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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

|  |  |                                                                                     
|- |  | ------------------------------------------------------------------------------------
|ý |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended October 31, 2002

OR

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

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          |  | (I.R.S. Employer Identification No.)
|incorporation or organization)           |  |                                     
|                                         |  |                                     
|2450 First Avenue                        |  |                                     
|P.O. Box 2968                            |  |                                     
|Huntington, West Virginia                |  | 25728                               
|                                         |  |                                     
|                                         |  |                                     
|(Address of Principal Executive Offices) |  | (Zip Code)                          

Registrants telephone number, including area code: (304) 528-2700

Securities registered pursuant to Section 12(b) of Act: None

Securities registered pursuant to Section 12(g) of Act: Common Stock, $1.00 par
value

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





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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 ý      No o
| | ---------------

Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.

| | o
| | -

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

| | Yes o      No ý
| | ---------------

The aggregate market value of the voting stock of the registrant held by
non-affiliates as of January 10, 2003, was $14,703,893 of Common Stock, $1.00
par value. The outstanding common stock of the Registrant at the close of
business on January 10, 2003 consisted of 9,713,913 shares of Common Stock,
$1.00 par value.

Total number of pages including cover page  108

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registration statement on
Form S-2/A No. 333-47585, filed on March 16, 1998, are incorporated by
reference into Part IV, Item 14. Portions of the Registrants definitive proxy
statement dated February 14, 2003 with respect to its Annual Meeting of
Shareholders to be held on March 17, 2003 are incorporated by reference into
Part III, Items 10-13. Exhibit Index located on pages 30-37.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report or in documents
incorporated herein by reference, 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 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 and business conditions, changes in business strategy or development
plans, and other factors referenced in this Annual Report, including without
limitations under the captions Managements Discussion and Analysis of
Financial Condition and Results of Operations, and Business. Given these
uncertainties, prospective investors 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.

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PART I

ITEM 1  BUSINESS

HISTORY

Champion Industries, Inc. (Champion or the Company) is a major
commercial printer, business forms manufacturer and office products and office
furniture supplier in regional markets east of the Mississippi River. The
Companys sales offices and production facilities are located in Huntington,
Charleston, Parkersburg, Clarksburg, and Morgantown, West Virginia; Lexington
and Owensboro, Kentucky; Baton Rouge, New Orleans and Gonzales, Louisiana;
Cincinnati, Ohio; Jackson, Mississippi; Baltimore, Maryland; Kingsport and
Knoxville, Tennessee; Evansville, Indiana; Bridgeville and Altoona,
Pennsylvania; and Asheville, North Carolina. The Companys sales force of
approximately 130 salespeople sells printing services, business forms
management services, office products and office furniture.

The Company was chartered as a West Virginia corporation on July 1, 1992.
Prior to the public offering of the Companys Common Stock on January 28, 1993
(the Offering), the Companys business was operated by The Harrah and
Reynolds Corporation (Harrah and Reynolds), doing business as Chapman
Printing Company, together with its wholly-owned subsidiaries, The Chapman
Printing Company, Inc. and Stationers, Inc. Incident to the Offering, Harrah
and Reynolds and the Company entered into an Exchange Agreement, pursuant to
which, upon the closing date of the Offering: (i) Harrah and Reynolds
contributed to the Company substantially all of the operating assets of its
printing division, including all inventory and equipment (but excluding any
real estate and vehicles) and all issued and outstanding capital stock of its
subsidiaries, The Chapman Printing Company, Inc. and Stationers, Inc.; (ii) the
Company assumed certain of the liabilities relating to the operations of the
printing divisions of Harrah and Reynolds and its subsidiaries, The Chapman
Printing Company, Inc. and Stationers, Inc., excluding debts associated with
real estate, certain accounts payable to affiliates and certain other
liabilities; and (iii) Harrah and Reynolds was issued 2,000,000 shares of
Common Stock of the Company.

The Company and its predecessors have been headquartered in Huntington
since 1922. Full scale printing facilities, including web presses for
manufacturing business forms, and sales and customer service operations are
located in Huntington. The Companys Charleston division was established in
1974 through the acquisition of the printing operations of Rose City Press.
Sales and customer service operations, as well as the pre-press departments,
are located in Charleston. The Parkersburg division opened in 1977 and was
expanded by the acquisitions of Park Press and McGlothlin Printing Company. In
addition to sales and customer service operations, this division houses a large
full-color printing facility and a state-of-the-art studio, with scanners,
electronic color retouching equipment and 4-, 5- and 6-color presses.

The Lexington division commenced operations in 1983 upon the acquisition
of the Transylvania Company. This location includes a pre-press department,
computerized composition facilities, as well as sales and customer service
operations.

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The Company acquired Stationers, Inc. (Stationers), an office product,
office furniture and retail bookstore operation located in Huntington, in 1987
and consolidated its own office products and office furniture operations with
Stationers. On August 30, 1991, Stationers, Inc. sold the assets, primarily
inventory and fixtures, of its retail bookstore operation. In July 1993,
Stationers expanded through acquisition and began operations in Marietta, Ohio,
under the name Garrison Brewer. The Companys Garrison Brewer operation was
relocated across the Ohio river to the nearby Chapman Printing Parkersburg
location in 2002.

The Bourque Printing division (Bourque) commenced operations in June,
1993, upon the acquisition of Bourque Printing, Inc. in Baton Rouge, Louisiana.
This location includes a pre-press department, computerized composition
facilities, a pressroom with up to 4-color presses and a bindery department, as
well as sales and customer service operations. Bourque was expanded through the
acquisition of Strother Forms/Printing in Baton Rouge in 1993, through the
acquisition of the assets of E. S. Upton Printing Company, Inc. in New Orleans
in 1996 and through the acquisition of Transdata Systems, Inc. in Baton Rouge
and New Orleans in 2001.

The Dallas Printing division (Dallas or Champion Jackson) commenced
operations in September, 1993, upon the acquisition of Dallas Printing Company,
Inc. in Jackson, Mississippi. This location includes a pre-press department,
computerized composition facilities, as well as sales and customer service
operations.

On November 2, 1993, a wholly-owned subsidiary of the Company chartered to
effect such acquisition purchased selected assets of Tri-Star Printing, Inc., a
Delaware corporation doing business as Carolina Cut Sheets in the manufacture
and sale of business forms in Timmonsville, South Carolina. The Companys
subsidiary has changed its name to Carolina Cut Sheets, Inc. Carolina Cut
Sheets manufactures single-part business forms for sale to dealers and through
the Companys other divisions.

On February 25, 1994, Bourque acquired certain assets of Spectrum Press
Inc. (Spectrum), a commercial printer located in Baton Rouge, Louisiana.

On June 1, 1994, the Company acquired certain assets of Premier Data
Graphics, a distributor of business forms and data supplies located in
Clarksburg, West Virginia.

On August 30, 1994, Dallas acquired certain assets of Premier Printing
Company, Inc. (Premier Printing) of Jackson, Mississippi.

On June 1, 1995, in exchange for issuance of 52,383 shares of its common
stock, the Company acquired U.S. Tag & Ticket Company, Inc. (U.S. Tag), a
Baltimore, Maryland based manufacturer of tags used in the manufacturing,
shipping, postal, airline and cruise industries.

On November 13, 1995, in exchange for $950,000 cash and the issuance of
66,768 shares of its common stock, the Company acquired Donihe Graphics, Inc.
(Donihe), a high-volume color printer based in Kingsport, Tennessee.

On February 2, 1996, Bourque purchased various assets and assumed certain
liabilities of E.S. Upton Printing Company, Inc. (Upton) for approximately
$750,000 in cash.

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On July 1, 1996, the Company acquired Smith & Butterfield Co., Inc.
(Smith & Butterfield), an office products company located in Evansville,
Indiana and Owensboro, Kentucky. Smith & Butterfield is operated as a division
of Stationers, Inc. The Company issued 66,666 shares of common stock valued at
$1,200,000 in exchange for all of the issued and outstanding shares of common
stock of Smith & Butterfield.

On August 21, 1996, the Company purchased the assets of The Merten Company
(Merten), a commercial printer headquartered in Cincinnati, Ohio, for cash
and assumption of liabilities aggregating $2,535,295.

On December 31, 1996, the Company acquired all outstanding capital stock
of Interform Corporation (Interform), a business form manufacturer in
Bridgeville, Pennsylvania, for $2,500,000 in cash which was financed by a bank.

On May 21, 1997, the Company acquired all outstanding common shares of
Blue Ridge Printing Co., Inc. of Asheville, North Carolina and Knoxville,
Tennessee (Blue Ridge) in exchange for 277,775 shares of the Companys common
stock. The transaction has been accounted for as a pooling of interests.

On February 2, 1998, the Company acquired all outstanding common shares of
Rose City Press (Rose City) of Charleston, West Virginia, in exchange for
75,722 shares of the Companys common stock valued at $1,250,000.

On May 18, 1998, the Company acquired all outstanding common shares of
Capitol Business Equipment, Inc. (Capitol), doing business as Capitol
Business Interiors, of Charleston, West Virginia, in exchange for 72,202 shares
of the Companys common stock valued at $1,000,000.

On May 29, 1998, the Company acquired all outstanding common shares of
Thompsons of Morgantown, Inc. and Thompsons of Barbour County, Inc.
(collectively, Thompsons or Champion Morgantown) of Morgantown, West
Virginia, in exchange for 45,473 shares of the Companys common stock valued at
$600,000.

Rose City, Capitol and Thompsons are operated as divisions of Stationers.

On June 1, 1999, the Company acquired all of the issued and outstanding
common stock of Independent Printing Service, Inc. (IPS) of Evansville,
Indiana. IPS is operated as a division of Smith & Butterfield. This transaction
was accounted for under the purchase method.

On July 16, 1999, the Companys Blue Ridge subsidiary acquired certain
assets and assumed certain liabilities of AIM Printing (AIM) of Knoxville,
Tennessee. This transaction was accounted for under the purchase method.

On November 30, 1999, the Company acquired all of the issued and
outstanding common stock of Diez Business Machines (Diez) of Gonzales,
Louisiana. This transaction was accounted for as a purchase. Diez is operated
as a subsidiary of Stationers.

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On November 6, 2000, the Company acquired certain assets of the
Huntington, West Virginia paper distribution division of the Cincinnati Cordage
Paper Company (Cordage). This transaction was accounted for under the
purchase method. On April 30, 2001, the Company entered into a strategic
alliance with Xpedx resulting in the assumption by Xpedx of the Cordage
customer list and the sale of certain inventory items.

On October 10, 2001, the Company acquired Transdata Systems, Inc.
(Transdata) of Baton Rouge and New Orleans, Louisiana. This transaction was
accounted for under the purchase method of accounting.

BUSINESS

Champion is engaged in the commercial printing and office products and
furniture supply business in regional markets east of the Mississippi River.
The Companys sales force sells a full range of printing services, business
forms, office products and office furniture. Management views these sales
activities as complementary since frequent customer sales calls required for
one of its products or services provide opportunities to cross-sell other
products and services. The Company believes it benefits from significant
customer loyalty and customer referrals because it provides personal service,
quality products, convenience and selection with one-stop shopping.

The Companys printing services range from the simplest to the most
complex jobs, including business cards, books, tags, brochures, posters, 4- to
6-color process printing and multi-part, continuous and snap-out business
forms. The Companys state-of-the-art equipment enables it to provide
computerized composition, art design, paste-up, stripping, film assembly and
color scanner separations. The Company also offers complete bindery and
letterpress services. The printing operations contributed $95.2 million, $98.1
million and $96.7 million or 77.5%, 78.4% and 76.5% of the Companys total
revenues for the fiscal years ended October 31, 2002, 2001 and 2000.

The Company provides a full range of office products and office furniture
primarily in the budget and middle price ranges, and also offers office design
services. The Company publishes a catalog of high volume, frequently ordered
items purchased directly from manufacturers. These catalog sales account for
the bulk of sales volume and afford sales personnel flexibility in product
selection and pricing. Medium to large volume customers are offered levels of
pricing discounts. In addition, the Company offers a broad line of general
office products through major wholesalers national catalogs. The Company has
implemented an Internet e-commerce site, which allows customers to order office
products, furniture and forms online. The e-commerce site includes the office
products and office furniture catalog, which is customized specifically for
each customer requesting Internet e-commerce access. In addition the Company
offers customized on-line forms management solutions through www.cgc1.com. The
Company believes that their e-commerce sites will allow customers to access
data concerning their companys purchase habits so as to better control
expenditures for office products and business forms and eliminate large
in-house inventories. The Company is a member of a major office products
purchasing organization. Members benefit from volume discounts,

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which permit them to offer competitive prices and improve margins. The
Companys office furniture business focuses on the budget to middle price range
lines, although upscale lines are offered as well. Office products, office
furniture and office design operations contributed $27.7 million, $27.0 million
and $29.7 million, or 22.5%, 21.6% and 23.5% of the Companys total revenues
for the fiscal years ended October 31, 2002, 2001 and 2000.

ORGANIZATION

Champions two lines of business are comprised of twenty-three operating
divisions. The Huntington headquarters provides centralized financial
management and administrative services to each of its two business segments.

Commercial Printing

Eleven commercial printing divisions are located in Huntington, Charleston
and Parkersburg, West Virginia; Lexington, Kentucky; Baton Rouge and New
Orleans, Louisiana; Jackson, Mississippi; Cincinnati, Ohio; Kingsport and
Knoxville, Tennessee; and Asheville, North Carolina. Each has a sales force, a
customer service operation and a pre-press department that serve the customers
in their respective geographic areas. Although each customers interface is
solely with its local divisions personnel, its printing job may be produced in
another division using the equipment most suited to the quality and volume
requirements of the job. In this way, for example, Champion can effectively
compete for high quality process color jobs in Lexington by selling in
Lexington, printing in Cincinnati and binding in Huntington. The full range of
printing resources is available to customers in the entire market area without
Champion having to duplicate equipment in each area.

Interform Corporation, doing business as Interform Solutions and located
in Bridgeville, Pennsylvania, manufactures business forms and related products,
which it sells through a network of independent distributors concentrated in
Eastern Pennsylvania, New Jersey and metropolitan New York.

Consolidated Graphic Communications division in Pittsburgh, Pennsylvania
operates as a full line printing and printing services distributor. The
division offers complete print management, fulfillment services and B2B
e-commerce solutions.

Carolina Cut Sheets, Inc., located in Huntington, West Virginia,
manufactures single sheet business forms which are sold to other commercial
printers and dealers and through the Companys other divisions.

The Huntington, West Virginia division of Chapman Printing Company
manufactures single sheet and multi-part, snap-out and continuous business
forms for sale through many of the Companys commercial printing divisions.

U.S. Tag, located in Baltimore, Maryland, manufactures and sells tags used
in the manufacturing, shipping, postal, airline and cruise industries
throughout the United States through dealers and the Companys other divisions.

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Transdata, located in Baton Rouge and New Orleans, Louisiana, operates as
a subsidiary of Bourque Printing performing sales and customer service
functions.

Office Products, Office Furniture and Office Design

Stationers, located in Huntington, Clarksburg (doing business as Champion
Clarksburg), Morgantown (through its Champion Morgantown division) and
Parkersburg, West Virginia (doing business as Garrison Brewer), provides
office products and office furniture primarily to customers in the Companys
West Virginia, Ohio and Kentucky market areas. Products are sold by printing
division salespeople and delivered in bulk daily to each division, or shipped
directly to customers.

Smith & Butterfield, located in Evansville, Indiana and Owensboro,
Kentucky, provides office products and office furniture primarily to customers
in the Companys Indiana and Kentucky market areas. Products are sold by Smith
& Butterfield sales personnel and delivered to customers daily.

Diez, located in Gonzales, Louisiana, provides office products and office
furniture primarily to customers in the Companys Louisiana market area.

Stationers, through its Capitol division, offers office design services
throughout West Virginia and eastern Kentucky.

Champion Jackson located in Jackson, Mississippi functions as both a
printing sales headquarters with full digital prepress and an office products
sales center.

PRODUCTS AND SERVICES

Printing Services

Champions primary business is commercial printing and business forms
manufacturing. The Company, unlike most of its regional competitors, offers the
full range of printing production processes, enabling the Company to provide
customers a one-stop, one-vendor source without the time and service
constraints of subcontracting one or more aspects of production. Major
production areas include: (i) printing of business cards, letterhead,
envelopes, and one, two, or three color brochures; (ii) process color
manufacturing of brochures, posters, advertising sheets and catalogues; (iii)
die cutting and foil stamping; (iv) bindery services, including trimming,
collating, folding and stitching the final product; (v) forms printing,
encompassing roll-to-roll computer forms, checks, invoices, purchase orders and
similar forms in single-part, multi-part, continuous and snap-out formats; (vi)
tag manufacturing; and (vii) high volume process color webprinting of brochures
and catalogs.

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The capabilities of the Companys various printing divisions are stated below.

|                                    |  |          |   |           |  |          |   |       |  |       |   |      |  |  |   |        |  |      |   | 
|----------------------------------- |  | -------- | - | --------- |  | -------- | - | ----- |  | ----- | - | ---- |  |  | - | ------ |  | ---- | - | 
|                                    |  |          |   |           |  |          |   |       |  |       |   |      |  |  |   |        |  | High
|                                    |  | Sales &  |   |           |  |          |   |       |  |       |   |      |  |  |   | Volume
|                                    |  | Customer |   |           |  |          |   | Sheet |  | Full  |   | Full
|Division                            |  | Service  |   | Pre-Press |  | Printing |   | Color |  | Color
|                                   
|Huntington                          |  |          | * |           |  |          | * |       |  |       | * |      |  |  |   |        |  |      |   | 
|                                   
|Charleston                          |  |          | * |           |  |          | * |       |  |       |   |      |  |  |   |        |  |      |   | 
|                                   
|Parkersburg                         |  |          | * |           |  |          | * |       |  |       | * |      |  |  | * |        |  |      |   | 
|                                   
|Lexington                           |  |          | * |           |  |          | * |       |  |       |   |      |  |  |   |        |  |      |   | 
|                                   
|Bourque Printing, Inc.              |  |          | * |           |  |          | * |       |  |       | * |      |  |  | * |        |  |      |   | 
|                                   
|Dallas Printing Company, Inc.       |  |          |   |           |  |          |   |       |  |       |   |      |  |  |   |        |  |      |   | 
|(Champion Jackson)                  |  |          | * |           |  |          | * |       |  |       |   |      |  |  |   |        |  |      |   | 
|                                   
|Carolina Cut Sheets, Inc.           |  |          | * |           |  |          |   |       |  |       |   |      |  |  |   |        |  |      |   | 
|                                   
|U.S. Tag & Ticket Company, Inc.     |  |          | * |           |  |          | * |       |  |       | * |      |  |  |   |        |  |      |   | 
|                                   
|Donihe Graphics, Inc.               |  |          | * |           |  |          | * |       |  |       | * |      |  |  | * |        |  |      | * | 
|                                   
|Upton Printing                      |  |          | * |           |  |          | * |       |  |       | * |      |  |  | * |        |  |      |   | 
|                                   
|The Merten Company                  |  |          | * |           |  |          | * |       |  |       | * |      |  |  | * |        |  |      |   | 
|                                   
|Interform Corporation               |  |          | * |           |  |          | * |       |  |       |   |      |  |  | * |        |  |      |   | 
|                                   
|Consolidated Graphic Communications |  |          | * |           |  |          |   |       |  |       |   |      |  |  |   |        |  |      |   | 
|                                   
|Blue Ridge Printing Co., Inc.       |  |          | * |           |  |          | * |       |  |       | * |      |  |  | * |        |  |      |   | 
|                                   
|Transdata                           |  |          | * |           |  |          |   |       |  |       |   |      |  |  |   |        |  |      |   | 
|                                   

Office Products, Office Furniture and Office Design

Champion provides its customers with a wide range of product offerings in
two major categories: supplies, such as file folders, paper products, pens and
pencils, computer paper and laser cartridges; and furniture, including budget
and middle price range desks, chairs, file cabinets and computer furniture.
Office supplies are sold primarily by Company salespeople through the Companys
own catalogs. Office furniture is primarily sold from catalogs and supplied
from in-house stock. Special orders constitute a small portion of sales. The
Capitol division of Stationers provides interior design services to commercial
customers. The design services include space planning, purchasing and
installation of office furniture, and management of design projects.

