    | Other current assets       |            |                  | 633,828   |      |            |           | (329,450   | )
|                                                                              |                                    | Accounts payable           |            |                  | (906,757  | )    |            |           | (1,192,569 | )
|                                                                              |                                    | Accrued payroll            |            |                  | (640,993  | )    |            |           | (429,312   | )
|                                                                              |                                    | Taxes accrued and withheld |            |                  | (158,945  | )    |            |           | 101,833    |  
|                                                                              |                                    | Income taxes               |            |                  | (539,040  | )    |            |           | 382,709    |  
|                                                                              |                                    | Accrued expenses           |            |                  | (53,349   | )    |            |           | (365,574   | )
|                                                                              |                                    | Other liabilities          |            |                  | (9,953    | )    |            |           | (11,121    | )
|                                                                              |                                    |                            |            |                  |           |      |            |          
|Net cash provided by operating activities                                     |                                    |                            | 2,293,358  |                  |           |      | 2,973,758  |          
|Cash flows from investing activities:                                         |                                    |                            |            |                  |           |      |            |          
|Purchases of property and equipment                                           |                                    |                            | (1,953,099 | )                |           |      | (1,979,278 | )        
|Proceeds from sales of property                                               |                                    |                            | 81,448     |                  |           |      | 45,764     |          
|Decrease in other assets                                                      |                                    |                            | 53,034     |                  |           |      | 26,072     |          
|Decrease (increase) in cash surrender value life insurance                    |                                    |                            | 23,421     |                  |           |      | (58,103    | )        
|                                                                              |                                    |                            |            |                  |           |      |            |          
|Net cash used in investing activities                                         |                                    |                            | (1,795,196 | )                |           |      | (1,965,545 | )        
|Cash flows from financing activities:                                         |                                    |                            |            |                  |           |      |            |          
|Borrowings on line of credit                                                  |                                    |                            | 1,500,000  |                  |           |      | 500,000    |          
|Payments on line of credit                                                    |                                    |                            | (500,000   | )                |           |      |           |          
|Proceeds from term debt and leases                                            |                                    |                            | 572,550    |                  |           |      |           |          
|Principal payments on long-term debt                                          |                                    |                            | (1,499,639 | )                |           |      | (1,837,772 | )        
|Dividends paid                                                                |                                    |                            | (971,390   | )                |           |      | (971,390   | )        
|                                                                              |                                    |                            |            |                  |           |      |            |          
|Net cash used in financing activities                                         |                                    |                            | (898,479   | )                |           |      | (2,309,162 | )        
|                                                                              |                                    |                            |            |                  |           |      |            |          
|Net decrease in cash                                                          |                                    |                            | (400,317   | )                |           |      | (1,300,949 | )        
|Cash and cash equivalents, beginning of period                                |                                    |                            | 4,507,139  |                  |           |      | 5,764,716  |          
|                                                                              |                                    |                            |            |                  |           |      |            |          
|Cash and cash equivalents, end of period                                      |                                    | $                          | 4,106,822  |                  |           | $    | 4,463,767  |          
|                                                                              |                                    |                            |            |                  |           |      |            |          

See notes to consolidated financial statements.

6



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

April 30, 2003

1. Basis of Presentation and Business Operations

The foregoing financial information has been prepared in accordance with
accounting principles generally accepted in the United States (GAAP) and
rules and regulations of the Securities and Exchange Commission for interim
financial reporting. The preparation of the financial statements in accordance
with GAAP requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from these estimates. In the opinion of management, the
financial information reflects all adjustments (consisting of items of a normal
recurring nature) necessary for a fair presentation of financial position,
results of operations and cash flows in conformity with GAAP. These interim
financial statements should be read in conjunction with the consolidated
financial statements for the year ended October 31, 2002, and related notes
thereto contained in Champion Industries, Inc.s Form 10-K dated January 25,
2003. The accompanying interim financial information is unaudited. The balance
sheet information as of October 31, 2002 was derived from our audited financial
statements.

Certain prior-year amounts have been reclassified to conform to the current
year Financial Statement presentation.

2. Earnings per Share

Basic earnings per share is computed by dividing net income by the weighted
average shares of common stock outstanding for the period and excludes any
dilutive effects of stock options. Diluted earnings per share is computed by
dividing net income by the weighted average shares of common stock outstanding
for the period plus the shares that would be outstanding assuming the exercise
of dilutive stock options. The dilutive effect of stock options was 36,000 and
26,000 shares for the three and six months ended April 30, 2003 and 23,000 and
17,000 shares for the three and six months ended April 30, 2002.

3. Inventories

Inventories are principally stated at the lower of first-in, first-out cost or
market. Manufactured finished goods and work in process inventories include
material, direct labor and overhead based on standard costs, which approximate
actual costs. The Company utilizes an estimated gross profit method for
determining cost of sales in interim periods.

Inventories consisted of the following:

|                                     |                 |   |            |           |             |   |            |           | 
|------------------------------------ | --------------- | - | ---------- | --------- | ----------- | - | ---------- | --------- | 
|                                     |                 |   | April 30,  |           | October 31,
|                                     |                 |   | 2003       |           | 2002       
|                                     |                 |   |            |           |            
|Printing:                            |                 |   |            |           |             |   |            |          
|                                     | Raw materials   |   | $          | 2,450,301 |             |   | $          | 2,421,973 | 
|                                     | Work in process |   |            | 1,816,800 |             |   |            | 1,795,796 | 
|                                     | Finished goods  |   |            | 3,988,631 |             |   |            | 3,942,518 | 
|Office products and office furniture |                 |   | 3,173,059  |           |             |   | 3,267,294  |          
|                                     |                 |   |            |           |             |   |            |          
|                                     |                 | $ | 11,428,791 |           |             | $ | 11,427,581 |          
|                                     |                 |   |            |           |             |   |            |           | 

