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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 28, 2004

Commission file number 1-7807

Champion Parts, Inc.

(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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Champion Parts, Inc.

Form 10-Q

Cross Reference Index

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PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

CHAMPION PARTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these statements.

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CHAMPION PARTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these statements.

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CHAMPION PARTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (CONDENSED)

FOR THE PERIODS ENDED

(Unaudited)

The accompanying notes are an integral part of these statements

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CHAMPION PARTS, INC.  AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 (Unaudited)

The accompanying notes are an integral part of these statements

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CHAMPION PARTS, INC.  AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

The accompanying notes are an integral part of these statements.

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CHAMPION PARTS, INC.  AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited)

The accompanying notes are an integral part of these statements.

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CHAMPION PARTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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Note 1.

The accompanying financial statements for the three months ending March 28, 2004 and March 30, 2003 have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.  The condensed consolidated financial statements and these notes should be read in conjunction with the consolidated financial statements and footnotes of the Company included in the Company's Annual Report submitted on Form 10-K for the year ended December 31, 2003.

The consolidated balance sheet at December 31, 2003 has been derived from the audited financial statements at that date.

Certain amounts relating to March 30, 2003 have been reclassified to conform to the current year's presentation.

The Company previously adopted Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information” and  management  views the Company as one business  segment, the remanufacturing of auto parts.

Note 2.

Basis of Presentation - The accompanying consolidated financial statements have been prepared on the going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company's credit facility expired on February 8, 2004. The Company and the lender entered into an amended credit facility which expired on May 8, 2004 and has subsequently entered into a  Second Amendment extending the expiration date to June 8, 2004.  The amended credit facility has reduced the Company's total availability to borrow from $14,000,000 to $10,500,000 and increased the interest rates. The reduction in the credit facility has significantly reduced the Company's cash availability. The Company is presently seeking to replace the credi t facility. Management  is in the process of negotiating a new revolving credit facility, obtaining term financing on the Company's Hope property and has a pending  agreement to sell the Company's Beech Creek property subject to certain contingencies, including satisfaction of the Buyer as to environmental matters. There is no assurance that any of these transactions will be consumated and the failure to do so would adversely affect the ability of the company to meet its working capital requirements.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, although the report of our independent accountant as of and for the year ended December 31, 2003 expresses substantial doubt as to the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Note 3.

The information furnished herein reflects all adjustments (consisting only of normal recurring accruals), which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim period.  Results of operations for the three months ending March 28, 2004 are not necessarily indicative of results to be expected for the entire year.

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Note 4.

Inventories are valued at the lower of cost (first-in, first-out method) or market.  A summary of the gross inventories

and reserves follows:

Note 5.

For reporting purposes, product and core returns are offset against gross sales in arriving at net sales.  Total returns for the three months ended March 28, 2004 were $1,387,000 compared to $1,735,000 at March 30, 2003.

Note 6.

Long-lived Assets - The Company reviews the carrying values of its long-lived assets and identifiable intangible assets for possible impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable.  Any long-lived assets held for disposal are reported at the lower of their carrying amounts or fair value less cost to sell.  As of March 28, 2004 there has been no impairment of long lived-assets.

Note 7.

Assets Held for Sale - Represent the land, buildings and building improvements for the Beech Creek, Pennsylvania facility that ceased operation on March 15, 2002.  The carrying values of these assets were reviewed by Management for possible impairment and whether the carrying value would be recoverable.  The assets are valued at the lower of cost or market.  As of March 28, 2004 there has been no impairment of assets held for sale.

Note 8.   

Income tax expense recorded for the first quarter represents an accrual for one quarter of the estimated annual tax liability. There was no income tax expense attributable to operations for the three months ended March 28, 2004.  The income tax expense attributable to operations for the three months ended March 30, 2003, differed from the amounts computed by applying the federal income tax rate of 34% principally as a result of tax benefits recognized related to the carry forward of net operating losses.  

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Note 9.   