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MANUFACTURING AND DISTRIBUTION

The Companys pre-press facilities have desktop publishing, typesetting,
laser imagesetting and scanning/retouching equipment, and complete layout,
design, stripping and plate processing operations. Sheet printing equipment
(for printing onto pre-cut, individual sheets) includes single color
duplicators, single to six color presses and envelope presses. Rotary equipment
(for printing onto continuous rolls of paper) includes multi-color business
form web presses, carbon and multi-part collators, and a high-speed 5-color
half-web press.

Binding equipment consists of hot-foil, embossing and die cutting
equipment, perforators, folders, folder-gluers, scoring machines,
collator/stitcher/ trimmers for saddle stitching, automatic and manual perfect
binders, numbering machines and mailing equipment.

Each of the Companys offices is linked with overnight distribution of
products and on-line electronic telecommunications permitting timely transfer
of various production work from facility to facility as required. While the
Company maintains a fleet of delivery vehicles for intracompany and customer
deliveries, it utilizes the most cost effective and expeditious means of
delivery, including common carriers.

Requirements for the Companys press runs are determined shortly before
the runs are made and, therefore, backlog is not a meaningful measure in
connection with the Companys printing business.

The Companys inventory goal is to have approximately 85% of the office
product items the Company sells in stock. Another 12% are ordered on a daily
basis and received overnight. The remaining 3% are items that come direct from
manufacturers and may take one week or more from placement of order to delivery
to customer. Office furniture sales are made primarily from the Companys
in-house stock. However, special orders from manufacturers may require up to 90
days for delivery.

CUSTOMERS

The Company believes that its reputation for quality, service, convenience
and selection allows it to enjoy significant loyalty from its customers.
Champions marketing strategy is to focus on manufacturers, institutions,
financial services companies and professional firms. Consistent with customary
practice in the commercial printing and office products industries, the Company
ordinarily does not have long-term contracts with its customers, although a
number of high volume customers issue yearly purchase orders. These purchase
orders, which are typically for office products but may include printing
services, are for firm prices adjustable for paper price changes. Depending
upon customer satisfaction with price and service, these purchase orders may be
renewed for another year or up to three years without repeating the full
bidding process.

During the fiscal years ended October 31, 2002, 2001 and 2000, no single
customer accounted for more than 3% of the Companys total revenues. Due to the
project-oriented nature

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of customers printing requirements, sales to particular customers may
vary significantly from year to year depending upon the number and size of
their projects.

SUPPLIERS

The Company has not experienced difficulties in obtaining materials in the
past and does not consider itself dependent on any particular supplier for
supplies. The Company has negotiated Company-wide paper purchasing agreements
directly with paper manufacturers and is a member of a major office products
buying group, which management believes provides the Company with a competitive
advantage.

COMPETITION

The markets for the Companys printing services and office products are
highly competitive, with success based primarily on price, quality, production
capability, capacity for prompt delivery and personal service.

Champions printing competitors are numerous and range in size from very
large national companies with substantially greater resources than the Company
to many smaller local companies. In recent years, despite consolidation within
the printing industry, there has been a substantial increase in technological
advances in new equipment, resulting in excess capacity and highly competitive
pricing. The Company has remained competitive by maintaining its printing
equipment at state-of-the-art levels and emphasizing personal attention to
customers.

Large national and regional mail order discount operations provide
significant competition in the office products and office furniture business.
The economics afforded by membership in a national purchasing association and
by purchasing directly from manufacturers, and the high level of personal
services to customers, contribute substantially to the Companys ability to
compete in the office supply and office furniture market segments.

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 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 and are included in
normal operating expenses. 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.

GEOGRAPHIC CONCENTRATION AND ECONOMIC CONDITIONS

The Companys operations and the majority of its customers are located
east of the Mississippi River. The Company and its profitability may be more
susceptible to the effects of

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unfavorable or adverse local or regional economic factors and conditions
than a company with a more geographically diverse customer base.

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.

EMPLOYEES

On October 31, 2002, the Company had approximately 800 employees.

The Companys subsidiary, Interform Corporation, is party to a collective
bargaining agreement with the United Steelworkers of America, AFL-CIO-CLC on
behalf of its Local Union 8263 covering all production and maintenance
employees (totaling 81 employees at October 31, 2002) at its Bridgeville,
Pennsylvania facility. This contract expires May 31, 2006. The Company
believes relations with the union and covered employees are good.

EXECUTIVE OFFICERS OF CHAMPION

|                     |  |     |    |                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------------------- |  | --- | -- | -------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                     |  |     |    |                                                    |  | Position and offices with Champion;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Name                 |  | Age |    | Principal occupation or employment last five years
|                     |  |     |    |                                                   
|                     |  |     |    |                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Marshall T. Reynolds |  |     | 66 |                                                    |  | Chief Executive Officer and Chairman of the
Board of Directors of the Company from
December 1992 to present; President of the
Company December 1992 to September 2000;
President and general manager of Harrah and
Reynolds, predecessor of the Company from
1964 (and sole shareholder from 1972 to
present) to 1993; Chairman of the Board of
Directors of Broughton Foods Company from
November 1996 to June 1999; Director (from
1983 to November 1993) and Chairman of the
Board of Directors (from 1983 to November
1993) of Banc One West Virginia Corp.
(formerly Key Centurion Bancshares, Inc.).
|Kirby J. Taylor      |  |     | 57 |                                                    |  | President and Chief Operating Officer of the
Company since September 2000; President and
Chief Executive Officer of Action Business
Consulting from November 1997 to September
2000 (management consulting firm); President
and Chief Executive Officer of Nexquest,
Inc. from                                                                                                                                                                                                                                                                                                                            

12



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##### 



|                    |  |  |    |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------------------- |  |  | -- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                    |  |  |    |  |  | January 1996 to November 1997; President
and Chief Operating Officer of Addington
Resources, Inc. from July 1994 to January
1996 (mining and waste management company);
Vice President and Chief Financial Officer
of Outboard Marine Corp. from April 1993 to
July 1994 (manufacturer and distributor of
boats and motors); Vice President and Chief
Financial Officer of Tenneco Automotive
from August 1990 to April 1993
(manufacturer of auto parts); Senior Vice
President and Chief Financial Officer of
Tenneco Minerals from August 1988 to August
1990; Vice President and Chief Financial
Officer of Tenneco Minerals from February
1984 to August 1988; President of Tenneco
International Finance from November 1980 to
February 1984.
|Ronald W. Taylor    |  |  | 45 |  |  | Vice President of the Company since December
1992; Division Manager Lexington division
December 1992 to June 2001; Division Manager
- Lexington of Harrah and Reynolds from
January 1992 to December 1992; Sales
Representative, Lexington Division of Harrah
and Reynolds from 1986 to January 1992.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|J. Mac Aldridge     |  |  | 61 |  |  | Vice President and Division Manager -
Stationers since December 1992; Vice
President of Company and Division Manager 
Huntington from September 1995 to October
1997; President and General Manager of
Stationers since November 1989; Sales
Representative of Huntington Division of
Harrah and Reynolds from July 1983 to October
1989.                                                                                                                                                                                                                                                                                                                                                                                                         
|Gary A. Blackshire  |  |  | 50 |  |  | Vice President of the Company since December
1992; Division Manager  Merten September
1998 to April 2001; Division Manager -
Charleston December 1992 to April 2001;
Division Manager  Charleston of Harrah and
Reynolds from April 1992 to December 1992;
Sales Representative of Charleston Division
of Harrah and Reynolds from 1975 until April
1992.                                                                                                                                                                                                                                                                                                                                                                                        
|R. Douglas McElwain |  |  | 55 |  |  | Vice President and Division Manager  Bourque
Printing division of the Company since
December 1993; General Manager of Bourque
Printing from June 1993 to December 1993;
Sales Representative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

13



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##### 



|                   |  |  |    |  |  |                                                                                                                                                                                                                                                                                                                                            
|------------------ |  |  | -- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   |  |  |    |  |  | of Charleston Division of Harrah and
Reynolds and Company from 1986 until June
1993.                                                                                                                                                                                                                                                       
|Toney K. Adkins    |  |  | 53 |  |  | Vice President-Administration of the Company
since November 1995; President, KYOWVA
Corrugated Container Company, Inc. from 1991
to 1996.                                                                                                                                                                                                  
|Todd R. Fry        |  |  | 37 |  |  | Chief Financial Officer of the Company since
November 1999; Treasurer and Chief Financial
Officer of Broughton Foods Company from
September 1997 to June 1999; Coopers & Lybrand
L.L.P. from 1991 to September 1997.                                                                                                                       
|Walter R. Sansom   |  |  | 73 |  |  | Secretary of the Company since December 1992;
Production Coordinator of the Company since
December 1992 and of Harrah and Reynolds from
August 1968 to December 1992.                                                                                                                                                                      
|Theodore J. Nowlen |  |  | 48 |  |  | Vice President of the Company since March
1999; President of Interform since May 1998;
Vice President of Marketing and Technology of
Interform from January 1996 to May 1998; Vice
President of Technology of Interform from
September 1991 to January 1996; Manager of
Information Systems of Interform from April
1983 to September 1991.
|James A. Rhodes    |  |  | 46 |  |  | Vice President of the Company since March
1999; President of Consolidated Graphic
Communications Division of Interform since
February 1999; Vice President of Sales of
Consolidated Graphic Communications from 1996
to 1999; General Sales Manager  East of
Consolidated Graphic Communications from 1995
to 1996.                       

14



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##### 



ITEM 2  PROPERTIES

The Company conducts its operations from twenty-six (26) different
physical locations, eighteen (18) of which are leased, and eight (8) of which
are owned in fee simple by Company subsidiaries. The Company does not
anticipate any issues in regards to the renewal of certain leases when the
terms expire. The properties leased, and certain of the lease terms are set
forth below:

|                                                   |  |                                |  |        |         |        |  |            |         |  |  |  |         | 
|-------------------------------------------------- |  | ------------------------------ |  | ------ | ------- | ------ |  | ---------- | ------- |  |  |  | ------- | 
|                                                   |  | Division Occupying             |  | Square |         | Annual |  | Expiration
|Property                                           |  | Property                       |  | Feet   |         | Rental |  | Of Term   
|                                                  
|2450 1st Avenue
Huntington, West Virginia (1)      |  | Chapman Printing-
Huntington   |  |        | 85,000  |        |  | $          | 116,400 |  |  |  | 2008    | 
|1945 5th Avenue
Huntington, West Virginia (1)      |  | Stationers                     |  |        | 37,025  |        |  |            | 60,000  |  |  |  | 2007    | 
|615-619 4th Avenue
Huntington, West Virginia (1)   |  | Stationers                     |  |        | 59,641  |        |  |            | 21,600  |  |  |  | 2003    | 
|405 Ann Street
Parkersburg, West Virginia (1)      |  | Chapman Printing 
Parkersburg |  |        | 36,614  |        |  |            | 57,600  |  |  |  | 2003    | 
|1563 Hansford Street
Charleston, West Virginia (2) |  | Chapman Printing 
Charleston  |  |        | 21,360  |        |  |            | 33,280  |  |  |  | 2003    | 
|890 Russell Cave Road
Lexington, Kentucky (1)      |  | Chapman Printing -
Lexington   |  |        | 20,135  |        |  |            | 57,600  |  |  |  | 2007    | 
|214 Stone Road
Belpre, Ohio (1)                    |  | Stationers -
Garrison Brewer   |  |        | 15,146  |        |  |            | 42,000  |  |  |  | 2004    | 
|2800 Lynch Road
Evansville, Indiana (1)            |  | Smith & Butterfield            |  |        | 42,375  |        |  |            | 116,640 |  |  |  | 2004    | 
|113-117 East Third St.
Owensboro, Kentucky (1)     |  | Smith & Butterfield            |  |        | 8,500   |        |  |            | 14,400  |  |  |  | 2007    | 
|1901 Mayview Road
Bridgeville, Pennsylvania (1)    |  | Interform Corporation          |  |        | 120,000 |        |  |            | 316,000 |  |  |  | 2003    | 
|736 Carondelet Street
New Orleans, Louisiana       |  | Upton Printing                 |  |        | 15,000  |        |  |            | 62,700  |  |  |  | 2003    | 
|5600 Jefferson Highway
Harahan, Louisiana          |  | Upton Printing                 |  |        | 11,250  |        |  |            | 47,250  |  |  |  | 2003    | 
|1515 Central Parkway
Cincinnati, Ohio (1)          |  | The Merten Company             |  |        | 40,000  |        |  |            | 102,060 |  |  |  | 2006    | 
|2217 Robb Street
Baltimore, Maryland (1)           |  | U.S. Tag                       |  |        | 26,000  |        |  |            | 52,000  |  |  |  | 2005    | 
|7868 Anselmo Lane
Baton Rouge, Louisiana           |  | Transdata                      |  |        | 13,300  |        |  |            | 42,000  |  |  |  | Monthly | 

15



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##### 



|                                                        |  |                        |  |  |       |  |  |  |        |  |  |  |         | 
|------------------------------------------------------- |  | ---------------------- |  |  | ----- |  |  |  | ------ |  |  |  | ------- | 
|Kirk and Chestnut Streets
Morgantown, West Virginia     |  | Stationers-
Thompsons |  |  | 9,000 |  |  |  | 19,356 |  |  |  | 2003    | 
|Route 2, Kyle Industrial Park
Huntington, West Virginia |  | Champion Headquarters  |  |  | 9,000 |  |  |  | 78,000 |  |  |  | 2003    | 
|1733 North Airline Highway
Gonzales, Louisiana          |  | Stationers-Diez        |  |  | 5,800 |  |  |  | 12,000 |  |  |  | Monthly | 

(1)       Lease is triple net, whereby the Company pays for all utilities,
insurance, taxes, repairs and maintenance and all other costs associated with
properties.

(2)       The Company purchased one-third interest in this property in January of
2002. The lease is triple net, whereby the Company pays for all utilities,
insurance, taxes, repairs and maintenance and all other costs associated with
properties.

The Dallas Printing subsidiary owns, and operates from, a single-story
masonry structure of approximately 19,600 square feet at 321-323 East Hamilton
Street, Jackson, Mississippi.

The Bourque Printing subsidiary owns, and operates from, a single-story
building of approximately 18,501 square feet at 13112 South Choctaw Drive,
Baton Rouge, Louisiana. The Company also owns a warehouse of approximately
5,000 square feet at 13214 South Choctaw Drive, Baton Rouge, Louisiana.

Stationers Clarksburg operation is conducted from a single-story masonry
building of approximately 20,800 square feet owned by the Company at 700 N.
Fourth Street, Clarksburg, West Virginia.

Donihe owns, and operates from, a single-story steel building of
approximately 38,500 square feet situated on roughly 14.5 acres at 766
Brookside Drive, Kingsport, Tennessee.

Blue Ridge owns, and operates from, (i) a two-story masonry building of
approximately 9,066 square feet and a contiguous 1,692 square foot former
residential structure at 544 and 560 Haywood Road, Asheville, North Carolina,
and (ii) a two-story steel building of approximately 12,500 square feet on
approximately three acres at 1485 Amherst Road, Knoxville, Tennessee.

The Capitol subsidiary of Stationers owns and operates from a 22,000
square foot building at 711 Indiana Avenue, Charleston, West Virginia. This
building, formerly leased, was purchased by the Company in December 2001.

ITEM 3  LEGAL PROCEEDINGS

The Company is subject to various claims and legal actions, other than the
claim discussed below, that arise in the ordinary course of business. In the
opinion of management, after consulting with legal counsel, the Company
believes that the ultimate resolution of these

16



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##### 



claims and legal actions will not have a material effect on the
consolidated financial statements of the Company.

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 civil action is styled National Forms & Systems Group, Inc.
v. Timothy V. Ross; Todd Ross and Champion Industries, Inc.; and Timothy V.
Ross v. National Forms & Systems Group, Inc. and Mickey McCardle; Circuit Court
of the First Judicial District of Hinds County, Mississippi; Case No.
251-11-942-CIV.

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.

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.

ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5  MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Champion common stock has traded on the National Association of Securities
Dealers, Inc. Automated Quotation System (NASDAQ) National Market System
since the Offering under the symbol CHMP.

17



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##### 



The following table sets forth the high and low closing prices for
Champion common stock for the period indicated. The range of high and low
closing prices are based on data from NASDAQ and does not include retail
mark-up, mark-down or commission.

|               |  |                  |      |                  |  |      |      |     |  |   |      |  |  |   |      | 
|-------------- |  | ---------------- | ---- | ---------------- |  | ---- | ---- | --- |  | - | ---- |  |  | - | ---- | 
|               |  | Fiscal Year 2002 |      | Fiscal Year 2001
|               |  | High             |      | Low              |  | High |      | Low
|               |  |                  |      |                  |  |      |      |    
|First quarter  |  | $                | 3.15 |                  |  | $    | 2.28 |     |  | $ | 2.94 |  |  | $ | 2.03 | 
|               |  |                  |      |                  |  |      |      |     |  |   |      |  |  |   |      | 
|Second quarter |  |                  | 3.25 |                  |  |      | 2.82 |     |  |   | 3.06 |  |  |   | 2.50 | 
|               |  |                  |      |                  |  |      |      |     |  |   |      |  |  |   |      | 
|Third quarter  |  |                  | 3.04 |                  |  |      | 2.30 |     |  |   | 3.51 |  |  |   | 2.70 | 
|               |  |                  |      |                  |  |      |      |     |  |   |      |  |  |   |      | 
|Fourth quarter |  |                  | 2.84 |                  |  |      | 2.25 |     |  |   | 3.45 |  |  |   | 2.10 | 

At the close of business on January 10, 2003, there were 458 shareholders
of record of Champion common stock.

The following table sets forth the quarterly dividends per share declared
on Champion common stock.

|               |  |             |      |             |  |             |      |  |  |   |      | 
|-------------- |  | ----------- | ---- | ----------- |  | ----------- | ---- |  |  | - | ---- | 
|               |  | Fiscal Year |      | Fiscal Year |  | Fiscal Year
|               |  | 2003        |      | 2002        |  | 2001       
|               |  |             |      |             |  |             |      |  |  |   |      | 
|               |  |             |      |             |  |            
|First quarter  |  | $           | 0.05 |             |  | $           | 0.05 |  |  | $ | 0.05 | 
|               |  |             |      |             |  |             |      |  |  |   |      | 
|Second quarter |  |             |     |             |  |             | 0.05 |  |  |   | 0.05 | 
|               |  |             |      |             |  |             |      |  |  |   |      | 
|Third quarter  |  |             |     |             |  |             | 0.05 |  |  |   | 0.05 | 
|               |  |             |      |             |  |             |      |  |  |   |      | 
|Fourth quarter |  |             |     |             |  |             | 0.05 |  |  |   | 0.05 | 

ITEM 6  SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data for each of the five
years in the period ended October 31, 2002 have been derived from the Audited
Consolidated Financial Statements of the Company. The information set forth
below should be read in conjunction with the Audited Consolidated Financial
Statements, related notes, and the information contained in Managements
Discussion and Analysis of Financial Condition and Results of Operations
appearing elsewhere herein.

