Summary of CHAMPION INDUSTRIES INC

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

Results of Operations

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

                                     Percentage of Total Revenues
                               Three Months Ended      Nine Months Ended
                                    July 31,                July 31,

                                2012      2011        2012       2011
Revenues:
  Printing                       50.2 %     51.7 %      53.0 %     53.0 %
O Office products and
office furniture                 37.3       34.7        33.8       32.9
Newspaper                        12.5       13.6        13.2       14.1
Total revenues                 100.00     100.00      100.00     100.00
Cost of sales and
newspaper operating
costs:
  Printing                       38.4       39.5        39.0       40.1
  Office products and
office furniture                 27.8       25.3        24.3       23.6
Newspaper cost of sales
and operating costs               7.4        7.9         7.7        8.0
Tot Total cost of sales
and newspaper operating
costs                            73.6       72.7        71.0       71.7
  Gross profit                   26.4       27.3        29.0       28.3
Selling, general and
administrative expenses          26.5       23.8        26.8       23.6
Assets
impairments/restructuring
charges                           1.0        0.0        12.2        0.3
(Loss) income from
operations                       (1.1 )      3.5       (10.0 )      4.4
Interest expense -                    )
related party                    (0.1       (0.1 )       0.0       (0.1 )
Interest expense                 (4.2 )     (3.5 )      (3.5 )     (3.4 )
Gain on early
extinguishment of debt
from related party                0.0        5.2         0.0        1.7
Other income                      0.0        0.1         0.1        0.0
(Loss) income from
continuing operations
before taxes                     (5.4 )      5.2       (13.4 )      2.6
Income tax benefit                               )                      )
(expense) on continuing
operations                        1.2       (2.1       (14.3 )     (1.1
Net (loss) income from                )%
continuing operations            (4.2        3.1 %     (27.7 )%     1.5 %

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

Three Months Ended July 31, 2012 Compared to Three Months Ended July 31, 2011
(Continuing Operations)

Revenues

Total revenues increased 2.9% in the third quarter of 2012 compared to the same period in 2011, to $26.3 million from $25.6 million. Printing revenue was flat when compared to the third quarter of 2011 at approximately $13.2 million. Office products and office furniture revenue increased 10.4% in the third quarter of 2012 to $9.8 million from $8.9 million in the third quarter of 2011. Office products and office furniture sales were stronger in the third quarter of 2012 when compared to the third quarter of 2011 due to higher office furniture sales partially offset by a reduction in office products related sales. The Company recorded newspaper revenues associated with The Herald-Dispatch of approximately $3.3 million, consisting of advertising revenue of approximately $2.5 million and $0.8 million in circulation revenues for the three months ended July 31, 2012. The Company recorded newspaper revenues associated with The Herald-Dispatch of approximately $3.5 million, consisting of advertising revenue of approximately $2.6 million and $0.9 million in circulation revenues for the three months ended July 31, 2011. The decrease in newspaper revenue is primarily associated with decreases in both advertising and circulation revenues, reflective of macro industry dynamics coupled with the residual effect of the global economic crisis.

Cost of Sales

Total cost of sales increased 4.2% in the third quarter of 2012, to $19.4 million from $18.6 million in the third quarter of 2011. Printing cost of sales in the third quarter of 2012 increased slightly over the prior year and increased slightly as a percentage of printing sales from 76.3% in 2011 to 76.4% in 2012. The printing gross margin dollars were essentially flat when compared to the comparable period in the prior year. 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 73.0% in 2011 to 74.7% 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 58.6% for the three months ended July 31, 2012 and 2011.

Operating Expenses

In the third quarter of 2012, selling, general and administrative (SG&A) expenses increased on a gross dollar basis to $7.0 million from $6.1 million in 2011, an increase of $0.9 million or 14.4%. As a percentage of total sales, the selling, general and administrative expenses increased on a quarter to quarter basis in 2012 to 26.5% from 23.8% 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 Forbearance Agreement and the Credit Agreement. The increase in professional fees was approximately $0.7 million.

The Company recorded asset impairment charges during the third quarter of 2012 of approximately $225,000 on a pre-tax basis for certain assets within the printing segment that are classified as assets held for sale.

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 in the third quarter of 2012 of $(1.0) million compared to an operating loss of $(0.1) million in the third quarter of 2011. The increase in 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 Forbearance Agreement and Limited Forbearance Agreement. The increase in professional fees approximated $0.7 million and restructuring and asset impairment charges incurred in the third quarter of 2012 of approximately $0.3 million.

The office products and office furniture segment reported operating profits of $0.3 million in the third quarter of 2012 compared to $0.6 million in the third quarter of 2011. This represented a decrease in profitability of approximately $0.3 million. This decrease is primarily the result of higher selling, general and administrative expenses in the third quarter of 2012, when compared to the comparable period of the prior year, resulting from a realignment of personnel and other expenses and divisional responsibilities between the printing segments and office products and office furniture, resulting in an increase in SG&A expenses of $0.1 million associated with these actions.

