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 January
      31, 2005
    
    Commission File No.
  0-21084
 
 
 
  
 
 **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
1 st 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. Yes  ü  No  .
 
 Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes  No  ü ..
 
 9,733,913 shares
of common stock of the Registrant were outstanding at January 31,
2005.
  
 ****
 **Champion
Industries, Inc.**
 
 **INDEX**
  
 **Page
      No.**Part I.  Financial InformationItem 1.    Financial StatementsConsolidated Balance Sheets (Unaudited)
    3Consolidated Statements of Income (Unaudited)
    5Consolidated Statements of Cash Flows (Unaudited)
    6Notes to Consolidated Financial Statements
    7Item 2.  Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
    13Item 3a.  Quantitative
      and Qualitative Disclosure About Market Risk
    16Item
      4.Controls
      and Procedures
    16Part
      II.Other
      InformationItem
      6.Exhibits
    17Signatures
    18
  2
 ****
 **PART
I - FINANCIAL INFORMATION**
 
 **Item
1. Financial Statements**
 
 **Champion
Industries, Inc. and Subsidiaries**
 **Consolidated
Balance Sheets**
 
 **ASSETS**
    
    **January
      31,**
    
    
    
    **October
      31,****2005**
      **(Unaudited)**
    
    
    
    **2004**
      **(Audited)**Current
      assets:Cash
      and cash equivalents
    
    **$
      4,340,042**
    
    
    
    $
      1,745,457Accounts
      receivable, net of allowance of$1,437,000
      and $1,422,000
    
    **17,965,402**
    
    
    
    21,318,016Inventories
    
    **11,098,798**
    
    
    
    11,269,514Other
      current assets
    
    **1,432,573**
    
    
    
    973,832Deferred
      income tax assets
    
    **1,144,943**
    
    
    
    1,144,943Total
      current assets
    
    **35,981,758**
    
    
    
    36,451,762Property
      and equipment, at cost:Land
    
    **2,006,375**
    
    
    
    2,006,375Buildings
      and improvements
    
    **8,319,543**
    
    
    
    8,253,573Machinery
      and equipment
    
    **43,770,959**
    
    
    
    43,228,587Equipment
      under capital leases
    
    **983,407**
    
    
    
    983,407Furniture
      and fixtures
    
    **3,431,688**
    
    
    
    3,361,100Vehicles
    
    **3,581,435**
    
    
    
    3,523,467**62,093,407**
    
    
    
    61,356,509Less
      accumulated depreciation
    
    **(41,978,613**
    **)**
    
    
    (41,020,327
    )**20,114,794**
    
    
    
    20,336,182Cash
      surrender value of officers’ life insurance
    
    **1,039,514**
    
    
    
    1,039,514Goodwill
    
    **2,060,786**
    
    
    
    2,060,786Other
      intangibles, net of accumulated amortization
    
    **3,726,571**
    
    
    
    3,812,051Other
      assets
    
    **333,064**
    
    
    
    449,589**7,159,935**
    
    
    
    7,361,940Total
      assets
    
    **$
      63,256,487**
    
    
    
    $
      64,149,884
 See notes
to consolidated financial statements.
 ****
 3
 ****
 **Champion
Industries, Inc. and Subsidiaries**
 **Consolidated
Balance Sheets (continued)**
 
 
 
 
 **LIABILITIES
      AND SHAREHOLDERS’ EQUITY**
    **January
      31,**
    
    **October
      31,****2005**
      **(Unaudited)**
    
    **2004**
      **(Audited)**Current
      liabilities:Accounts
      payable
    ****
    **$
      3,926,215**
    
    
    $
      3,618,051Accrued
      payroll
    
    **1,374,739**
    
    
    1,778,736Taxes
      accrued and withheld
    
    **1,408,691**
    
    
    1,289,524Accrued
      income taxes
    
    **310,897**
    
    
    135,556Accrued
      expenses
    
    **1,097,807**
    
    
    1,028,246Current
      portion of long-term debt:Notes
      payable
    
    **1,567,630**
    
    
    1,555,911Capital
      lease obligations
    
    **94,020**
    
    
    132,518Total
      current liabilities
    
    **9,779,999**
    
    
    9,538,542Long-term
      debt, net of current portion:Notes
      payable, line of credit
    