18



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##### 



|                                            |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|------------------------------------------- |  | ----------------------------------------------- | --------- | -------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | - |  | - | --------- | -
|                                            |  | Year Ended October 31,                         
|                                            |  |                                                
|                                            |  | 2002                                            |           | 2001 (1) |  | 2000 |           | 1999 |  | 1998
|                                            |  |                                                 |           |          |  |      |           |      |  |     
|                                            |  | (In thousands, except share and per share data)
|OPERATING STATEMENT DATA:                   |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Revenues:                                   |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Printing                                    |  | $                                               | 95,194    |          |  | $    | 98,146    |      |  | $    | 96,657    |   |  | $ | 92,405    |   |  | $ | 95,003    |  
|Office products and office furniture        |  |                                                 | 27,690    |          |  |      | 26,998    |      |  |      | 29,672    |   |  |   | 31,954    |   |  |   | 28,058    |  
|                                            |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Total revenues                              |  |                                                 | 122,884   |          |  |      | 125,144   |      |  |      | 126,329   |   |  |   | 124,359   |   |  |   | 123,061   |  
|                                            |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Cost of sales:                              |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Printing                                    |  |                                                 | 68,771    |          |  |      | 71,816    |      |  |      | 69,376    |   |  |   | 65,021    |   |  |   | 66,699    |  
|Office products and office furniture        |  |                                                 | 19,480    |          |  |      | 18,661    |      |  |      | 19,927    |   |  |   | 21,764    |   |  |   | 18,616    |  
|                                            |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Total cost of sales                         |  |                                                 | 88,251    |          |  |      | 90,477    |      |  |      | 89,303    |   |  |   | 86,785    |   |  |   | 85,315    |  
|                                            |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Gross profit                                |  |                                                 | 34,633    |          |  |      | 34,667    |      |  |      | 37,026    |   |  |   | 37,574    |   |  |   | 37,746    |  
|Selling, general and administrative expense |  |                                                 | 30,560    |          |  |      | 31,800    |      |  |      | 32,621    |   |  |   | 31,387    |   |  |   | 29,872    |  
|Restructuring costs                         |  |                                                 |          |          |  |      | 2,052     |      |  |      |          |   |  |   |          |   |  |   |          |  
|Asset impairment costs                      |  |                                                 |          |          |  |      | 3,061     |      |  |      |          |   |  |   |          |   |  |   |          |  
|                                            |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|                                            |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Income (loss) from operations               |  |                                                 | 4,073     |          |  |      | (2,246    | )    |  |      | 4,405     |   |  |   | 6,187     |   |  |   | 7,874     |  
|Interest income                             |  |                                                 | 14        |          |  |      | 64        |      |  |      | 71        |   |  |   | 157       |   |  |   | 245       |  
|Interest expense                            |  |                                                 | (386      | )        |  |      | (891      | )    |  |      | (1,018    | ) |  |   | (1,228    | ) |  |   | (1,507    | )
|Other income                                |  |                                                 | 73        |          |  |      | 528       |      |  |      | 114       |   |  |   | 211       |   |  |   | 241       |  
|                                            |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|                                            |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Income (loss) before income taxes           |  |                                                 | 3,774     |          |  |      | (2,545    | )    |  |      | 3,572     |   |  |   | 5,327     |   |  |   | 6,853     |  
|Income tax benefit (expense)                |  |                                                 | (1,566    | )        |  |      | 363       |      |  |      | (1,463    | ) |  |   | (2,134    | ) |  |   | (2,702    | )
|                                            |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Net income (loss)                           |  | $                                               | 2,208     |          |  | $    | (2,182    | )    |  | $    | 2,109     |   |  | $ | 3,193     |   |  | $ | 4,151     |  
|                                            |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|                                            |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Earnings (loss) per share:                  |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Basic                                       |  | $                                               | 0.23      |          |  | $    | (0.22     | )    |  | $    | 0.22      |   |  | $ | 0.33      |   |  | $ | 0.45      |  
|Diluted                                     |  |                                                 | 0.23      |          |  |      | (0.22     | )    |  |      | 0.22      |   |  |   | 0.33      |   |  |   | 0.45      |  
|                                            |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Dividends per share                         |  | $                                               | 0.20      |          |  | $    | 0.20      |      |  | $    | 0.20      |   |  | $ | 0.20      |   |  | $ | 0.20      |  
|                                            |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Weighted average common shares outstanding: |  |                                                 |           |          |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Basic                                       |  |                                                 | 9,714,000 |          |  |      | 9,714,000 |      |  |      | 9,714,000 |   |  |   | 9,714,000 |   |  |   | 9,142,000 |  
|Diluted                                     |  |                                                 | 9,726,000 |          |  |      | 9,714,000 |      |  |      | 9,714,000 |   |  |   | 9,714,000 |   |  |   | 9,172,000 |  



|(1) |  | The Company initiated a corporate-wide restructuring and
profitability enhancement plan in the third quarter 2001. As a result
of this plan, the Company recorded a pre-tax charge of $6.1 million or
$4.3 million net of tax or $0.44 per share on a basic and diluted
basis.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19



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##### 





|                                        |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|--------------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                        |  | At October 31,
|                                        |  |               
|                                        |  | 2002           |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                                        |  |                |        |      |  |      |        |      |  |     
|                                        |  | (In Thousands)
|BALANCE SHEET DATA:                     |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Cash and cash equivalents               |  | $              | 4,507  |      |  | $    | 5,765  |      |  | $    | 3,174  |  |  | $ | 2,464  |  |  | $ | 9,773  | 
|Working capital                         |  |                | 26,072 |      |  |      | 26,041 |      |  |      | 29,070 |  |  |   | 30,333 |  |  |   | 35,108 | 
|Total assets                            |  |                | 59,508 |      |  |      | 63,950 |      |  |      | 71,559 |  |  |   | 73,642 |  |  |   | 74,505 | 
|Long-term debt (net of current portion) |  |                | 1,805  |      |  |      | 4,549  |      |  |      | 8,070  |  |  |   | 9,933  |  |  |   | 13,993 | 
|Shareholders equity                    |  |                | 42,866 |      |  |      | 42,601 |      |  |      | 46,726 |  |  |   | 46,560 |  |  |   | 45,310 | 

ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company is a commercial printer, business forms manufacturer and
office products and office furniture supplier in regional markets east of the
Mississippi River. The Company has grown through strategic acquisitions and
internal growth. Through such growth, the Company has realized regional
economies of scale, operational efficiencies, and exposure of its core products
to new markets. The Company has acquired fifteen printing companies, seven
office products and office furniture companies and a paper distribution
division (which was subsequently sold) since its initial public offering on
January 28, 1993.

The Companys net revenues consist primarily of sales of commercial
printing, business forms, tags, other printed products, office supplies, office
furniture, data products and office design services. The Company recognizes
revenues when products are shipped or services are rendered to the customer.
The Companys revenues are subject to seasonal fluctuations caused by
variations in demand for its products.

The Companys cost of sales primarily consists of raw materials, including
paper, ink, pre-press supplies and purchased office supplies, furniture and
data products, and manufacturing costs including direct labor, indirect labor
and overhead. Significant factors affecting the Companys cost of sales include
the costs of paper in both printing and office supplies, the costs of labor and
other raw materials.

The Companys operating costs consist of selling, general and
administrative expenses. These costs include salaries, commissions and wages
for sales, customer service, accounting, administrative and executive
personnel, rent, utilities, legal, audit, information systems equipment costs,
software maintenance and depreciation.

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CRITICAL ACCOUNTING POLICIES INVOLVING SIGNIFICANT ESTIMATES

The Companys significant accounting policies are described in Note 1 to
the consolidated financial statements included in Item 8 of this Form 10-K.
The discussion and analysis of the financial statements and results of
operations are based upon the Companys consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. The following critical accounting
policies affect the Companys more significant judgments and estimates used in
the preparation of the consolidated financial statements. There can be no
assurance that actual results will not differ from those estimates.

Asset Impairment:The Company is required to test for asset impairment
relating to property and equipment whenever events or changes in circumstances
indicate that the carrying value of an asset might not be recoverable. The
Company applies Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (Statement No.
144) in order to determine whether or not an asset is impaired. This standard
requires an impairment analysis when indicators of impairment are present. If
such indicators are present, the standard indicates that if the sum of the
future expected cash flows from a companys asset, undiscounted and without
interest charges, is less than the carrying value, an asset impairment must be
recognized in the financial statements. The amount of the impairment is the
difference between the fair value of the asset and the carrying value of the
asset.

The Company believes that the accounting estimate related to an asset
impairment is a critical accounting estimate because it is highly susceptible
to change from period to period because it requires management to make
assumptions about future cash flows over future years and that the impact of
recognizing an impairment could have a significant effect on operations.
Managements assumptions about future cash flows requires significant judgment
because actual operating levels have fluctuated in the past and are expected to
continue to do so in the future. Management has discussed the development and
selection of this critical accounting estimate with the audit committee of our
board of directors and the audit committee has reviewed the Companys
disclosure relating to it in the MD&A.

Beginning in fiscal year 2002, goodwill is required to be evaluated
annually for impairment, according to Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets. (Statement No. 142).
The standard requires a two-step process be performed to analyze whether or
not goodwill has been impaired. Step one is to test for potential impairment,
and requires that the fair value of the reporting unit be compared to its book
value including goodwill. If the fair value is higher than the book value, no
impairment is recognized. If the fair value is lower than the book value, a
second step must be performed. The second step is to measure the amount of
impairment loss, if any, and requires that a hypothetical purchase price
allocation be done to determine the implied fair value of goodwill. This fair
value is then compared to the carrying value of goodwill. If the implied fair
value is lower than the carrying value, an impairment must be recorded.

21



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As discussed in the notes to the financial statements, goodwill is
recorded at the adjusted book value and was analyzed for impairment with the
implementation of Statement No. 142. The fair value of the Companys goodwill
was estimated using discounted cash flow methodologies. Based on the analysis,
the Company determined that fair value relating to goodwill resulted in an
implied fair value greater than the book value recorded for the corresponding
goodwill, and therefore no impairment was recognized.

The Company believes that the accounting estimate related to the goodwill
impairment is a critical accounting estimate because the underlying
assumptions used for the discounted cash flow can change from period to period
and could potentially cause a material impact to the income statement.
Managements assumptions about discount rates, inflation rates and other
internal and external economic conditions, such as earnings growth rate,
require significant judgment based on fluctuating rates and expected revenues.
Additionally, Statement No. 142 requires that the goodwill be analyzed for
impairment on an annual basis using the assumptions that apply at the time the
analysis is updated. Management has discussed the development of these
estimates with the audit committee of the board of directors. Additionally,
the board of directors has reviewed this disclosure and its relation to MD&A.

Allowance for Doubtful Accounts:The Company encounters risks associated
with sales and the collection of the associated accounts receivable. As such,
the Company records a monthly provision for accounts receivable that are
considered to be uncollectible. In order to calculate the appropriate monthly
provision, the Company primarily utilizes a historical rate of accounts
receivables written off as a percentage of total revenue. This historical rate
is applied to the current revenues on a monthly basis. The historical rate is
updated periodically based on events that may change the rate such as a
significant increase or decrease in collection performance and timing of
payments as well as the calculated total exposure in relation to the allowance.
Periodically, the Company compares the identified credit risks with the
allowance that has been established using historical experience and adjusts the
allowance accordingly.

The Company believes that the accounting estimate related to the allowance
for doubtful accounts is a critical accounting estimate because the
underlying assumptions used for the allowance can change from period to period
and could potentially cause a material impact to the income statement and
working capital. Management has discussed the development and selection of
this estimate with the audit committee of the board of directors, and the board
has, in turn, reviewed the disclosure and its relation to MD&A.

During 2002, $363,000 of bad debts expense was incurred and the allowance
for doubtful accounts was $1,397,000 as of October 31, 2002. The actual
write-offs for the period were $398,000. General economic conditions and
specific geographic concerns are major factors that may affect the adequacy of
the allowance and may result in a change in the annual bad debt expense.

When material changes in these factors occur, management will evaluate the
need to change the monthly allowance rate to a more relative percentage.

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The following discussion and analysis presents the significant changes in
the financial position and results of operations of the Company and should be
read in conjunction with the Audited Consolidated Financial Statements and
notes thereto included elsewhere herein.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated information
derived from the Companys Consolidated Statements of Operations, including
certain information presented as a percentage of total revenues.

|                                             |                         |                                      |                     |   |                        |         |      |   |      |       |        |   |        |         |      |    |      |       |        |   |        |         |      |   |      |       |  
|-------------------------------------------- | ----------------------- | ------------------------------------ | ------------------- | - | ---------------------- | ------- | ---- | - | ---- | ----- | ------ | - | ------ | ------- | ---- | -- | ---- | ----- | ------ | - | ------ | ------- | ---- | - | ---- | ----- | -
|                                             |                         |                                      |                     |   | Year Ended October 31,
|                                             |                         |                                      |                     |   | ($ In thousands)      
|                                             |                         |                                      |                     |   |                       
|                                             |                         |                                      |                     |   | 2002                   |         | 2001 |   | 2000
|                                             |                         |                                      |                     |   |                        |         |      |   |     
|Revenues:                                    |                         |                                      |                     |   |                        |         |      |   |      |       |        |   |        |         |      |    |      |       |        |   |        |         |      |  
|                                             |                         | Printing                             |                     | $ | 95,194                 |         |      |   | 77.5 | %     |        | $ | 98,146 |         |      |    | 78.4 | %     |        | $ | 96,657 |         |      |   | 76.5 | %    
|                                             |                         | Office products and office
furniture |                     |   | 27,690                 |         |      |   | 22.5 |       |        |   | 26,998 |         |      |    | 21.6 |       |        |   | 29,672 |         |      |   | 23.5 |      
|                                             |                         |                                      |                     |   |                        |         |      |   |      |       |        |   |        |         |      |    |      |       |        |   |        |         |      |  
|                                             |                         |                                      | Total revenues      |   |                        | 122,884 |      |   |      | 100.0 |        |   |        | 125,144 |      |    |      | 100.0 |        |   |        | 126,329 |      |   |      | 100.0 |  
|Cost of sales:                               |                         |                                      |                     |   |                        |         |      |   |      |       |        |   |        |         |      |    |      |       |        |   |        |         |      |  
|                                             |                         | Printing                             |                     |   | 68,771                 |         |      |   | 56.0 |       |        |   | 71,816 |         |      |    | 57.4 |       |        |   | 69,376 |         |      |   | 54.9 |      
|                                             |                         | Office products and office
furniture |                     |   | 19,480                 |         |      |   | 15.8 |       |        |   | 18,661 |         |      |    | 14.9 |       |        |   | 19,927 |         |      |   | 15.8 |      
|                                             |                         |                                      |                     |   |                        |         |      |   |      |       |        |   |        |         |      |    |      |       |        |   |        |         |      |  
|                                             |                         |                                      | Total cost of sales |   |                        | 88,251  |      |   |      | 71.8  |        |   |        | 90,477  |      |    |      | 72.3  |        |   |        | 89,303  |      |   |      | 70.7  |  
|                                             |                         |                                      |                     |   |                        |         |      |   |      |       |        |   |        |         |      |    |      |       |        |   |        |         |      |  
|Gross Profit                                 |                         |                                      | 34,633              |   |                        |         | 28.2 |   |      |       | 34,667 |   |        |         | 27.7 |    |      |       | 37,026 |   |        |         | 29.3 |  
|Selling, general and
administrative expenses |                         |                                      | 30,560              |   |                        |         | 24.9 |   |      |       | 31,800 |   |        |         | 25.4 |    |      |       | 32,621 |   |        |         | 25.8 |  
|Restructuring charges                        |                         |                                      |                    |   |                        |         |     |   |      |       | 2,052  |   |        |         | 1.6  |    |      |       |       |   |        |         |     |  
|Asset impairment charges                     |                         |                                      |                    |   |                        |         |     |   |      |       | 3,061  |   |        |         | 2.5  |    |      |       |       |   |        |         |     |  
|                                             |                         |                                      |                     |   |                        |         |      |   |      |       |        |   |        |         |      |    |      |       |        |   |        |         |      |  
|Income (loss) from operations                |                         |                                      | 4,073               |   |                        |         | 3.3  |   |      |       | (2,246 | ) |        |         | (1.8 | )  |      |       | 4,405  |   |        |         | 3.5  |  
|                                             | Other income (expense): |                                      |                     |   |                        |         |      |   |      |       |        |   |        |         |      |    |      |       |        |   |        |         |      |   |     
|                                             |                         |                                      | Interest income     |   |                        | 14      |      |   |      | 0.0   |        |   |        | 64      |      |    |      | 0.1   |        |   |        | 71      |      |   |      | 0.1   |  
|                                             |                         |                                      | Interest expense    |   |                        | (386    | )    |   |      | (0.3  | )      |   |        | (891    | )    |    |      | (0.7  | )      |   |        | (1,018  | )    |   |      | (0.8  | )
|                                             |                         |                                      | Other income        |   |                        | 73      |      |   |      | 0.1   |        |   |        | 528     |      |    |      | 0.4   |        |   |        | 114     |      |   |      | 0.1   |  
|                                             |                         |                                      |                     |   |                        |         |      |   |      |       |        |   |        |         |      |    |      |       |        |   |        |         |      |  
|Income (loss) before income
taxes            |                         |                                      | 3,774               |   |                        |         | 3.1  |   |      |       | (2,545 | ) |        |         | (2.0 | )  |      |       | 3,572  |   |        |         | 2.9  |  
|                                             |                         | Income tax benefit (expense)         |                     |   | (1,566                 | )       |      |   | (1.3 | )     |        |   | 363    |         |      |    | 0.3  |       |        |   | (1,463 | )       |      |   | (1.2 | )    
|                                             |                         |                                      |                     |   |                        |         |      |   |      |       |        |   |        |         |      |    |      |       |        |   |        |         |      |  
|Net income (loss)                            |                         | $                                    | 2,208               |   |                        |         | 1.8  | % |      | $     | (2,182 | ) |        |         | (1.7 | %) |      | $     | 2,109  |   |        |         | 1.7  | %
|                                             |                         |                                      |                     |   |                        |         |      |   |      |       |        |   |        |         |      |    |      |       |        |   |        |         |      |  

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Year Ended October 31, 2002 Compared to Year Ended October 31, 2001

Revenues

Consolidated net revenues were $122.9 million for the year ended October
31, 2002 compared to $125.1 million in the prior fiscal year. This change
represents a decrease in revenues of $2.3 million or 1.8%. Printing revenues
decreased by $3.0 million or 3.0% from $98.1 million in 2001 to $95.2 million
in 2002. The decrease in printing sales was primarily the result of an overall
sluggish market in most of the geographic regions served by the Company
partially offset by additional printing sales from the Companys acquisition of
Transdata for a full year in 2002. Office products and office furniture revenue
increased $691,000 or 2.6% from $27.0 million in 2001 to $27.7 million in 2002.
The increase in revenues for the office products and office furniture segment
was primarily attributable to higher furniture sales, primarily in one of the
Companys geographic regions. Gross margin dollars declined in office products
and office furniture divisions while the printing divisions posted an increase
in gross margin dollars. This increase relates to the prior year gross margin
dollars being reduced by charges taken as part of the restructuring and
profitability enhancement plan that were not present in the current year.