The Company entered into a three-year credit facility on February 8, 2001, with Congress Financial Corporation, a subsidiary of First Union Bank.  Maximum credit available under the Congress facility was $14,000,000, with available letter of credit accommodations of $1,750,000, and two term loans totaling $2,913,000 on fixed assets and real properties.  Interest rates on facility were for revolving debt, lender prime (4%) plus 3/4 %, for term debt, lender prime (4%) plus 1%, and for letters of credit 2% per annum on the daily outstanding balance.

On February 6, 2004, the Company entered into an amendment to the Loan and Security Agreement with Congress Financial Corporation extending the maturity date of its revolving line of credit and its term loan from February 8, 2004 to May 8, 2004. A Second Amendment was entered into on May 7, 2004 extending the expiration date to June 8, 2004.  Under the terms of the amendments, the availability to borrow on the line of credit decreased from $14,000,000  to $10,500,000. The revolving loan interest and term loan interest rates increased to 2.75% and 3.00% in excess of the lender prime rate, respectively.

At March 28, 2004, the balance outstanding on the Company’s total loan facility was $9,283,000 (a revolver balance of $7,797,000 and a term loan balance of $1,486,000) and letter of credit accommodations were $40,000. The balance outstanding on the loan facility at December 31, 2003 was $9,988,000 and letter of credit accommodations of $50,000.

The carrying amount of long-term debt (excluding the restructured vendor debt) approximates fair market value because the interest rates on substantially all the debt fluctuate based on changes in market rates.

The  current maturities balances of  term and revolver debt at March 28, 2004, reflect the entire balances due Congress Financial Corporation at the expiration of the amended facility period on June 8, 2004.

The Company is in compliance with the tangible net worth covenant contained in the loan agreement.

Note 10.  

At March 28, 2004, the Company met job expansion incentives and the $250,000 City of Hope, Arkansas note was forgiven. The forgiveness of the debt was taken into non-operating income.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

      CONDITION AND RESULTS OF OPERATIONS

Management Overview

First quarter 2004 net sales of $5,468,000 were $728,000, or 11.7%, lower than first quarter 2003 primarily reflecting the continuing decline of carburetor net sales.  Cost of products sold for the quarter were lower than first quarter 2003 by $602,000, or 11.7%, proportionate with the net sales decline.  However, operating expenses were higher than 2003 by $33,000 primarily as a result of costs associated with the Beech Creek, Pennsylvania facility which is in the process of being sold.  Operating income for the quarter was $231,000 versus $390,000 for the same period in 2003, reflecting  relatively fixed operating costs with a decline in net sales. Interest cost for the quarter was up $24,000 over 2003, reflecting the two percentage point increase that resulted from extending the expired loan facility. At the end of the quarter, the Company met job expansion incentives and the $250,000 City of Hope, Arkansas  note was forgiven.  This accounts for the significant gain in non-operating income during the quarter.  As a result of the loan forgiveness, the Company’s net income for the quarter was $335,000, a $51,000, or 18.0%, increase over the $284,000 reported for the same period in 2003.

The Company has financed its working capital needs through the use of its bank credit facility and the cash flow generated from operations. At March 28, 2004, the total balance outstanding on the Company’s loan facility, revolver and term loans, was $9,283,000 and letter of credit accommodations were $40,000.  This compares to a total loan balance at December 31, 2003 of $9,988,000 and letter of credit accommodations of $50,000.

On February 6, 2004, the Company entered into an amendment to the Loan and Security Agreement with Congress Financial Corporation, extending the maturity date of its revolving line of credit and its term loan from February 8, 2004 to May 8, 2004. A Second Amendment was entered into on May 7, 2004 extending the expiration date to June 8, 2004. Under the terms of the  amendments, the total amount available to borrow on the line of credit decreased from $14,000,000 to $10,500,000.  The revolving loan interest and term loan interest rates increased to 2.75% and 3.00% in excess of the lender prime rate, respectively.