    **1,800,000**
    
    
    2,300,000Notes
      payable, term
    
    **5,544,696**
    
    
    5,940,323Capital
      lease obligations
    
    **-**
    
    
    16,484Other
      liabilities
    
    **429,192**
    
    
    428,366Deferred
      income tax liabilities
    
    **4,375,357**
    
    
    4,375,357Total
      liabilities
    
    **21,929,244**
    
    
    22,599,072Commitments
      and contingenciesShareholders’
      equity:Common
      stock, $1 par value, 20,000,000 shares authorized;
      9,733,913
      shares issued and outstanding
    
    ****
      **9,733,913**
    
    
    9,733,913Additional
      paid-in capital
    
    **22,278,110**
    
    
    22,278,110Retained
      earnings
    
    **9,315,220**
    
    
    9,538,789Total
      shareholders’ equity
    
    **41,327,243**
    
    
    41,550,812Total
      liabilities and shareholders’ equity
    ****
    **$
      63,256,487**
    
    
    $
      64,149,884
 
  
 
 See notes
to consolidated financial statements.
 
 4
 **Champion
Industries, Inc. and Subsidiaries**
 **Consolidated
Statements of Income**
 (Unaudited)
 
  **Three
      Months Ended January 31,****2005**
    
    
    **2004**Revenues:Printing
    ****
    **$
      24,436,621**
    
    
    $
      22,997,892Office
      products and office furniture
    
    **10,003,370**
    
    
    6,315,581Total
      revenues
    
    **34,439,991**
    
    
    29,313,473Cost
      of sales:Printing
    
    **17,877,263**
    
    
    17,023,500Office
      products and office furniture
    
    **7,004,263**
    
    
    4,324,101Total
      cost of sales
    
    **24,881,526**
    
    
    21,347,601Gross
      profit
    
    **9,558,465**
    
    
    7,965,872
 Selling,
      general and administrative expenses
    
    **9,025,372**
    
    
    7,921,054Income
      from operations
    
    **533,093**
    
    
    44,818Other
      income (expense):Interest
      income
    
    **5,066**
    
    
    1,618Interest
      expense
    
    **(137,365**
    **)**
    
    (46,679
    )Other
    
    **62,673**
    
    
    23,034**(69,626**
    **)**
    
    (22,027
    )Income
      before income taxes
    
    **463,467**
    
    
    22,791Income
      tax expense
    
    **(200,341**
    **)**
    
    (9,178
    )Net
      income
    ****
    **$
      263,126**
    
    
    $
      13,613Earnings
      per share:Basic
    ****
    **$
      0.03**
    
    
    $
      0.00Diluted
    ****
    **$
      0.03**
    
    
    $
      0.00Weighted
      average shares outstanding:Basic
    
    **9,734,000**
    
    
    9,717,000Diluted
    
    **9,802,000**
    
    
    9,826,000Dividends
      per share
    ****
    **$
      0.05**
    
    
    $
      0.05
 
 
 
 See notes
to consolidated financial statements.
 
 5
 ****
 **Champion
Industries, Inc. and Subsidiaries**
 **Consolidated
Statements of Cash Flows**
 (Unaudited)
 
 **Three
      Months Ended January 31,****2005**
    
    **2004****Cash
      flows from operating activities:**Net
      income
    
    **$**
    **263,126**
    
    $
    13,613Adjustments
      to reconcile net income to cash
      provided
      by operating activities:Depreciation
      and amortization
    
    
    **1,152,111**
    
    
    975,126Gain
      on sale of assets
    
    
    **(4,099**
    **)**
    
    (1,107
    )Increase
      in deferred compensation
    
    
    **1,787**
    
    
    2,681Bad
      debt expense
    
    
    **114,224**
    
    
    124,209Changes
      in assets and liabilities:Accounts
      receivable
    
    
    **3,238,390**
    
    
    3,192,173Inventories
    
    
    **170,716**
    
    
    397,129Other
      current assets
    
    
    **(458,741**
    **)**
    
    (488,819
    )Accounts
      payable
    
    
    **308,164**
    
    
    (845,735
    )Accrued
      payroll
    
    
    **(403,997**
    **)**
    
    (536,191
    )Taxes
      accrued and withheld
    
    
    **119,167**
    
    
    (125,986
    )Income
      taxes
    
    
    **175,341**
    
    
    (612,180
    )Accrued
      expenses
    
    
    **69,561**
    
    
    (137,423
    )Other
      liabilities
    
    
    **(961**
    **)**
    
    (3,735
    )Net
      cash provided by operating activities
    
    
    **4,744,789**
    
    
    1,953,755**Cash
      flows from investing activities:**Purchases
      of property and equipment
    