7



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) (continued)

4. Long-Term Debt

Long-term debt consisted of the following:

|                                       |  |           |           |             |  |   |           | 
|-------------------------------------- |  | --------- | --------- | ----------- |  | - | --------- | 
|                                       |  | April 30, |           | October 31,
|                                       |  | 2003      |           | 2002       
|                                       |  |           |           |            
|Unsecured term note payable            |  | $         | 1,785,877 |             |  | $ | 2,678,733 | 
|Installment notes payable to banks     |  |           | 2,980,471 |             |  |   | 1,382,526 | 
|Capital lease obligations              |  |           | 458,349   |             |  |   | 554,062   | 
|                                       |  |           |           |             |  |   |           | 
|                                       |  |           | 5,224,697 |             |  |   | 4,615,321 | 
|Less current portion                   |  |           | 2,632,613 |             |  |   | 2,810,457 | 
|                                       |  |           |           |             |  |   |           | 
|Long-term debt, net of current portion |  | $         | 2,592,084 |             |  | $ | 1,804,864 | 
|                                       |  |           |           |             |  |   |           | 

The Company has an unsecured revolving line of credit with a bank for
borrowings to a maximum of $10,000,000 with interest payable monthly at
interest rates at LIBOR plus 1% to 1.5%. This line of credit expires in March
2005 and contains certain restrictive financial covenants. There was $1,000,000
outstanding under this facility at April 30, 2003.

The Company has an unsecured revolving line of credit with a bank for
borrowings to a maximum of $1,000,000 with interest payable monthly at the Wall
Street Journal prime rate. The line of credit expires in April 2004 and
contains certain financial covenants. There were no borrowings outstanding
under this facility at April 30, 2003.

The Companys non-cash activities for the six months ended April 30, 2003 and
2002 included vehicle purchases of approximately $96,000 and $165,000, which
were financed by a bank and for the six months ended April 30, 2003 the
purchase of a building in Baton Rouge, Louisiana of which $1,440,000 of the
purchase price was financed by a bank.

5. Shareholders Equity

The Company paid a dividend of five cents per share on March 24, 2003 to
stockholders of record on March 7, 2003. Also, the Company declared a dividend
of five cents per share to be paid on June 23, 2003 to stockholders of record
on June 6, 2003.

6. Commitments and Contingencies

On February 16, 2002, a jury verdict was rendered against the Company in a
civil action brought against the Company in state court in Jackson,
Mississippi.

The plaintiffs in this civil action asserted that the Company and its Dallas
Printing Company, Inc. subsidiary had engaged in unfair competition and other
wrongful acts in hiring certain of its employees. The jury awarded the
plaintiffs $1,745,000 in actual damages and $750,000 in punitive damages.

8



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) (continued)

On March 1, 2002, the plaintiffs in the civil action filed a motion for
attorneys fees and costs in the amount of $889,401. On July 16, 2002, the
court entered an order granting plaintiff $645,119 in attorney fees and
expenses, and ordered that interest on the amount of the jury award accrue from
February 22, 2002.

On July 17, 2002, the Company filed a notice of appeal from the jury verdict.
The appeal involves both the jury award and the attorneys fee and expense
award. If the Company is not successful on appeal, Mississippi law provides
that it is liable for an additional 15% of the total award.

The Company has been advised that it has no insurance coverage for this award.
The Company under Mississippi law has a guaranteed right to appeal. The
Company has been advised by counsel that it has multiple grounds for an appeal
and a reasonable basis for believing that an appeal would be successful in
eliminating the jury award. However, there can be no assurance that the jury
award will be overturned upon appeal. If the verdict is not overturned, the
impact on the operating results of the Company could be material.

7. New Accounting Pronouncements and Significant Accounting Policy Updates

In July 2002, the FASB issued SFAS No. 146 Accounting for Costs Associated
with Exit or Disposal Activities (Statement No. 146), which supercedes EITF
No. 94-3, Liability Recognition for Certain Employment Termination Benefits
and Other Costs to Exit an Activity. Statement 146 requires companies to
record liabilities for costs associated with exit or disposal activities to be
recognized only when the liability is incurred instead of at the date of
commitment to an exit or disposal activity. Adoption of this standard is
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of this standard did not have a significant impact on the
Companys financial statements.

Accounting for Stock-Based Compensation

In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
CompensationTransition and Disclosure. Statement 148 amends FASB Statement
No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition to Statement 123s fair value method of accounting for
stock-based employee compensation.

The Company has elected to follow the intrinsic value method in accounting for
its employee stock options. Accordingly, because the exercise price of the
Companys employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.

The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 2003 and 2002, respectively: risk-free interest rates of 3.97%
and 3.91%; dividend yields of 7.22% and 8.03%; volatility factors of the
expected market price of the Companys common stock of 46.4% and 45.4%; and a
weighted-average expected life of the option of 4 years.