Cost of Sales

Total cost of sales for the year ended October 31, 2002 totaled $88.3
million compared to $90.5 million in the previous year. This change represented
a decrease of $2.2 million or 2.5% in cost of sales. Printing cost of sales
decreased $3.0 million or 4.2% to $68.8 million in 2002 compared to $71.8
million in 2001. Printing cost of sales were lower due to an overall decrease
in printing sales and inventory related charges in the prior year due to the
restructuring and profitability enhancement plan (See Note 10 of the
Consolidated Financial Statements). Office products and office furniture cost
of sales increased $800,000 or 4.4% to $19.5 million from $18.7 million in
2001, primarily due to higher furniture sales.

Operating Expenses and Income

Selling, general and administrative (S,G&A) expenses decreased $1.2
million to $30.6 million in 2002 from $31.8 million in 2001. S,G&A as a
percentage of net sales represented 24.9% of net sales in 2002 compared with
25.4% of net sales in 2001. This decrease is related, in part, to decreases in
corporate overhead expenses including rent and utilities as well as a decrease
in bad debt expense and other benefits resulting from the Companys adoption of
a restructuring and profitability enhancement plan in the third quarter of 2001
partially offset by increased legal related expenses in 2002 including legal
fees associated with a civil action brought against the Company in state court
in Jackson, Mississippi (See Note 7 of the Consolidated Financial Statements).
In addition, the Company adopted SFAS No. 142, which resulted in the
elimination of goodwill amortization of approximately $50,000 net of tax
annually.

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The Company initiated a corporate-wide restructuring and profitability
enhancement plan in the third quarter of 2001 (see Year Ended October 31, 2001
Compared to Year Ended October 31, 2000 Operating Expenses and Income).

Other Income (Expense)

Interest expense decreased $504,000 to $387,000 in 2002 from $891,000 in
2001 primarily as a result of a decrease in interest rates and lower
outstanding borrowings.

Other income decreased approximately $450,000 primarily due to a gain
resulting from the strategic alliance with Xpedx recorded in 2001.

Income Taxes

Income taxes as a percentage of income before taxes were a benefit of
14.3% in 2001 compared with income tax expense of 41.5% in 2002.

The effective income tax rate in 2002 approximates the combined federal
and state, net of federal benefit, statutory income tax rate.

The Company recorded a tax benefit in the third quarter of 2001 as a
result of restructuring and asset impairment charges. The effective income tax
rate in 2001 is reflective of certain tax attributes of non-deductible goodwill
resulting from asset impairment charges.

Net Income (Loss)

For reasons set forth above, net income for 2002 increased $4.4 million to
$2.2 million, or $0.23 per share on a basic and diluted basis, from a net loss
of $(2.2) million for 2001, or $(0.22) per share on a basic and diluted basis.

Year Ended October 31, 2001 Compared to Year Ended October 31, 2000

Revenues

Consolidated net revenues were $125.1 million for the year ended October
31, 2001 compared to $126.3 million in the prior fiscal year. This change
represents a decrease in revenues of $1.2 million or 0.9%. Printing revenues
increased by $1.5 million or 1.5% from $96.7 million in 2000 to $98.1 million
in 2001. The increase in printing sales was primarily the result of
acquisitions during 2001. Office products and office furniture revenue
decreased $2.7 million or 9.0% from $29.7 million in 2000 to $27.0 million in
2001. The decrease in revenues for the office products and office furniture
segment was primarily attributable to lower furniture sales, resulting from a
challenging economic environment during 2001. Gross margin dollars declined in
both divisions with an overall decrease of $2.4 million or 6.4%.

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Cost of Sales

Total cost of sales for the year ended October 31, 2001 totaled $90.5
million compared to $89.3 million in the previous year. This change represented
an increase of $1.2 million or 1.3% in cost of sales. Printing cost of sales
increased $2.4 million or 3.5% to $71.8 million in 2001 compared to $69.4
million in 2000. Printing cost of sales was higher due to an overall increase
in printing sales coupled with an increase in material costs as a percentage of
sales partially due to the recording of certain costs of the Companys
restructuring and profitability enhancement plan as a component of cost of
goods sold. Office products and office furniture cost of sales decreased $1.3
million or 6.4% to $18.7 million from $19.9 million in 2000, primarily due to
lower furniture sales.

Operating Expenses and Income

Selling, general and administrative (S,G&A) expenses decreased $822,000 to
$31.8 million in 2001 from $32.6 million in 2000. S,G&A as a percentage of net
sales represented 25.4% of net sales in 2001 compared with 25.8% of net sales
in 2000. This decrease is related, in part, to decreases in corporate overhead
expenses, and lower payroll related costs partially offset by increased health
insurance costs, travel costs and bad debt expenses.

The Company initiated a corporate-wide restructuring and profitability
enhancement plan in the third quarter of 2001. The 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 Company followed the applicable
provisions of Financial Accounting Standards Board No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,to
compute the tangible and intangible impairment portions of the restructuring
charges. As a result of the restructuring plan, the Company recorded a
pre-tax charge of $6.1 million or $4.3 million net of tax or $0.44 per share.
The charges were composed of the following components: write-down of goodwill,
facilities and equipment of $3,060,000; employee severance and termination
benefits of $55,000 and restructuring and other charges of $2,976,000. The
restructuring and other charges included charges related to increases and
related write-offs in the allowance for doubtful accounts, inventory
obsolescence reserves and inventory valuation modifications related to excess
quantities, costs related to duplicative facility leases, computer systems
related charges, termination fees of a pension plan of an acquired company, and
other general charges to implement the above mentioned plan.

The charges are classified on the statement of operations as components of
income from operations. Inventory obsolescence and valuation reserves are
classified as a component of cost of sales in the amount of $978,000.

Other Income (Expense)

Interest expense decreased $127,000 to $900,000 in 2001 from $1.0 million
in 2000 primarily as a result of a decrease in interest rates.

Other income increased approximately $400,000 primarily due to a gain
resulting from the strategic alliance with Xpedx.

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Income Taxes

Income taxes as a percentage of income before taxes were a benefit of
14.3% in 2001 compared with income tax expense of 41.0% in 2000.

The Company recorded a tax benefit in the third quarter of 2001 as a
result of restructuring and asset impairment charges. The effective income tax
rate in 2001 is reflective of certain tax attributes of non-deductible goodwill
resulting from asset impairment charges.

The effective income tax rate in 2000 approximates the combined federal
and state, net of federal benefit, statutory income tax rate.

Net Income (Loss)

For reasons set forth above, net income for 2001 decreased $4.3 million to
a net loss $(2.2) million, or $(0.22) per share on a basic and diluted basis,
from net income of $2.1 million for 2000, or $0.22 per share on a basic and
diluted basis.

LIQUIDITY AND CAPITAL RESOURCES

As of October 31, 2002, the Company had $4.5 million of cash and cash
equivalents, a decrease of $1.3 million from the prior year. Working capital as
of October 31, 2002 was $26.1 million, a slight increase from $26.0 million at
October 31, 2001. The decrease in cash and cash equivalents is primarily
attributable to a decrease in cash provided from operations partially offset by
proceeds from the sale of fixed assets.

The Company has historically used cash generated from operating activities
and debt to finance capital expenditures and the cash portion of the purchase
price of acquisitions. Management plans to continue making significant
investments in equipment and to seek appropriate acquisition candidates.
However, to fund the Companys continued expansion of operations, additional
financing may be necessary. The Company has two available lines of credit
totaling $11.0 million (See Note 3 of the Consolidated Financial Statements).
For the foreseeable future including through Fiscal 2004 when most of the
Companys interest bearing obligations are due, management believes it can fund
operations, meet debt service requirements, and make the planned capital
expenditures based on the available cash and cash equivalents, cash flow from
operations, and lines of credit.

Even though the Company believes that the legal contingency (See Note 7 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.

Additionally, the Company has minimal amounts of future contracted
obligations (See Note 3 and Note 6 of the Consolidated Financial Statements).
The Company is not a guarantor of indebtedness of others.

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Cash Flows from Operating Activities

Cash flows from operating activities for the years ended October 31, 2002,
2001 and 2000 were $5.8 million, $11.5 million and $8.7 million. Cash flows
from operating activities for the fiscal year 2002 compared to 2001 decreased
primarily due to a reduction in positive cash flow from accounts receivable and
inventory, an increase in other current assets and a reduction in accounts
payable. The increase in other current assets was primarily attributable to a
deposit to purchase a fractional ownership of an aircraft from an entity
controlled by its Chief Executive Officer of which $875,000 had been paid as of
October 31, 2002 (see Note 6 of the Consolidated Financial Statements).

Cash Flows from Investing Activities

Cash used in investing activities was ($1.1) million, ($2.7) million and
($3.1) million for the years ended October 31, 2002, 2001 and 2000. Cash flows
used in investing activities decreased in 2002 compared to 2001 due to the
prior year purchase of two businesses and an increase in proceeds from the sale
of assets in 2002 identified in the prior year as assets held for sale. Cash
flows used in investing activities decreased in 2001 compared to 2000 due to a
decrease in the purchase of property and equipment and proceeds from the sale
of a division. These increases in cash were partially offset by cash expended
in the purchases of businesses in 2001.

Cash Flows from Financing Activities

Cash flows used in financing activities for the years ended October 31,
2002, 2001, and 2000 were ($6.0) million, ($6.1) million and ($4.9) million.
Cash flows used in financing activities decreased in 2002 compared to 2001 due
to a decrease in principal payments on long-term debt partially offset by
borrowings in 2001. There were no borrowings under long-term debt arrangements
in 2002. Dividends paid in 2002, 2001 and 2000 were $1.9 million per year.

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 contracts; therefore,
to the extent permitted by competition, it has the ability to pass through to
its customers most cost increases resulting from inflation, if any. In
addition, the Company is not particularly energy dependent; therefore, an
increase in energy costs should not have a significant impact on the Company.

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.

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NEWLY ISSUED ACCOUNTING STANDARDS

See Note 1 of the Consolidated Financial Statements

ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not have any significant exposure relating to market
risk.

ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and other information required by this Item are
contained in the financial statements and footnotes thereto included in Item 15
and listed in the index on page F-1 of this report.

ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information relating to the directors of the Company is contained on pages
2 through 4 and page 13 of the Companys definitive Proxy Statement, expected
to be dated February 14, 2003, with respect to the Annual Meeting of
Shareholders to be held on March 17, 2003, which will be filed pursuant to
regulation 14(a) of the Securities Exchange Act of 1934 and which is
incorporated herein by reference.

ITEM 11  EXECUTIVE COMPENSATION

The information called for by this Item is contained on pages 6 through 10
of the Companys definitive Proxy Statement, expected to be dated February 14,
2003, with respect to the Annual Meeting of Shareholders to be held on March
17, 2003, which will be filed pursuant to regulation 14(a) of the Securities
Exchange Act of 1934 and which is incorporated herein by reference.

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by this Item is contained on pages 4 and 5 of
the Companys definitive Proxy Statement, expected to be dated February 14,
2003, with respect to the Annual Meeting of Shareholders to be held on March
17, 2003, which will be filed pursuant to regulation 14(a) of the Securities
Exchange Act of 1934 and which is incorporated herein by reference.

29



---



##### 



ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by this Item is contained on page 12 of the
Companys definitive Proxy Statement, expected to be dated February 14, 2003,
with respect to the Annual Meeting of Shareholders to be held on March 17,
2003, which will be filed pursuant to regulation 14(a) of the Securities
Exchange Act of 1934 and which is incorporated herein by reference.

PART IV

ITEM 14   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 annual 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 annual 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.

ITEM 15  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1) and (2)



|   |  | The Consolidated Financial Statements and Schedule, required by Item 8,
are listed on the index on page F-1 and included as part of Item 15.                                                                                          
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | All other Schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted.
|  
|  
|3. |  | EXHIBITS                                                                                                                                                                                                                              

|        |  |                           |  |                                                                                                                 
|------- |  | ------------------------- |  | ----------------------------------------------------------------------------------------------------------------
|Number  |  | Description               |  | Reference                                                                                                       
|        |  |                           |  |                                                                                                                 
|(3) 3.1 |  | Articles of
Incorporation |  | Filed as Exhibit 3.1 to
Form 10-Q dated June
16, 1997, filed on June
16, 1997, incorporated
herein by reference.
|3.2     |  | Bylaws                    |  | Filed as Exhibit 3.2 to
Registration Statement
on Form S-1, File No.
33-54454, filed on                         

30



---



##### 





|     |  |                                                                            |  |                                                                                                                                                                                                                                                                          
|---- |  | -------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  |                                                                            |  | November 10, 1992,
incorporated herein by
reference.                                                                                                                                                                                                                     
|(4)  |  | Instruments defining
the rights of
security holders,
including debentures. |  | See Exhibit 3.1 above.                                                                                                                                                                                                                                                   
|(10) |  | Material Contracts                                                         |  | Realty Lease dated
January 28, 1993
between ADJ Corp. and
Company regarding 2450
1st Avenue, Huntington,
West Virginia, filed as
Exhibit 10.1 to Form
10-K dated January 27,
1994, filed January 31,
1994, is incorporated
herein by reference.                          
|     |  |                                                                            |  | Realty Lease dated
January 28, 1993
between The Harrah and
Reynolds Corporation
and Company regarding
615 4th Avenue,
Huntington, West
Virginia, filed as
Exhibit 10.2 to Form
10-K dated January 27,
1994, filed January 31,
1994, is incorporated
herein by reference. 
|     |  |                                                                            |  | Realty Lease dated
January 28, 1993
between ADJ Corp. and
Company regarding
617-619 4th Avenue,
Huntington, West
Virginia, filed as
Exhibit 10.3 to Form
10-K dated January 27,
1994, filed January 31,
1994, is incorporated
herein by reference.                       
|     |  |                                                                            |  | Realty Lease dated
January 28, 1993
between The Harrah and
Reynolds Corporation
and Company regarding
1945 5th Avenue,
Huntington, West
Virginia, filed as
Exhibit 10.4 to Form
10-K dated January 27,
1994, filed January 31,
1994, is incorporated
herein by reference.
|     |  |                                                                            |  | Realty Lease dated
January 28, 1993
between Printing
Property Corp. and
Company regarding 405
Ann Street,
Parkersburg, West
Virginia, filed as
Exhibit 10.5 to Form
10-K dated January 27,
1994, filed January 31,
1994, is incorporated
herein by reference.            
|     |  |                                                                            |  | Realty Lease dated
January 28, 1993
between Printing
Property Corp. and
Company regarding 890
Russell Cave Road,
Lexington, Kentucky,
filed                                                                                                                              

31



---



##### 





| |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                    
| |  |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | as Exhibit 10.6
to Form 10-K dated
January 27, 1994, filed
January 31, 1994, is
incorporated herein by
reference.                                                                                                                                                                                                                                                                  
| |  |  |  | Realty Lease dated
January 28, 1993
between BCM Company,
Ltd. and Company
regarding 1563 Hansford
Street, Charleston,
West Virginia, filed as
Exhibit 10.7 to Form
10-K dated January 27,
1994, filed January 31,
1994, is incorporated
herein by reference.                                                                                                                       
| |  |  |  | Lease dated April 11,
1994 between Terry and
Anis Wyatt and
Stationers Inc.
regarding 214 Stone
Road, Belpre, Ohio,
filed as Exhibit 10.1
to Form 10-K dated
January 26, 1995, filed
January 27, 1995, is
incorporated herein by
reference.                                                                                                                                        
| |  |  |  | Form of Indemnification
Agreement between
Company and all
directors and executive
officers, filed as
Exhibit 10.4 to
Registration Statement
on Form S-1, File No.
33-54454, filed on
November 10, 1992, is
incorporated herein by
reference.                                                                                                                                       
| |  |  |  | Lease Agreement dated
June 1, 1995 between
Owl Investors Joint
Venture and U.S. Tag &
Ticket Company, Inc.
regarding 2217 Robb
Street, Baltimore,
Maryland filed as
Exhibit 10.1 to Form
10-K dated January 26,
1996, filed January 26,
1996, is incorporated
herein by reference.                                                                                                 
| |  |  |  | Lease Agreement dated
June 1, 1972 between
Earl H. and Elaine D.
Seibert and Smith &
Butterfield Co., Inc.
regarding 113-117 East
Third Street,
Owensboro, Kentucky,
filed as Exhibit 10.3
to Form 10-K dated
January 28, 1997, filed
January 28, 1997, is
incorporated herein by
reference.                                                                                       
| |  |  |  | $12,500,000 Term Loan
Credit Agreement by and
among Champion
Industries, Inc. and
the Banks Party thereto
and PNC Bank, National
Association, as Agent,
dated as of March 31,
1997, as amended by
Amendment No. 1 to
Credit Agreement dated
August 1, 1997, filed
as Exhibit 10.1 to Form
10-K dated January 29,
1998, filed January 29,
1998, is incorporated
herein by reference.