    
    **(855,535**
    **)**
    
    (1,009,258
    )Proceeds
      from sales of property
    
    
    **24,223**
    
    
    58,064Goodwill
      additions
    
    
    **—**
    
    
    (130,814
    )Decrease
      in cash surrender value life insurance
    
    
    **—**
    
    
    32,661Other
      assets
    
    
    **106,693**
    
    
    25,594Net
      cash used in investing activities
    
    
    **(724,619**
    **)**
    
    (1,023,753
    )**Cash
      flows from financing activities:**Borrowings
      on line of credit
    
    
    **993,000**
    
    
    1,000,000Payments
      on line of credit
    
    
    **(1,493,000**
    **)**
    
    (705,668
    )Principal
      payments on long-term debt
    
    
    **(438,890**
    **)**
    
    (266,985
    )Proceeds
      from exercise of stock options
    
    
    **—**
    
    
    10,520Dividends
      paid
    
    
    **(486,695**
    **)**
    
    (485,897
    )Net
      cash used in financing activities
    
    
    **(1,425,585**
    **)**
    
    (448,030
    )Net
      increase in cash and cash equivalents
    
    
    **2,594,585**
    
    
    481,972Cash
      and cash equivalents, beginning of period
    
    
    **1,745,457**
    
    
    2,171,713Cash
      and cash equivalents, end of period
    
    **$******
    ******4,340,042**
    
    $
    2,653,685
 
 
 See notes
to consolidated financial statements.
  6
 **Champion
Industries, Inc. and Subsidiaries**

**Notes
to Consolidated Financial Statements (Unaudited)**

**January
31, 2005**
 ****
 **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 of America (“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, 2004, and related notes thereto
contained in Champion Industries, Inc.’s Form 10-K dated January 17, 2005. The
accompanying interim financial information is unaudited. The balance sheet
information as of October 31, 2004 was derived from our audited financial
statements.
 
 **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 68,000 and 109,000
shares for the three months ended January 31, 2005 and 2004.
 
 **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:
 
 **January
      31,**
    
    **October
      31,****2005**
    
    **2004**Printing:Raw
      materials
    
    **$**
    **2,395,965**
    
    $
    2,326,821Work
      in process
    
    
    **2,058,221**
    
    
    1,998,824Finished
      goods
    
    
    **3,563,676**
    
    
    3,460,834Office
      products and office furniture
    
    
    **3,080,936**
    
    
    3,483,035**$**
    **11,098,798**
    
    $
    11,269,514
  7
 **Champion
Industries, Inc. and Subsidiaries**
**Notes
to Consolidated Financial Statements (Unaudited)
(continued)**
 ****
 **4.
Long-Term Debt**
 
 Long-term
debt consisted of the following:
 
 **January
      31,**
    
    **October
      31,****2005**
    
    **2004**Secured
      term note payable
      Installment
      notes payable to banks
    
    **$**
      ****
    **3,698,242**
      **3,414,084**
    
    $
    3,920,000
      3,576,234Capital
      lease obligations
    
    
    **94,020**
    
    
    149,002**7,206,346**
    
    
    7,645,236Less
      current portion
    
    
    **1,661,650**
    
    
    1,688,429Long-term
      debt, net of current portion
    
    **$**
    **5,544,696**
    
    $
    5,956,807
 
 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 the prime rate of
interest. The line of credit expires in July 2006 and contains certain
restrictive financial covenants. The Company had outstanding borrowings under
this facility of $1.8 million and $2.3 million at January 31, 2005 and October
31, 2004 .
 
 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 October 2005 and contains certain
financial covenants. There were no borrowings outstanding under this facility at
January 31, 2005 and October 31, 2004.
 
 There
were no non-cash financing activities for the three months ended January 31,
2005 and 2004.
 
 **5.
Shareholders’ Equity**
 
 The
Company paid a dividend of five cents per share on
December 31 , 2004 to
stockholders of record on
December 3, 2004.
Also, the Company declared a dividend of five cents per share to be paid on
March 28, 2005 to stockholders of record on March 11, 2005.
 
 **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
plaintiff 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 plaintiff
$1,745,000 in actual damages and $750,000 in punitive damages.
 
 On March
1, 2002, the plaintiff 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.
 
 The
Company appealed both the jury award and the attorney fee and expense award.
 