The Company is anticipating replacement of the existing loan facility with a new $14,000,000 revolving loan facility with another lender and a new term loan with a group of local lenders on the Hope, Arkansas property.  In addition, the Company has a sale agreement pending on its real estate property in Beech Creek, Pennsylvania subject to certain contingencies, including satisfaction of the Buyer as to environmental matters.  Management believes that once the real estate sale is completed and new credit facilities are in place, the Company's borrowing availability under the new revolving credit agreement, together with the cash flow generated from operations, will be sufficient to meet the working capital needs over the next fiscal year and beyond. There is no assurance that a ny of these transactions will be consumated and the  failure to do so would adversely affect the ability of the company to meet its working capital requirements.

RESULTS OF OPERATIONS

Three months ended March 28, 2004 compared to three months ended March 30, 2003

Net sales for the quarter ending March 28, 2004 were $5,468,000 versus net sales of $6,196,000 for the same fiscal quarter in 2003.  The $728,000, or 11.7%, decrease in net sales compared to 2003 reflected  the continuing decline of carburetor net sales combined with lower than expected demand in air conditioning products that resulted from a large customer losing one of its primary customers.  Partially offsetting these declines were higher sales in the traditional markets of heavy duty, agricultural and CV axle product lines. Total product and core returns, which are accounted for as reductions to gross sales, were 19.9% and 21.5% of gross sales for the first quarter of 2004 and 2003, respectively. The lower percentage for the first quarter of 2004 reflects the impact of lower product return credits issued.

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Carburetor net sales were 44.6% and 49.8% of total net sales, respectively, for the first quarter of 2004  and 2003. Even though new vehicles sold are no longer equipped with carburetors in the United States and Canada, the Company continues to sell replacement units for older vehicles which predominantly use carburetors.  The Company expects that the trend in carburetor sales will continue to be a steady decline in future periods.  In addition, carburetor margins may be negatively impacted in the future as customers accelerate product returns during periods of declining demand.

Cost of products sold were $4,557,000, or 83.4%, of net sales for 2004 as compared to $5,159,000, or 83.3%, for the first quarter of 2003.  The $602,000, or 11.7% decrease versus 2003 is primarily attributed to the net sales decrease.

Selling, distribution and administrative expenses for the first quarter 2004 were $680,000 compared to $647,000 in first quarter of 2003. The spending increase of $33,000 reflects the residual operating costs of the idle Pennsylvania facility (taxes, insurance and utilities) being recorded in administrative overhead.  Administrative spending excluding these costs was approximately even with the prior year.

Operating income for the quarter was $231,000, compared to $390,000 for the first quarter of 2003.  The operating income decline versus 2003 can be attributed to relatively fixed operating costs with a decline in net sales.

Interest expense of $145,000 for the quarter was up $24,000 over 2003, reflecting the two percentage  point increase that resulted from extending the expired loan facility.

Non-operating income was $254,000 for the first quarter versus $15,000 recorded in 2003. At the end of the quarter, the Company met job expansion incentives and the $250,000 City of Hope, Arkansas note was forgiven.  This primarily accounts for the significant gain in non-operating income during the quarter.  

Net income was $335,000 for the first quarter versus $284,000 for 2003, an increase of $51,000, or 18.0%.  The significant increase in non-operating income reflecting the loan write-off discussed earlier, accounted for the improvement offsetting the lower operating income.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's financial statements reflect the selection and application of accounting policies that require management to make significant estimates and assumptions. Management believes that the following points are some of the more critical judgment areas in the application of accounting policies that currently affect the Company's financial condition and results of operations. Preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues, and expenses and related contingent liabilities.  On an on-going basis, the Company evaluates its estimates for propriety, including those related to revenue s, accounts receivable and inventory reserves, income taxes, and contingencies and litigation.  The Company bases its reserve estimates on historical experience, current market and operating trends, and on various assumptions that are believed to be reasonable under current operating circumstances.  Actual results may differ from these estimates under different assumptions or conditions.

