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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Champion Industries Inc (CE) | USOTC:CHMP | OTCMarkets | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.0001 | 0.00 | 01:00:00 |
West Virginia
|
55-0717455
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
Large accelerated filer o
|
Accelerated filer o
|
Non-accelerated filer o
|
Smaller reporting company þ |
(Do not check if a smaller reporting company)
|
Class
|
Outstanding at January 31, 2016
|
|
Common stock, $1.00 par value per share
|
11,299,528 shares
|
Page
|
|
Part I. Financial Information
|
|
Item 1. Financial Statements
|
|
Consolidated Balance Sheets (Unaudited)
|
3
|
Consolidated Statements of Operations (Unaudited)
|
4
|
Consolidated Statements of Cash Flows (Unaudited)
|
5
|
Notes to Consolidated Financial Statements
|
6
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
15
|
Item 3. Quantitative and Qualitative Disclosure About Market Risk
|
20
|
Item 4. Controls and Procedures
|
20
|
Part II. Other Information
|
|
Item 1. Legal Proceedings | 21 |
Item 1A. Risk Factors | 21 |
Item 3. Defaults upon Senior Securities | 21 |
Item 4. Mine Safety Disclosure | 21 |
Item 5. Other Information |
21
|
Item 6. Exhibits
|
21
|
Signatures
|
22
|
ASSETS | January 31, | October 31, | |||||
2016 | 2015 | ||||||
(Unaudited) | |||||||
Current assets:
|
|||||||
Cash and cash equivalents | $ | 39,381 | $ | 540,909 | |||
Accounts receivable, net of allowance of $548,000 and $531,000
|
9,255,926 | 8,651,745 | |||||
Inventories
|
3,533,084 | 3,568,665 | |||||
Other current assets
|
1,057,153
|
890,165 | |||||
Current portion assets held for sale | 256,832 | 256,832 | |||||
Total current assets
|
14,142,376 | 13,908,316 | |||||
Property and equipment, at cost:
|
|||||||
Land
|
1,254,195 | 1,254,195 | |||||
Buildings and improvements
|
4,683,225 | 4,676,290 | |||||
Machinery and equipment
|
34,208,104 | 34,130,233 | |||||
Equipment under capital lease | 72,528 | 72,528 | |||||
Furniture and fixtures
|
3,739,161 | 3,734,959 | |||||
Vehicles
|
2,696,061 | 2,756,086 | |||||
46,653,274 | 46,624,291 | ||||||
Less accumulated depreciation
|
(40,175,916 | ) | (39,911,447 |
)
|
|||
6,477,358 | 6,712,844 | ||||||
Goodwill
|
1,230,485 | 1,230,485 | |||||
Other intangibles, net of accumulated amortization
|
1,027,320 | 1,057,845 | |||||
Deferred financing costs
|
7,720 | 3,040 | |||||
Other assets
|
13,315 | 13,996 | |||||
2,278,840 | 2,305,366 | ||||||
Total assets
|
$ | 22,898,574 |
$
|
22,926,526 |
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|||||||
Current liabilities:
|
|||||||
Accounts payable
|
$ | 4,963,189 | $ | 4,730,286 | |||
Accrued payroll and commissions
|
441,508 | 528,855 | |||||
Taxes accrued and withheld
|
655,317 | 635,131 | |||||
Accrued expenses
|
1,857,392 | 1,763,929 | |||||
Debt Discount (Note 5) | - | ||||||
Notes payable (Note 5)
|
2,140,323 | 1,929,358 | |||||
Notes payable - related party (Note 5) | 2,500,000 | 2,500,000 | |||||
Capital lease obligations (Note 5) | 16,091 | 15,852 | |||||
Total current liabilities
|
12,573,820 | 12,103,411 | |||||
Long-term debt, net of current portion:
|
|||||||
Notes payable (Note 5)
|
8,572,667 | 8,796,542 | |||||
Capital lease obligations (Note 5) | 8,414 | 12,528 | |||||
Total liabilities
|
21,154,901 | 20,912,481 | |||||
Shareholders’ equity:
|
|||||||
Common stock, $1 par value, 20,000,000 Class A voting shares authorized;
11,299,528 shares issued and outstanding
|
11,299,528 | 11,299,528 | |||||
Common Stock, Class B nonvoting stock, $1 par value, 5,000,000 shares authorized,
-0- shares issued and outstanding
|
- | - | |||||
Additional paid-in capital
|
24,279,179 | 24,279,179 | |||||
Retained deficit
|
(33,835,034 | ) |
(33,564,662
|
) | |||
Total shareholders' equity
|
1,743,673 |
2,014,045
|
|||||
Total liabilities and shareholders’ equity
|
$ | 22,898,574 |
$
|
22,926,526 |
Three Months Ended January 31, | ||||||
2016 |
2015
|
|||||
Revenues:
|
||||||
Printing
|
$ | 9,045,731 |
$
|
9,388,522 | ||
Office products and office furniture
|
6,877,641 | 5,411,738 | ||||
Total revenues
|
15,923,372 | 14,800,260 | ||||
Cost of sales:
|
||||||
Printing
|
7,110,675 | 7,096,505 | ||||
Office products and office furniture
|
5,181,525 | 3,954,772 | ||||
Total cost of sales
|
12,292,200 | 11,051,277 | ||||
Gross profit
|
3,631,172 | 3,748,983 | ||||
Selling, general and administrative expenses
|
3,745,002 | 3,952,923 | ||||
Loss from operations
|
(113,830 | ) | (203,940 | ) | ||
Interest expense - related party | (21,563 | ) | (20,764 | ) | ||
Interest expense
|
(148,744 | ) | (263,977 |
)
|
||
Other
|
13,765 | 20,863 | ||||
(156,542 | ) | (263,878 |
)
|
|||
Loss before income taxes
|
(270,372 | ) | (467,818 | ) | ||
Income tax (benefit) expense
|
- | - | ||||
Net loss | $ | (270,372 | ) | $ | (467,818 | ) |
Loss per share:
|
||||||
Basic and diluted loss
|
$ | (0.02 | ) |
$
|
(0.04 | ) |
Weighted average shares outstanding:
|
||||||
Basic and diluted
|
11,300,000 | 11,300,000 |
Three Months Ended January 31, | ||||||
2016 |
2015
|
|||||
Cash flows from operating activities:
|
||||||
Net loss
|
$ | (270,372 | ) |
$
|
(467,818 | ) |
Adjustments to reconcile net loss to cash (used in)
provided by operating activities:
|
||||||
Depreciation and amortization
|
411,443 | 402,002 | ||||
(Gain) on sale of assets
|
(13,375 | ) | - |
|
||
Allowance for doubtful accounts
|
- | 3,843 | ||||
Deferred financing costs / debt discount | 5,200 | 127,262 | ||||
Changes in assets and liabilities: | ||||||
Accounts receivable
|
(604,181 | ) | 443,871 | |||
Inventories
|
35,581 | (344,616 | ) | |||
Other current assets
|
(166,988 | ) | (252,044 | ) | ||
Accounts payable
|
232,902 | 711,283 | ||||
Accrued payroll and commissions
|
(87,347 | ) | (1,633 |
)
|
||
Taxes accrued and withheld
|
20,186 | 59,325 | ||||
Accrued expenses
|
93,463 | 71,907 |
|
|||
Other liabilities
|
- | - |
|
|||
Net cash (used in) provided by operating activities | (343,488 | ) | 753,382 | |||
Cash flows from investing activities:
|
||||||
Purchase of property and equipment
|
(166,796 | ) | (447,495 | ) | ||
Proceeds from sale of fixed assets
|
34,740 | - | ||||
Change in other assets | (9,199 | ) | - | |||
Net cash used in investing activities
|
(141,255 | ) | (447,495 | ) | ||
Cash flows from financing activities:
|
||||||
Proceeds from term debt
|
1,045,928 | 244,744 | ||||
Principal payments on term debt
|
(1,062,713 | ) | (1,014,063 | ) | ||
Net cash used in financing activities
|
(16,785 | ) | (769,319 | ) | ||
Net decrease in cash and cash equivalents
|
(501,528 | ) | (463,432 | ) | ||
Cash and cash equivalents at beginning of period
|
540,909 | 818,438 | ||||
Cash and cash equivalents at end of period
|
$ | 39,381 | $ |
355,006
|
January 31,
2016
|
October 31,
2015
|
|||||||
Printing:
|
||||||||
Raw materials
|
$
|
1,190,701 |
$
|
1,111,203
|
||||
Work in process
|
647,042 |
599,289
|
||||||
Finished goods
|
871,252 |
824,689
|
||||||
Office products and office furniture
|
824,089 | 1,033,484 | ||||||
$
|
3,533,084 |
$
|
3,568,665
|
January 31,
2016
|
October 31,
2015
|
||||||
Term Note A dated October 7, 2013, due in monthly installments of $50,000
plus interest payments equal to the prime rate of interest plus 2% maturing
April 1, 2017, collateralized by substantially all of the assets of the Company.