9



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) (continued)

The following pro forma information has been determined as if the Company had
accounted for its employee stock options under the fair value method. For
purposes of pro forma disclosures, the estimated fair value of the options is
expensed in the year granted since the options vest immediately. The Companys
pro forma information for the quarters and six months ended April 30 are as
follows:

|                                                                                                                                      |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |           | 
|------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ---------------- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | --------- | 
|                                                                                                                                      |  | Three Months Ended |         | Six Months Ended
|                                                                                                                                      |  | April 30           |         | April 30        
|                                                                                                                                      |  |                    |         |                 
|                                                                                                                                      |  | 2003               |         | 2002             |  | 2003 |         | 2002
|                                                                                                                                      |  |                    |         |                  |  |      |         |     
|Net Income, as reported                                                                                                               |  | $                  | 516,913 |                  |  | $    | 750,715 |      |  | $ | 771,230 |  |  | $ | 1,008,346 | 
|Deduct: Total
stock-based employee
compensation expense
determined under fair
value method for all
awards, net of related
tax effects |  |                    |        |                  |  |      |        |      |  |   | 47,200  |  |  |   | 38,704    | 
|                                                                                                                                      |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |           | 
|Pro Forma net income                                                                                                                  |  | $                  | 516,913 |                  |  | $    | 750,715 |      |  | $ | 724,030 |  |  | $ | 969,642   | 
|                                                                                                                                      |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |           | 
|Earnings per share:                                                                                                                   |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |           | 
|Basic, as reported                                                                                                                    |  | $                  | 0.05    |                  |  | $    | 0.08    |      |  | $ | 0.08    |  |  | $ | 0.10      | 
|Basic, pro forma                                                                                                                      |  |                    | 0.05    |                  |  |      | 0.08    |      |  |   | 0.07    |  |  |   | 0.10      | 
|Diluted, as reported                                                                                                                  |  | $                  | 0.05    |                  |  | $    | 0.08    |      |  | $ | 0.08    |  |  | $ | 0.10      | 
|Diluted, pro forma                                                                                                                    |  |                    | 0.05    |                  |  |      | 0.08    |      |  |   | 0.07    |  |  |   | 0.10      | 

8.  Restructuring Charge, Asset Impairment Charge and Other Charges

In the third quarter of 2001, the Company recorded charges related to a
restructuring and profitability enhancement plan. This plan was implemented to
effectuate certain key initiatives including plant and office consolidations,
headcount reductions, asset impairment issues and a general response to a
deteriorating economic environment. The third quarter of 2001 pre-tax charge
resulting from these actions was $6.1 million ($4.3 million after-tax or $0.44
per share on a basic and diluted basis.) The charge related to approximately
$3.1 million from asset impairments including goodwill, facility and equipment
write-downs. The Company recorded charges for restructuring and other special
charges of $3.0 million comprised primarily of severance payments, charge-offs
related to duplicative facility leases, increases in allowance for doubtful
accounts and inventory obsolescence and valuation reserves, costs related to
the impairment of the Companys information systems hardware and software,
charges related to termination and related fees of a pension plan of an
acquired Company, and other charges and expenses related to plant
consolidations and restructuring.

As a result of the Companys restructuring plan, approximately 35 employees
were terminated from the Company primarily as a result of plant and office
consolidations at the Companys Carolina Cut Sheets operation, Chapman Printing
Lexington location and the Garrison Brewer division of Stationers. In
addition, the Company anticipates the elimination of additional positions
resulting from retirements and

10



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) (continued)

normal attrition within the next twelve to eighteen months. As of October 31,
2001 35 employees were notified of their termination and one retired position
was eliminated.

The cash and non-cash elements of the Companys restructuring charge, asset
impairment charge, and other unusual charges approximated $1.5 million in cash
and $4.6 million non-cash. The printing segment charges approximated $3.5
million and the office products and furniture segment charges approximated
$2.6 million. Details of the approximated charges and the status of the
related obligations are as follows as of April 30, 2003:

|                                                 |  |                  |           |      |  |          |           |                |  |   |           |               |  |   |         | 
|------------------------------------------------ |  | ---------------- | --------- | ---- |  | -------- | --------- | -------------- |  | - | --------- | ------------- |  | - | ------- | 
|                                                 |  |                  |           |      |  | Utilized |           |                |  |   |           |               |  |  
|                                                 |  |                  |           |      |  |          |           |                |  |   |           | Ended balance
|                                                 |  | Original accrual |           | Cash |  | Noncash  |           | April 30, 2003
|                                                 |  |                  |           |      |  |          |           |               
|Write-down of
goodwill,
facilities and
equipment |  | $                | 3,060,000 |      |  | $        | 168,000   |                |  | $ | 2,892,000 |               |  | $ |        | 
|Employee severance
and termination
benefits      |  |                  | 55,000    |      |  |          | 25,000    |                |  |   |          |               |  |   | 30,000  | 
|Inventory
obsolescence and
valuation reserves    |  |                  | 978,000   |      |  |          |          |                |  |   | 978,000   |               |  |   |        | 
|Restructuring and
other charges                  |  |                  | 1,998,000 |      |  |          | 871,000   |                |  |   | 768,000   |               |  |   | 359,000 | 
|                                                 |  |                  |           |      |  |          |           |                |  |   |           |               |  |   |         | 
|Total                                            |  | $                | 6,091,000 |      |  | $        | 1,064,000 |                |  | $ | 4,638,000 |               |  | $ | 389,000 | 
|                                                 |  |                  |           |      |  |          |           |                |  |   |           |               |  |   |         | 

9.  Industry Segment Information

The Company operates principally in two industry segments organized on the
basis of product lines: the production, printing and sale, principally to
commercial customers, of printed materials (including brochures, pamphlets,
reports, tags, continuous and other forms) and the sale of office products and
office furniture including interior design services.

