Results of Operations

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


                                                       Percentage of Total Revenues
                                              Three Months Ended           Six Months Ended
                                                  April 30,                   April 30,

                                              2012         2011         2012           2011
Revenues:
     Printing                                   62.5 %       63.4 %       62.2 %           62.4 %
  Office products and office furniture          27.3         25.7         26.6             25.9
     Newspaper                                  10.2         10.9         11.2             11.7
  Total revenues                               100.0        100.0        100.0            100.0

Cost of sales and newspaper
operating costs:
     Printing                                   46.1         46.9         45.8             47.2
   Office products and office furniture         19.1         17.7         18.7             18.4
  Newspaper cost of sales and operating
costs                                            6.1          6.4          6.5             6.5
  Total cost of sales and newspaper
operating costs                                 71.3         71.0         71.0             72.1
     Gross profit                               28.7         29.0         29.0             27.9
S Selling, general and administrative
expenses                                        25.2         23.1         26.2             22.9
Restructuring charge/impairment                 28.5          0.0         14.6              0.4
(Loss) income from operations                  (25.0 )        5.9        (11.8 )            4.6
   Interest expense - related party              0.0         (0.1 )        0.0             (0.1 )
   Interest expense                             (2.7 )       (3.0 )       (2.7 )           (3.0 )
   Other income                                  0.1          0.1          0.1              0.1

(Loss) income before taxes                     (27.6 )        2.9        (14.4 )            1.6
   Income tax (expense)                        (35.3 )       (1.3 )      (18.1 )           (0.7 )
Net (loss) income                              (62.9 )%       1.6 %      (32.5 )%           0.9 %

Champion Industries, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Three Months Ended April 30, 2012 Compared to Three Months Ended April 30, 2011

Revenues

Total revenues increased 7.7% in the second quarter of 2012 compared to the same period in 2011, to $33.4 million from $31.0 million. Printing revenue increased 6.1% in the second quarter of 2012, to $20.9 million from $19.7 million in the second quarter of 2011. Office products and office furniture revenue increased 14.6% in the second quarter of 2012 to $9.1 million from $8.0 million in the second quarter of 2011. The increase in printing sales was primarily reflective of increases within multiple print operating divisions. Office products and office furniture sales were stronger in the second quarter of 2012 when compared to the second quarter of 2011 due to higher office furniture sales. The Company recorded newspaper revenues associated with The Herald-Dispatch of approximately $3.4 million, consisting of advertising revenue of approximately $2.6 million and $0.8 million in circulation revenues for the three months ended April 30, 2012. The Company recorded newspaper revenues associated with The Herald-Dispatch of approximately $3.4 million, consisting of advertising revenue of approximately $2.6 million and $0.8 million in circulation revenues for the three months ended April 30, 2011. The increase in newspaper revenue is primarily associated with increases in both advertising and circulation revenues.

Cost of Sales

Total cost of sales increased 7.9% in the second quarter of 2012, to $23.8 million from $22.0 million in the second quarter of 2011. Printing cost of sales in the second quarter of 2012, increased $0.8 million over the prior year and decreased as a percentage of printing sales from 74.1% in 2011 to 73.7% in 2012. The printing gross margin dollar increase is attributed primarily to higher sales coupled with improved gross margins. Office products and office furniture cost of sales increased in 2012 from 2011 levels due to higher sales and higher cost of goods sold as a percentage of office products and office furniture sales of 69.0% in 2011 to 70.0% in 2012, thus representing gross margin percent compression in the office products and office furniture segment. Newspaper cost of sales and operating costs as a percent of newspaper sales were 59.4% and 58.9% for the three months ended April 30, 2012 and 2011.