|
$ | 8,600,000 | $ | 8,750,000 | |||
Installment notes payable to banks, due in monthly installments plus interest at
rates approximating the bank’s prime rate or the prime rate subject to various floors
maturing in various periods ranging from February 2016 - January 2018, collateralized
by equipment and vehicles.
|
563,444 | 634,998 | |||||
Notes payable to shareholders. The shareholder note of $2.5 million plus all accrued
interest was initially due in one balloon payment in September 2014; pursuant to Term
Note A, the maturity was adjusted to April 2015. The interest is accrued at a rate of 3.50%.
See discussion on next page for more details. (1)
|
2,500,000 | 2,500,000 | |||||
Note payable to a bank, due April 2016, including interest accrued at 5.25%,
collateralized by specific accounts receivable of the Company. (2)
|
980,000 | 750,000 | |||||
Capital lease obligation for printing equipment at an imputed interest rate of 6.02% per annum | 24,505 | 28,380 | |||||
Note, payable to a bank in monthly installment of $8,441 including interest at 5.00%
collateralized by equipment
|
430,057 | 443,208 | |||||
Note, payable to a bank in monthly installments of $4,197 including an imputed
interest rate of 0.0% collateralized by equipment
|
139,489 | 147,694 | |||||
13,237,495 | 13,254,280 | ||||||
Less current portion long-term debt | 1,160,323 | 1,179,358 | |||||
Less short-term notes payable to related party (1) | 2,500,000 | 2,500,000 | |||||
Less current portion obligation under capital lease | 16,091 | 15,852 | |||||
Less short-term debt (2) | 980,000 | 750,000 | |||||
Long-term debt, net of current portion and capital lease obligation | $ | 8,581,081 | $ | 8,809,070 | |||
Long-term debt, net of current portion | $ | 8,572,667 | $ | 8,796,542 | |||
Long-term capital lease obligation | 8,414 | 12,528 | |||||
Current portion of long-term debt | 1,160,323 | 1,179,358 | |||||
Short-term notes payable to related party (1) | 2,500,000 | 2,500,000 | |||||
Short-term debt (2) | 980,000 | 750,000 | |||||
Current portion of capital lease obligation | 16,091 | 15,852 | |||||
Total indebtedness | $ | 13,237,495 | $ | 13,254,280 |
Payments Due by Fiscal Year
|
|||||||||||||||||||||
Contractual Obligations:
|
2016
|
2017
|
2018
|
2019
|
2020 |
Residual
|
Total | ||||||||||||||
Non-cancelable operating leases
|
$
|
377,271
|
$
|
423,949
|
$
|
334,642
|
$
|
230,098 | $ | 77,010 |
$
|
32,673
|
$
|
1,475,643
|
|||||||
Term debt
|
2,029,884 |
8,344,299
|
138,654 |
97,644
|
98,352 |
4,157
|
10,712,990 | ||||||||||||||
Obligations under capital lease | 11,977 | 12,528 | - | - | - | - | 24,505 | ||||||||||||||
Notes payable - related party (1) | 2,500,000 | - | - | - | - | - | 2,500,000 | ||||||||||||||
$
|
4,919,132
|
$
|
8,780,776
|
$
|
473,296
|
$
|
327,742
|
$ | 175,362 |
$
|
36,830
|
$
|
14,713,138
|
2016 Quarter 1
|
Printing
|
Office Products & Furniture
|
Total
|
|||||||
Revenues
|
$
|
9,549,752 |
$
|
7,511,474 |
$
|
17,061,226 | ||||
Elimination of intersegment revenue
|
(504,021 |
)
|
(633,833 |
)
|
(1,137,854 |
)
|
||||
Consolidated revenues
|
$
|
9,045,731 |
$
|
6,877,641 |
$
|
15,923,372 | ||||
Operating (loss) income
|
(218,669 | ) | 104,839 | (113,830 | ) | |||||
Depreciation & amortization
|
389,804 | 21,639 | 411,443 | |||||||
Capital expenditures
|
151,235 | 15,561 | 166,796 | |||||||
Identifiable assets
|
15,596,719 | 7,045,023 | 22,641,742 | |||||||
Goodwill
|
- | 1,230,485 | 1,230,485 | |||||||
2015 Quarter 1
|
Printing
|
Office Products & Furniture
|
Total
|
|||||||
Revenues
|
$
|
9,916,899
|
$
|
6,212,973
|
$
|
16,129,872
|
||||
Elimination of intersegment revenue
|
(528,377
|
)
|
(801,235
|
)
|
(1,329,612
|
)
|
||||
Consolidated revenues
|
$
|
9,388,522
|
$
|
5,411,738
|
$
|
14,800,260
|
||||
Operating loss
|
(93,197
|
)
|
(110,743
|
) |
(203,940
|
) | ||||
Depreciation & amortization
|
379,643
|
22,359
|
402,002
|
|||||||
Capital expenditures
|
377,301
|
70,194
|
447,495
|
|||||||
Identifiable assets
|
16,633,275
|
6,805,334
|
23,438,609
|
|||||||
Goodwill
|
-
|
1,230,485
|
1,230,485
|
|||||||
Three months ended January 31,
|
|||||||
2016 | 2015 | ||||||
Revenues:
|
|||||||
Total segment revenues
|
$
|
17,061,226 |
$
|
16,129,872
|
|||
Elimination of intersegment revenue
|
(1,137,854 |
)
|
(1,329,612
|
)
|
|||
Consolidated revenue
|
$
|
15,923,372 |
$
|
14,800,260
|
|||
Operating loss:
|
|||||||
Total segment operating loss
|
$
|
(113,830 | ) |
$
|
(203,940
|
) | |
Interest expense - related party
|
(21,563 |
)
|
(20,764
|
)
|
|||
Interest expense
|
(148,744 |
)
|
(263,977
|
)
|
|||
Other income
|
13,765 |
20,863
|
|||||
Consolidated loss before income taxes
|
$
|
(270,372 |
)
|
$
|
(467,818
|
) | |
Identifiable assets:
|
|||||||
Total segment identifiable assets
|
$
|
22,641,742 |
$
|
23,438,609
|
|||
Elimination of intersegment assets and assets held for sale
|
256,832
|
256,832
|
|||||
Total consolidated assets
|
$
|
22,898,574 |
$
|
23,695,441
|
January 31, 2016
|
October 31, 2015
|
||||||||||||||
Gross
|
Gross
|
||||||||||||||
Carrying
|
Accumulated
|
Carrying
|
Accumulated
|
||||||||||||
Amount
|
Amortization
|
Amount
|
Amortization
|
||||||||||||
Amortizable intangible assets:
|
|||||||||||||||
Non-compete agreement
|
$
|
1,000,000 |
$
|
1,000,000 |
$
|
1,000,000
|
$
|
1,000,000
|
|||||||
Customer relationships
|
2,451,073 | 1,423,753 |
2,451,073
|
1,393,228
|
|||||||||||
Other
|
564,946 | 564,946 |
564,946
|
564,946
|
|||||||||||
4,016,019 | 2,988,699 |
4,016,019
|
2,958,174
|
||||||||||||
Unamortizable intangible assets:
|
|||||||||||||||
Goodwill
|
1,737,763 | 507,278 |
1,737,763
|
507,278
|
|||||||||||
1,737,763 | 507,278 | 1,737,763 | 507,278 | ||||||||||||
Total goodwill and other intangibles
|
$
|
5,753,782 |
$
|
3,495,977 |
$
|
5,753,782
|
$
|