 8
 **Champion
Industries, Inc. and Subsidiaries**
**Notes
to Consolidated Financial Statements (Unaudited)
(continued)**
 
 The
Company was advised on February 3, 2004 that the Court of Appeals of the State
of Mississippi had reversed the aforementioned judgment and jury verdict
rendered against the Company and had remanded the case for new trial. The
plaintiff petitioned the appeals court for rehearing of its ruling on February
17, 2004. The Company’s response was filed on February 24, 2004.
 
 On June
22, 2004 the Company was advised that the Court of Appeals of the State of
Mississippi had upheld its February 3, 2004 reversal of the judgment and jury
verdict and its remand of the case for new trial and had denied plaintiff’s
petition for rehearing of that decision. Plaintiff filed a petition for writ of
certiorari with the Mississippi Supreme Court to contest the ruling of the Court
of Appeals on July 6, 2004. The Company filed a response to such petition on
July 27, 2004.
 
 The
Company was advised on September 16, 2004 that the Supreme Court of Mississippi
had upheld the Court of Appeals of the State of Mississippi’s February 3, 2004
reversal of the judgment and jury verdict rendered February 16, 2002 against the
Company and had upheld the reversal and remand of the case for new
trial.
 
 The
effect of the appeals courts orders of February 3, 2004 and June 22, 2004 and
the Mississippi Supreme Court’s denial of plaintiff’s petition for certiorari is
to negate the trial court’s award of damages and attorneys fees previously
granted against the Company, and grant a new trial on plaintiff’s
claims.
 
 As of
January 31, 2005 the Company had contractual obligations in the form of leases
and debt as follows:
 
 **Payments
      Due by Fiscal Year****Contractual
      Obligations**
    
    **2005**
    
    **2006**
    
    **2007**
    
    **2008**
    
    **2009**
    
    **Residual**
    
    **Total**Non-cancelable
      operating leases
    
    $
    1,047,867
    
    $
    1,220,998
    
    $
    945,183
    
    $
    701,474
    
    $
    253,340
    
    $
    -
    
    $
    4,168,862Revolving
      line of credit
    
    
    -
    
    
    1,800,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,800,000Term
      debt
    
    
    1,172,003
    
    
    1,561,364
    
    
    1,580,206
    
    
    1,583,979
    
    
    300,328
    
    
    914,446
    
    
    7,112,326Obligations
      under capital leases
    
    
    77,536
    
    
    16,484
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    94,020$
    2,297,406
    
    $
    4,598,846
    
    $
    2,525,389
    
    $
    2,285,453
    
    $
    553,668
    
    $
    914,446
    
    $
    13,175,208
 
 
 **7.** **Accounting
for Stock-Based Compensation**
 
 In
December 2004, the FASB issued SFAS No. 123R (revised 2004), *Share-Based
Payment* . This
statement revises SFAS No. 123, *Accounting
for Stock-Based Compensation* , and
requires companies to expense the value of employee stock options and similar
awards. The effective date of this standard is interim and annual periods
beginning after June 15, 2005.
 
 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.
 
 9
 **Champion
Industries, Inc. and Subsidiaries**
**Notes
to Consolidated Financial Statements (Unaudited)
(continued)**
 
 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 2004,
risk-free interest rates of 4.03%, dividend yields of 4.21%, volatility factors
of the expected market price of the Company's common stock of 54.0% and a
weighted-average expected life of the option of 4 years.
 
 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 ended January 31 are as
follows:
 
 
 **Quarter
      Ended January 31,****2005**
    
    **2004**Net
      income, as reported
    
    **$**
    **263,126**
    
    $
    13,613Deduct:
      Total stock-based employee compensation expense determined under fair
      value method for all awards, net of related tax effects
    
    
    **-**
    
    
    109,962Pro
      forma net income (loss)
    
    **$**
    **263,126**
    
    $
    (96,349
    )Earnings
      (loss) per share:Basic,
      as reported
    
    **$**
    **0.03**
    
    $
    0.00Basic,
      pro forma
    
    
    **0.03**
    
    
    (0.01
    )Diluted,
      as reported
    
    **$**
    **0.03**
    
    $
    0.00Diluted,
      pro forma
    
    
    **0.03**
    
    
    (0.01
    )
 
 Since the
Company had a pro-forma net loss as shown above for the three months ended
January 31, 2004 the dilutive effect of 109,000 stock options were anti-dilutive
on a pro-forma basis for the three months ended January 31, 2004.
 