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The Company recognizes sales when products are shipped.  Net sales reflect deductions for cores returned for credit and other customary returns and allowances.  Such deductions and returns and allowances are recorded currently based upon continuing customer relationships and other criteria.  The Company's customers are encouraged to trade-in rebuildable cores for products that are included in the Company's current product line.

Deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities.  At March 28, 2004, the Company’s deferred tax asset consisted principally of net inventory reserves and net operating loss carryforwards.  The Company’s deferred tax asset has been reduced by a valuation allowance to the extent such benefits are not expected to be fully utilized.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”).  In general, a variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities.  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without addition al subordinated financial support from other parties.  The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003.  The Company adopted the provisions of FIN 46 effective February 1, 2003 and such adoption did not have a material impact on its consolidated financial statements since it currently has no variable interest entities.  In December 2003, the FASB issued FIN 46R with respect to variable interest entities created before January 2003, which among other things, revised the implementation date to the first fiscal year or interim period ending after March 15, 2004, with the exception of Special Purpose Entities (“SPE”).  The consolidation requirements apply to all SPE’s in the first fiscal year or interim period ending after December 15, 2003.  The Company adopted the provisions of FIN 46R effective December 29, 2003 and such adoption did not have a material impact on its consolidated financial statement s since it currently has no SPE’s.

In April 2003, FASB issued Statement of Financial Accounting Standards No.149, Amendment of Statement 133 on Derivative instruments and Hedging Activities (“SFAS No.149”).  SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No.133.  SFAS No.149 is effective for contracts and hedging relationships entered into or modified after June 30, 2003.  The Company adopted the provisions of SFAS No.149 effective June 30, 2003 and such adoption did not have a material impact on its consolidated financial statements since the Company has not entered into any derivative or hedging transactions.

In May 2003, FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“SFAS No. 150”). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both debt and equity and requires an issuer to classify the following instruments as liabilities in its balance sheet:

1.

a financial instrument  issued in the form of shares that is mandatorily redeemable and embodies an unconditional obligation that requires the issuer to redeem it by transferring its assets at a specified or determinable date or upon an event that is certain to occur;

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2.

a financial instrument, other than an outstanding share, that embodies an obligation to repurchase the issuer’s equity shares, or is indexed to such an obligation, and requires the issuer to settle the obligation by transferring assets; and

3.

a financial instrument that embodies and unconditional obligation that the issuer must settle by issuing a variable number of its equity shares if the monetary value of the obligation is based solely or predominantly on (1) a fixed monetary amount, (2) variations in something other than the fair value of the issuer’s equity shares, or (3) variations inversely related to changes in the fair value of the issuer’s equity shares.

In November 2003, FASB issued FASB Staff Position No. 150-3 (“FAS 150-3”) which deferred the effective dates for applying certain provisions of SFAS No.150 related to mandatorily redeemable financial instruments of certain non-public entities and certain mandatorily redeemable non-controlling interests for public and non-public companies.  For public entities SFAS No.150 is effective for mandatorily redeemable financial instruments entered into or modified after May 31, 2003 and is effective for all other financial instruments as of the first interim period beginning after June 15, 2003.  For mandatorily redeemable non-controlling interest that would not have to be classified as liabilities by a subsidiary under the exception in paragraph 9 of SFAS No.150, but would b e classified as liabilities by the parent, the classification and measurement provisions of SFAS No.150 are deferred indefinitely.  The measurement provisions of SFAS No.150 are also deferred indefinitely for other mandatorily redeemable non-controlling interests that were issued before November 4, 2003.  For those instruments, the measurement guidance for redeemable shares and non-controlling interests in other literature shall apply during the deferral period. The adoption of SFAS No.150 did not affect the Company's revenue recognition policies, nor the results of operations, financial position or cash flows.