3,465,452
|
|||||||
2016
|
$ |
91,573
|
||
2017
|
122,098
|
|||
2018
|
122,098
|
|||
2019 | 122,098 | |||
2020 | 122,098 | |||
Thereafter | 447,355 | |||
$
|
1,027,320
|
Printing
|
Office Products and Furniture
|
Total
|
|||||||
Balance at October 31, 2015 | |||||||||
Goodwill | $ | 2,226,837 | $ | 1,230,485 | $ | 3,457,322 | |||
Accumulated impairment losses | (2,226,837 | ) | - | (2,226,837 | ) | ||||
- | 1,230,485 | 1,230,485 | |||||||
Goodwill acquired three months ended January 31, 2016 | - | - | - | ||||||
Impairment losses three months ended January 31, 2016 | - | - | - | ||||||
Balance at January 31, 2016 | |||||||||
Goodwill | 2,226,837 | 1,230,485 | 3,457,322 | ||||||
Accumulated impairment losses | (2,226,837 | ) | - | (2,226,837 | ) | ||||
$ | - | $ | 1,230,485 | $ | 1,230,485 |
Printing | Office Products and Furniture | Total | |||||||
Balance at October 31, 2015:
|
|||||||||
Amortizing intangible assets
|
$ | 354,303 | $ | 703,542 | $ | 1,057,845 | |||
Accumulated impairment losses
|
- | - | - | ||||||
354,303 | 703,542 | 1,057,845 | |||||||
Amortizing intangible assets acquired three months ended January 31, 2016 | - | - | - | ||||||
Impairment losses three months ended January 31, 2016 | - | - | - | ||||||
Amortization expense | 10,226 | 20,299 | 30,525 | ||||||
Balance at January 31, 2016: | |||||||||
Amortizing intangible assets
|
344,077 | 683,243 | 1,027,320 | ||||||
Accumulated impairment losses
|
- | - | - | ||||||
$ | 344,077 | $ | 683,243 | $ | 1,027,320 |
Three Months Ended January 31,
|
||||||||||||
2016 | 2015 | |||||||||||
Revenues:
|
||||||||||||
Printing
|
$ | 9,045,731 | 56.8 |
%
|
$ |
9,388,522
|
63.4
|
%
|
||||
Office products and office furniture
|
6,877,641 | 43.2 | 5,411,738 | 36.6 | ||||||||
Total revenues
|
15,923,372 | 100.0 |
14,800,260
|
100.0
|
||||||||
Cost of sales:
|
||||||||||||
Printing
|
7,110,675 | 44.7 |
7,096,505
|
48.0
|
||||||||
Office products and office furniture
|
5,181,525 | 32.5 |
3,954,772
|
26.7 | ||||||||
Total cost of sales
|
12,292,200 | 77.2 |
11,051,277
|
74.7
|
||||||||
G Gross profit
|
3,631,172 | 22.8 |
3,748,983
|
25.3
|
||||||||
Selling, general and administrative expenses
|
3,745,002 | 23.5 |
3,952,923
|
26.7
|
||||||||
Loss from operations
|
(113,830 | ) | (0.7 | ) |
(203,940
|
) |
(1.4
|
) | ||||
Interest expense - related party | (21,563 | ) | (0.1 | ) | (20,764 | ) | (0.1 | ) | ||||
Interest expense | (148,744 | ) | (1.0 | ) |
(263,977
|
) | (1.8 | ) | ||||
Other income
|
13,765 | 0.1 |
20,863
|
0.1 | ||||||||
Loss before taxes
|
(270,372 | ) | (1.7 | ) |
(467,818
|
) | (3.2 | ) | ||||
Income tax (expense) benefit
|
- | - |
-
|
-
|
||||||||
Net loss
|
$ | (270,372 |
)
|
(1.7 |
)%
|
$ |
(467,818
|
) | (3.2 |
)%
|
·
|
Continual management of our receipts and disbursements to improve and maintain days sales outstanding for trade receivables and days outstanding for trade payables.
|
·
|
Carefully monitor capital expenditures to assure cash flow is maximized.
|
·
|
Funding necessary capital expenditures to assure the Company remains competitive and positions itself for operations beyond one year.
|
·
|
Operating the company on a working capital basis without a revolving line of credit.
|
a)
|
Exhibits:
|
||||
(31.1)
|
Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley act of 2002 - Adam M. Reynolds
|
Exhibit 31.1-p1
|
|
(31.2)
|
Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley act of 2002 - Justin T. Evans
|
Exhibit 31.2-p1
|
|
(32)
|
Adam M. Reynolds and Justin T. Evans Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley act of 2002
|
Exhibit 32 -p1
|
|
Date: March 16, 2016
|
/s/ Adam M. Reynolds
|
Adam M. Reynolds
|
|
Chief Executive Officer
|
|
Date: March 16, 2016
|
/s/ Justin T. Evans
|
Justin T. Evans
|
|
Senior Vice President and Chief Financial Officer
|
1.
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I have reviewed this quarterly report on Form 10-Q of Champion Industries, Inc.;
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2.
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Based on my knowledge, this 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 report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this 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 report;
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4.
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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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a)
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designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
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b)
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designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
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The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
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a)
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all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
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b)
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any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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1.
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I have reviewed this quarterly report on Form 10-Q of Champion Industries, Inc.;
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2.
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Based on my knowledge, this 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 report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this 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 report;
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4.