 **8.
Acquisitions**
 
 On
September 7, 2004 the Company acquired all the issued and outstanding capital
stock of Syscan Corporation (“Syscan”), a West Virginia corporation, for a cash
price of $3,500,000 and a contingent purchase price, dependent upon satisfaction
of certain conditions, not to exceed the amount of $1,500,000.
 
 The
Williams Land Corporation has the option to put the 3000 Washington Street
building occupied by Syscan to the Company for a price of $1.5 million and the
Company has the option to purchase the building for $1.5 million at the
conclusion of the five year lease term commencing September 1, 2009. This option
may be exercised no later than 60 days prior to the end of the lease and closing
of said purchase cannot exceed 45 days for the end of the lease.
 
 10
 **Champion
Industries, Inc. and Subsidiaries**
**Notes
to Consolidated Financial Statements (Unaudited)
(continued)**
 
 **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 months ended
January 31:
 
 **Office
      Products****2005
      Quarter 1**
    
    **Printing**
    
    **&
      Furniture**
    
    **Total**Revenues
    
    $
    28,085,977
    
    $
    11,528,769
    
    $
    39,614,746Elimination
      of intersegment revenue
    
    
    (3,649,356
    )
    
    (1,525,399
    )
    
    (5,174,755
    )Consolidated
      revenues
    
    $
    24,436,621
    
    $
    10,003,370
    
    $
    34,439,991Operating
      income
    
    
    271,729
    
    
    261,364
    
    
    533,093Depreciation
      & amortization
    
    
    1,072,454
    
    
    79,657
    
    
    1,152,111Capital
      expenditures
    
    
    782,748
    
    
    72,787
    
    
    855,535Identifiable
      assets
    
    
    53,108,233
    
    
    10,148,254
    
    
    63,256,487Goodwill
    
    
    1,774,344
    
    
    286,442
    
    
    2,060,786****
    
    
    **Office
      Products****2004
      Quarter 1**
    
    
    **Printing**
    
    
    **&
      Furniture**
    
    
    **Total**Revenues
    
    $
    25,530,021
    
    $
    7,689,954
    
    $
    33,219,975Elimination
      of intersegment revenue
    
    
    (2,532,129
    )
    
    (1,374,373
    )
    
    (3,906,502
    )Consolidated
      revenues
    
    $
    22,997,892
    
    $
    6,315,581
    
    $
    29,313,473Operating
      income (loss)
    
    
    177,384
    
    
    (132,566
    )
    
    44,818Depreciation
      & amortization
    
    
    961,696
    
    
    13,430
    
    
    975,126Capital
      expenditures
    
    
    993,549
    
    
    15,709
    
    
    1,009,258Identifiable
      assets
    
    
    45,995,910
    
    
    9,779,939
    
    
    55,775,849Goodwill
    
    
    1,774,344
    
    
    286,442
    
    
    2,060,786
 
 
 11
 **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 months ended January 31, 2005 and
2004, is as follows:
 
 **Three
      Months Ended January 31,****2005**
    
    **2004**Revenues:Total
      segment revenues
    
    **$**
    **39,614,746**
    
    $
    33,219,975Elimination
      of intersegment revenue
    
    
    **(5,174,755**
    **)**
    
    (3,906,502
    )Consolidated
      revenue
    
    **$**
    **34,439,991**
    
    $
    29,313,473Operating
      income:Total
      segment operating income
    
    **$**
    **533,093**
    
    $
    44,818****Interest
      income
    
    
    **5,066**
    
    
    1,618Interest
      expense
    
    
    **(137,365**
    **)**
    
    (46,679
    )Other
      income
    
    
    **62,673**
    
    
    23,034Consolidated
      income before income taxes
    
    **$**
    **463,467**
    
    $
    22,791Identifiable
      assets:Total
      segment identifiable assets
    
    **$**
    **63,256,487**
    
    $
    55,775,849Elimination
      of intersegment assets
    
    
    **—**
    
    
    —Total
      consolidated assets
    
    **$**
    **63,256,487**
    
    $
    55,775,849
 ****
 12
 **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.
 