32



---



##### 





| |  |                                               |  |                                                                                                                                                                                                                                                                                                                                          
| |  | --------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                               |  | $5,600,000 Term Loan
Credit Agreement by and
among the Company and
its subsidiaries and
PNC Bank, National
Association, dated as
of March 13, 1998,
together with
promissory note and
representative security
agreement attendant
thereto, filed as
Exhibit 10.1 to Form
10-K dated January 25,
1999 is incorporated
herein by reference.
| |  |                                               |  | Agreement of Lease
between Mildred
Thompson and Thompsons
of Morgantown, Inc.
dated May 28, 1998,
regarding Kirk and
Chestnut Streets,
Morgantown, West
Virginia, filed as
Exhibit 10.3 to Form
10-K dated January 25,
1999, is incorporated
herein by reference.                                                                       
| |  | Executive Compensation Plans
and Arrangements |  | Companys 1993 Stock
Option Plan, effective
March 22, 1994, filed
as Exhibit 10.14 to
Form 10-K dated January
27, 1994, filed January
31, 1994, is
incorporated herein by
reference.                                                                                                                                                     
| |  |                                               |  | Deferred Compensation
Agreement dated July 1,
1993 between Blue Ridge
Printing Co., Inc. and
Glenn W. Wilcox, Sr.,
filed as Exhibit 10.4
to Form 10-K dated
January 29, 1998, filed
January 29, 1998, is
incorporated herein by
reference.                                                                                               
| |  |                                               |  | Split Dollar Life
Insurance Agreement
dated July 1, 1993
between Blue Ridge
Printing Co., Inc. and
Glenn W. Wilcox, Sr.,
filed as Exhibit 10.5
to Form 10-K dated
January 29, 1998, filed
January 29, 1998, is
incorporated herein by
reference.                                                                                         
| |  |                                               |  | Agreement of Lease
between ADJ Corp and
Champion Industries,
Inc. dated January 1,
1999, regarding
Industrial Lane in Kyle
Industrial Park, filed
as Exhibit 10.1 to Form
10-K dated January 25,
2000, filed January 28,
2000, is incorporated
herein by reference.                                                                      
| |  |                                               |  | $10,000,000 revolving
credit agreement by and
among the Company and
its subsidiaries and
National City Bank
dated as of April 1,
1999, filed as Exhibit
10.2 to Form 10-K dated
January 25, 2000, filed
January 28, 2000, is
incorporated herein by
reference.                                                                           

33



---



##### 





| |  |  |  |                                                                                                                                                                                                                                                                                                                                    
| |  |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | Lease Agreement dated
November 1, 1999
between Randall M.
Schulz, successor
trustee of The
Butterfield Family
Trust No. 2 and Smith &
Butterfield Co., Inc.
regarding 2800 Lynch
Road, Evansville,
Indiana, filed as
Exhibit 10.3 to Form
10-K dated January 25,
2000, filed January 28,
2000, is incorporated
herein by reference.
| |  |  |  | Agreement of Lease
dated September 25,
1998 between Ronald H.
Scott and Frank J.
Scott dba St. Clair
Leasing Co. and
Interform Corporation,
regarding 1901 Mayview
Road, Bridgeville,
Pennsylvania, filed as
Exhibit 10.4 to Form
10-K dated January 25,
2000, filed January 28,
2000, is incorporated
herein by reference.        
| |  |  |  | $1,000,000 revolving
line of credit between
Stationers, Inc. and
First Sentry Bank dated
as of October 17, 2000,
filed as Exhibit 10.1
to form 10-K dated
January 22, 2001, filed
January 26, 2001, is
incorporated herein by
reference.                                                                                           
| |  |  |  | Lease agreement dated
October 31, 2000
between Champion
Industries, Inc. dba
Upton Printing and AMB
Property, L.P., 5600
Jefferson Highway
Harahan, Louisiana,
filed as Exhibit 10.2
to form 10-K dated
January 22, 2001, filed
January 26, 2001, is
incorporated herein by
reference.                                             
| |  |  |  | Lease agreement dated
September 27, 2000
between M. Field Gomila
Et. Al. and Bourque
Printing DBA Upton
Printing for 736
Carondelet Street New
Orleans, Louisiana,
filed as Exhibit 10.3
to form 10-K dated
January 22, 2001, filed
January 26, 2001, is
incorporated herein by
reference.                                         
| |  |  |  | $2,690,938 Business
Loan agreement by and
among the Company and
One Valley Bank
National Association
(BB&T), dated as of May
6, 1999, together with
Promissory Note and
Commercial Security
Agreement, filed as
Exhibit 10.4 to form
10-K dated January 22,
2001, filed January 26,
2001 is incorporated
herein by reference.      

34



---



##### 





| |  |  |  |                                                                                                                                                                                                                                                                                                                
| |  |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | $618,720 Promissory
Note by and among the
Company and Bank One,
West Virginia, N.A.
dated as of June 6,
2000 together with
commercial security
agreement, filed as
Exhibit 10.5 to form
10-K dated January 22,
2001, filed January 26,
2001, is incorporated
herein by reference.                              
| |  |  |  | $550,000 Promissory
Note by and among the
Company and Bank One,
West Virginia, N.A.
dated as of August 4,
2000 together with
Commercial Security
Agreement and Letter of
Understanding, filed as
Exhibit 10.6 to form
10-K dated January 22,
2001, filed January 26,
2001, is incorporated
herein by reference.
| |  |  |  | Agreement of Lease
dated September 1, 2002
between Marion B. and
Harold A. Merten, Jr.
and The Merten Company
regarding 1515 Central
Parkway, Cincinnati,
Ohio, Filed as Exhibit
(10.1) to form 10-K
dated January 21, 2002,
Filed January 25, 2002
is incorporated herein
by reference.                       
| |  |  |  | $415,000 Commercial
Lease Agreement by and
among the company and
Firstar Equipment
Finance dated as of
January 12, 2001, Filed
as Exhibit (10.2) to
form 10-K dated January
21, 2002, Filed January
25, 2002 is
incorporated herein by
reference.                                                              
| |  |  |  | $450,000 Commercial
Lease Agreement by and
among the Company and
Leasing One Corporation
dated as of April 19,
2001, Filed as Exhibit
(10.3) to form 10-K
dated January 21, 2002,
Filed January 25, 2002
is incorporated herein
by reference.                                                                  
| |  |  |  | $315,665 Promissory
Note by and among the
company and Community
Trust Bank, N.A. as of
April 27, 2001, Filed
as Exhibit (10.4) to
form 10-K dated January
21, 2002, Filed January
25, 2002 is
incorporated herein by
reference.                                                                                

35



---



##### 





| |  |  |  |                                                                                                                                                                                                                                                                                       
| |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | Lease Agreement dated
February 27, 1991
between the Alfred J.
Moran Trust and Docutec
of Louisiana, Inc.
regarding 7868 Anselmo
Lane, Baton Rouge,
Louisiana, Filed as
Exhibit (10.6) to form
10-K dated January 21,
2002, Filed January 25,
2002 is incorporated
herein by reference.

|       |  |                                                                                                                                                                                                                 
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10.1) |  | Amendment No. 2 to Credit Agreement by and among the Company and its
subsidiaries and National City Bank dated as of April 1, 2002 along with
Amended and Restated Subsidiaries Guaranty.
Page Exhibit (10.1)-p1
|       |  |                                                                                                                                                                                                                 
|       |  |                                                                                                                                                                                                                 
|(10.2) |  | Agreement Amending and Extending term of lease dated May 24, 2002
between Earl H. and Elaine D. Seibert and Smith & Butterfield Co., Inc.
Page Exhibit (10.2)-p1                                                
|       |  |                                                                                                                                                                                                                 
|(10.3) |  | Promissory Note, $1,000,000 revolving line of credit between Stationers,
Inc. and First Sentry Bank dated as of October 7, 2002.
Page Exhibit (10.3)-p1                                                         

|       |  |                                                                                                |  |              |  |                     
|------ |  | ---------------------------------------------------------------------------------------------- |  | ------------ |  | --------------------
|(21)   |  | Subsidiaries of the
Registrant                                                                 |  | Exhibit 21   |  | Page Exhibit 21-p1  
|       |  |                                                                                                |  |              |  |                     
|(23)   |  | Consent of Ernst &
Young LLP                                                                   |  | Exhibit 23   |  | Page Exhibit 23-p1  
|       |  |                                                                                                |  |              |  |                     
|(99.1) |  | Certification pursuant
to Section 906 of the
Sarbanes-Oxley Act of
2002  Marshall T.
Reynolds |  | Exhibit 99.1 |  | Page Exhibit 99.1-p1
|       |  |                                                                                                |  |              |  |                     
|(99.2) |  | Certification pursuant
to Section 906 of the
Sarbanes-Oxley Act of
2002  Todd R. Fry          |  | Exhibit 99.2 |  | Page Exhibit 99.2-p1

36



---



##### 





|(b) |  | Champion filed the following reports on Form 8-K during the last quarter
of the period covered by this report:
|--- |  | --------------------------------------------------------------------------------------------------------------
|   
|    |  | There were none.                                                                                              
|   
|(c) |  | Exhibits  Exhibits are filed as a separate section of this report
beginning on page 71.                      
|   
|(d) |  | Financial Statement Schedules  Filed as separate section on page F-25                                        

37



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.By /s/ Marshall T. ReynoldsMarshall T. ReynoldsChief Executive OfficerBy /s/ Kirby J. TaylorKirby J. TaylorPresident and Chief Operating OfficerBy /s/ Todd R. FryTodd R. FryVice President and Chief Financial OfficerDate: January 20, 2003


38



---



##### 



Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated and on the dates indicated.

|                                |  |                 
|------------------------------- |  | ----------------
|SIGNATURE AND TITLE             |  | DATE            
|                                |  |                 
|                                |  |                 
|                                |  | January 20, 2003
|Robert H. Beymer, Director      |  |                 
|/s/ Philip E. Cline             |  | January 20, 2003
|Philip E. Cline, Director       |  |                 
|/s/ Harley F. Mooney, Jr.       |  | January 20, 2003
|Harley F. Mooney, Jr., Director |  |                 
|/s/ Todd L. Parchman            |  | January 20, 2003
|Todd L. Parchman, Director      |  |                 
|/s/ A. Michael Perry            |  | January 20, 2003
|A. Michael Perry, Director      |  |                 
|/s/ Marshall T. Reynolds        |  | January 20, 2003
|Marshall T. Reynolds, Director  |  |                 
|/s/ Neal W. Scaggs              |  | January 20, 2003
|Neal W. Scaggs, Director        |  |                 
|/s/ Glenn W. Wilcox, Sr.        |  | January 20, 2003
|Glenn W. Wilcox, Sr., Director  |  |                 

39



---



##### 



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 annual report on Form 10-K of Champion Industries,
Inc.;

2.          Based on my knowledge, this annual 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 annual
report;

3.          Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual
report (the Evaluation Date); and

c)          presented in this annual 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
annual report

40



---



##### 



whether or not there were significant changes in internal controls or in
other factors that 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: January 20, 2003 |  | /s/ Marshall T. Reynolds              
|                       |  | Marshall T. Reynolds                  
|                       |  | Chairman of the Board of Directors and
|                       |  | Chief Executive Officer               

41



---



##### 



CERTIFICATIONS

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

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

2.          Based on my knowledge, this annual 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 annual
report;

3.          Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual
report (the Evaluation Date); and

c)          presented in this annual 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
annual report whether or not there were significant changes in internal
controls or in other factors that could

42



---



##### 



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: January 20, 2003 |  | /s/ Todd R. Fry                           
|                       |  | Todd R. Fry                               
|                       |  | Vice President and Chief Financial Officer

43



---



##### 



CERTIFICATIONS

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

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

2.          Based on my knowledge, this annual 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 annual
report;

3.          Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual
report (the Evaluation Date); and

c)          presented in this annual 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
annual report whether or not there were significant changes in internal
controls or in other factors that could

44



---



##### 



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: January 20, 2003 |  | /s/ Kirby J. Taylor                  
|                       |  | Kirby J. Taylor                      
|                       |  | President and Chief Operating Officer

45



---



##### 



Champion Industries, Inc.

Audited Consolidated Financial Statements and Schedule

October 31, 2002

|                                                                                                    |  |     
|--------------------------------------------------------------------------------------------------- |  | ----
|Contents                                                                                            |  |     
|                                                                                                    |  |     
|Report of Independent Auditors                                                                      |  | F-2 
|Audited Consolidated Financial Statements:                                                          |  |     
|Consolidated Balance Sheets as of October 31, 2002 and 2001                                         |  | F-3 
|Consolidated Statements of Operations for the years ended October 31, 2002, 2001 and
2000           |  | F-5 
|Consolidated Statements of Shareholders Equity for the years ended October 31, 2002,
2001 and 2000 |  | F-6 
|Consolidated Statements of Cash Flows for the years ended October 31, 2002, 2001 and
2000           |  | F-7 
|Notes to Consolidated Financial Statements as of October 31, 2002                                   |  | F-8 
|Schedule II  Valuation and Qualifying Accounts                                                     |  | F-25

F-1



---



##### 



Report of Independent Auditors

The Board of Directors and Shareholders
Champion Industries, Inc.

We have audited the accompanying consolidated balance sheets of Champion
Industries, Inc. and Subsidiaries as of October 31, 2002 and 2001, and the
related consolidated statements of operations, shareholders equity, and cash
flows for each of the three years in the period ended October 31, 2002. Our
audits also included the financial statement schedule listed in the index at
Item 15(a). These financial statements and schedule are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements and schedule based upon our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Champion Industries, Inc. and Subsidiaries at October 31, 2002 and 2001, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended October 31, 2002, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.



| | /s/ Ernst & Young LLP
| | ---------------------

Charleston, West Virginia
December 20, 2002

F-2



---



##### 



Champion Industries, Inc. and Subsidiaries

Consolidated Balance Sheets

|       |                                                  |                                                                    |            |             |            |      |            |             |            | 
|------ | ------------------------------------------------ | ------------------------------------------------------------------ | ---------- | ----------- | ---------- | ---- | ---------- | ----------- | ---------- | 
|       |                                                  |                                                                    |            | October 31,
|       |                                                  |                                                                    |            | 2002        |            | 2001
|       |                                                  |                                                                    |            |            
|Assets |                                                  |                                                                    |            |             |            |      |            |            
|       | Current assets:                                  |                                                                    |            |             |            |      |            |             |           
|       |                                                  | Cash and cash equivalents                                          |            | $           | 4,507,139  |      |            | $           | 5,764,716  | 
|       |                                                  | Accounts receivable, net of allowance of $1,397,000 and $1,432,000 |            |             | 18,546,989 |      |            |             | 19,165,773 | 
|       |                                                  | Inventories                                                        |            |             | 11,427,581 |      |            |             | 11,764,195 | 
|       |                                                  | Income tax refund                                                  |            |             |           |      |            |             | 279,271    | 
|       |                                                  | Other current assets                                               |            |             | 1,745,563  |      |            |             | 769,034    | 
|       |                                                  | Deferred income tax assets                                         |            |             | 1,027,059  |      |            |             | 1,111,018  | 
|       |                                                  |                                                                    |            |             |            |      |            |            
|       | Total current assets                             |                                                                    |            | 37,254,331  |            |      |            | 38,854,007  |           
|       |                                                  |                                                                    |            |             |            |      |            |             |            | 
|       | Property and equipment, at cost:                 |                                                                    |            |             |            |      |            |             |           
|       |                                                  | Land                                                               |            |             | 1,028,372  |      |            |             | 825,220    | 
|       |                                                  | Buildings and improvements                                         |            |             | 6,120,122  |      |            |             | 5,562,762  | 
|       |                                                  | Machinery and equipment                                            |            |             | 36,362,178 |      |            |             | 34,421,518 | 
|       |                                                  | Equipment under capital leases                                     |            |             | 983,407    |      |            |             | 2,583,407  | 
|       |                                                  | Furniture and fixtures                                             |            |             | 2,872,212  |      |            |             | 2,480,050  | 
|       |                                                  | Vehicles                                                           |            |             | 3,082,258  |      |            |             | 3,031,861  | 
|       |                                                  |                                                                    |            |             |            |      |            |            
|       |                                                  |                                                                    | 50,448,549 |             |            |      | 48,904,818 |            
|       | Less accumulated depreciation                    |                                                                    |            | (31,442,360 | )          |      |            | (27,743,183 | )         
|       |                                                  |                                                                    |            |             |            |      |            |            
|       |                                                  |                                                                    | 19,006,189 |             |            |      | 21,161,635 |            
|       |                                                  |                                                                    |            |             |            |      |            |             |            | 
|       | Assets held for sale                             |                                                                    |            |            |            |      |            | 1,057,216   |           
|       | Cash surrender value of officers life insurance |                                                                    |            | 947,955     |            |      |            | 885,852     |           
|       | Goodwill, net of accumulated amortization        |                                                                    |            | 1,725,941   |            |      |            | 1,334,183   |           
|       | Other assets                                     |                                                                    |            | 573,087     |            |      |            | 657,021     |           
|       |                                                  |                                                                    |            |             |            |      |            |            
|       |                                                  |                                                                    | 3,246,983  |             |            |      | 3,934,272  |            
|       |                                                  |                                                                    |            |             |            |      |            |            
|       | Total assets                                     |                                                                    | $          | 59,507,503  |            |      | $          | 63,949,914  |           
|       |                                                  |                                                                    |            |             |            |      |            |            

See notes to consolidated financial statements.

F-3



---



##### 



Champion Industries, Inc. and Subsidiaries

Consolidated Balance Sheets (continued)

|                                     |                                            |                                                           |                           |            |             |           |      |            |            |           | 
|------------------------------------ | ------------------------------------------ | --------------------------------------------------------- | ------------------------- | ---------- | ----------- | --------- | ---- | ---------- | ---------- | --------- | 
|                                     |                                            |                                                           |                           |            | October 31,
|                                     |                                            |                                                           |                           |            | 2002        |           | 2001
|                                     |                                            |                                                           |                           |            |            
|Liabilities and shareholders equity |                                            |                                                           |                           |            |             |           |      |           
|                                     | Current liabilities:                       |                                                           |                           |            |             |           |      |            |           
|                                     |                                            | Accounts payable                                          |                           | $          | 3,258,095   |           |      | $          | 4,343,291  |          
|                                     |                                            | Accrued payroll and commissions                           |                           |            | 2,004,046   |           |      |            | 2,107,377  |          
|                                     |                                            | Taxes accrued and withheld                                |                           |            | 1,416,900   |           |      |            | 1,289,560  |          
|                                     |                                            | Accrued income taxes                                      |                           |            | 873,136     |           |      |            |           |          
|                                     |                                            | Accrued expenses                                          |                           |            | 819,234     |           |      |            | 1,218,575  |          
|                                     |                                            | Current portion of long term debt:                        |                           |            |             |           |      |            |            |          
|                                     |                                            |                                                           | Notes payable             |            |             | 2,615,422 |      |            |            | 3,329,627 | 
|                                     |                                            |                                                           | Capital lease obligations |            |             | 195,035   |      |            |            | 524,316   | 
|                                     |                                            |                                                           |                           |            |             |           |      |           
|                                     | Total current liabilities                  |                                                           |                           | 11,181,868 |             |           |      | 12,812,746 |           
|                                     |                                            |                                                           |                           |            |             |           |      |            |            |           | 
|                                     | Long term debt, net of current portion:    |                                                           |                           |            |             |           |      |            |           
|                                     |                                            | Notes payable                                             |                           |            | 1,445,837   |           |      |            | 3,994,555  |          
|                                     |                                            | Capital lease obligations                                 |                           |            | 359,027     |           |      |            | 554,514    |          
|                                     | Deferred income tax liabilities            |                                                           |                           | 3,225,119  |             |           |      | 3,554,169  |           
|                                     | Other liabilities                          |                                                           |                           | 429,842    |             |           |      | 433,044    |           
|                                     |                                            |                                                           |                           |            |             |           |      |           
|                                     | Total liabilities                          |                                                           |                           | 16,641,693 |             |           |      | 21,349,028 |           
|                                     |                                            |                                                           |                           |            |             |           |      |            |            |           | 
|                                     | Commitments and contingencies              |                                                           |                           |            |             |           |      |            |           
|                                     |                                            |                                                           |                           |            |             |           |      |            |            |           | 
|                                     | 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                                         |                           |            | 10,909,850  |           |      |            | 10,644,926 |          
|                                     |                                            |                                                           |                           |            |             |           |      |           
|                                     | Total shareholders equity                 |                                                           |                           | 42,865,810 |             |           |      | 42,600,886 |           
|                                     |                                            |                                                           |                           |            |             |           |      |           
|                                     | Total liabilities and shareholders equity |                                                           | $                         | 59,507,503 |             |           | $    | 63,949,914 |           
|                                     |                                            |                                                           |                           |            |             |           |      |           

See notes to consolidated financial statements.