Operating Expenses

In the second quarter of 2012, selling, general and administrative (S,G&A) expenses increased on a gross dollar basis to $8.4 million from $7.2 million in 2011, an increase of $1.3 million or 17.6%. As a percentage of total sales, the selling, general and administrative expenses increased on a quarter to quarter basis in 2012 to 25.2% from 23.1% in 2011. The increase in SG&A in total and as a percent of sales was primarily reflective of increased professional fees resulting in part from provisions related to the Limited Forbearance Agreement. The increase in professional fees was approximately $0.6 million. In addition, the Company recorded an increase in bad debt expense of approximately $0.6 million primarily to reflect an increase in the allowance for doubtful accounts primarily associated with specific accounts within one operating division of the printing segment.

During the second quarter of 2012 as part of a restructuring plan submitted to the Company's secured lenders the Company authorized its investment bankers to initiate an open market transaction process to determine potential alternative transactions in relation to certain asset sales and the sale of a business segment. As a result of this process, it was determined that an impairment test between annual impairment tests was warranted as a result of this transaction analysis. This resulted in the Company's assessment that the carrying value of the newspaper segment exceeded the fair value of the newspaper segment. The basis of the fair value was a mid-point of value attained as a result of the open market process assessment based on a non- binding letter of intent attained in this process. This resulted in an impairment charge in the second quarter of 2012 of the remaining goodwill of the newspaper segment of approximately $9.5 million on a pre-tax, non-cash basis. As a result of the interim impairment indicators the Company also assessed the recoverability of property, plant and equipment and amortizing intangibles under the provisions of ASC 360 and determined that there were no charges required as a result of this assessment. The Company also assessed the non-amortizing intangibles of trademark and masthead and with assistance from a third party valuation specialist the Company concluded that through the utilization of an income approach based on the relief from royalty valuation methodology there was no impairment of this asset at April 30, 2012.

Champion Industries, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Segment Operating (Loss)Income

The printing segment reported operating income in the second quarter of 2012 of $16,000 compared to operating income of $0.9 million in the second quarter of 2011. The reduction in operating income was primarily attributable to higher SG&A expenses which were primarily reflective of increased professional fees resulting in part from provisions related to the Limited Forbearance Agreement. The increase in professional fees approximated $0.6 million. The printing segment also experienced higher bad debt expense of $0.6 million. The increase in bad debt expense was associated primarily with specific accounts within one operating division. These increases in expenses were partially offset by improved gross margins due in part to higher sales and improved gross margin percent.

The office products and office furniture segment reported operating profits of $0.8 million in the second quarter of 2012 compared to $0.5 million in the second quarter of 2011. This represented an increase in profitability of approximately $0.3 million. This increase is primarily the result of higher office furniture sales in the second quarter of 2012, when compared to the comparable period of the prior year.

The newspaper segment reported a reduction in operating income from $0.4 million, in the second quarter of 2011, to a (loss) of $(9.1) million, in the second quarter of 2012. The reduction in operating income was primarily reflective of a pre-tax impairment charge associated with goodwill aggregating $9.5 million.

(Loss) income from Operations and Other Income and Expenses

Income from operations decreased in the second quarter of 2012, to a (loss) of $(8.3) million from $1.8 million in the second quarter of 2011. This decrease is primarily the result of a goodwill impairment charge, professional fees associated with the Limited Forbearance Agreement and higher bad debt expense.

Income Taxes

The Company's effective tax rate for the three months ended April 30, 2012 and 2011 was a negative (127.8)% and 44.1%. The primary difference in tax rates between 2012 and 2011 and for 2012 between the effective tax rate and the statutory tax rate is a result of the valuation allowance taken against our deferred tax assets in the second quarter of 2012 of in the amount of $15.2 million. The effective income tax rate approximates the combined federal and state, net of federal benefit, statutory income tax rate and may be impacted by increases or decreases in the valuation allowance for deferred tax assets.