On December 17, 2003, the Staff of the SEC issued Staff Accounting Bulletin No. 104 (SAB No. 104), Revenue Recognition, which supersedes SAB No. 101, “Revenue Recognition in Financial Statements”.  SAB No. 104’s primary purpose is to rescind accounting guidance contained in SAB No. 101 related to multiple element revenue arrangements, superseded as a result of the issuance of EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.”  Additionally, SAB No. 104 rescinds the SEC’s Revenue Recognition in Financial Statements Frequently Asked Questions and Answers (the FAQ) issued with SAB No. 101 that had been codified in SEC Topic 13, Revenue Recognition.  Selected portions of the FAQ have been incorporated into SAB No. 104. & nbsp;While the wording of SAB No. 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB No. 101 remain largely unchanged by the issuance of SAB No. 104.  The adoption of SAB No. 104 did not affect the Company's revenue recognition policies, nor the results of operations, financial position or cash flows.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Overview

The Company's credit facility expired on February 8, 2004. The Company and the lender entered into an amended credit facility which expired on May 8, 2004. A second amendment was entered into on May 7, 2004 extending the expiration date to June 8, 2004. The amended credit facility reduced the Company's availability to borrow from $14,000,000 to $10,500,000, increased the interest rates and reduced loan availability via an availability block reserve of $250,000. This reduction in the credit facility has significantly limited the Company's cash availability for current working capital needs. The Company is presently working towards replacing the total credit facility. Management is in the process of negotiating a new $14,000,000 revolving credit facility, obtaining term financing on the Co mpany's Hope real estate and has a pending agreement to sell the Company's Beech Creek, Pennsylvania property subject to certain contingencies, including satisfaction of the Buyer as to environmental matters.  There is no assurance that any of these transactions will be consumated and the failure to do so would adversely affect the ability of the company to meet its working capital requirements.

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Management believes that once the new credit facilities are in place and the real estate sale is completed, the Company's borrowing availability under these new credit agreements, together with the cash flow generated from operations, will be sufficient to meet its working capital needs over the next fiscal year and beyond.

Working Capital

Net working capital at March 28, 2004 was a negative $1,695,000 compared to negative $1,846,000 at December 31, 2003.  The negative working capital at the end of the quarter and at the 2003 year-end is principally a result of moving the long-term debt balances for term notes and revolver debt to current maturities of long-term debt, to reflect the expiration of the loan facility with Congress Financial Corporation.  Without the impact of this reclassification, net working capital would have been a positive $7,126,000 at the quarter-end versus $7,679,000 at December 31, 2003, a decrease of $553,000. This decrease reflects higher net trade accounts payable, which have resulted from the tightening of the revolver loan availability by the Company's current lender.

Compared to the March 30, 2003 balance of negative $2,499,000, net working capital is up $804,000 primarily as a result of higher inventories and lower accrued expenses.

Net trade accounts receivable at March 28, 2004 were $9,236,000, a decrease of $720,000 versus the year-end 2003 balance of $9,956,000.  The decrease in the Company's accounts receivable balances at quarter-end versus the year-end generally reflects a decrease in sales during the quarter combined  with increased collections.

When compared to the March 30, 2003 trade receivables balance of $10,626,000, the quarter-end balance is $1,390,000 lower reflecting the substantially lower invoicing during the first quarter.

Net inventories of $11,852,000 at March 28, 2004 were $988,000 higher as compared to the year-end 2003 balance of $10,864,000.  The increase in inventory reflects higher finished goods, work-in-process and parts inventories partially offset by lower raw core balances. The finished goods inventory increase is due to a timing shift of sales normally anticipated in the first quarter to the second quarter.

Compared to the March 30, 2003 balance of $10,396,000, the $1,456,000 inventory increase is explained by a build-up at B & T to meet seasonal demand.

Accounts payable at March 28, 2004 were $9,121,000 compared to a balance at year-end 2003 of $7,681,000. The $1,440,000 increase in accounts payable is due to the higher net trade accounts payable which have resulted from the tightening of the revolver loan availability by the Company's current lender.

Compared to the March 30, 2003 balance of $8,763,000, accounts payable increased $358,000 for the same reason.