F-4



---



##### 



Champion Industries, Inc. and Subsidiaries

Consolidated Statements of Operations

|                                             |                                      |   |                        |             |      |   |            |             |   |   |            |             |  
|-------------------------------------------- | ------------------------------------ | - | ---------------------- | ----------- | ---- | - | ---------- | ----------- | - | - | ---------- | ----------- | -
|                                             |                                      |   | Year Ended October 31,
|                                             |                                      |   | 2002                   |             | 2001 |   | 2000      
|                                             |                                      |   |                       
|Revenues:                                    |                                      |   |                        |             |      |   |            |             |   |   |            |            
|                                             | Printing                             |   | $                      | 95,194,288  |      |   | $          | 98,146,114  |   |   | $          | 96,656,679  |  
|                                             | Office products and office furniture |   |                        | 27,689,621  |      |   |            | 26,998,196  |   |   |            | 29,672,727  |  
|                                             |                                      |   |                        |             |      |   |            |             |   |   |            |            
|                                             | Total revenues                       |   |                        | 122,883,909 |      |   |            | 125,144,310 |   |   |            | 126,329,406 |  
|                                             |                                      |   |                        |             |      |   |            |             |   |   |            |             |  
|Cost of sales:                               |                                      |   |                        |             |      |   |            |             |   |   |            |            
|                                             | Printing                             |   |                        | 68,770,628  |      |   |            | 71,815,872  |   |   |            | 69,376,266  |  
|                                             | Office products and office furniture |   |                        | 19,480,400  |      |   |            | 18,661,472  |   |   |            | 19,927,207  |  
|                                             |                                      |   |                        |             |      |   |            |             |   |   |            |            
|                                             | Total cost of sales                  |   |                        | 88,251,028  |      |   |            | 90,477,344  |   |   |            | 89,303,473  |  
|                                             |                                      |   |                        |             |      |   |            |             |   |   |            |             |  
|Gross profit                                 |                                      |   | 34,632,881             |             |      |   | 34,666,966 |             |   |   | 37,025,933 |            
|                                             |                                      |   |                        |             |      |   |            |             |   |   |            |             |  
|Selling, general and administrative expenses |                                      |   | 30,560,289             |             |      |   | 31,799,557 |             |   |   | 32,621,339 |            
|Restructuring costs                          |                                      |   |                       |             |      |   | 2,052,692  |             |   |   |           |            
|Asset impairment costs                       |                                      |   |                       |             |      |   | 3,060,706  |             |   |   |           |            
|                                             |                                      |   |                        |             |      |   |            |             |   |   |            |            
|Income (loss) from operations                |                                      |   | 4,072,592              |             |      |   | (2,245,989 | )           |   |   | 4,404,594  |            
|                                             |                                      |   |                        |             |      |   |            |             |   |   |            |             |  
|Other income (expense):                      |                                      |   |                        |             |      |   |            |             |   |   |            |            
|                                             | Interest income                      |   |                        | 14,376      |      |   |            | 63,700      |   |   |            | 71,094      |  
|                                             | Interest expense                     |   |                        | (386,699    | )    |   |            | (890,787    | ) |   |            | (1,017,618  | )
|                                             | Other                                |   |                        | 73,326      |      |   |            | 528,013     |   |   |            | 113,710     |  
|                                             |                                      |   |                        |             |      |   |            |             |   |   |            |            
|                                             |                                      |   | (298,997               | )           |      |   | (299,074   | )           |   |   | (832,814   | )          
|                                             |                                      |   |                        |             |      |   |            |             |   |   |            |            
|Income (loss) before income taxes            |                                      |   | 3,773,595              |             |      |   | (2,545,063 | )           |   |   | 3,571,780  |            
|Income tax (expense) benefit                 |                                      |   | (1,565,891             | )           |      |   | 362,974    |             |   |   | (1,463,109 | )          
|                                             |                                      |   |                        |             |      |   |            |             |   |   |            |            
|Net income (loss)                            |                                      | $ | 2,207,704              |             |      | $ | (2,182,089 | )           |   | $ | 2,108,671  |            
|                                             |                                      |   |                        |             |      |   |            |             |   |   |            |            
|Earnings (loss) per share:                   |                                      |   |                        |             |      |   |            |             |   |   |            |            
|                                             | Basic                                |   | $                      | 0.23        |      |   | $          | (0.22       | ) |   | $          | 0.22        |  
|                                             | Diluted                              |   |                        | 0.23        |      |   |            | (0.22       | ) |   |            | 0.22        |  
|                                             |                                      |   |                        |             |      |   |            |             |   |   |            |             |  
|Dividends paid per share                     |                                      |   | 0.20                   |             |      |   | 0.20       |             |   |   | 0.20       |            
|                                             |                                      |   |                        |             |      |   |            |             |   |   |            |             |  
|Weighted average shares outstanding:         |                                      |   |                        |             |      |   |            |             |   |   |            |            
|                                             | Basic                                |   |                        | 9,714,000   |      |   |            | 9,714,000   |   |   |            | 9,714,000   |  
|                                             | Diluted                              |   |                        | 9,726,000   |      |   |            | 9,714,000   |   |   |            | 9,714,000   |  

F-5



---



##### 



Champion Industries, Inc. and Subsidiaries

Consolidated Statements of Shareholders Equity

|                          |                             |  |              |   |            |   |           |   |          |   |            |   |  |   |            |            |   |   |            |            |  
|------------------------- | --------------------------- |  | ------------ | - | ---------- | - | --------- | - | -------- | - | ---------- | - |  | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                          |                             |  | Common Stock |   | Additional |   |           |   |          |   |           
|                          |                             |  |              |   | Paid-In    |   | Retained  |   |          |   |           
|                          |                             |  | Shares       |   | Amount     |   | Capital   |   | Earnings |   | Total     
|                          |                             |  |             
|Balance, October 31, 1999 |                             |  | 9,713,913    |   |            | $ | 9,713,913 |   |          | $ | 22,242,047 |   |  | $ | 14,603,909 |            |   | $ | 46,559,869 |           
|                          | Net income for 2000         |  |              |  |            |   |           |  |          |   |            |  |  |   |            | 2,108,671  |   |   |            | 2,108,671  |  
|                          | Dividends ($0.20 per share) |  |              |  |            |   |           |  |          |   |            |  |  |   |            | (1,942,782 | ) |   |            | (1,942,782 | )
|                          |                             |  |              |   |            |   |           |   |          |   |            |   |  |   |            |            |   |   |            |           
|Balance, October 31, 2000 |                             |  | 9,713,913    |   |            |   | 9,713,913 |   |          |   | 22,242,047 |   |  |   | 14,769,798 |            |   |   | 46,725,758 |           
|                          | Net loss for 2001           |  |              |  |            |   |           |  |          |   |            |  |  |   |            | (2,182,089 | ) |   |            | (2,182,089 | )
|                          | Dividends ($0.20 per share) |  |              |  |            |   |           |  |          |   |            |  |  |   |            | (1,942,783 | ) |   |            | (1,942,783 | )
|                          |                             |  |              |   |            |   |           |   |          |   |            |   |  |   |            |            |   |   |            |           
|Balance, October 31, 2001 |                             |  | 9,713,913    |   |            |   | 9,713,913 |   |          |   | 22,242,047 |   |  |   | 10,644,926 |            |   |   | 42,600,886 |           
|                          | Net income for 2002         |  |              |  |            |   |           |  |          |   |            |  |  |   |            | 2,207,704  |   |   |            | 2,207,704  |  
|                          | Dividends ($0.20 per share) |  |              |  |            |   |           |  |          |   |            |  |  |   |            | (1,942,780 | ) |   |            | (1,942,780 | )
|                          |                             |  |              |   |            |   |           |   |          |   |            |   |  |   |            |            |   |   |            |           
|Balance, October 31, 2002 |                             |  | 9,713,913    |   |            | $ | 9,713,913 |   |          | $ | 22,242,047 |   |  | $ | 10,909,850 |            |   | $ | 42,865,810 |           
|                          |                             |  |              |   |            |   |           |   |          |   |            |   |  |   |            |            |   |   |            |           

See notes to consolidated financial statements.

F-6



---



##### 



Champion Industries, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

|                                      |                                                                                      |                                                      |                                           |           |                        |            |      |            |            |            |   |           |            |           |  
|------------------------------------- | ------------------------------------------------------------------------------------ | ---------------------------------------------------- | ----------------------------------------- | --------- | ---------------------- | ---------- | ---- | ---------- | ---------- | ---------- | - | --------- | ---------- | --------- | -
|                                      |                                                                                      |                                                      |                                           |           | Year Ended October 31,
|                                      |                                                                                      |                                                      |                                           |           | 2002                   |            | 2001 |            | 2000      
|                                      |                                                                                      |                                                      |                                           |           |                       
|Cash flows from operating activities: |                                                                                      |                                                      |                                           |           |                        |            |      |            |            |            |   |          
|                                      | Net income (loss)                                                                    |                                                      | $                                         | 2,207,704 |                        |            | $    | (2,182,089 | )          |            | $ | 2,108,671 |           
|                                      | Adjustments to reconcile net income (loss) to cash
provided by operating activities: |                                                      |                                           |           |                        |            |      |            |            |            |   |           |           
|                                      |                                                                                      | Depreciation and amortization                        |                                           |           | 4,182,253              |            |      |            | 4,507,165  |            |   |           | 4,286,048  |          
|                                      |                                                                                      | Loss (gain) on sale of assets                        |                                           |           | 47,426                 |            |      |            | (12,584    | )          |   |           | 19,147     |          
|                                      |                                                                                      | Gain on sale of division                             |                                           |           |                       |            |      |            | (407,515   | )          |   |           |           |          
|                                      |                                                                                      | Deferred income taxes                                |                                           |           | (245,091               | )          |      |            | (814,020   | )          |   |           | (239,120   | )        
|                                      |                                                                                      | Deferred compensation                                |                                           |           | 17,872                 |            |      |            | 21,446     |            |   |           | 25,020     |          
|                                      |                                                                                      | Bad debt expense                                     |                                           |           | 363,328                |            |      |            | 705,742    |            |   |           | 412,420    |          
|                                      |                                                                                      | Restructuring, asset impairment and other charges    |                                           |           |                       |            |      |            | 6,091,298  |            |   |           |           |          
|                                      |                                                                                      | Changes in assets and liabilities:                   |                                           |           |                        |            |      |            |            |            |   |           |            |          
|                                      |                                                                                      |                                                      | Accounts receivable                       |           |                        | 255,456    |      |            |            | 2,992,168  |   |           |            | 1,705,346 |  
|                                      |                                                                                      |                                                      | Inventories                               |           |                        | 336,614    |      |            |            | 1,049,516  |   |           |            | 571,215   |  
|                                      |                                                                                      |                                                      | Other current assets                      |           |                        | (991,445   | )    |            |            | 255,797    |   |           |            | (150,376  | )
|                                      |                                                                                      |                                                      | Accounts payable                          |           |                        | (1,085,196 | )    |            |            | (219,276   | ) |           |            | (15,070   | )
|                                      |                                                                                      |                                                      | Accrued payroll and commissions           |           |                        | (103,331   | )    |            |            | (190,106   | ) |           |            | 431,034   |  
|                                      |                                                                                      |                                                      | Taxes accrued and withheld                |           |                        | 127,340    |      |            |            | 65,525     |   |           |            | 281,351   |  
|                                      |                                                                                      |                                                      | Accrued income taxes                      |           |                        | 1,152,407  |      |            |            | (503,790   | ) |           |            | (452,600  | )
|                                      |                                                                                      |                                                      | Accrued expenses                          |           |                        | (399,341   | )    |            |            | 115,478    |   |           |            | (201,409  | )
|                                      |                                                                                      |                                                      | Other liabilities                         |           |                        | (21,074    | )    |            |            | (22,176    | ) |           |            | (43,665   | )
|                                      |                                                                                      |                                                      |                                           |           |                        |            |      |            |            |            |   |          
|                                      |                                                                                      |                                                      | Net cash provided by operating activities |           |                        | 5,844,922  |      |            |            | 11,452,579 |   |           |            | 8,738,012 |  
|Cash flows from investing activities: |                                                                                      |                                                      |                                           |           |                        |            |      |            |            |            |   |          
|                                      |                                                                                      | Purchase of property and equipment                   |                                           |           | (1,885,111             | )          |      |            | (1,806,122 | )          |   |           | (2,334,255 | )        
|                                      |                                                                                      | Proceeds from sale of fixed assets                   |                                           |           | 1,198,720              |            |      |            | 247,829    |            |   |           | 181,302    |          
|                                      |                                                                                      | Proceeds from sale of division                       |                                           |           |                       |            |      |            | 264,700    |            |   |           |           |          
|                                      |                                                                                      | Businesses acquired, net of cash received            |                                           |           | (376,842               | )          |      |            | (1,588,040 | )          |   |           | (463,477   | )        
|                                      |                                                                                      | Change in other assets                               |                                           |           | (21,067                | )          |      |            | 141,919    |            |   |           | (478,699   | )        
|                                      |                                                                                      |                                                      |                                           |           |                        |            |      |            |            |            |   |          
|                                      |                                                                                      | Net cash used in investing activities                |                                           |           | (1,084,300             | )          |      |            | (2,739,714 | )          |   |           | (3,095,129 | )        
|Cash flows from financing activities: |                                                                                      |                                                      |                                           |           |                        |            |      |            |            |            |   |          
|                                      |                                                                                      | Borrowings on notes payable                          |                                           |           | 1,000,000              |            |      |            | 1,500,000  |            |   |           |           |          
|                                      |                                                                                      | Payments on notes payable                            |                                           |           | (1,000,000             | )          |      |            | (1,500,000 | )          |   |           |           |          
|                                      |                                                                                      | Proceeds from long-term debt                         |                                           |           |                       |            |      |            | 1,192,397  |            |   |           | 1,168,720  |          
|                                      |                                                                                      | Principal payments on long-term debt                 |                                           |           | (4,075,419             | )          |      |            | (5,371,350 | )          |   |           | (4,158,788 | )        
|                                      |                                                                                      | Dividends paid                                       |                                           |           | (1,942,780             | )          |      |            | (1,942,783 | )          |   |           | (1,942,782 | )        
|                                      |                                                                                      |                                                      |                                           |           |                        |            |      |            |            |            |   |          
|                                      |                                                                                      | Net cash used in financing activities                |                                           |           | (6,018,199             | )          |      |            | (6,121,736 | )          |   |           | (4,932,850 | )        
|                                      |                                                                                      |                                                      |                                           |           |                        |            |      |            |            |            |   |          
|                                      |                                                                                      | Net increase (decrease) in cash and cash equivalents |                                           |           | (1,257,577             | )          |      |            | 2,591,129  |            |   |           | 710,033    |          
|                                      |                                                                                      | Cash and cash equivalents at beginning of year       |                                           |           | 5,764,716              |            |      |            | 3,173,587  |            |   |           | 2,463,554  |          
|                                      |                                                                                      |                                                      |                                           |           |                        |            |      |            |            |            |   |          
|                                      |                                                                                      | Cash and cash equivalents at end of year             |                                           | $         | 4,507,139              |            |      | $          | 5,764,716  |            |   | $         | 3,173,587  |          
|                                      |                                                                                      |                                                      |                                           |           |                        |            |      |            |            |            |   |          

See notes to consolidated financial statements.

F-7



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Champion is a commercial printer, business forms manufacturer and office
products and office furniture supplier in regional markets east of the
Mississippi.

The accounting and reporting policies of Champion conform to accounting
principles generally accepted in the United States. The preparation of the
financial statements in conformity with generally accepted accounting
principles 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. The following is a summary of the
more significant accounting and reporting policies.

Principles of Consolidation

The accompanying consolidated financial statements of Champion Industries,
Inc. and Subsidiaries (the Company) include the accounts of The Chapman
Printing Company, Inc., Bourque Printing, Inc., Dallas Printing Company, Inc.,
Stationers, Inc., Carolina Cut Sheets, Inc., U.S. Tag & Ticket Company, Inc.,
Donihe Graphics, Inc., Smith and Butterfield Co., Inc., The Merten Company,
Interform Corporation, Blue Ridge Printing Co., Inc., CHMP Leasing, Inc., Rose
City Press, Capitol Business Equipment, Inc., Thompsons of Morgantown, Inc.,
Independent Printing Service, Inc., Diez Business Machines and Transdata
Systems, Inc.

Significant intercompany transactions have been eliminated in
consolidation.

Cash Equivalents

Cash and cash equivalents consist principally of cash on deposit with
banks, repurchase agreements for government securities, and a money market
account, all highly liquid investments with an original maturity of three
months or less. At October 31, 2002 and 2001, the Company held overnight
repurchase agreements for $845,000 and $1,495,000 of government securities with
stated interest rates of 0.65% and 1.0%.

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.

Property and Equipment

Depreciation of property and equipment and amortization of leasehold
improvements and equipment under capital leases are recognized primarily on the
straight-line and declining-balance methods in amounts adequate to amortize
costs over the estimated useful lives of the assets as follows:

|                           |  |             
|-------------------------- |  | ------------
|Buildings and improvements |  | 5 - 40 years
|Machinery and equipment    |  | 3 - 10 years

F-8



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

|                       |  |             
|---------------------- |  | ------------
|Furniture and fixtures |  | 5 - 10 years
|Vehicles               |  | 3 - 5 years 

The Company leases certain equipment under financing agreements that are classified as capital leases. These leases are for a term
of five years and contain purchase options at the end of the original lease
term. Amortization of assets recorded under capital lease agreements is
included in depreciation expense.

Major renewals, betterments, and replacements are capitalized while
maintenance and repair costs are charged to operations as incurred. Upon the
sale or disposition of assets, the cost and related accumulated depreciation
are removed from the accounts with the resulting gains or losses reflected in
income. Depreciation expense approximated $4,139,000, $4,267,000, and
$3,975,000 for the years ended October 31, 2002, 2001 and 2000.

Long-lived property and equipment are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. This evaluation includes the review of operating
performance and estimated future undiscounted cash flows of the underlying
assets or businesses.

The Company had two buildings classified as assets held for sale that were
sold at their approximate recorded value during 2002 and related to the
Companys Cordage division (See Note 8) and to the Companys implementation of
restructuring and profitability enhancement plan in 2001 (See Note 10).

Goodwill

The excess cost over fair value of net assets of acquired businesses,
goodwill, was previously in years prior to 2002 being amortized by the
straight-line method over periods ranging from 15 to 25 years. Amortization
expense approximated $181,000 and $242,000, for the years ended October 31,
2001 and 2000.

In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets (FAS 142).The Company adopted these
standards with its fiscal year beginning November 1, 2001. Under the new rules,
goodwill (and intangible assets deemed to have indefinite lives) will no longer
be amortized but will be subject to annual impairment tests in accordance with
FAS 142 except in the year of adoption where companies are required to evaluate
impairment at the beginning of the year and again at a recurring annual date.
The first step in the impairment analysis is a screen for potential impairment
and was required to be completed within six months of adopting FAS 142. The
second step if required, measures the amount of impairment. The Company
completed step 1 of the initial impairment analysis and the subsequent annual
analysis during the 2nd and 4th quarters of 2002 and the adoption did not
result in an impairment charge. Other intangible assets will continue to be
amortized over their useful lives. Application of the nonamortization
provisions of the Statement resulted in an increase in net income of $50,000 or
approximately $0.01 per share in 2002.

F-9



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets(FAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations for a
disposal of a segment of a business.FAS 144 is effective for fiscal years
beginning after December 15, 2001, with earlier application encouraged. The
Company adopted FAS 144 as of November 1, 2001 and the adoption did not have a
significant impact on the Companys financial position and results of
operations.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense for the
years ended October 31, 2002, 2001 and 2000 approximated $549,000, $645,000 and
$641,000.

Income Taxes

Provisions for income taxes currently payable and deferred income taxes
are based on the liability method. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.

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 effect of dilutive stock options
increased weighted average shares outstanding by 12,000, 0 and 400 for the
years ended October 31, 2002, 2001 and 2000.