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 deductibles. 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 has determined, primarily as a result of its inability to enter into an amended credit facility upon the expiration of the Limited Forbearance Agreement on April 30, 2012, as well as the potential for a subsequent increase in interest rates coupled with the uncertainty regarding future rate increases that the secured lenders may impose on the Company that a full valuation allowance is necessary to measure the portion of the deferred tax asset that more likely than not will not be realized. The Company currently intends to maintain a full valuation allowance on our deferred tax assets until sufficient positive evidence related to our sources of future taxable income exists and the Company is better able to identify a longer term solution to our current credit situation with our secured lenders. Therefore, the amount of deferred tax asset considered realizable; however, could be adjusted in future periods based on a multitude of factors including but not limited to a refinancing of the Company's existing credit agreement with our secured lenders.

Champion Industries, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Net (loss) income

Net (loss) for the second quarter of 2012 was $(21.0) million compared to net income of $493,000 in the second quarter of 2011. Basic and diluted (loss) earnings per share for the three months ended April 30, 2012 and 2011 were $(1.86) and $0.05.

Six Months Ended April 30, 2012 Compared to Six Months Ended April 30, 2011

Revenues

Total revenues increased 3.4% in the first six months of 2012 compared to the same period in 2011, to $65.0 million from $62.9 million. Printing revenue increased 3% in the six month period ended April 30, 2012 to $40.4 million from $39.2 million in the same period in 2011. Office products and office furniture revenue increased 6.2% in the six month period ended April 30, 2012, to $17.3 million from $16.3 million in the same period in 2011. The increase in printing sales was primarily associated with sales growth in the second quarter of 2012 compared with the prior year across several of our print operating divisions. The increase in office products and office furniture sales was primarily due to higher office furniture sales. The Company recorded newspaper revenues associated with The Herald-Dispatch of approximately $7.3 million consisting of advertising revenues of approximately $5.6 million and $1.6 million in circulation revenues for the six months ended April 30, 2012. The Company recorded newspaper revenues associated with The Herald-Dispatch of approximately $7.3 million consisting of advertising revenues of approximately $5.7 million and $1.7 million in circulation revenues for the six months ended April 30, 2011. The decrease in newspaper revenue is primarily associated with a decrease in advertising revenues which we believe is reflective of macro industry dynamics coupled with the residual effect of the global economic crisis.

Cost of Sales

Total cost of sales increased 1.5% in the six months ended April 30, 2012, to $46.1 million from $45.4 million in the six months ended April 30, 2011. Printing cost of sales increased 0.2% in the six months ended April 30, 2012, to $29.7 million from $29.7 million in the six months ended April 30, 2011. The increase in printing cost of sales was primarily due to the increase in printing sales partially offset by improved gross margin percent. Office products and office furniture cost of sales increased 4.6% in the six months ended April 30, 2012, to $12.1 million from $11.6 million for the six months ended April 30, 2011 primarily as a result of higher office furniture sales partially offset by improved gross profit percent. Newspaper cost of sales and operating costs as a percent of newspaper sales were 57.7% and 56.0% for the six months ended April 30, 2012 and 2011. This increase was primarily associated with increases in the newsprint and ink category.

Operating Expenses

During the six months ended April 30, 2012, compared to the same period in 2011, selling, general and administrative expenses increased as a percentage and total dollars of sales to 26.2% from 22.9%. Total selling, general and administrative expenses (S,G & A) increased $2.7 million. The increase in SG&A in total and as a percent of sales was primarily reflective of increased professional fees resulting in part from provisions related to the Limited Forbearance Agreement. The increase in professional fees was approximately $1.1 million. In addition, the Company recorded an increase in bad debt expense when compared to the comparable period of 2011 of approximately $0.7 million primarily to reflect an increase in the allowance for doubtful accounts primarily associated with specific accounts within one operating division of the printing segment.