The table below presents information about reported segments for the three and
six months ended April 30:

|                                    |  |          |            |             |  |                 |            |   |  |   |            |  
|----------------------------------- |  | -------- | ---------- | ----------- |  | --------------- | ---------- | - |  | - | ---------- | -
|                                    |  |          |            |             |  | Office Products |            |   |  |  
|2003 Quarter 2                      |  | Printing |            | & Furniture |  | Total          
|                                    |  |          |            |             |  |                
|Revenues                            |  | $        | 26,372,039 |             |  | $               | 6,666,610  |   |  | $ | 33,038,649 |  
|Elimination of intersegment revenue |  |          | (2,467,992 | )           |  |                 | (1,241,470 | ) |  |   | (3,709,462 | )
|                                    |  |          |            |             |  |                 |            |   |  |   |            |  
|Consolidated revenues               |  | $        | 23,904,047 |             |  | $               | 5,425,140  |   |  | $ | 29,329,187 |  
|                                    |  |          |            |             |  |                 |            |   |  |   |            |  
|Operating income                    |  |          | 797,482    |             |  |                 | 121,757    |   |  |   | 919,239    |  
|Depreciation & amortization         |  |          | 983,395    |             |  |                 | 36,754     |   |  |   | 1,020,149  |  
|Capital expenditures                |  |          | 2,895,686  |             |  |                 | 24,951     |   |  |   | 2,920,637  |  
|Identifiable assets                 |  |          | 49,339,095 |             |  |                 | 9,275,736  |   |  |   | 58,614,831 |  
|Goodwill                            |  |          | 1,447,308  |             |  |                 | 286,442    |   |  |   | 1,733,750  |  

11



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Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) (continued)

|                                    |  |          |            |             |  |                 |            |   |  |   |            |  
|----------------------------------- |  | -------- | ---------- | ----------- |  | --------------- | ---------- | - |  | - | ---------- | -
|                                    |  |          |            |             |  | Office Products |            |   |  |  
|2002 Quarter 2                      |  | Printing |            | & Furniture |  | Total          
|                                    |  |          |            |             |  |                
|Revenues                            |  | $        | 26,845,993 |             |  | $               | 6,780,896  |   |  | $ | 33,626,889 |  
|Elimination of intersegment revenue |  |          | (2,204,173 | )           |  |                 | (753,688   | ) |  |   | (2,957,861 | )
|                                    |  |          |            |             |  |                 |            |   |  |   |            |  
|Consolidated revenues               |  | $        | 24,641,820 |             |  | $               | 6,027,208  |   |  | $ | 30,669,028 |  
|                                    |  |          |            |             |  |                 |            |   |  |   |            |  
|Operating income                    |  |          | 1,185,996  |             |  |                 | 186,880    |   |  |   | 1,372,876  |  
|Depreciation & amortization         |  |          | 1,010,007  |             |  |                 | 15,928     |   |  |   | 1,025,935  |  
|Capital expenditures                |  |          | 297,715    |             |  |                 | 44,211     |   |  |   | 341,926    |  
|Identifiable assets                 |  |          | 50,222,660 |             |  |                 | 10,807,031 |   |  |   | 61,029,691 |  
|Goodwill                            |  |          | 1,062,926  |             |  |                 | 286,442    |   |  |   | 1,349,368  |  

|                                    |  |          |            |             |  |                 |            |   |  |   |            |  
|----------------------------------- |  | -------- | ---------- | ----------- |  | --------------- | ---------- | - |  | - | ---------- | -
|                                    |  |          |            |             |  | Office Products |            |   |  |  
|2003 Year to date                   |  | Printing |            | & Furniture |  | Total          
|                                    |  |          |            |             |  |                
|Revenues                            |  | $        | 51,606,315 |             |  | $               | 13,884,759 |   |  | $ | 65,491,074 |  
|Elimination of intersegment revenue |  |          | (5,095,621 | )           |  |                 | (2,447,325 | ) |  |   | (7,542,946 | )
|                                    |  |          |            |             |  |                 |            |   |  |   |            |  
|Consolidated revenues               |  | $        | 46,510,694 |             |  | $               | 11,437,434 |   |  | $ | 57,948,128 |  
|                                    |  |          |            |             |  |                 |            |   |  |   |            |  
|Operating income                    |  |          | 1,271,906  |             |  |                 | 109,398    |   |  |   | 1,381,304  |  
|Depreciation & amortization         |  |          | 1,957,040  |             |  |                 | 69,904     |   |  |   | 2,026,944  |  
|Capital expenditures                |  |          | 3,430,224  |             |  |                 | 59,341     |   |  |   | 3,489,565  |  
|Identifiable assets                 |  |          | 49,339,095 |             |  |                 | 9,275,736  |   |  |   | 58,614,831 |  
|Goodwill                            |  |          | 1,447,308  |             |  |                 | 286,442    |   |  |   | 1,733,750  |  

|                                    |  |          |            |             |  |                 |            |   |  |   |            |  
|----------------------------------- |  | -------- | ---------- | ----------- |  | --------------- | ---------- | - |  | - | ---------- | -
|                                    |  |          |            |             |  | Office Products |            |   |  |  
|2002 Year to date                   |  | Printing |            | & Furniture |  | Total          
|                                    |  |          |            |             |  |                
|Revenues                            |  | $        | 51,932,301 |             |  | $               | 14,511,253 |   |  | $ | 66,443,554 |  
|Elimination of intersegment revenue |  |          | (4,432,872 | )           |  |                 | (1,551,112 | ) |  |   | (5,983,984 | )
|                                    |  |          |            |             |  |                 |            |   |  |   |            |  
|Consolidated revenues               |  | $        | 47,499,429 |             |  | $               | 12,960,141 |   |  | $ | 60,459,570 |  
|                                    |  |          |            |             |  |                 |            |   |  |   |            |  
|Operating income                    |  |          | 1,604,743  |             |  |                 | 286,939    |   |  |   | 1,891,682  |  
|Depreciation & amortization         |  |          | 2,025,725  |             |  |                 | 48,371     |   |  |   | 2,074,096  |  
|Capital expenditures                |  |          | 2,084,184  |             |  |                 | 60,056     |   |  |   | 2,144,240  |  
|Identifiable assets                 |  |          | 50,222,660 |             |  |                 | 10,807,031 |   |  |   | 61,029,691 |  
|Goodwill                            |  |          | 1,062,926  |             |  |                 | 286,442    |   |  |   | 1,349,368  |  