Segment Information

The Company designates the internal organization that is used by
management for making operating decisions and assessing performance as the
source of the Companys reportable segments.

Accounting for Web Site Development Costs

Certain external costs and internal payroll and payroll-related costs have
been capitalized during the application, development, and implementation stages
of the Companys web site. The costs regarding the ongoing operation and
maintenance are expensed in the period incurred. Internet sales represent less
than 2% of the Companys sales for the years ended October 31, 2002, 2001 and
2000.

F-10



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Revenue Recognition

Revenues are recognized when products are shipped or services are rendered
to customers. The Company acts as a principal party in sales transactions,
assumes title to products and assumes the risks and rewards of ownership
including risk of loss for collection, delivery, or returns. Therefore, the
Company records sales on a gross basis. Shipping and handling costs are
recorded as a component of cost of sales.

Accounting for Costs Associated with Exit or Disposal Activities

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 will 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 2002 and 2000, respectively: risk-free interest rates of 3.91%
and 6.00%; dividend yields of 8.03% and 4.71%; volatility factors of the
expected market price of the Companys common stock of 45.4% and 39.9%; and a
weighted-average expected life of the option of 4 years.

F-11



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (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 years ended October 31 are as follows:

|                               |  |                        |           |      |  |      |            |   |  |   |           | 
|------------------------------ |  | ---------------------- | --------- | ---- |  | ---- | ---------- | - |  | - | --------- | 
|                               |  | Year Ended December 31
|                               |  |                       
|                               |  | 2002                   |           | 2001 |  | 2000
|                               |  |                        |           |      |  |     
|Net Income (loss), as reported |  | $                      | 2,207,704 |      |  | $    | (2,182,089 | ) |  | $ | 2,108,671 | 
|Deduct: Total stock-based      |  |                        |           |      |  |      |            |   |  |   |           | 
|employee compensation expense  |  |                        |           |      |  |      |            |   |  |   |           | 
|determined under fair value    |  |                        |           |      |  |      |            |   |  |   |           | 
|method for all awards, net of  |  |                        |           |      |  |      |            |   |  |   |           | 
|related tax effects            |  |                        | 38,704    |      |  |      |           |   |  |   | 33,671    | 
|                               |  |                        |           |      |  |      |            |   |  |   |           | 
|Pro Forma net income (loss)    |  | $                      | 2,169,000 |      |  | $    | (2,182,089 | ) |  | $ | 2,075,000 | 
|                               |  |                        |           |      |  |      |            |   |  |   |           | 
|Earnings (loss) per share:     |  |                        |           |      |  |      |            |   |  |   |           | 
|Basic, as reported             |  | $                      | 0.23      |      |  | $    | (0.22      | ) |  | $ | 0.22      | 
|Basic, pro forma               |  | $                      | 0.22      |      |  | $    | (0.22      | ) |  | $ | 0.21      | 
|                              
|Diluted, as reported           |  | $                      | 0.23      |      |  | $    | (0.22      | ) |  | $ | 0.22      | 
|Diluted, pro forma             |  | $                      | 0.22      |      |  | $    | (0.22      | ) |  | $ | 0.21      | 

Reclassifications

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

2. Inventories

Inventories consisted of the following:

|                                     |                 |   |             |           |      |   |            |           | 
|------------------------------------ | --------------- | - | ----------- | --------- | ---- | - | ---------- | --------- | 
|                                     |                 |   | October 31,
|                                     |                 |   |            
|                                     |                 |   | 2002        |           | 2001
|                                     |                 |   |             |           |     
|Printing:                            |                 |   |             |           |      |   |            |          
|                                     | Raw materials   |   | $           | 2,421,973 |      |   | $          | 2,460,218 | 
|                                     | Work in process |   |             | 1,795,796 |      |   |            | 1,698,374 | 
|                                     | Finished goods  |   |             | 3,942,518 |      |   |            | 3,923,549 | 
|Office products and office furniture |                 |   | 3,267,294   |           |      |   | 3,682,054  |          
|                                     |                 |   |             |           |      |   |            |          
|                                     |                 | $ | 11,427,581  |           |      | $ | 11,764,195 |          
|                                     |                 |   |             |           |      |   |            |          

F-12



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. Long-term Debt

Long-term debt consisted of the following:

|                                                                                                                                                                                                                                                                                          |  |             |           |      |  |   |           | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | --------- | ---- |  | - | --------- | 
|                                                                                                                                                                                                                                                                                          |  | October 31,
|                                                                                                                                                                                                                                                                                          |  |            
|                                                                                                                                                                                                                                                                                          |  | 2002        |           | 2001
|                                                                                                                                                                                                                                                                                          |  |             |           |     
|Unsecured term notes payable to a bank,
due in monthly principal installments of
$148,810 plus interest approximating the
prime rate with the last note maturing April 2004                                                                                                               |  | $           | 2,678,733 |      |  | $ | 4,464,449 | 
|                                                                                                                                                                                                                                                                                         
|Installment notes payable to banks, due
in monthly installments totaling $84,852
plus interest at rates approximating the
banks prime rate maturing in various
periods ranging from December 2002 -
April 2006, collateralized by equipment,
vehicles, inventory and accounts receivable |  |             | 1,382,526 |      |  |   | 2,859,733 | 
|Capital lease obligations, due in monthly
installments totaling $47,223 through
October 2002 and $19,116 due in monthly
installments in periods through February
2005 and October 2005 including interest at the
banks prime rate                                                        |  |             | 554,062   |      |  |   | 1,078,830 | 
|                                                                                                                                                                                                                                                                                          |  |             |           |      |  |   |           | 
|                                                                                                                                                                                                                                                                                          |  |             | 4,615,321 |      |  |   | 8,403,012 | 
|Less current portion                                                                                                                                                                                                                                                                      |  |             | 2,810,457 |      |  |   | 3,853,943 | 
|                                                                                                                                                                                                                                                                                          |  |             |           |      |  |   |           | 
|Long-term debt, net of current portion                                                                                                                                                                                                                                                    |  | $           | 1,804,864 |      |  | $ | 4,549,069 | 
|                                                                                                                                                                                                                                                                                          |  |             |           |      |  |   |           | 

The unsecured term note agreements contain restrictive financial covenants
requiring the Company to maintain certain financial ratios.

Maturities of long-term debt for each of the next five years follow:

|           |  |         |           |         |  |       |         |  |  |   |           | 
|---------- |  | ------- | --------- | ------- |  | ----- | ------- |  |  | - | --------- | 
|           |  | Notes   |           | Capital |  |       |         | 
|           |  | Payable |           | Leases  |  | Total
|           |  |         |           |         |  |      
|2003       |  | $       | 2,615,422 |         |  | $     | 195,035 |  |  | $ | 2,810,457 | 
|2004       |  |         | 1,351,180 |         |  |       | 210,025 |  |  |   | 1,561,205 | 
|2005       |  |         | 63,132    |         |  |       | 149,002 |  |  |   | 212,134   | 
|2006       |  |         | 31,525    |         |  |       |        |  |  |   | 31,525    | 
|2007       |  |         |          |         |  |       |        |  |  |   |          | 
|Thereafter |  |         |          |         |  |       |        |  |  |   |          | 
|           |  |         |           |         |  |       |         |  |  |   |           | 
|           |  | $       | 4,061,259 |         |  | $     | 554,062 |  |  | $ | 4,615,321 | 
|           |  |         |           |         |  |       |         |  |  |   |           | 

F-13



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

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%. The line of credit expires in March
2005 and contains certain restrictive financial covenants. There were no
borrowings outstanding under this facility at October 31, 2002 or 2001.

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 October 31, 2002 or 2001.

The prime rate, the base interest rate on the above loans, approximated
4.75% and 5.5% at October 31, 2002 and 2001. Interest paid during the years
ended October 31, 2002, 2001 and 2000 approximated $385,000, $872,000 and
$1,018,000.

The Companys non-cash activities for 2002, 2001, and 2000 included
equipment purchases of approximately $288,000, $792,000 and $756,000, which
were financed by a bank.

4. Employee Benefit Plans

The Company had a Profit Sharing Plan that covered all eligible employees
and qualified as a Savings Plan under Section 401(k) of the Internal Revenue
Code. Effective January 1, 1998, the Profit Sharing Plan was merged into The
Champion Industries, Inc. 401(k) Plan (the Plan). The Plan covers all
eligible employees who satisfy the age and service requirements. Each
participant may elect to contribute up to 15% of annual compensation, and the
Company is obligated to contribute 100% of the participants contribution not
to exceed 2% of the participants annual compensation. The Company may make
discretionary contributions to the Plan. The Companys expense under these
Plans was approximately $346,000, $369,000 and $375,000 for the years ended
October 31, 2002, 2001 and 2000.

The Companys 1993 Stock Option Plan provides for the granting of both
incentive and non-qualified stock options to management personnel for up to
762,939 shares of the Companys common stock. The option price per share for
incentive stock options shall not be lower than the fair market value of the
common stock at the date of grant. The option price per share for non-qualified
stock options shall be at such price as the Compensation Committee of the Board
of Directors may determine at its sole discretion. All options to date are
incentive stock options. Exercise prices for options outstanding as of October
31, 2002 ranged from $2.49 to $18.50. Options vest immediately and may be
exercised within five years from the date of grant. The weighted average
remaining contractual life of those options is 2.9 years.

F-14



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

A summary of the Companys stock option activity and related information
for the years ended October 31 follows:

|                                                               |  |      |         |       |  |          |       |       |  |      |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|-------------------------------------------------------------- |  | ---- | ------- | ----- |  | -------- | ----- | ----- |  | ---- | ------- | -------- |  | - | ----- |  |  | -------- | ------- | - |  | - | ----- | 
|                                                               |  |      |         |       |  | Weighted |       |       |  |      |         | Weighted |  |   |       |  |  | Weighted
|                                                               |  |      |         |       |  | Average  |       |       |  |      |         | Average  |  |   |       |  |  | Average 
|                                                               |  |      |         |       |  | Exercise |       |       |  |      |         | Exercise |  |   |       |  |  | Exercise
|                                                               |  | 2002 |         | Price |  | 2001     |       | Price |  | 2000 |         | Price   
|                                                               |  |      |         |       |  |          |       |       |  |      |         |         
|Outstanding-beginning of year                                  |  |      | 130,000 |       |  | $        | 10.63 |       |  |      | 176,317 |          |  | $ | 11.44 |  |  |          | 180,862 |   |  | $ | 13.94 | 
|Granted                                                        |  |      | 126,000 |       |  |          | 2.49  |       |  |      |        |          |  |   |      |  |  |          | 50,000  |   |  |   | 4.25  | 
|Exercised                                                      |  |      |        |       |  |          |      |       |  |      |        |          |  |   |      |  |  |          |        |   |  |   |      | 
|Forfeited or expired                                           |  |      | (26,000 | )     |  |          | 17.38 |       |  |      | (46,317 | )        |  |   | 13.72 |  |  |          | (54,545 | ) |  |   | 13.13 | 
|                                                               |  |      |         |       |  |          |       |       |  |      |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|Outstanding-end of year                                        |  |      | 230,000 |       |  |          | 5.41  |       |  |      | 130,000 |          |  |   | 10.63 |  |  |          | 176,317 |   |  |   | 11.44 | 
|                                                               |  |      |         |       |  |          |       |       |  |      |         |          |  |   |       |  |  |          |         |   |  |   |       | 
|Weighted average fair value
of options granted during
the year |  | $    | 0.52    |       |  |          |       |       |  | $    |        |          |  |   |       |  |  | $        | 1.14    |   |  |   |       | 
|                                                               |  |      |         |       |  |          |       |       |  |      |         |          |  |   |       |  |  |          |         |   |  |   |       | 

A summary of stock options outstanding and exercisable at October 31, 2002,
follows:

| |  |  |          |      |             |  |           |         |  |  |      |      | 
| |  |  | -------- | ---- | ----------- |  | --------- | ------- |  |  | ---- | ---- | 
| |  |  | Exercise |      | Number      |  | Remaining
| |  |  | Price    |      | Outstanding |  | Life     
| |  |  |          |      |             |  |          
| |  |  | 18.50    |      |             |  | 28,000    |         |  |  | 0.12 |     
| |  |  |          | 6.88 |             |  |           | 34,000  |  |  |      | 1.63 | 
| |  |  |          | 4.25 |             |  |           | 42,000  |  |  |      | 2.14 | 
| |  |  |          | 2.49 |             |  |           | 126,000 |  |  |      | 4.05 | 

The Company has deferred compensation agreements with two employees of
Blue Ridge Printing Co., Inc. providing for payments totaling approximately
$1,000,000 over a ten year period after retirement. During fiscal 2001, one of
these employees was paid out. The Company had accrued approximately $340,000
and $322,000 at October 31, 2002 and 2001 relating to these agreements. The
amount expensed for these agreements for the years
ended October 31, 2002, 2001 and 2000 approximated $18,000, $21,000 and
$25,000. To assist in funding the deferred compensation agreements, the Company
has invested in life insurance policies, which had a cash surrender value of
approximately $364,000 and $322,000 for years 2002 and 2001.

F-15



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. Income Taxes

Income tax expense (benefit) consisted of the following:

|                           |         |   |                        |           |      |   |          |         |  |   |           |           | 
|-------------------------- | ------- | - | ---------------------- | --------- | ---- | - | -------- | ------- |  | - | --------- | --------- | 
|                           |         |   | Year Ended October 31,
|                           |         |   |                       
|                           |         |   | 2002                   |           | 2001 |   | 2000    
|                           |         |   |                        |           |      |   |         
|Current expense:           |         |   |                        |           |      |   |          |         |  |   |           |          
|                           | Federal |   | $                      | 1,460,913 |      |   | $        | 325,728 |  |   | $         | 1,332,515 | 
|                           | State   |   |                        | 350,069   |      |   |          | 125,318 |  |   |           | 369,714   | 
|Deferred (benefit) expense |         |   | (245,091               | )         |      |   | (814,020 | )       |  |   | (239,120  | )        
|                           |         |   |                        |           |      |   |          |         |  |   |           |          
|                           |         | $ | 1,565,891              |           |      | $ | (362,974 | )       |  | $ | 1,463,109 |          
|                           |         |   |                        |           |      |   |          |         |  |   |           |          

Deferred tax assets and liabilities are as follows:

|                             |                                                       |   |             |           |      |   |           |           |  
|---------------------------- | ----------------------------------------------------- | - | ----------- | --------- | ---- | - | --------- | --------- | -
|                             |                                                       |   | October 31,
|                             |                                                       |   |            
|                             |                                                       |   | 2002        |           | 2001
|                             |                                                       |   |             |           |     
|Assets:                      |                                                       |   |             |           |      |   |           |          
|                             | Allowance for doubtful accounts                       |   | $           | 560,957   |      |   | $         | 572,922   |  
|                             | Deferred compensation                                 |   |             | 135,824   |      |   |           | 128,676   |  
|                             | Net operating loss carryforward of acquired companies |   |             | 642,427   |      |   |           | 674,797   |  
|                             | Accrued vacation                                      |   |             | 219,701   |      |   |           | 205,249   |  
|                             | Other accrued liabilities                             |   |             | 146,649   |      |   |           | 409,043   |  
|                             | Other assets                                          |   |             | 84,229    |      |   |           | 213,670   |  
|                             |                                                       |   |             |           |      |   |           |          
|Gross deferred tax assets    |                                                       |   | 1,789,787   |           |      |   | 2,204,357 |          
|Liabilities:                 |                                                       |   |             |           |      |   |           |          
|                             | Property and equipment                                |   |             | 3,443,400 |      |   |           | 4,093,045 |  
|                             |                                                       |   |             |           |      |   |           |          
|                             | Gross deferred tax liability                          |   |             | 3,443,400 |      |   |           | 4,093,045 |  
|                             |                                                       |   |             |           |      |   |           |          
|                             | Valuation allowance                                   |   |             | (544,447  | )    |   |           | (554,463  | )
|                             |                                                       |   |             |           |      |   |           |          
|Net deferred tax liabilities |                                                       | $ | 2,198,060   |           |      | $ | 2,443,151 |          
|                             |                                                       |   |             |           |      |   |           |          

A reconciliation of the statutory federal income tax rate to the Companys
effective income tax rate is as follows:

|                                    |  |                        |      |      |  |      |       |    |  |  |      |  
|----------------------------------- |  | ---------------------- | ---- | ---- |  | ---- | ----- | -- |  |  | ---- | -
|                                    |  | Year Ended October 31,
|                                    |  |                       
|                                    |  | 2002                   |      | 2001 |  | 2000
|                                    |  |                        |      |      |  |     
|Statutory federal income tax rate   |  |                        | 34.0 | %    |  |      | (34.0 | %) |  |  | 34.0 | %
|State taxes, net of federal benefit |  |                        | 6.1  |      |  |      | (1.1  | )  |  |  | 6.8  |  
|Restructuring permanent differences |  |                        |     |      |  |      | 22.1  |    |  |  |     |  
|Other                               |  |                        | 1.4  |      |  |      | (1.3  | )  |  |  | 0.2  |  
|                                    |  |                        |      |      |  |      |       |    |  |  |      |  
|Effective tax rate                  |  |                        | 41.5 | %    |  |      | (14.3 | %) |  |  | 41.0 | %
|                                    |  |                        |      |      |  |      |       |    |  |  |      |  

F-16



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Income taxes paid during the years ended October 31, 2002, 2001 and 2000
approximated $659,000, $959,000 and $2,144,000.

The Company has available for income tax purposes net operating loss
carryforwards from acquired companies of approximately $1,228,000, of which
$229,000 expires in 2011, $901,000 in 2012 and $98,000 in 2013. The Company has
available for state income tax purposes net operating loss carryforwards from
acquired companies of approximately $2,764,000 of which $20,000 expires in
2010, $317,000 expires in 2012, $108,000 expires in 2013, $435,000 expires in
2014, $1,012,000 expires in 2015 and $872,000 expires in 2016. The Company
established valuation allowances against certain net operating loss
carryforwards and to the extent that the amounts are subsequently recognized,
they may be recorded in the period used as a reduction of goodwill.

6. Related Party Transactions and Operating Lease Commitments

The Company leases operating facilities from entities controlled by its
Chief Executive Officer, his family and affiliates. The terms of these leases,
which are accounted for as operating leases, range from five to fifteen years.

A summary of significant related party transactions follows:

|                                                                                        |  |                        |         |      |  |      |         |  |  |   |         | 
|--------------------------------------------------------------------------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                                                        |  | Year Ended October 31,
|                                                                                        |  |                       
|                                                                                        |  | 2002                   |         | 2001 |  | 2000
|                                                                                        |  |                        |         |      |  |     
|Rent expense paid to affiliated entities for
operating facilities                       |  | $                      | 424,000 |      |  | $    | 441,000 |  |  | $ | 458,000 | 
|Sales of office products, office furniture
and printing services to affiliated
entities |  |                        | 803,000 |      |  |      | 673,000 |  |  |   | 892,000 | 

In addition, the Company leases property and equipment from unrelated
entities under operating leases. Rent expense amounted to $881,000, $898,000
and $1,126,000 for the years ended October 31, 2002, 2001 and 2000.

Under the terms and conditions of the above-mentioned leases, the Company
pays all taxes, assessments, maintenance, repairs or replacements, utilities
and insurance.