Accrued expenses of $4,471,000 were $332,000 below the fiscal year-end 2003 balance of $4,803,000, principally reflecting a decrease in the environmental reserve reflecting the payment of the Company's portion of the final settlement of the Puente Valley, California proceedings lawsuit.  

Compared to the March 30, 2003 balance of $4,985,000, accrued expenses are down $514,000 due to the decrease of the environmental reserve mentioned earlier combined with a lower  sales credit accrual reflecting higher customer credits actually issued during the the past twelve months.

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Debt

The Company entered into a credit facility with Congress Financial Corporation, a subsidiary of  First Union Bank, on February 8, 2001. Maximum credit available under this loan facility was originally for $14,000,000, including available letter of credit accommodations of $1,750,000, and term loans totaling $2,913,000 on fixed assets and real properties.  Interest rates on the facility were originally for revolving debt, lender prime rate (4%) plus 3/4 %, for term debt, lender prime rate plus 1.00%, and for letters of credit, 2.00% per annum on the daily outstanding balance.

On February 6, 2004, the Company entered into an amendment to the Loan and Security Agreement with Congress Financial Corporation extending the maturity date of its revolving line of credit and its term loan from February 8, 2004 to May 8, 2004. A Second Amendment was entered into on May 7, 2004 extending the expiration date to June 8, 2004. Under the terms of the amendments, total availability to borrow on the line of credit decreased from $14,000,000 to $10,500,000. The revolving loan interest and term loan interest rates increased to 2.75% and 3.00% in excess of the lender prime rate, respectively.

At March 28, 2004, the balance outstanding on the Company’s total loan facility was $9,283,000 (a revolver balance of $7,797,000 and a term loan balance of $1,486,000) and letter of credit accommodations were $40,000. This compares to a total  loan balance at December 31, 2003 of $9,988,000  and letter of credit accommodations of $50,000.

At March 28, 2004, the Company met job expansion incentives and the $250,000 City of Hope, Arkansas note was forgiven. The forgiveness of the debt was taken into non-operating income.

SEASONALITY

The Company's business is slightly seasonal in nature, primarily as a result of the impact of weather conditions and the agricultural cycle on the demand for certain automotive and agricultural replacement parts.  Historically, the Company's sales and profits are generally the highest in the first half of the year trending down through the summer months.

FUTURE OUTLOOK

The Company ceased operations at its Pennsylvania facility on March 15, 2002 and the inventory and capital equipment was transferred to the Company’s Arkansas and Florida facilities or sold as of December 31, 2002. The closing of the Pennsylvania facility eliminated having to operate two plants significantly under capacity and allowed the Company to reduce costs and improve operating efficiencies.  In future months, additional benefits will be derived should the pending sale of the Pennsylvania facility be completed.

Growth in revenue and operating profit from the sales of air conditioning compressors has mitigated much of the declining carburetor product line sales during the past two years. Management is also pursuing other new products and new markets for existing products. This includes internal new product development as well as acquisition opportunities.

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FACTORS WHICH MAY AFFECT FUTURE RESULTS

This quarterly report contains forward-looking statements that are subject to risks and uncertainties, including but not limited to the statements under "Future Outlook" and to the following:

The competitive environment has caused, and is continuing to cause, changes in the distribution channels between volume retailers and traditional warehouse/distributors.  The Company has diversified its customer base and currently serves all major aftermarket segments, including large volume automotive retailers, original equipment manufacturers of automotive equipment and automotive warehouse distributors. The decline in carburetor product sales over the longer term could impact future results. The Company expects the growth in air conditioning product sales to partially offset this impact. There is no assurance that the sales increases in air conditioning products will exceed the decreases in carburetor sales or the contribution of carburetor sales to net income.

The Company’s six largest customers accounted for a total of 88.3% of the Company’s net sales in the quarter ending March 28, 2004, with the four largest customers aggregating 76.3% of the total. For the same period in 2003, the Company’s six largest customers accounted for a total of 92.8% of the Company’s net sales, with the four largest customers comprising 84.1% of the total. A significant reduction in the level of net sales or the loss of a large customer would have a materially adverse impact on the Company’s financial condition and results of operations.