12



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Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) (continued)

A reconciliation of total segment revenues and of total segment operating
income to income before income taxes, for the three and six months ended April
30, 2003 and 2002, is as follows:

|                                        |                                     |   |              |            |            |   |           |            |      |   |           |            |   |   |           |            |  
|--------------------------------------- | ----------------------------------- | - | ------------ | ---------- | ---------- | - | --------- | ---------- | ---- | - | --------- | ---------- | - | - | --------- | ---------- | -
|                                        |                                     |   | Three months |            | Six months
|                                        |                                     |   | 2003         |            | 2002       |   | 2003      |            | 2002
|                                        |                                     |   |              |            |            |   |           |            |     
|Revenues:                               |                                     |   |              |            |            |   |           |            |      |   |           |            |   |   |           |           
|                                        | Total segment revenues              |   | $            | 33,038,649 |            |   | $         | 33,626,889 |      |   | $         | 65,491,074 |   |   | $         | 66,443,554 |  
|                                        | Elimination of intersegment revenue |   |              | (3,709,462 | )          |   |           | (2,957,861 | )    |   |           | (7,542,946 | ) |   |           | (5,983,984 | )
|                                        |                                     |   |              |            |            |   |           |            |      |   |           |            |   |   |           |           
|                                        | Consolidated revenue                |   | $            | 29,329,187 |            |   | $         | 30,669,028 |      |   | $         | 57,948,128 |   |   | $         | 60,459,570 |  
|                                        |                                     |   |              |            |            |   |           |            |      |   |           |            |   |   |           |           
|Operating Income:                       |                                     |   |              |            |            |   |           |            |      |   |           |            |   |   |           |           
|                                        | Total segment operating income      |   | $            | 919,239    |            |   | $         | 1,372,876  |      |   | $         | 1,381,304  |   |   | $         | 1,891,682  |  
|                                        | Interest income                     |   |              | 595        |            |   |           | 3,271      |      |   |           | 2,048      |   |   |           | 9,784      |  
|                                        | Interest expense                    |   |              | (53,416    | )          |   |           | (118,105   | )    |   |           | (105,440   | ) |   |           | (230,559   | )
|                                        | Other income                        |   |              | 21,264     |            |   |           | 26,463     |      |   |           | 46,787     |   |   |           | 56,583     |  
|                                        |                                     |   |              |            |            |   |           |            |      |   |           |            |   |   |           |           
|Consolidated income before income
taxes |                                     | $ | 887,682      |            |            | $ | 1,284,505 |            |      | $ | 1,324,699 |            |   | $ | 1,727,490 |           
|                                        |                                     |   |              |            |            |   |           |            |      |   |           |            |   |   |           |           
|Identifiable assets:                    |                                     |   |              |            |            |   |           |            |      |   |           |            |   |   |           |           
|                                        | Total segment identifiable assets   |   | $            | 58,614,831 |            |   | $         | 61,029,691 |      |   | $         | 58,614,831 |   |   | $         | 61,029,691 |  
|                                        | Elimination of intersegment assets  |   |              |           |            |   |           |           |      |   |           |           |   |   |           |           |  
|                                        |                                     |   |              |            |            |   |           |            |      |   |           |            |   |   |           |           
|                                        | Total consolidated assets           |   | $            | 58,614,831 |            |   | $         | 61,029,691 |      |   | $         | 58,614,831 |   |   | $         | 61,029,691 |  
|                                        |                                     |   |              |            |            |   |           |            |      |   |           |            |   |   |           |           

13



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Champion Industries, Inc. and Subsidiaries

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following table sets forth, for the periods indicated, information derived
from the Consolidated Income Statements as a percentage of total revenues.