The newspaper segment reported operating income of approximately $0.4 million, in both the third quarter of 2012 and 2011. The results reflected gross profit dollar contraction due to margin percent compression and lower sales partially offset by a reduction in SG&A expenses.

(Loss) income from Operations

Income from operations decreased in the third quarter of 2012, to a (loss) of $(0.3) million from income of $0.9 million in the third quarter of 2011. This decrease is primarily the result of restructuring and impairment charges and professional fees associated with the provisions of the Credit Agreement, Limited Forbearance Agreement and Forbearance Agreement.

Other Income (expense)

Other (expense) income, net decreased approximately $1.6 million, primarily due to a pre-tax gain on early extinguishment of debt recorded in the third quarter of 2011.

The Company exchanged a $3,000,000 Unsecured Promissory Note payable to Marshall T. Reynolds, its CEO, together with $147,875 in accrued interest for 1,311,615 shares of common stock in the third quarter of 2011. This transaction resulted in a pre-tax gain on early extinguishment of debt of approximately $1.3 million. The Company believes the CEO's rationale for such an exchange included numerous factors. The Company believes these factors related both to his dual role as CEO and largest shareholder. The CEO obtained a majority control in the stock as a result of this transaction. The CEO did not have access to the principal or interest related to the subordinated debt and therefore the common stock had greater economic upside potential when compared to a fixed rate of return associated with subordinated debt. We believe the limited liquidity of the Company's common stock would make it very difficult to purchase a significant quantity of shares without substantially increasing the cost of the purchase. The CEO has historically been an equity investor and not a debt investor and therefore we believe the CEO believed there was inherently potentially greater upside in equity versus subordinated debt albeit with greater risk. Finally, we believe the CEO believed that eliminating subordinated debt would improve the financial position of the Company.

Income Taxes

The Company's effective tax rate for the three months ended July 31, 2012 and 2011 was a benefit of 21.7% and an expense of 40.6%. The primary difference in tax rates between 2012 and 2011 is a tax benefit from continuing operations resulting from interim implications of intraperiod tax allocations for discontinued operations when there is a loss from continuing operations to maintain financial statement neutrality and to recognize the tax components between continuing operations and discontinued operations on a discrete basis coupled with a valuation allowance taken against our aggregate deferred tax assets in the third quarter of 2012 of $0.2 million and the Company's intent to maintain a full valuation allowance on our deferred tax assets as further described herein. 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 in addition in the third quarter of 2012 the tax benefit recorded resulted from the application of certain provisions of ASC 740 to maintain financial statement neutrality and recognize the tax components between continuing operations and discontinued operations on a discrete basis.

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

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 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 (loss) for the third quarter of 2012 was $(1.1) million compared to net income of $0.8 million in the third quarter of 2011. Basic and diluted
(loss) earnings per share for the three months ended July 31, 2012 and 2011 were a loss of $(0.10) and earnings of $0.08.

Discontinued Operations

The net income from discontinued operations of $0.5 million for the three months ended July 31, 2012 is primarily attributable to a pre-tax gain recorded as a result of the sale of CGC to Safeguard of approximately $0.9 million. The Company reported net income from discontinued operations for the three months ended July 31, 2011 of approximately $0.1 million. The Company received from Safeguard $3,100,000 in cash at closing with an additional $400,000 retained by Safeguard to be paid to the Company upon Safeguard's verification of the accuracy of seller's representations in the Agreement, among other conditions. The Company may have additional post-closing adjustments and costs associated with a current dispute with Safeguard regarding payments the Company believes are due under the Equity/Working Capital Calculation (Working Capital) and the $400,000 hold back described above. Safeguard is disputing the payment of the $400,000, hold back amount and the Company and Safeguard are currently in a resolution process regarding the working capital calculation. If the Company and Safeguard are not able to mutually agree on a settlement of the working capital calculation or the hold back amount, the APA calls for arbitration provisions to resolve the dispute.

Nine Months Ended July 31, 2012 Compared to Nine Months Ended July 31, 2011
(Continuing Operations)

Revenues

Total revenues increased 4.6% in the first nine months of 2012 compared to the same period in 2011, to $80.2 million from $76.6 million. Printing revenue increased 4.6% in the nine month period ended July 31, 2012 to $42.5 million from $40.6 million in the same period in 2011. Office products and office furniture revenue increased 7.7% in the nine month period ended July 31, 2012, to $27.1 million from $25.2 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 partially offset by a reduction in office products sales. The Company recorded newspaper revenues associated with The Herald-Dispatch of approximately $10.6 million consisting of advertising revenues of approximately $8.1 million and $2.4 million in circulation revenues for the nine months ended July 31, 2012. The Company recorded newspaper revenues associated with The Herald-Dispatch of approximately $10.8 million consisting of advertising revenues of approximately $8.3 million and $2.5 million in circulation revenues for the nine months ended July 31, 2011. The decrease in newspaper revenue is primarily associated with a decrease in both advertising and circulation revenues which we believe is reflective of macro industry dynamics coupled with the residual effect of the global economic crisis.