During the second quarter of 2012 as part of a restructuring plan submitted to the Company's secured lenders the Company authorized its investment bankers to initiate an open market transaction process to determine potential alternative transactions in relation to certain asset sales and the sale of a business segment. As a result of this process, it was determined that an impairment test between annual impairment tests was warranted as a result of this transaction analysis. This resulted in the Company's assessment that the carrying value of the newspaper segment exceeded the fair value of the newspaper segment. The basis of the fair value was a mid-point of value attained as a result of the open market process assessment based on a non- binding letter of intent attained in this process. This resulted in an impairment charge in the second quarter of 2012 of the remaining goodwill of the newspaper segment of approximately $9.5 million on a pre-tax, non-cash basis. As a result of the interim impairment indicators the Company also assessed the recoverability of property plant and equipment and amortizing intangibles under the provisions of ASC 360 and determined that there were no charges required as a result of this assessment. The Company also assessed the non-amortizing intangibles of trademark and masthead and with assistance from a third party valuation specialist the Company concluded that through the utilization of an income approach based on the capitalized royalty income method there was no impairment of this asset at April 30, 2012.

Champion Industries, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Segment Operating (Loss) Income

The printing segment reported an operating (loss) for the first six months of 2012 of $(0.5) from operating income of $0.8 million in the first six months of 2011. The operating loss was primarily attributable to higher SG&A expenses which were primarily reflective of increased professional fees resulting in part from provisions related to the Limited Forbearance Agreement. The increase in professional fees approximated $1.1 million. The printing segment also experienced higher SG&A related to bad debt expense. The increase in bad debt expense was associated primarily with specific accounts within one operating division. These increases in expenses were partially offset by improved gross margins due to higher printing sales and improved gross margin percent.

The office products and office furniture segment reported operating profits in the first six months of 2012 of $1.3 million compared to $0.8 million in the first six months of 2011. This represented an increase in profitability of approximately $0.5 million. This increase is primarily the result of higher office furniture sales and improved gross profit percent yielding an overall increase in gross profit dollars. The improved gross profit percent was primarily reflective of improved gross margins for office furniture sales.

The newspaper segment reported operating income of $1.2 million, in the first six months of 2011, and an operating loss of ($8.4) million, in the first six months of 2012. The reduction in operating income was primarily reflective of a pre-tax impairment charge associated with goodwill and other intangible assets aggregating $9.5 million.

(Loss) Income from Operations and Other Income and Expenses

(Loss) from operations in the six month period ended April 30, 2012, was $(7.6) million compared to income from operations of $2.9 million in the same period of 2011. The results for 2012 are primarily reflective of goodwill impairment charges of $9.5 million related to the newspaper segment coupled with higher SG&A expenses partially offset by an improved gross profit contribution and a reduction in restructuring charges. The 2011 results were partially offset by restructuring related charges of approximately $250,000, of which $29,000 is reflected as a component of cost of goods sold and $221,000 is reflected as restructuring charges.

Other expense (net), decreased approximately $0.1 million from 2011 to 2012, primarily due to decreases in interest expense, resulting from lower debt levels.

Income Taxes

The Company's effective tax rate for the six months ended April 30, 2012 and 2011 was a negative (125.1)% and 43.5%. The primary difference in tax rates between 2012 and 2011 and for 2012 between the effective tax rate and the statutory tax rate is a result of the valuation allowance taken against our deferred tax assets in the second quarter of 2012 of in the amount of $15.2 million. The effective income tax rate approximates the combined federal and state, net of federal benefit, statutory income tax rate and may be impacted by increases or decreases in the valuation allowance for deferred tax assets.

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 deductibles. 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 has determined, primarily as a result of its inability to enter into an amended credit facility upon the expiration of the Limited Forbearance Agreement on April 30, 2012, as well as the potential for a subsequent increase in interest rates coupled with the uncertainty regarding future rate increases that the secured lenders may impose on the Company that a full valuation allowance is necessary to measure the portion of the deferred tax asset that more likely than not will not be realized. The Company currently intends to maintain a full valuation allowance on our deferred tax assets until sufficient positive evidence related to our sources of future taxable income exists and the Company is better able to identify a longer term solution to our current credit situation with our secured lenders. Therefore, the amount of deferred tax asset considered realizable; however, could be adjusted in future periods based on a multitude of factors including but not limited to a refinancing of the Company's existing credit agreement with our secured lenders.