|                                             |                                      |                     |      |                              |       |                  |      |      |       |      |      |      |       |  |      |      |       | 
|-------------------------------------------- | ------------------------------------ | ------------------- | ---- | ---------------------------- | ----- | ---------------- | ---- | ---- | ----- | ---- | ---- | ---- | ----- |  | ---- | ---- | ----- | 
|                                             |                                      |                     |      | Percentage of Total Revenues |       |                 
|                                             |                                      |                     |      | Three Months Ended           |       | Six Months Ended
|                                             |                                      |                     |      | April 30,                    |       | April 30,       
|                                             |                                      |                     |      | 2003                         |       | 2002             |      | 2003 |       | 2002
|                                             |                                      |                     |      |                              |       |                  |      |      |       |     
|Revenues:                                    |                                      |                     |      |                              |       |                  |      |      |       |      |      |      |       |  |      |     
|                                             | Printing                             |                     |      | 81.5                         | %     |                  |      | 80.3 | %     |      |      | 80.3 | %     |  |      | 78.6 | %    
|                                             | Office products and office furniture |                     |      | 18.5                         |       |                  |      | 19.7 |       |      |      | 19.7 |       |  |      | 21.4 |      
|                                             |                                      |                     |      |                              |       |                  |      |      |       |      |      |      |       |  |      |     
|                                             |                                      | Total revenues      |      |                              | 100.0 |                  |      |      | 100.0 |      |      |      | 100.0 |  |      |      | 100.0 | 
|Cost of sales:                               |                                      |                     |      |                              |       |                  |      |      |       |      |      |      |       |  |      |     
|                                             | Printing                             |                     |      | 58.9                         |       |                  |      | 57.0 |       |      |      | 58.4 |       |  |      | 56.3 |      
|                                             | Office products and office furniture |                     |      | 12.1                         |       |                  |      | 13.5 |       |      |      | 13.3 |       |  |      | 15.0 |      
|                                             |                                      |                     |      |                              |       |                  |      |      |       |      |      |      |       |  |      |     
|                                             |                                      | Total cost of sales |      |                              | 71.0  |                  |      |      | 70.5  |      |      |      | 71.7  |  |      |      | 71.3  | 
|                                             |                                      |                     |      |                              |       |                  |      |      |       |      |      |      |       |  |      |     
|Gross profit                                 |                                      |                     | 29.0 |                              |       |                  | 29.5 |      |       |      | 28.3 |      |       |  | 28.7 |     
|Selling, general and administrative expenses |                                      |                     | 25.8 |                              |       |                  | 25.0 |      |       |      | 25.9 |      |       |  | 25.6 |     
|                                             |                                      |                     |      |                              |       |                  |      |      |       |      |      |      |       |  |      |     
|Income from operations                       |                                      |                     | 3.2  |                              |       |                  | 4.5  |      |       |      | 2.4  |      |       |  | 3.1  |     
|                                             | Interest income                      |                     |      | 0.0                          |       |                  |      | 0.0  |       |      |      | 0.0  |       |  |      | 0.1  |      
|                                             | Interest (expense)                   |                     |      | (0.2                         | )     |                  |      | (0.4 | )     |      |      | (0.2 | )     |  |      | (0.4 | )    
|                                             | Other income                         |                     |      | 0.1                          |       |                  |      | 0.1  |       |      |      | 0.1  |       |  |      | 0.1  |      
|                                             |                                      |                     |      |                              |       |                  |      |      |       |      |      |      |       |  |      |     
|Income before taxes                          |                                      |                     | 3.1  |                              |       |                  | 4.2  |      |       |      | 2.3  |      |       |  | 2.9  |     
|                                             | Income tax expense                   |                     |      | (1.3                         | )     |                  |      | (1.7 | )     |      |      | (1.0 | )     |  |      | (1.2 | )    
|                                             |                                      |                     |      |                              |       |                  |      |      |       |      |      |      |       |  |      |     
|Net income                                   |                                      |                     | 1.8  | %                            |       |                  | 2.5  | %    |       |      | 1.3  | %    |       |  | 1.7  | %   
|                                             |                                      |                     |      |                              |       |                  |      |      |       |      |      |      |       |  |      |     

Three Months Ended April 30, 2003 Compared to Three Months Ended April 30, 2002

Revenues

Total revenues decreased 4.4% in the second quarter of 2003 compared to the
same period in 2002 from $30.7 million to $29.3 million. Printing revenue
decreased 3.0% in the second quarter of 2003 to $23.9 million from $24.6
million in the second quarter of 2002. Office products and office furniture
revenue decreased 10.0% in the second quarter of 2003 to $5.4 million from $6.0
million in the second quarter of 2002. The revenue decrease was primarily
attributable to an industry-wide slowdown in office furniture sales, with
office furniture sales down approximately $670,000. The reduction in printing
sales was reflective of a continued sluggish market in most of the Companys
geographic regions.

Cost of Sales

Total cost of sales decreased 3.7% in the second quarter of 2003 to $20.8
million from $21.6 million in the second quarter of 2002. Printing cost of
sales in the second quarter of 2003 decreased $210,000 but increased as a
percentage of printing sales from 71.0% in 2002 to 72.3% in 2003 primarily due
to

14



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##### 



Champion Industries, Inc. and Subsidiaries

Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)

increased labor and overhead costs. Office products and office furniture cost
of sales decreased 14.2% or approximately $588,000 in 2003 to $3.6 million from
$4.1 million in 2002. The decrease in office products and office furniture cost
of sales is attributable to the lower sales discussed above and enhanced gross
margins for remaining office furniture sales.

Operating Expenses

In the first quarter of 2003, selling, general, and administrative expenses
decreased on a gross dollar basis to $7.6 million from $7.7 million in 2002 a
decrease of $88,000 or 1.2%. As a result of decreased sales, selling, general
and administrative expenses as a percentage of sales increased to 25.8% in 2003
from 25.0% in 2002.

The reduction in selling, general and administrative expenses is primarily due
to a decrease in bad debt expense resulting from a customer in bankruptcy who
will pay in full and lower legal expenses, partially offset by increased
insurance, information systems and payroll related costs.

Income from Operations and Other Income and Expenses

Income from operations decreased 33.0% in the second quarter of 2003 to
$919,000 from $1.4 million in the second quarter of 2002. This decrease is
primarily the result of decreased sales partially offset by a reduction in
selling, general and administrative expenses. Other expense (net), decreased
approximately $57,000 due to lower total interest expense resulting from a
decrease in total interest bearing debt.

Income Taxes

The Companys effective income tax rate was 41.8% for the second quarter of
2003 and 41.6% for the second quarter of 2002. The effective income tax rate
approximates the combined federal and state, net of federal benefit, statutory
income tax rate.

Net Income

Net income for the second quarter of 2003 was $517,000 compared to net income
of $751,000 in the second quarter of 2002. Basic and diluted earnings per
share for the three months ended April 30, 2003 and 2002 were $0.05 and $0.08.

Six Months Ended April 30, 2003 Compared to Six Months Ended April 30, 2002

Revenues

Total revenues decreased 4.2% in the first six months of 2003 compared to the
same period in 2002 to $57.9 million from $60.5 million. Printing revenue
decreased 2.1% in the six month period ended April 30, 2003 to $46.5 million
from $47.5 million in the same period in 2002. Office products and office
furniture revenue decreased 11.7% in the six month period ended April 30, 2003
to $11.4 million from $13.0 million in the same period in 2002. The revenues
in the printing and office products and office furniture segment decreased
primarily due to an overall sluggish market in most of the geographic regions
served by the Company. Office furniture sales accounted for $1.6 million of the
total sales decrease or 65%.