 Three
      Months Ended January 31,**2005**
    
    2004($
      in thousands)Revenues:Printing
    
    
    
    
    **$**
    **24,437**
    
    
    **71.0**
    **%**
    
    $
    22,998
    
    
    78.5
    %Office
      products and office furniture
    
    
    
    
    
    **10,003**
    
    
    **29.0**
    
    
    
    6,316
    
    
    21.5Total
      revenues
    
    
    
    
    
    **34,440**
    
    
    **100.0**
    
    
    
    29,314
    
    
    100.0Cost
      of sales:Printing
    
    
    
    
    
    **17,878**
    
    
    **51.9**
    
    
    
    17,024
    
    
    58.1Office
      products and office furniture
    
    
    
    
    
    **7,004**
    
    
    **20.3**
    
    
    
    4,324
    
    
    14.7Total
      cost of sales
    
    
    
    
    
    **24,882**
    
    
    **72.2**
    
    
    
    21,348
    
    
    72.8Gross
      profit
    
    
    
    
    
    **9,558**
    
    
    **27.8**
    
    
    
    7,966
    
    
    27.2Selling,
      general and administrative expenses
    
    
    
    
    
    **9,025**
    
    
    **26.2**
    
    
    
    7,921
    
    
    27.0Income
      from operations
    
    
    
    
    
    **533**
    
    
    **1.6**
    
    
    
    45
    
    
    0.2Interest
      income
    
    
    
    
    
    **5**
    
    
    **0.0**
    
    
    
    2
    
    
    0.0Interest
      expense
    
    
    
    
    
    **(137**
    **)**
    
    **(0.4**
    **)**
    
    
    (47
    )
    
    (0.1
    )Other
      income
    
    
    
    
    
    **62**
    
    
    **0.2**
    
    
    
    23
    
    
    0.0Income
      before taxes
    
    
    
    
    
    **463**
    
    
    **1.4**
    
    
    
    23
    
    
    0.1Income
      taxes
    
    
    
    
    
    **(200**
    **)**
    
    **(0.6**
    **)**
    
    
    (9
    )
    
    (0.0
    )Net
      income
    
    
    
    
    **$**
    **263**
    
    
    **0.8**
    **%**
    
    $
    14
    
    
    0.1
    %
 ****
 **Three
Months Ended January 31, 2005 Compared to Three Months Ended January 31,
2004**
 
 *Revenues*
 
 Total
revenues increased 17.5% in the first quarter of 2005 compared to the same
period in 2004 from $29.3 million to $34.4 million. Printing revenue increased
6.3% in the first quarter of 2005 to $24.4 million from $23.0 million in the
first quarter of 2004. Office products and office furniture revenue increased
58.4% in the first quarter of 2005 to $10.0 million from $6.3 million in the
first quarter of 2004. The revenue increase for the office products and office
furniture segment was attributable to an increase in furniture sales in 2005 due
in part to the additional sales derived from the purchase of Syscan coupled with
organic growth and additional office product sales resulting from the Syscan
acquisition. The increase in printing sales was primarily due to additional
sales derived from the Syscan acquisition.
 
 13
 **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 increased 16.6% in the first quarter of 2005 to $24.9 million from
$21.3 million in the first quarter of 2004. Printing cost of sales in the first
quarter of 2005 increased $854,000 over the prior year and decreased as a
percentage of printing sales from 74.0% in 2004 to 73.2% in 2005 primarily due
to improved market pricing integrity. The printing gross margin dollar increase
resulted from both increased sales volume and improved market pricing integrity.
Office products and office furniture cost of sales increased 62.0% or
approximately $2.7 million in 2005 to $7.0 million from $4.3 million in 2004 and
increased as a percent of sales from 68.5% in 2004 to 70.0% in 2005. The
increase in office products and office furniture cost of sales is attributable
to the increase in sales. The increase in office products and office furniture
cost of sales as a percent of sales is reflective of decreased margins due in
part to wholesale pricing factors at Syscan for office supplies.
 
 *Operating
Expenses*
 
 In the
first quarter of 2005, selling, general and administrative expenses increased on
a gross dollar basis to $9.0 million from $7.9 million in 2004, an increase of
$1.1 million or 13.9%. As a percentage of sales the expenses decreased on a
quarter to quarter basis in 2005 to 26.2% from 27.0% in 2004 of total
sales.
 
 The
increase in selling, general and administrative expenses is primarily the result
of additional costs incurred as a result of the acquisition of Syscan in
September 2004.
 