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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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
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b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
c)
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evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
|
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
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The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
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a)
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all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
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b)
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any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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· |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
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· |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Document and Entity Information |
3 Months Ended |
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Jan. 31, 2016
shares
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Document and Entity Information [Abstract] | |
Entity Registrant Name | CHAMPION INDUSTRIES INC |
Entity Central Index Key | 0000019149 |
Current Fiscal Year End Date | --10-31 |
Entity Well-known Seasoned Issuer | No |
Entity Voluntary Filers | No |
Entity Current Reporting Status | Yes |
Entity Filer Category | Smaller Reporting Company |
Entity Common Stock, Shares Outstanding | 11,299,528 |
Document Fiscal Year Focus | 2016 |
Document Fiscal Period Focus | Q1 |
Document Type | 10-Q |
Amendment Flag | false |
Document Period End Date | Jan. 31, 2016 |
Consolidated Balance Sheets (Unaudited) - USD ($) |
Jan. 31, 2016 |
Oct. 31, 2015 |
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---|---|---|---|---|
Current assets: | ||||
Cash and cash equivalents | $ 39,381 | $ 540,909 | ||
Accounts receivable, net of allowance of $548,000 and $531,000 | 9,255,926 | 8,651,745 | ||
Inventories | 3,533,084 | 3,568,665 | ||
Other current assets | 1,057,153 | 890,165 | ||
Current portion assets held for sale | 256,832 | 256,832 | ||
Total current assets | 14,142,376 | 13,908,316 | ||
Property and equipment, at cost: | ||||
Land | 1,254,195 | 1,254,195 | ||
Buildings and improvements | 4,683,225 | 4,676,290 | ||
Machinery and equipment | 34,208,104 | 34,130,233 | ||
Equipment under capital lease | 72,528 | 72,528 | ||
Furniture and fixtures | 3,739,161 | 3,734,959 | ||
Vehicles | 2,696,061 | 2,756,086 | ||
Property and equipment, gross | 46,653,274 | 46,624,291 | ||
Less accumulated depreciation | (40,175,916) | (39,911,447) | ||
Property and equipment, net | 6,477,358 | 6,712,844 | ||
Goodwill | 1,230,485 | 1,230,485 | ||
Other intangibles, net of accumulated amortization | 1,027,320 | 1,057,845 | ||
Deferred financing costs | 7,720 | 3,040 | ||
Other assets | 13,315 | 13,996 | ||
Total noncurrent assets | 2,278,840 | 2,305,366 | ||
Total assets | 22,898,574 | 22,926,526 | ||
Current liabilities: | ||||
Accounts payable | 4,963,189 | 4,730,286 | ||
Accrued payroll and commissions | 441,508 | 528,855 | ||
Taxes accrued and withheld | 655,317 | 635,131 | ||
Accrued expenses | 1,857,392 | 1,763,929 | ||
Debt discount (Note 5) | 0 | 0 | ||
Notes payable (Note 5) | 2,140,323 | 1,929,358 | ||
Notes payable - related party (Note 5) | [1] | 2,500,000 | 2,500,000 | |
Capital lease obligations (Note 5) | 16,091 | 15,852 | ||
Total current liabilities | 12,573,820 | 12,103,411 | ||
Long-term debt, net of current portion: | ||||
Notes payable (Note 5) | 8,572,667 | 8,796,542 | ||
Capital lease obligations (Note 5) | 8,414 | 12,528 | ||
Total liabilities | 21,154,901 | 20,912,481 | ||
Shareholders' equity: | ||||
Additional paid-in capital | 24,279,179 | 24,279,179 | ||
Retained deficit | (33,835,034) | (33,564,662) | ||
Total shareholders' equity | 1,743,673 | 2,014,045 | ||
Total liabilities and shareholders' equity | 22,898,574 | 22,926,526 | ||
Class A Voting Shares [Member] | ||||
Shareholders' equity: | ||||
Common stock | 11,299,528 | 11,299,528 | ||
Class B Nonvoting stock [Member] | ||||
Shareholders' equity: | ||||
Common stock | $ 0 | $ 0 | ||
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Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) |
Jan. 31, 2016 |
Oct. 31, 2015 |
---|---|---|
Current assets: | ||
Accounts receivable, allowance | $ 548,000 | $ 531,000 |
Class A voting shares [Member] | ||
Shareholders' equity: | ||
Common stock, par value (in dollars per share) | $ 1 | $ 1 |
Common stock, shares authorized (in shares) | 20,000,000 | 20,000,000 |
Common stock, shares issued (in shares) | 11,299,528 | 11,299,528 |
Common stock, shares outstanding (in shares) | 11,299,528 | 11,299,528 |
Class B Nonvoting stock [Member] | ||
Shareholders' equity: | ||
Common stock, par value (in dollars per share) | $ 1 | $ 1 |
Common stock, shares authorized (in shares) | 5,000,000 | 5,000,000 |
Common stock, shares issued (in shares) | 0 | 0 |
Common stock, shares outstanding (in shares) | 0 | 0 |
Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | |
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Jan. 31, 2016 |
Jan. 31, 2015 |
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Revenues: | ||
Printing | $ 9,045,731 | $ 9,388,522 |
Office products and office furniture | 6,877,641 | 5,411,738 |
Total revenues | 15,923,372 | 14,800,260 |
Cost of sales: | ||
Printing | 7,110,675 | 7,096,505 |
Office products and office furniture | 5,181,525 | 3,954,772 |
Total cost of sales | 12,292,200 | 11,051,277 |
Gross profit | 3,631,172 | 3,748,983 |
Selling, general and administrative expenses | 3,745,002 | 3,952,923 |
Loss from operations | (113,830) | (203,940) |
Interest expense - related party | (21,563) | (20,764) |
Interest expense | (148,744) | (263,977) |
Other | 13,765 | 20,863 |
Total other income (expenses) | (156,542) | (263,878) |
Loss before income taxes | (270,372) | (467,818) |
Income tax (benefit) expense | 0 | 0 |
Net loss | $ (270,372) | $ (467,818) |
Loss per share: | ||
Basic and diluted loss (in dollars per share) | $ (0.02) | $ (0.04) |
Weighted average shares outstanding: | ||
Basic and diluted (in shares) | 11,300,000 | 11,300,000 |
Basis of Presentation, Business Operations and Recent Accounting Pronouncements |
3 Months Ended |
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Jan. 31, 2016 | |
Basis of Presentation, Business Operations and Recent Accounting Pronouncements [Abstract] | |
Basis of Presentation, Business Operations and Recent Accounting Pronouncements | Note 1. Basis of Presentation, Business Operations and Recent Accounting Pronouncements The foregoing financial information has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and rules and regulations of the Securities and Exchange Commission for interim financial reporting. The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. In the opinion of management, the financial information reflects all adjustments (consisting of items of a normal recurring nature) necessary for a fair presentation of financial position, results of operations and cash flows in conformity with GAAP. These interim financial statements should be read in conjunction with the consolidated financial statements for the year ended October 31, 2015, and related notes thereto contained in Champion Industries, Inc.’s Form 10-K filed January 29, 2016. The accompanying interim financial information is unaudited. The results of operations for the period are not necessarily indicative of the results to be expected for the full year. The balance sheet information as of October 31, 2015 was derived from our audited financial statements. Reclassifications and Revisions Certain prior-year amounts have been reclassified to conform to the current year financial statement presentation. Newly Issued Accounting Standards Effective July 1, 2009, changes to the ASC are communicated through an ASU. As of January 31, 2016, the FASB has issued ASU’s 2009-01 through 2016-01. The Company reviewed each ASU and determined that they will not have a material impact on the Company’s financial position, results of operations or cash flows, other than related disclosures to the extent applicable. In January 2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU 2015-01”). ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items. The Company adopted ASU 2015-01 in December, 2015. This amendment did not have a material impact on the Company's financial position, results of operation, or cash flows, but will have an impact on related presentation and disclosure to the extent applicable in future periods. In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). ASU 2015-11 provides guidance on simplifying the measurement of inventory. The current standard is to measure inventory at lower of cost or market; where market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. ASU 2015-11 updates this guidance to measure inventory at the lower of cost or net realizable value; where net realizable value is considered to be the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. The Company adopted ASU 2015-11 in December, 2015. This amendment did not have and is not expected to have a material impact on the Company's financial position, results of operation, or cash flows given the nature of the Company’s business and its relatively short inventory holding period. In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). ASU 2015-17 updates guidance on classifying deferred tax assets and liabilities from current and noncurrent to all noncurrent when a classified balance sheet is presented. The netting of deferred tax assets and liabilities to present a single amount will remain with this update. The Company will adopt ASU 2015-17 in December, 2016. This amendment is not expected to have a material impact on the Company's financial position, results of operation, or cash flows, but will impact presentation of such deferred tax assets and liabilities to the extent applicable. |
Earnings per Share |
3 Months Ended |
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Jan. 31, 2016 | |
Earnings per Share [Abstract] | |
Earnings per Share | Note 2. Earnings per Share Basic earnings per share is computed by dividing net income by the weighted average shares of common stock outstanding for the period and excludes any dilutive effects of stock options and warrants. 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 and warrants using the treasury stock method. There was no dilutive effect for the three months ended January 31, 2016 and 2015. |
Accounts Receivable, Allowance for Doubtful Accounts and Revenue Recognition |
3 Months Ended |
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Jan. 31, 2016 | |
Accounts Receivable, Allowance for Doubtful Accounts and Revenue Recognition [Abstract] | |
Accounts Receivable, Allowance for Doubtful Accounts and Revenue Recognition | Note 3. Accounts Receivable, Allowance for Doubtful Accounts and Revenue Recognition Accounts Receivable and Allowance for Doubtful Accounts: Accounts receivable are stated at the amount billed to customers. Accounts receivable are ordinarily due 30 days from the invoice date. The Company encounters risks associated with sales and the collection of the associated accounts receivable. As such, the Company records a provision for accounts receivable that are considered to be uncollectible and performs a comprehensive assessment periodically utilizing a variety of historical information and specific account review. The allowance for doubtful accounts is assessed 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. Revenue Recognition: Revenues are recognized when products are shipped or ownership is transferred and when 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. The Company typically recognizes revenue for the majority of its products upon shipment to the customer and transfer of title. Under agreements with certain customers, custom forms may be stored by the Company for future delivery. In these situations, the Company may receive a logistics and warehouse management fee for the services provided. In these cases, delivery and bill schedules are outlined with the customer and product revenue is recognized when manufacturing is complete and the product is received into the warehouse, title transfers to the customer, the order is invoiced and there is reasonable assurance of collectability. Since the majority of products are customized, product returns are not significant. Therefore, the Company records sales on a gross basis. Revenue generally is recognized net of any taxes collected from customers and subsequently remitted to government authorities. |
Inventories |
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Inventories [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | Note 4. Inventories Inventories are stated at the lower of first-in, first-out cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Manufactured finished goods and work in process inventories include material, direct labor and overhead based on standard costs, which approximate actual costs. At the dates indicated, inventories consisted of the following:
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Debt |
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Debt | Note 5. Debt At the dates indicated, debt consisted of the following:
(1) On June 15, 2015 the Company’s Board of Directors approved the conversion of the Company’s $2.5 million related party debt to Preferred Stock equity. The Preferred Stock will pay a 6.00% or 0.00% annual dividend contingent on the Company’s income after income taxes. If the Company's income after income taxes is $1.0 million or greater, the dividend rate is 6.00%; if the Company's income after income taxes is less than $1.0 million, the dividend rate is 0.00%. This conversion will reduce the Company’s liabilities by $2.5 million and increase its equity by $2.5 million. In addition, this conversion will reduce the Company’s annual interest expense by $0.1 million. However, contingent on the after income tax income, this conversion could trigger the payment of an annual Preferred Stock dividend of $0.2 million or zero. If the $1.0 million after income tax income target is achieved, the Company’s annual cash outflow would increase $0.1 million, or decrease $0.1 million if the $1.0 million after income tax income target is not achieved. This conversion is pending a shareholder vote to amend the Company’s Articles of Incorporation to allow for the issuance of Preferred Stock. The proposed amendment to the Company's Articles of Incorporation was approved by the Company's Board of Directors on January 18, 2016. This was anticipated to be part of the Company's definitive Proxy Statement with respect to the Annual Meeting of Shareholders to be held on March 21, 2016, but the Company will now present the amendment at a special shareholder meeting expected to be held in May 2016. The Company will continue to accrue interest on the related party debt equal to the prime rate until such conversion has been consummated. (2) These notes are short-term borrowings associated with large furniture projects that are on terms of 120 days or less. A portion of these borrowings were subsequently paid upon collection of the collateral in February 2016. |
Income taxes |
3 Months Ended |
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Jan. 31, 2016 | |
Income taxes [Abstract] | |
Income taxes | Note 6. Income taxes The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers a multitude of factors in assessing the utilization of its deferred tax assets including the reversal of deferred tax liabilities, projected future taxable income and other assessments, which may have an impact on financial results. The Company reassessed its previous determination regarding its valuation allowance and although the Company has had positive operating trends, it was determined that a full valuation allowance was still warranted at January 31, 2016. The amount of deferred tax asset considered realizable could be adjusted in future periods and such adjustments may be material to the Consolidated Financial Statements. The Company’s effective tax rate for the three months ended January 31, 2016 and 2015 was 0.0%. The effective income tax rate approximates the combined federal and state, net of federal benefit, statutory income tax rate, impacted by increases or decreases in the valuation allowance for deferred tax assets. |
Commitments and Contingencies |