15



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##### 



Champion Industries, Inc. and Subsidiaries

Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)

Cost of Sales

Total cost of sales decreased 3.7% in the six months ended April 30, 2003 to
$41.5 million from $43.1 million in the six months ended April 30, 2002.
Printing cost of sales decreased 0.6% in the six months ended April 30, 2003 to
$33.8 million from $34.0 million in the six months ended April 30, 2002, due
primarily to the decrease in printing sales noted above. The printing cost of
sales decrease was partially offset by increased labor and overhead costs.
Office products and office furniture cost of sales decreased 15.2% in the six
months ended April 30, 2003 to $7.7 million from $9.1 million in the six months
ended April 30, 2002. The decrease in office products and office furniture cost
of sales is attributable to a decrease in office products and office furniture
sales coupled with enhanced gross margins for remaining furniture sales.

Operating Expenses

During the six months ended April 30, 2003 compared to the same period in 2002,
selling, general and administrative expenses increased slightly as a percentage
of sales to 25.9% from 25.6%. Total selling, general and administration
expensed decreased $417,000 primarily as a result of decreases in payroll
expenses, bad debt expense and telecommunication expenses. These decreases
were offset by increases in health and other insurance related costs.

Income from Operations and Other Income and Expenses

Income from operations decreased 27.0% in the six month period ended April 30,
2003 to $1.4 million from $1.9 million in the same period of 2002. This
decrease is primarily the result of lower sales partially offset by reductions
in selling, general and administration expenses. Other expense decreased
approximately $108,000 primarily due to lower total interest expense resulting
from a decrease in interest bearing debt.

Income Taxes

The Companys effective income tax rate was 41.8% for the six months ended
April 30, 2003, up from 41.6% in the same period of 2002. The effective income
tax rate approximates the combined federal and state, net of federal benefit,
statutory income tax rate and is partially impacted by the geographic
profitability mix of our operations.

Net Income

Net income for the first six months of 2003 decreased 23.5% to $771,230 from
$1,008,346 in the same period of 2002 due to the reasons discussed above. Basic
and diluted earnings per share for the six months ended April 30, 2003 and
2002, were $0.08 and $0.10.

Inflation and Economic Conditions

Management believes that the effect of inflation on the Companys operations
has not been material and will continue to be immaterial for the foreseeable
future. The Company does not have long-term sales and purchase contracts;
therefore, to the extent permitted by competition, it has the ability to pass
through to the customer most cost increases resulting from inflation, if any.

16



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##### 



Champion Industries, Inc. and Subsidiaries

Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)

Seasonality

Historically, the Company has experienced a greater portion of its
profitability in the second and fourth quarters than in the first and third
quarters. The second quarter generally reflects increased orders for printing
of corporate annual reports and proxy statements. A post-Labor Day increase in
demand for printing services and office products coincides with the Companys
fourth quarter.

Liquidity and Capital Resources

Net cash provided by operations for the six months ended April 30, 2003, was
$2.3 million compared to net cash provided by operations of $3.0 million during
the same period in 2002. This change in net cash from operations is due
primarily to lower net income in 2003 and a reduction of certain non-cash
charges to net income including depreciation and bad debt expense.

Net cash used in investing activities for the six months ended April 30, 2003
was $1.8 million compared to $2.0 million during the same period in 2002. The
net cash used in investing activities during the first six months of 2003 and
2002 primarily relates to purchases of property and equipment.

Net cash used in financing activities for the six months ended April 30, 2003
was $898,000 compared to $2.3 million during the same period in 2002. This
change is primarily due to $500,000 in additional borrowings on the Companys
line of credit, proceeds from term debt borrowings secured by equipment, and
lower principal payments in 2003.

Working capital on April 30, 2003 was $26.3 million, an increase of $275,000
from October 31, 2002. Management believes that working capital and operating
ratios remain at acceptable levels.

The Company purchased a building in Baton Rouge, Louisiana for an aggregate
purchase price of $1.8 million in March of 2003. As a result of this
transaction the Company entered into a term debt agreement with a bank for
$1,440,000 of the purchase price.

Even though the Company believes that the legal contingency (See Note 6 of the
Consolidated Financial Statements) that it faces will be resolved favorably,
the possibility for an adverse decision on appeal is also inherent in the legal
process. The Company believes that adequate liquidity is available to fund
this contingency, if required.

The Company expects that the combination of funds available from working
capital, borrowings available under the Companys credit facilities and
anticipated cash flows from operations will provide sufficient capital
resources for the foreseeable future. In the event the Company seeks to
accelerate internal growth or make acquisitions beyond these sources,
additional financing would be necessary.

Environmental Regulation

The Company is subject to the environmental laws and regulations of the United
States, and the states in which it operates, concerning emissions into the air,
discharges into the waterways and the generation, handling and disposal of
waste materials. The Companys past expenditures relating to environmental
compliance have not had a material effect on the Company. These laws and
regulations are constantly evolving, and it is impossible to predict accurately
the effect they may have upon the capital expendi-

17



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##### 



Champion Industries, Inc. and Subsidiaries

Managements Discussion and Analysis of Financial Condition
and Results of Operations (continued)

tures, earnings, and competitive position of the Company in the future. Based
upon information currently available, management believes that expenditures
relating to environmental compliance will not have a material impact on the
financial position of the Company.

Special Note Regarding Forward-Looking Statements

Certain statements contained in this Form 10-Q, including without limitation
statements including the word believes, anticipates, intends, expects
or words of similar import, constitute forward-looking statements within the
meaning of section 27A of the Securities Act of 1933, as amended (the
Securities Act), and section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements of the Company expressed
or implied by such forward-looking statements. Such factors include, among
others, general economic conditions, changes in business strategy or
development plans, and other factors referenced in this Form 10-Q. Given these
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.