While the Company has established reserves for potential environmental liabilities that it believes to be adequate, there can be no assurance that the reserves will be adequate to cover actual costs incurred or that the Company will not incur additional environmental liabilities in the future. See “Legal Proceedings” for additional information.

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has a credit facility, which bears interest at various rates that are based on the bank prime  rate. Interest on $9,283,000, or 82.8%, of the Company's debt was variable based on the lender’s prime rate. Consequently, a general increase of 1% in the lender’s prime rate would result in additional interest cost of approximately $93,000 if the same debt level and structure were to be maintained.

ITEM 4.    CONTROLS AND PROCEDURES

The Company has carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures provide reasonable assurance that such disclosure controls and procedures are effective in timely providing them with material information relating to the Company (including its consolidated subsidiaries) required to be inclu ded in the Company’s periodic Securities and Exchange Commission filings. There have been no significant changes in the Company’s internal controls over financial reporting during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, such internal controls.

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PART II.     OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Lawson Street, City of Industry, California Cleanup Proceedings,  Puente Valley, California Superfund Proceeding and Double Eagle Superfund Proceeding.

See Registrant’s Annual Report on Form 10-K, December 31, 2003, Environmental Section, pages 7 through 9, for latest background of these proceedings.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

1.

Exhibit 31.1 – CEO Section 302 Officer Certification - CEO

2.

Exhibit 31.2 – CFO Section 302 Officer Certification - CFO

3.

Exhibit 32.1 – CEO Section 906 Certification - CEO

4.

Exhibit 32.2 – CFO Section 906 Certification - CFO

(a)

Reports on Form 8-K

1.

The Company filed a Current Report on Form 8-K on May 6, 2004. The Form 8-K reported that in accordance with “Item 5.  Other Events and Regulation FD Disclosure”, on May  6, 2004, Champion Parts, Inc. entered into a second  amendment to the Loan and Security Agreement with Congress Financial Corporation extending the maturity date of its revolving line of credit and its term loans from May 8, 2004 to June 8, 2004.

2.

The Company filed a Current Report on Form 8-K on April 1, 2004. The Form 8-K reported that in accordance with “Item 12. Regulation FD Disclosure”, on April 1, 2004, Champion Parts, Inc. issued a press release announcing earnings for the Fiscal Year ended December 31, 2003 and for the fourth quarter of 2003.  The Company’s Form 10-K was filed with the Securities and Exchange Commission on March 30, 2004.

3.

The Company filed a Current Report on Form 8-K on February 6, 2004. The Form 8-K reported that in accordance with “Item 5. Other Events and Regulation FD Disclosure”, on February 6, 2004, Champion Parts, Inc. entered into an amendment to the Loan and Security Agreement with Congress Financial Corporation extending the maturity date of its revolving line of credit and its term loans from February 8, 2004 to May 8, 2004.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CHAMPION PARTS, INC.

(Registrant)

Date:   May 12, 2004

                                                                        By:    /s/  Jerry A. Bragiel

                                                                             Jerry A. Bragiel

                                                                             President, Chief Executive Officer   

                                                                        By:   /s/  Richard W. Simmons

                                                                             Richard W. Simmons

                                                                             Vice President Finance, Chief Financial Officer

                                                                             and Secretary

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 Exhibit 31.1

SECTION 302 OFFICERS CERTIFICATION

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Exhibit 31.2

SECTION 302 OFFICERS CERTIFICATION

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Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PERSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Champion Parts, Inc., (the “Company”) on Form 10-Q for the quarter ended March 28, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jerry A. Bragiel, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to Champion Parts, Inc. and will be retained by Champion Parts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32.2

CERTIFICATION PERSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PERSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Champion Parts, Inc.  (the “Company”) on Form 10-Q for the quarter ended March 28, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard W. Simmons, Vice President Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to Champion Parts, Inc. and will be retained by Champion Parts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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