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Commitments and Contingencies | Note 7. Commitments and Contingencies The nature of the Company’s business results in a certain amount of claims, litigation, investigations, and other legal and administrative cases and proceedings, all of which are considered incidental to the normal conduct of business. When the Company determines it has meritorious defenses to the claims asserted, it vigorously defends itself. The Company will consider settlement of cases when, in Management’s judgment, it is in the best interests of both the Company and its shareholders to do so. The Company periodically assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. The Company would accrue a loss on legal contingencies in the event the loss is deemed probable and reasonably estimable. The accrual is adjusted as appropriate to reflect any relevant developments regarding the legal contingency. In the event of a legal contingency where a loss is not probable or the amount of the loss cannot be estimated, no accrual is established. In certain cases, exposure to loss may exist in excess of the accrual to the extent such loss is reasonably possible, but not probable. Management believes an estimate of the aggregate of reasonably possible losses, in excess of amounts accrued, for current legal proceedings not covered by insurance is not greater than $0.4 million at January 31, 2016 and may be substantially lower than this amount. Any estimate involves significant judgment, given the varying stages of the proceedings (including cases in preliminary stages), as well as numerous unresolved issues that may impact the outcome of a proceeding. Accordingly, Management’s estimate will change from time-to-time, and actual losses may be more or less than the current estimate. The current loss estimate excludes legal and professional fees associated with defending such proceedings. These fees are expensed as incurred and may be material to the Company's Consolidated Financial Statements in a particular period. While the final outcome of legal proceedings is inherently uncertain, based on information currently available, advice of counsel, and available insurance coverage, Management believes that there is no accrual for legal contingencies required at this time. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be greater than the current range of estimates discussed above and may be material to the Company’s Consolidated Financial Statements in a particular period. In accordance with the provisions of the Restated Credit Agreement, the Company issued $0.001 per share warrants issued for up to 30% (on a post-exercise basis) of the outstanding common stock of the Company in the form of non-voting Class B common stock and associated Investor Rights Agreement for the benefit of the Previous Secured Lenders under the Restated Credit Agreement. The warrants expire after October 19, 2017. The Warrants entitle the Holders thereof to purchase that number of shares of Company Class B Common Stock equal to thirty percent (30%) of the then issued and outstanding Common Stock of the Company, on a fully diluted, post-exercise basis. Based on the 11,299,528 shares of Company Common Stock currently issued and outstanding, exercise in full of the Warrants would result in the Company’s issuance of an additional 4,842,654 shares to the Warrant Holders. In the event a greater number of issued and outstanding common shares exist at the time of option exercise, a greater number of options of shares of Class B Common Stock would be issuable. The Previous Secured Lenders assigned the warrants to Marshall T. Reynolds in consideration for his personal guaranty and stock pledge and security agreement to assist in facilitating the consummation of the October 2013 Credit Agreement. The Previous Secured Lenders, as Warrant Holders, were subject to the ownership limitations of the Bank Holding Company Act of 1956, as amended and regulations promulgated thereunder (the "Bank Holding Company Act") which placed limitations on their ability to control other companies. The Previous Secured Lenders/Warrant Holders requested, and the Company agreed to create a non-voting class of Common Stock, to be designated as "Class B Common Stock". The Warrants constitute the right to purchase Class B Common Stock. The warrants are exercisable solely for shares of Class B Common Stock. However, because any Class B Common Stock issuable pursuant to the Warrants may be sold by the Warrant Holders to entities not subject to the Bank Holding Company Act, or because one or more Warrant Holders may be permitted to own a limited number of voting shares of Company Class A Common Stock, the articles of amendment provide that those shares of Class B Common Stock are convertible into shares of Class A Common Stock, and vice versa, without charge. Marshall T. Reynolds, as the current Warrant Holder is entitled to convert Class B Common Shares into shares of Class A Common Stock. As of January 31, 2016 the Company had contractual obligations in the form of leases and debt as follows:
(1) On June 15, 2015 the Company’s Board of Directors approved the conversion of the Company’s $2.5 million related party debt to Preferred Stock equity. The Preferred Stock will pay a 6.00% or 0.00% annual dividend contingent on the Company’s income after income taxes. If the Company's income after income taxes is $1.0 million or greater, the dividend rate is 6.00%; if the Company's income after income taxes is less than $1.0 million, the dividend rate is 0.00%. This conversion will reduce the Company’s liabilities by $2.5 million and increase its equity by $2.5 million. In addition, this conversion will reduce the Company’s annual interest expense by $0.1 million. However, contingent on the after income tax income, this conversion could trigger the payment of an annual Preferred Stock dividend of $0.2 million or zero. If the $1.0 million after income tax income target is achieved, the Company’s annual cash outflow would increase $0.1 million, or decrease $0.1 million if the $1.0 million after income tax income target is not achieved. This conversion is pending a shareholder vote to amend the Company’s Articles of Incorporation to allow for the issuance of Preferred Stock. The proposed amendment to the Company's Articles of Incorporation was approved by the Company's Board of Directors on January 18, 2016. This was anticipated to be part of the Company's definitive Proxy Statement with respect to the Annual Meeting of Shareholders to be held on March 21, 2016, but the Company will now present the amendment at a special shareholder meeting expected to be held in May 2016. The Company will continue to accrue interest on the related party debt equal to the prime rate until such conversion has been consummated. |
Industry Segment Information |
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Industry Segment Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Industry Segment Information | Note 8. 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 reports segment information in a manner consistent with the way that our management, including our chief operating decision maker, the Company’s Chief Executive Officer, assesses performance and makes decisions regarding allocation of resources in accordance with the Segment Disclosures Topic of the ASC. Our Financial Reporting systems present various data, which is used to operate and measure our operating performance. Our chief operating decision maker utilizes various measures of a segment’s profit or loss including historical internal reporting measures and reporting measures based on product lines with operating income or loss as the key profitability measure within the segment. Product line reporting is the basis for the organization of our segments and is the most consistent measure used by the chief operating decision maker and conforms with the use of segment operating income or loss that is the most consistent with those used in measuring like amounts in the Consolidated Financial Statements. The identifiable assets are reflective of non-GAAP assets reported on the Company's internal balance sheets and are typically adjusted for taxes and other items excluded for segment reporting. The assets are classified based on the primary functional segment category as reported on the internal balance sheets. Therefore the actual segment assets may not directly correspond with the segment operating loss reported herein. The Company had certain assets classified as held for sale at January 31, 2016 and 2015 of $256,832. These assets were part of the printing segment prior to the reclassification as assets held for sale. The total assets reported on the Company's balance sheets as of January 31, 2016 and January 31, 2015 were $22,898,574 and $23,695,441, respectively. The identifiable assets reported below represent $22,641,742 and $23,438,609 at January 31, 2016 and 2015, respectively. The table below presents information about reported segments for the three months ended January 31:
A reconciliation of total segment revenue, assets and operating loss to consolidated loss before income taxes for and at the three months ended January 31, 2016 and 2015 is as follows:
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Fair Value Measurements |
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Jan. 31, 2016 | |
Fair Value Measurements [Abstract] | |