ITEM 3a. Quantitative and Qualitative Disclosure About Market Risk

The Registrant is currently financing primarily with equity capital.
Therefore, changes in interest rates do not have a material impact on the
Companys Financial Statements.

ITEM 4. Controls and Procedures

Company management, including the Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer, has conducted an evaluation of the
effectiveness of disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14 as of a date within 90 days of the filing of this quarterly report.
Based on that evaluation, the Chief Executive Officer, Chief Operating Officer
and Chief Financial Officer concluded that the disclosure controls and
procedures are effective in ensuring that all material information required to
be filed in this quarterly report has been made known to them in a timely
fashion. There have been no significant changes in internal controls, or in
factors that could significantly affect internal controls, subsequent to the
date the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer completed their evaluation.

18



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##### 



Champion Industries, Inc. and Subsidiaries

PART II  OTHER INFORMATION

ITEM 4. Submission of Matters to a Vote of Security Holders

At the annual meeting of shareholders held March 17, 2003, the following
matters were voted upon:



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Fixing the number of directors at eight (8) and election of the following
nominees as directors, with votes for and withheld, as well as broker
non-votes, as follows:

|                      |  |             |                  |                  |  |  |        |  |  |    
|--------------------- |  | ----------- | ---------------- | ---------------- |  |  | ------ |  |  | ---
|Director              |  | Votes
For | Votes
Withheld | Broker Non-votes
|Robert H. Beymer      |  |             | 9,133,998        |                  |  |  | 24,032 |  |  | -0-
|Philip E. Cline       |  |             | 9,071,646        |                  |  |  | 86,384 |  |  | -0-
|Harley F. Mooney, Jr. |  |             | 9,139,148        |                  |  |  | 18,882 |  |  | -0-
|Todd L. Parchman      |  |             | 9,139,507        |                  |  |  | 18,523 |  |  | -0-
|A. Michael Perry      |  |             | 9,139,007        |                  |  |  | 19,023 |  |  | -0-
|Marshall T. Reynolds  |  |             | 9,077,929        |                  |  |  | 80,101 |  |  | -0-
|Neal W. Scaggs        |  |             | 9,137,847        |                  |  |  | 20,183 |  |  | -0-
|Glenn W. Wilcox, Sr.  |  |             | 9,141,447        |                  |  |  | 16,583 |  |  | -0-

Item 6. Exhibits and reports on Form 8-K



| | a) |  | Exhibits:
| | -- |  | ---------

| |  |  |      |  |  |                                                                                               
| |  |  | ---- |  |  | ----------------------------------------------------------------------------------------------
| |  |  | 99.1 |  |  | Certification pursuant to section 906 of the
Sarbanes-Oxley Act of 2002  Marshall T. Reynolds
| |  |  |      |  |  |                                                                                               
| |  |  | 99.2 |  |  | Certification pursuant to section 906 of the
Sarbanes-Oxley Act of 2002  Todd R. Fry         



| | b) |  | The following reports on Form 8-K were filed during the quarter for which this report is filed:
| | -- |  | -----------------------------------------------------------------------------------------------

None.

19



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##### 



SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

CHAMPION INDUSTRIES, INC.

|                    |  |                                               
|------------------- |  | ----------------------------------------------
|Date: June 12, 2003 |  | /s/ Marshall T. Reynolds

Marshall T. Reynolds
|                    |  | Chief Executive Officer                       
|                    |  |                                               
|Date: June 12, 2003 |  | /s/ Kirby J. Taylor

Kirby J. Taylor          
|                    |  | President and Chief Operating Officer         
|                    |  |                                               
|Date: June 12, 2003 |  | /s/ Todd R. Fry

Todd R. Fry                  
|                    |  | Vice President and Chief Financial Officer    

20



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##### 



CERTIFICATIONS

I, Marshall T. Reynolds, Chairman of the Board of Directors and Chief
Executive Officer of Champion Industries, Inc., certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Champion
Industries, Inc.;

2.    Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.    Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.    The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)    designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b)    evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c)    presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.    The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a)    all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b)    any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.    The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that

21



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##### 



could significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

|                    |  |                                                              
|------------------- |  | -------------------------------------------------------------
|Date: June 12, 2003 |  | /s/ Marshall T. Reynolds
                Marshall
T. Reynolds
|                    |  | Chairman of the Board of Directors and                       
|                    |  | Chief Executive Officer                                      

22



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##### 



CERTIFICATIONS

I, Todd R. Fry, Vice President and Chief Financial Officer of Champion
Industries, Inc., certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Champion
Industries, Inc.;

2.    Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.    Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.    The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)    designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b)    evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c)    presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.    The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a)    all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b)    any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.    The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that

23



---



##### 



could significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

|                    |  |                                            
|------------------- |  | -------------------------------------------
|Date: June 12, 2003 |  | /s/ Todd R. Fry
                Todd
R. Fry
|                    |  | Vice President and Chief Financial Officer 

24



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##### 



CERTIFICATIONS

I, Kirby J. Taylor, President and Chief Operating Officer of Champion
Industries, Inc., certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Champion
Industries, Inc.;

2.    Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.    Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.    The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)    designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b)    evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c)    presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.    The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a)    all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b)    any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.    The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that

25



---



##### 



could significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

|                    |  |                                                    
|------------------- |  | ---------------------------------------------------
|Date: June 12, 2003 |  | /s/ Kirby J. Taylor
                Kirby
J. Taylor
|                    |  | President and Chief Operating Officer              

26