Future minimum rental commitments for all noncancelable operating leases
including related party commitments with initial terms of one year or more
consisted of the following at October 31, 2002:

|     |  |   |         | 
|---- |  | - | ------- | 
|2002 |  | $ | 730,631 | 
|2003 |  |   | 586,210 | 
|2004 |  |   | 335,670 | 
|2005 |  |   | 275,850 | 
|2006 |  |   | 139,800 | 

F-17



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

|           |  |   |           | 
|---------- |  | - | --------- | 
|Thereafter |  |   | 29,100    | 
|           |  |   |           | 
|           |  | $ | 2,097,261 | 
|           |  |   |           | 

The Company participates in a self-insurance program for employee health
care benefits with affiliates controlled by its Chief Executive Officer. The
Company is allocated costs primarily related to the reinsurance premiums based
on its proportionate share to provide such benefits to its employees. The
Companys expense related to this program for the years ended October 31, 2002,
2001 and 2000 was approximately $2,267,000, $2,842,000 and $2,614,000.

In the first quarter of 2002, the Company made a deposit to purchase a
fractional ownership in an aircraft from an entity controlled by its Chief
Executive Officer for approximately $1.2 million of which $875,000 had been
paid as of October 31, 2002.

The Company had previously anticipated the transaction to be completed
during the fourth quarter of 2002. The Companys Board of Directors further
evaluated the transaction, and prior to its completion determined that it would
be in the Companys best interests to rescind the transaction. Therefore, the
transaction has been terminated and a full refund of the deposit is pending.

During 2002, 2001 and 2000 the Company utilized this aircraft and
reimbursed the controlled entity for the use of the aircraft, fuel, air crew,
ramp fees and other expenses attendant to the Companys use, in amounts
aggregating $118,000, $106,000 and $68,000. The Company believes that such
amounts are at or below the market rate charged by third-party commercial
charter companies for similar aircraft.

The Company believes that the terms of its related party transactions are
no less favorable to the Company than could be obtained with an independent
third party.

7. 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.

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.

F-18



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

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.

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 and are included in
normal operating expenses. 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.

The Company is subject to various claims and legal actions, other than the
claim discussed above, that arise in the ordinary course of business. In the
opinion of management, after consulting with legal counsel, the Company
believes that the ultimate resolution of these claims and legal actions will
not have a material effect on the consolidated financial statements of the
Company.

8. Acquisitions

On October 10, 2001, the Company acquired Transdata Systems, Inc.
(Transdata) of Baton Rouge and New Orleans, Louisiana. This transaction was
accounted for under the purchase method of accounting.

On November 6, 2000, the Company acquired certain assets of the
Huntington, West Virginia paper distribution division of The Cincinnati Cordage
Paper Company (Cordage) for $1.2 million, pursuant to an auction held by the
U.S. Bankruptcy Court for the Southern District of Ohio. This transaction was
accounted for under the purchase method of accounting. On April 30, 2001, the
Company entered into a strategic alliance with Xpedx resulting in the
assumption by Xpedx of the Cordage customer list and certain inventory items.
This strategic alliance has been accounted for as a sale of a division with a
gain recognized of approximately $400,000.

F-19



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

On November 30, 1999, the Company acquired all of the issued and
outstanding common stock of Diez Business Machines, Inc. of Gonzales,
Louisiana. This transaction was accounted for under the purchase method of
accounting.

Pro forma financial information and all disclosures required by FAS 141
and FAS 142 related to these acquisitions has not been presented because such
information would not be materially different from amounts reported herein or
is not significant.

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 Company employs
approximately 800 people, of whom 81 or approximately 10% are covered by a
collective bargaining agreement, which expires on May 31, 2006. The Company
believes its relations with employees are satisfactory.

F-20



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

The table below presents information about reported segments for the years
ending October 31:

|                                    |  |          |             |             |  |                 |            |   |  |   |             |  
|----------------------------------- |  | -------- | ----------- | ----------- |  | --------------- | ---------- | - |  | - | ----------- | -
|                                    |  |          |             |             |  | Office Products |            |   |  |  
|2002                                |  | Printing |             | & Furniture |  | Total          
|                                    |  |          |             |             |  |                
|Revenues                            |  | $        | 104,767,231 |             |  | $               | 31,529,434 |   |  | $ | 136,296,665 |  
|Elimination of intersegment revenue |  |          | (9,572,943  | )           |  |                 | (3,839,813 | ) |  |   | (13,412,756 | )
|                                    |  |          |             |             |  |                 |            |   |  |   |             |  
|Consolidated revenues               |  | $        | 95,194,288  |             |  | $               | 27,689,621 |   |  | $ | 122,883,909 |  
|                                    |  |          |             |             |  |                 |            |   |  |   |             |  
|Operating income                    |  |          | 3,154,454   |             |  |                 | 918,138    |   |  |   | 4,072,592   |  
|Depreciation & amortization         |  |          | 4,057,772   |             |  |                 | 124,481    |   |  |   | 4,182,253   |  
|Capital expenditures                |  |          | 1,994,255   |             |  |                 | 178,582    |   |  |   | 2,172,837   |  
|Identifiable assets                 |  |          | 49,100,223  |             |  |                 | 10,407,280 |   |  |   | 59,507,503  |  
|Goodwill                            |  |          | 1,439,499   |             |  |                 | 286,442    |   |  |   | 1,725,941   |  

|                                    |  |          |             |             |  |                 |            |   |  |   |             |  
|----------------------------------- |  | -------- | ----------- | ----------- |  | --------------- | ---------- | - |  | - | ----------- | -
|                                    |  |          |             |             |  | Office Products |            |   |  |  
|2001                                |  | Printing |             | & Furniture |  | Total          
|                                    |  |          |             |             |  |                
|Revenues                            |  | $        | 107,599,525 |             |  | $               | 29,932,697 |   |  | $ | 137,532,222 |  
|Elimination of intersegment revenue |  |          | (9,453,411  | )           |  |                 | (2,934,501 | ) |  |   | (12,387,912 | )
|                                    |  |          |             |             |  |                 |            |   |  |   |             |  
|Consolidated revenues               |  | $        | 98,146,114  |             |  | $               | 26,998,196 |   |  | $ | 125,144,310 |  
|                                    |  |          |             |             |  |                 |            |   |  |   |             |  
|Operating loss                      |  |          | (257,098    | )           |  |                 | (1,988,891 | ) |  |   | (2,245,989  | )
|Depreciation & amortization         |  |          | 4,260,419   |             |  |                 | 246,746    |   |  |   | 4,507,165   |  
|Capital expenditures                |  |          | 2,305,369   |             |  |                 | 293,122    |   |  |   | 2,598,491   |  
|Identifiable assets                 |  |          | 55,210,611  |             |  |                 | 8,739,303  |   |  |   | 63,949,914  |  
|Goodwill                            |  |          | 1,047,741   |             |  |                 | 286,442    |   |  |   | 1,334,183   |  

|                                    |  |          |             |             |  |                 |            |   |  |   |             |  
|----------------------------------- |  | -------- | ----------- | ----------- |  | --------------- | ---------- | - |  | - | ----------- | -
|                                    |  |          |             |             |  | Office Products |            |   |  |  
|2000                                |  | Printing |             | & Furniture |  | Total          
|                                    |  |          |             |             |  |                
|Revenues                            |  | $        | 105,895,778 |             |  | $               | 33,137,917 |   |  | $ | 139,033,695 |  
|Elimination of intersegment revenue |  |          | (9,239,099  | )           |  |                 | (3,465,190 | ) |  |   | (12,704,289 | )
|                                    |  |          |             |             |  |                 |            |   |  |   |             |  
|Consolidated revenues               |  | $        | 96,656,679  |             |  | $               | 29,672,727 |   |  | $ | 126,329,406 |  
|                                    |  |          |             |             |  |                 |            |   |  |   |             |  
|Operating income                    |  |          | 3,032,018   |             |  |                 | 1,372,576  |   |  |   | 4,404,594   |  
|Depreciation & amortization         |  |          | 4,019,769   |             |  |                 | 266,279    |   |  |   | 4,286,048   |  
|Capital expenditures                |  |          | 2,947,161   |             |  |                 | 142,686    |   |  |   | 3,089,847   |  
|Identifiable assets                 |  |          | 57,265,350  |             |  |                 | 14,293,849 |   |  |   | 71,559,199  |  
|Goodwill                            |  |          | 1,676,722   |             |  |                 | 1,957,717  |   |  |   | 3,634,439   |  

F-21



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

A reconciliation of total segment revenue, assets and operating income to
consolidated income before income taxes for the years ending October 31, 2002,
2001 and 2000 is as follows:

|                                               |                                       |   |           |             |      |   |            |             |   |   |           |             |  
|---------------------------------------------- | ------------------------------------- | - | --------- | ----------- | ---- | - | ---------- | ----------- | - | - | --------- | ----------- | -
|                                               |                                       |   | 2002      |             | 2001 |   | 2000      
|                                               |                                       |   |           |             |      |   |           
|Revenues:                                      |                                       |   |           |             |      |   |            |             |   |   |           |            
|                                               | Total segment revenues                |   | $         | 136,296,665 |      |   | $          | 137,532,222 |   |   | $         | 139,033,695 |  
|                                               | Elimination of intersegment revenue   |   |           | (13,412,756 | )    |   |            | (12,387,912 | ) |   |           | (12,704,289 | )
|                                               |                                       |   |           |             |      |   |            |             |   |   |           |            
|                                               | Consolidated revenue                  |   | $         | 122,883,909 |      |   | $          | 125,144,310 |   |   | $         | 126,329,406 |  
|                                               |                                       |   |           |             |      |   |            |             |   |   |           |            
|Operating income (loss):                       |                                       |   |           |             |      |   |            |             |   |   |           |            
|                                               | Total segment operating income (loss) |   | $         | 4,072,592   |      |   | $          | (2,245,989  | ) |   | $         | 4,404,594   |  
|                                               | Interest income                       |   |           | 14,376      |      |   |            | 63,700      |   |   |           | 71,094      |  
|                                               | Interest expense                      |   |           | (386,699    | )    |   |            | (890,787    | ) |   |           | (1,017,618  | )
|                                               | Other income                          |   |           | 73,326      |      |   |            | 528,013     |   |   |           | 113,710     |  
|                                               |                                       |   |           |             |      |   |            |             |   |   |           |            
|Consolidated income (loss) before
income taxes |                                       | $ | 3,773,595 |             |      | $ | (2,545,063 | )           |   | $ | 3,571,780 |            
|                                               |                                       |   |           |             |      |   |            |             |   |   |           |            
|Identifiable assets:                           |                                       |   |           |             |      |   |            |             |   |   |           |            
|                                               | Total segment identifiable assets     |   | $         | 59,507,503  |      |   | $          | 63,949,914  |   |   | $         | 71,559,199  |  
|                                               | Elimination of intersegment assets    |   |           |            |      |   |            |            |   |   |           |            |  
|                                               |                                       |   |           |             |      |   |            |             |   |   |           |            
|                                               | Total consolidated assets             |   | $         | 59,507,503  |      |   | $          | 63,949,914  |   |   | $         | 71,559,199  |  
|                                               |                                       |   |           |             |      |   |            |             |   |   |           |            

10.     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 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

F-22



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

elimination of additional positions
resulting from retirements and 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 charges are classified on the statement of
operations as components of operating income. Inventory obsolescence and
valuation reserves are classified as a component of cost of sales. The
printing segment charges approximated $3.5 million consisting of goodwill
write-downs of $779,000, facilities and equipment write-downs of $235,000,
severance costs of $51,000, inventory obsolescence and valuation reserves of
$978,000 and restructuring and other charges of $1,457,000. The office
products and furniture segment charges approximated $2.6 million consisting of
goodwill write-downs of $1,611,000, facilities write-downs of $436,000,
severance costs of $4,000 and restructuring and other charges of $541,000.
Details of the approximated charges are as follows as of October 31, 2002:

|                                                 |  |          |           |      |  |         |         |                  |  |   |           |            |  |   |         | 
|------------------------------------------------ |  | -------- | --------- | ---- |  | ------- | ------- | ---------------- |  | - | --------- | ---------- |  | - | ------- | 
|                                                 |  | Utilized
|                                                 |  |         
|                                                 |  | Original |           |      |  |         |         |                  |  |   |           | Balance at
|                                                 |  | Accrual  |           | Cash |  | Noncash |         | October 31, 2002
|                                                 |  |          |           |      |  |         |         |                 
|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 |      |  |         | 797,000 |                  |  |   | 768,000   |            |  |   | 433,000 | 
|                                                 |  |          |           |      |  |         |         |                  |  |   |           |            |  |   |         | 
|Total                                            |  | $        | 6,091,000 |      |  | $       | 990,000 |                  |  | $ | 4,638,000 |            |  | $ | 463,000 | 
|                                                 |  |          |           |      |  |         |         |                  |  |   |           |            |  |   |         | 

11. Fair Value of Financial Instruments

The carrying amount reported in the balance sheet for cash and cash
equivalents approximates its fair value. The fair value of long-term debt was
estimated using discounted cash flows and it approximates their carrying value.

F-23



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##### 



Champion Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

12. Quarterly Results of Operations (unaudited)

The following is a summary of the quarterly results of operations for the
years ended October 31, 2002 and 2001.

|                          |                    |      |  |         |            |         |  |             |            |         |  |   |            |   |  |   |            | 
|------------------------- | ------------------ | ---- |  | ------- | ---------- | ------- |  | ----------- | ---------- | ------- |  | - | ---------- | - |  | - | ---------- | 
|                          |                    |      |  | First   |            | Second  |  | Third       |            | Fourth 
|                          |                    |      |  | Quarter |            | Quarter |  | Quarter (1) |            | Quarter
|                          |                    |      |  |         |            |         |  |             |            |        
|Revenues                  |                    |      |  |         |            |         |  |             |            |         |  |   |            |   |  |  
|                          |                    | 2002 |  | $       | 29,791,000 |         |  | $           | 30,669,000 |         |  | $ | 30,848,000 |   |  | $ | 31,576,000 | 
|                          |                    | 2001 |  | $       | 31,921,000 |         |  | $           | 30,772,000 |         |  | $ | 30,237,000 |   |  | $ | 32,214,000 | 
|                         
|Gross Profit              |                    |      |  |         |            |         |  |             |            |         |  |   |            |   |  |  
|                          |                    | 2002 |  | $       | 8,303,000  |         |  | $           | 9,034,000  |         |  | $ | 8,441,000  |   |  | $ | 8,855,000  | 
|                          |                    | 2001 |  | $       | 8,730,000  |         |  | $           | 9,219,000  |         |  | $ | 7,573,000  |   |  | $ | 9,145,000  | 
|                         
|Net income (loss)         |                    |      |  |         |            |         |  |             |            |         |  |   |            |   |  |  
|                          |                    | 2002 |  | $       | 258,000    |         |  | $           | 751,000    |         |  | $ | 253,000    |   |  | $ | 946,000    | 
|                          |                    | 2001 |  | $       | 279,000    |         |  | $           | 938,000    |         |  | $ | (4,246,000 | ) |  | $ | 847,000    | 
|                         
|Earnings (loss) per share |                    |      |  |         |            |         |  |             |            |         |  |   |            |   |  |  
|Basic                     |                    |      |  |         |            |         |  |             |            |         |  |   |            |   |  |  
|                          |                    | 2002 |  | $       | 0.03       |         |  | $           | 0.08       |         |  | $ | 0.03       |   |  | $ | 0.10       | 
|                          |                    | 2001 |  | $       | 0.03       |         |  | $           | 0.10       |         |  | $ | (0.44      | ) |  | $ | 0.09       | 
|                         
|Diluted                   |                    |      |  |         |            |         |  |             |            |         |  |   |            |   |  |  
|                          |                    | 2002 |  | $       | 0.03       |         |  | $           | 0.08       |         |  | $ | 0.03       |   |  | $ | 0.10       | 
|                          |                    | 2001 |  | $       | 0.03       |         |  | $           | 0.10       |         |  | $ | (0.44      | ) |  | $ | 0.09       | 
|                         
|Weighted Average          |                    |      |  |         |            |         |  |             |            |         |  |   |            |   |  |  
|                          | Shares Outstanding |      |  |         |            |         |  |             |            |         |  |   |            |   |  |   |           
|Basic                     |                    |      |  |         |            |         |  |             |            |         |  |   |            |   |  |  
|                          |                    | 2002 |  |         | 9,714,000  |         |  |             | 9,714,000  |         |  |   | 9,714,000  |   |  |   | 9,714,000  | 
|                          |                    | 2001 |  |         | 9,714,000  |         |  |             | 9,714,000  |         |  |   | 9,714,000  |   |  |   | 9,714,000  | 
|                         
|Diluted                   |                    |      |  |         |            |         |  |             |            |         |  |   |            |   |  |  
|                          |                    | 2002 |  |         | 9,725,000  |         |  |             | 9,737,000  |         |  |   | 9,728,000  |   |  |   | 9,716,000  | 
|                          |                    | 2001 |  |         | 9,714,000  |         |  |             | 9,714,000  |         |  |   | 9,714,000  |   |  |   | 9,714,000  | 



---

|(1) |  | Includes the third quarter 2001 restructuring, asset impairment and
other charges (See Note 10)
|--- |  | -----------------------------------------------------------------------------------------------

F-24



---



##### 



Champion Industries, Inc. and Subsidiaries

Schedule II

Valuation and Qualifying Accounts

Years Ended October 31, 2002, 2001 and 2000

|                                |  |            |           |             |  |              |  |                |  |           |        |         |  |           |           |  |  |   |            |   |  |   |           | 
|------------------------------- |  | ---------- | --------- | ----------- |  | ------------ |  | -------------- |  | --------- | ------ | ------- |  | --------- | --------- |  |  | - | ---------- | - |  | - | --------- | 
|                                |  |            |           |             |  |              |  |                |  |           |        |         |  | Additions |           |  |  |   |            |   |  |  
|                                |  | Balance at |           | Balances of |  | charged to   |  |                |  |           |        | Balance
|                                |  | Beginning  |           | acquired    |  | costs and    |  |                |  |           |        | at end 
|Description                     |  | of period  |           | Companies   |  | Expenses (2) |  | Deductions (1) |  | of period
|                                |  |            |           |             |  |              |  |                |  |          
|2002                            |  |            |           |             |  |              |  |                |  |           |        |         |  |           |           |  |  |   |            |   |  |   |           | 
|                               
|Allowance for doubtful accounts |  | $          | 1,432,304 |             |  | $            |  |                |  |           |       |         |  | $         | 363,328   |  |  | $ | (398,141   | ) |  | $ | 1,397,491 | 
|                               
|2001                            |  |            |           |             |  |              |  |                |  |           |        |         |  |           |           |  |  |   |            |   |  |   |           | 
|                               
|Allowance for doubtful accounts |  | $          | 1,508,536 |             |  | $            |  |                |  |           | 65,000 |         |  | $         | 1,214,784 |  |  | $ | (1,356,016 | ) |  | $ | 1,432,304 | 
|                               
|2000                            |  |            |           |             |  |              |  |                |  |           |        |         |  |           |           |  |  |   |            |   |  |   |           | 
|                               
|Allowance for doubtful accounts |  | $          | 1,448,034 |             |  | $            |  |                |  |           | 7,500  |         |  | $         | 412,420   |  |  | $ | (359,418   | ) |  | $ | 1,508,536 | 



---

|(1) |  | Uncollectable accounts written off, net of recoveries                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | In 2001, $509,042 was charged to expense relating to the Companys
restructuring and profitability enhancement plan.

F-25