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

Cost of Sales

Total cost of sales increased 3.6% in the nine months ended July 31, 2012, to $56.9 million from $55.0 million in the nine months ended July 31, 2011. Printing cost of sales increased 1.9% in the nine months ended July 31, 2012, to $31.3 million from $30.7 million in the nine months ended July 31, 2011. The increase in printing cost of sales was primarily due to the increase in printing sales partially offset by improved gross margin percent in 2012. Office products and office furniture cost of sales increased 7.6% in the nine months ended July 31, 2012, to $19.5 million from $18.1 million for the nine months ended July 31, 2011 primarily as a result of higher office furniture sales on relatively flat gross profit percent. Newspaper cost of sales and operating costs as a percent of newspaper sales were 58.2% and 56.8% for the nine months ended July 31, 2012 and 2011. This increase as a percent of newspaper sales was primarily associated with increases in the newsprint and ink category and increased motor route subsidiaries on an overall decrease in newspaper sales.

Operating Expenses

During the nine months ended July 31, 2012, compared to the same period in 2011, selling, general and administrative expenses increased as a percentage and total dollars of sales to 26.8% from 23.6% in 2011. Total selling, general and administrative expenses (SG&A) increased $3.3 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 Forbearance Agreement and Limited Forbearance Agreement. The increase in professional fees was approximately $1.8 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, incurred in the second quarter of 2012.

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.

Segment Operating (Loss) Income

The printing segment reported an operating (loss) for the first nine months of 2012 of $(1.6) million from operating income of $0.2 million in the first nine 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 Forbearance Agreement and Limited Forbearance Agreement. The increase in professional fees approximated $1.8 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 and were incurred in the second quarter of 2012. 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 nine months of 2012 of $1.7 million compared to $1.4 million in the first nine months of 2011. This represented an increase in profitability of approximately $0.3 million. This increase is primarily the result of higher office furniture sales and relative stability in gross profit percent yielding an overall increase in gross profit dollars. These results were partially impacted by a realignment of personnel and other expenses and divisional responsibilities between, the printing segment and office products and office furniture , representing an increase in SG&A expenses of $0.1 million.

The newspaper segment reported operating income of $1.7 million, in the first nine months of 2011, and an operating loss of ($8.0) million, in the first nine 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.

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

(Loss) Income from Operations

(Loss) from operations in the nine month period ended July 31, 2012, was a loss of $(8.0) million compared to income from operations of $3.3 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 impacted by an improved gross profit contribution. The 2011 results were partially impacted 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 Income (expense)

Other (expense) (net), increased approximately $1.4 million from 2011 to 2012, primarily due to a pre-tax gain on early extinguishment of debt recorded in the third quarter of 2011.

Income Taxes

The Company's effective tax rate for the nine months ended July 31, 2012 and 2011 was a negative (106.7%) and 41.8%. 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 and a valuation allowance increase of $0.2 million in the third quarter of 2012. The 2012 tax rate was also impacted by a tax benefit from continuing operations resulting from interim implications of intraperiod tax allocations for discontinued operations when there is a loss from continuing operations to maintain Financial Statement neutrality and to recognize the tax components between continuing operations and discontinued operations on a discrete basis. 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 in addition in the third quarter of 2012 the tax benefit recorded resulted from the application of certain provisions of ASC 740 to maintain financial statement neutrality and recognize the tax components between continuing operations and discontinued operations on a discrete basis.

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, 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 income for the nine months ended July 31, 2011 was $1.2 million compared to a net (loss) of $(22.2) million for the same period in 2012. Basic and diluted
(loss) earnings per share for the nine months ended July 31, 2012 was a loss of $(1.96) compared to 2011 earnings at $0.11.

Discontinued Operation

Earnings from discontinued operations on a pre-tax basis before gain on sale of discontinued operations decreased from $0.5 million in the first nine months of 2011 to a loss of $(0.1) million in the first nine months of 2012. This resulted primarily from a sales reduction of $3.0 million or 16.6% and an overall reduction in gross profit dollars.

As a result of reclassifying substantially all of the assets at July 31, 2012 for a printing division as assets from discontinued operations, the Company recorded asset impairment charges of $143,000 in the third quarter of 2012.

The Company recorded a pre-tax gain as a result of the sale of CGC to Safeguard of approximately $0.9 million. The Company may have additional post-closing . . .