Fair Value Measurements | Note 9. Fair Value Measurements There is a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). The hierarchy consists of three levels: Level 1 - Quoted market prices in active markets for identical assets or liabilities Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable; and Level 3 - Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect those that a market participant would use. The Company does not believe it is practicable to estimate the fair value of its variable interest-bearing debt with a private lender and its subordinated debt to a related party due primarily to the fact that an active market for the Company’s debt does not exist. The term debt not discussed herein had a carrying value of approximately $2.1 million and the Company believes carrying value approximates fair value for this debt based on recent market conditions, collateral support, recent borrowings and other factors. Cash consists principally of cash on deposit with banks. The Company's cash deposits in excess of federally insured amounts, to the extent applicable, are primarily maintained at a large well-known financial institution. The carrying amounts of the Company's accounts receivable, accounts payable, accrued payrolls and commissions, taxes accrued and withheld and accrued expenses approximates fair value due to their short-term nature. Goodwill and other intangible assets are measured on a non-recurring basis using Level 3 inputs. Goodwill is also subject to an annual impairment test. (see Note 10) |
Acquired Intangible Assets and Goodwill |
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Acquired Intangible Assets and Goodwill | Note 10. Acquired Intangible Assets and Goodwill The details of the Company's acquired intangible assets and goodwill, at the dates indicated, are as follows:
Amortization expense for the three months ended January 31, 2016 and 2015 was $31,000. Customer relationships are being amortized over a period of 20 years, related to the acquisition of Syscan in 2004. The weighted average remaining life of the Company's amortizable intangible assets was approximately 4 years. Estimated amortization expense for each of the following years is:
The changes in the carrying amount of goodwill and other amortizing intangibles for the three months ended January 31, 2016 were as follows: Goodwill:
Amortizing Intangible Assets (net of amortization expense):
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Basis of Presentation, Business Operations and Recent Accounting Pronouncements (Policies) |
3 Months Ended |
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Jan. 31, 2016 | |
Basis of Presentation, Business Operations and Recent Accounting Pronouncements [Abstract] | |
Basis of Presentation | The foregoing financial information has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and rules and regulations of the Securities and Exchange Commission for interim financial reporting. The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. In the opinion of management, the financial information reflects all adjustments (consisting of items of a normal recurring nature) necessary for a fair presentation of financial position, results of operations and cash flows in conformity with GAAP. These interim financial statements should be read in conjunction with the consolidated financial statements for the year ended October 31, 2015, and related notes thereto contained in Champion Industries, Inc.’s Form 10-K filed January 29, 2016. The accompanying interim financial information is unaudited. The results of operations for the period are not necessarily indicative of the results to be expected for the full year. The balance sheet information as of October 31, 2015 was derived from our audited financial statements. |
Reclassifications and Revisions | Reclassifications and Revisions Certain prior-year amounts have been reclassified to conform to the current year financial statement presentation. |
Newly Issued Accounting Standards | Newly Issued Accounting Standards Effective July 1, 2009, changes to the ASC are communicated through an ASU. As of January 31, 2016, the FASB has issued ASU’s 2009-01 through 2016-01. The Company reviewed each ASU and determined that they will not have a material impact on the Company’s financial position, results of operations or cash flows, other than related disclosures to the extent applicable. In January 2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU 2015-01”). ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items. The Company adopted ASU 2015-01 in December, 2015. This amendment did not have a material impact on the Company's financial position, results of operation, or cash flows, but will have an impact on related presentation and disclosure to the extent applicable in future periods. In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). ASU 2015-11 provides guidance on simplifying the measurement of inventory. The current standard is to measure inventory at lower of cost or market; where market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. ASU 2015-11 updates this guidance to measure inventory at the lower of cost or net realizable value; where net realizable value is considered to be the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. The Company adopted ASU 2015-11 in December, 2015. This amendment did not have and is not expected to have a material impact on the Company's financial position, results of operation, or cash flows given the nature of the Company’s business and its relatively short inventory holding period. In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). ASU 2015-17 updates guidance on classifying deferred tax assets and liabilities from current and noncurrent to all noncurrent when a classified balance sheet is presented. The netting of deferred tax assets and liabilities to present a single amount will remain with this update. The Company will adopt ASU 2015-17 in December, 2016. This amendment is not expected to have a material impact on the Company's financial position, results of operation, or cash flows, but will impact presentation of such deferred tax assets and liabilities to the extent applicable. |
Inventories (Tables) |
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Inventories [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of inventories | At the dates indicated, inventories consisted of the following:
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Debt (Tables) |
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Schedule of long-term debt | At the dates indicated, debt consisted of the following:
(1) On June 15, 2015 the Company’s Board of Directors approved the conversion of the Company’s $2.5 million related party debt to Preferred Stock equity. The Preferred Stock will pay a 6.00% or 0.00% annual dividend contingent on the Company’s income after income taxes. If the Company's income after income taxes is $1.0 million or greater, the dividend rate is 6.00%; if the Company's income after income taxes is less than $1.0 million, the dividend rate is 0.00%. This conversion will reduce the Company’s liabilities by $2.5 million and increase its equity by $2.5 million. In addition, this conversion will reduce the Company’s annual interest expense by $0.1 million. However, contingent on the after income tax income, this conversion could trigger the payment of an annual Preferred Stock dividend of $0.2 million or zero. If the $1.0 million after income tax income target is achieved, the Company’s annual cash outflow would increase $0.1 million, or decrease $0.1 million if the $1.0 million after income tax income target is not achieved. This conversion is pending a shareholder vote to amend the Company’s Articles of Incorporation to allow for the issuance of Preferred Stock. The proposed amendment to the Company's Articles of Incorporation was approved by the Company's Board of Directors on January 18, 2016. This was anticipated to be part of the Company's definitive Proxy Statement with respect to the Annual Meeting of Shareholders to be held on March 21, 2016, but the Company will now present the amendment at a special shareholder meeting expected to be held in May 2016. The Company will continue to accrue interest on the related party debt equal to the prime rate until such conversion has been consummated. (2) These notes are short-term borrowings associated with large furniture projects that are on terms of 120 days or less. A portion of these borrowings were subsequently paid upon collection of the collateral in February 2016. |
Commitments and Contingencies (Tables) |
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Contractual obligations of leases and debt | As of January 31, 2016 the Company had contractual obligations in the form of leases and debt as follows:
(1) On June 15, 2015 the Company’s Board of Directors approved the conversion of the Company’s $2.5 million related party debt to Preferred Stock equity. The Preferred Stock will pay a 6.00% or 0.00% annual dividend contingent on the Company’s income after income taxes. If the Company's income after income taxes is $1.0 million or greater, the dividend rate is 6.00%; if the Company's income after income taxes is less than $1.0 million, the dividend rate is 0.00%. This conversion will reduce the Company’s liabilities by $2.5 million and increase its equity by $2.5 million. In addition, this conversion will reduce the Company’s annual interest expense by $0.1 million. However, contingent on the after income tax income, this conversion could trigger the payment of an annual Preferred Stock dividend of $0.2 million or zero. If the $1.0 million after income tax income target is achieved, the Company’s annual cash outflow would increase $0.1 million, or decrease $0.1 million if the $1.0 million after income tax income target is not achieved. This conversion is pending a shareholder vote to amend the Company’s Articles of Incorporation to allow for the issuance of Preferred Stock. The proposed amendment to the Company's Articles of Incorporation was approved by the Company's Board of Directors on January 18, 2016. This was anticipated to be part of the Company's definitive Proxy Statement with respect to the Annual Meeting of Shareholders to be held on March 21, 2016, but the Company will now present the amendment at a special shareholder meeting expected to be held in May 2016. The Company will continue to accrue interest on the related party debt equal to the prime rate until such conversion has been consummated. |
Industry Segment Information (Tables) |
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Industry Segment Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of segment reporting information, by segment | The table below presents information about reported segments for the three months ended January 31:
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Reconciliation of total segment revenue, assets and operating (loss) | A reconciliation of total segment revenue, assets and operating loss to consolidated loss before income taxes for and at the three months ended January 31, 2016 and 2015 is as follows:
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Acquired Intangible Assets and Goodwill (Tables) |
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Jan. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquired Intangible Assets and Goodwill [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquired intangible assets and goodwill | The details of the Company's acquired intangible assets and goodwill, at the dates indicated, are as follows:
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Estimated amortization expense | Estimated amortization expense for each of the following years is:
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Changes in the carrying amount of goodwill | The changes in the carrying amount of goodwill and other amortizing intangibles for the three months ended January 31, 2016 were as follows: Goodwill:
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Amortizing intangible assets (net of amortization expense) | Amortizing Intangible Assets (net of amortization expense):
|
Accounts Receivable, Allowance for Doubtful Accounts and Revenue Recognition (Details) |
3 Months Ended |
---|---|
Jan. 31, 2016 | |
Accounts Receivable, Allowance for Doubtful Accounts and Revenue Recognition [Abstract] | |
Accounts receivable, payment period from invoice date | 30 days |
Inventories (Details) - USD ($) |
Jan. 31, 2016 |
Oct. 31, 2015 |
---|---|---|
Printing [Abstract] | ||
Raw materials | $ 1,190,701 | $ 1,111,203 |
Work in process | 647,042 | 599,289 |
Finished goods | 871,252 | 824,689 |
Office products and office furniture | 824,089 | 1,033,484 |
Total inventory | $ 3,533,084 | $ 3,568,665 |
Debt (Details) - USD ($) |
3 Months Ended | ||||||
---|---|---|---|---|---|---|---|
Jan. 31, 2016 |
Oct. 31, 2015 |
||||||
Debt Instrument [Line Items] | |||||||
Long-term debt | $ 10,712,990 | ||||||
Total indebtedness | 13,237,495 | $ 13,254,280 | |||||
Less current portion long-term debt | 1,160,323 | 1,179,358 | |||||
Less short-term notes payable to related party | [1] | 2,500,000 | 2,500,000 | ||||
Less current portion obligation under capital lease | 16,091 | 15,852 | |||||
Less short-term debt | [2] | 980,000 | 750,000 | ||||
Long-term debt, net of current portion and capital lease obligation | 8,581,081 | 8,809,070 | |||||
Long-term debt, net of current portion | 8,572,667 | 8,796,542 | |||||
Long-term capital lease obligation | 8,414 | 12,528 | |||||
Current portion long-term debt | 1,160,323 | 1,179,358 | |||||
Short-term notes payable to related party | [1] | 2,500,000 | 2,500,000 | ||||
Short-term debt | [2] | 980,000 | 750,000 | ||||
Current portion of capital lease obligation | 16,091 | 15,852 | |||||
Term Note A dated October 7, 2013 [Member] | |||||||
Debt Instrument [Line Items] | |||||||
Long-term debt | 8,600,000 | 8,750,000 | |||||
Periodic installment payment | $ 50,000 | ||||||
Debt maturity date | Apr. 01, 2017 | ||||||
Term Note A dated October 7, 2013 [Member] | Prime Rate [Member] | |||||||
Debt Instrument [Line Items] | |||||||
Basis spread on variable rate | 2.00% | ||||||
Installment Notes Payable to Banks [Member] | |||||||
Debt Instrument [Line Items] | |||||||
Long-term debt | $ 563,444 | 634,998 | |||||
Installment Notes Payable to Banks [Member] | Minimum [Member] | |||||||
Debt Instrument [Line Items] | |||||||
Debt maturity date | Feb. 29, 2016 | ||||||
Installment Notes Payable to Banks [Member] | Maximum [Member] | |||||||
Debt Instrument [Line Items] | |||||||
Debt maturity date | Jan. 31, 2016 | ||||||
Notes Payable to Shareholders [Member] | |||||||
Debt Instrument [Line Items] | |||||||
Long-term debt | [1] | $ 2,500,000 | 2,500,000 | ||||
Periodic installment payment | $ 2,500,000 | ||||||
Debt maturity date | Apr. 30, 2015 | ||||||
Accrued interest rate | 3.50% | ||||||
Note Payable to Bank Due April 2016 [Member] | |||||||
Debt Instrument [Line Items] | |||||||
Long-term debt | [2] | $ 980,000 | 750,000 | ||||
Debt maturity date | Apr. 30, 2016 | ||||||
Accrued interest rate | 5.25% | ||||||
Capital Lease Obligation for Printing Equipment [Member] | |||||||
Debt Instrument [Line Items] | |||||||
Capital Lease Obligations | $ 24,505 | 28,380 | |||||
Interest rate | 6.02% | ||||||
Note Payable to a Bank Including Interest at 5.00% [Member] | |||||||
Debt Instrument [Line Items] | |||||||
Long-term debt | $ 430,057 | 443,208 | |||||
Periodic installment payment | $ 8,441 | ||||||
Interest rate | 5.00% | ||||||
Note Payable to a Bank Including an Imputed Interest Rate of 0.0% [Member] | |||||||
Debt Instrument [Line Items] | |||||||
Long-term debt | $ 139,489 | $ 147,694 | |||||
Periodic installment payment | $ 4,197 | ||||||
Interest rate | 0.00% | ||||||
|
Income taxes (Details) |
3 Months Ended | |
---|---|---|
Jan. 31, 2016 |
Jan. 31, 2015 |
|
Income taxes [Abstract] | ||
Effective tax rate | 0.00% | 0.00% |
Commitments and Contingencies (Details) |
Jan. 31, 2016
USD ($)
Holder
$ / shares
shares
|
|||
---|---|---|---|---|
Non-cancelable Operating Leases [Abstract] | ||||
2016 | $ 377,271 | |||
2017 | 423,949 | |||
2018 | 334,642 | |||
2019 | 230,098 | |||
2020 | 77,010 | |||
Residual | 32,673 | |||
Total | 1,475,643 | |||
Term Debt [Abstract] | ||||
2016 | 2,029,884 | |||
2017 | 8,344,299 | |||
2018 | 138,654 | |||
2019 | 97,644 | |||
2020 | 98,352 | |||
Residual | 4,157 | |||
Total | 10,712,990 | |||
Obligations Under Capital Lease | ||||
2016 | 11,977 | |||
2017 | 12,528 | |||
2018 | 0 | |||
2019 | 0 | |||
2020 | 0 | |||
Residual | 0 | |||
Total | 24,505 | |||
Notes Payable - Related Party [Abstract] | ||||
2016 | 2,500,000 | [1] | ||
2017 | 0 | [1] | ||
2018 | 0 | [1] | ||
2019 | 0 | [1] | ||
2020 | 0 | [1] | ||
Residual | 0 | [1] | ||
Total | 2,500,000 | [1] | ||
Contractual Obligations, Total [Abstract] | ||||
2016 | 4,919,132 | |||
2017 | 8,780,776 | |||
2018 | 473,296 | |||
2019 | 327,742 | |||
2020 | 175,362 | |||
Residual | 36,830 | |||
Total | 14,713,138 | |||
Not Covered by Insurance [Member] | Maximum [Member] | ||||
Commitments and Contingencies [Abstract] | ||||
Estimate of reasonably possible losses | $ 400,000 | |||
Restated Credit Agreement [Member] | ||||
Commitments and Contingencies [Abstract] | ||||
Price of warrants issued (in dollars per share) | $ / shares | $ 0.001 | |||
Percentage of Common stock outstanding | 30.00% | |||
Common stock, shares outstanding (in shares) | shares | 11,299,528 | |||
Potential shares issued from exercise of warrants (in shares) | shares | 4,842,654 | |||
Minimum number of warrant holders permitted to own a limited number of voting shares | Holder | 1 | |||
|
Fair Value Measurements (Details) $ in Millions |
Jan. 31, 2016
USD ($)
|
---|---|
Fair Value Measurements [Abstract] | |
Carrying value of term debt not related to credit agreement | $ 2.1 |
1 Year Champion Industries (CE) Chart |
1 Month Champion Industries (CE) Chart |
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