 *Income
from Operations and Other Income and Expenses*
 
 Income
from operations increased in the first quarter of 2005 to $533,000 from $45,000
in the first quarter of 2004. This increase is the result of increased sales and
gross profit, coupled with a decrease in selling, general and administrative
expenses as a percent of sales. Other expense (net), increased approximately
$48,000 from 2004 to 2005 primarily due to increases in interest expense
resulting from higher outstanding borrowings and increased interest
rates.
 
 *Income
Taxes*
 
 The
Company’s effective income tax rate was 43.2% for the first  quarter
of 2005 and 40.3% for the first quarter of 2004. The increase in income taxes as
a percentage of income before taxes is primarily related to the nondeductibility
of certain selling related expenses. 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 first  quarter
of 2005 was $263,000 compared to net income of $14,000 in the first  quarter
of 2004. Basic and diluted earnings per share for the three months ended January
31, 2005 and 2004 were $0.03 and $0.00.
 
 **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
 
 14
 **Champion
Industries, Inc. and Subsidiaries**
 
 **Management’s
Discussion and Analysis of Financial Condition**
 **and
Results of Operations (continued)**
 
 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.
 
 **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 in-creased 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 three months ended January 31, 2005, was $4.7
million compared to net cash provided by operations of $2.0 million during the
same period in 2004. This change in net cash from operations is due primarily to
timing changes in assets and liabilities, including an increase in accounts
payable in 2005 compared to a decrease in accounts payable in 2004 and
additional tax payments during the first quarter of 2004 compared to the first
quarter of 2005.
 
 Net cash
used in investing activities for the three months ended January 31, 2005 was
$725,000 compared to $1.0 million during the same period in 2004. The net cash
used in investing activities during the first three months of 2005 primarily
relates to equipment and vehicle purchases and for the first three months of
2004 primarily relates to equipment, vehicle purchases and building
improvements.
 
 Net cash
used in financing activities for the three months ended January 31, 2005 was
$1.4 million compared to $448,000 during the same period in 2004. This change is
primarily due to net payments on the Company’s line of credit of $500,000
compared with net borrowings of approximately $300,000 in 2004 and a $172,000
increase in principal payments in 2005 on term debt.
 
 The
Company’s off balance sheet arrangements at January 31, 2005 relate to the
Syscan acquisition and are associated with potential contingent purchase price
consideration of $1.5 million payable in October 2006 and a put option from
Williams Land Corporation to sell a building to the Company for $1.5 million.
This option may be exercised no later than 60 days prior to the end of the lease
and closing of said purchase cannot exceed 45 days from the end of the lease.
The lease term concludes effective September 1, 2009.
 
 Working
capital on January 31, 2005 was $26.2 million, a decrease of $700,000 from
October 31, 2004. Management believes that working capital and operating ratios
remain at acceptable levels.
 
 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,
  15
 **Champion
Industries, Inc. and Subsidiaries**

**Management’s
Discussion and Analysis of Financial Condition**
**and
Results of Operations (continued)**
  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 expenditures, 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
Company does not have any significant exposure relating to market
risk.
  **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-15c as of
the end of the period covered by 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 were no
changes in internal controls over financial reporting during the last fiscal
quarter that have materially affected or are reasonably likely to materially
affect the Company’s internal controls over financial reporting.
 
 16
 ****
 ****
 **PART
II - OTHER INFORMATION**
 **Item
6. Exhibits**
 a)
    Exhibits:
 (31.1)
    Principal
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley act of 2002 - Marshall T. Reynolds
    Exhibit
      31.1 Page Exhibit 31.1-p1(31.2)
    Principal
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley act of 2002 - Todd R. Fry
    Exhibit
      31.2 Page Exhibit 31.2-p1(31.3)
    Principal
      Operating Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley act of 2002 - Toney K. Adkins
    Exhibit
      31.3 Page Exhibit 31.3-p1(32)
    Marshall
      T. Reynolds, Todd R. Fry and Toney K. Adkins Certification Pursuant to 18
      U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley act of 2002
    Exhibit
      32 Page Exhibit 32-p1
 ****
 17
 
 **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:
      March11,
      2005
    /s/
      Marshall T. ReynoldsMarshall
      T. ReynoldsChief
      Executive OfficerDate:
      March11,
      2005
    /s/
      Toney K. AdkinsToney
      K. AdkinsPresident
      and Chief Operating OfficerDate:
      March11,
      2005
    /s/
      Todd R. FryTodd
      R. FrySenior
      Vice President and Chief Financial Officer
 
 
 18