Net (loss) Income

Net income for the six months ended April 30, 2011 was $566,000 compared to a net (loss) of $(21.1) million for the same period in 2012. Basic and diluted
(loss) earnings per share for the six months ended April 30, 2012 was $(1.87) compared to 2011 at $0.06.

Champion Industries, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

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.

Our operating results depend on the relative strength of the economy on both a regional and national basis. Recessionary conditions applicable to the economy as a whole and specifically to our core business segments have had a significant adverse impact on the Company's business. A continuing or a deepening of the recessionary conditions we are experiencing could significantly affect our revenue categories and associated profitability.

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. The global economic crisis as well as other macro-economic factors and customer demand has impacted this general trend in recent years. The Company is unable to predict if this trend has fundamentally shifted until such time a more stable economic climate is present.

Our business is subject to seasonal fluctuations that we expect to continue to be reflected in our operating results in future periods. On a historical basis, The Herald-Dispatch's first and third calendar quarters of the year tended to be the weakest because advertising volume is at its lowest levels following the holiday season and a seasonal slowdown in the summer months. Correspondingly, on a historical basis the fourth calendar quarter followed by the second calendar quarter tended to be the strongest quarters. The fourth calendar quarter included heavy holiday season advertising. Other factors that affect our quarterly revenues and operating results may be beyond our control, including changes in the pricing policies of our competitors, the hiring and retention of key personnel, wage and cost pressures, distribution costs, changes in newsprint prices and general economic factors.

Champion Industries, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Liquidity and Capital Resources

Net cash provided by operations for the six months ended April 30, 2012, was $5.0 million compared to net cash provided by operations of $2.2 million during the same period in 2011. This change in net cash from operations is due primarily to timing changes in assets and liabilities.

Net cash (used in) investing activities for the six months ended April 30, 2012 was ($0.4) million compared to ($0.5) million during the same period in 2011. The net cash used in investing activities during the first six months of 2012 and 2011 primarily related to the purchase of equipment and vehicles.

Net cash (used in) financing activities for the six months ended April 30, 2012 was ($3.9) million compared to ($1.7) million during the same period in 2011. In 2012, the net cash used in financing activities primarily related to scheduled payments of long term debt and a reduction in negative book cash balances. In 2011, the net cash used in financing activities related to scheduled payments of long term debt and payments on the Company's revolving line of credit.

Working capital on April 30, 2012 was ($28.7) million and at October 31, 2011 was ($31.5) million. The negative working capital at April 30, 2012 is associated with the classification as a current liability of approximately $28.4 million of term debt which was previously classified as long term as well as approximately $10.0 million in revolving credit borrowings being classified as current based on contractual maturities. The $28.4 million term debt reclassification resulted from the Company's inability to remain in compliance with certain of its financial covenants.

The Company had 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 required investments in equipment. The Company has available a line of credit totaling up to $15.0 million which is subject to borrowing base limitations and reserves which may be initiated by the Administrative Agent for Lenders in its sole discretion and are subject to a minimum excess availability threshold as well as the provisions of the Limited Forbearance Agreement (See Note 5 of the Consolidated Financial Statements) and as a result of a Notice of Default and Reservation of Rights letter available solely in the discretion of the secured lenders. For the foreseeable future, including through Fiscal 2012, the Company's ability to fund operations, meet debt service requirements and make planned capital expenditures is contingent on continued availability of the aforementioned credit facilities and the ability of the Company to complete a restructuring or refinancing of the existing debt. The Company does not currently believe it will generate sufficient cash flow from operations to meet both scheduled principal . . .