SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 8-K/A
AMMENDMENT NO. 1 TO FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 14, 1997
-------------------------
Champion Financial Corporation
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(Exact name of registrant as specified in its charter)
UTAH 0-19499 88-0169547
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
9495 East San Salvador Drive, Scottsdale, Arizona 85258
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 614-4285
-----------------------
This document is a copy of the form 8-K/A amendment No. 1 filed on April 1, 1997
pursuant to rule 201 temporary hardship exemption.
<PAGE>
Champion Financial Corporation, a Utah Corporation, hereby amends Item 7 of its
report on Form 8-K dated January 14, 1997.
Item 7. Financial Statements
(a) Financial Statements
Report of Independent Auditors
<PAGE>
Audited Financial Statements
National Property Casualty
Corporation
December 31, 1996
<PAGE>
National Property Casualty Corporation
Financial Statements
Year ended December 31, 1996
Contents
Report of Independent Auditors ................................................1
Audited Financial Statements
Balance Sheets ................................................................2
Statements of Operations and Changes in Retained Earnings .....................3
Statements of Cash Flows ......................................................4
Notes to Financial Statements .................................................5
<PAGE>
Report of Independent Auditors
The Board of Directors
National Property Casualty Corporation
We have audited the accompanying balance sheets of National Property Casualty
Corporation as of December 31, 1996 and 1995 and the related statements of
operations and changes in retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of National Property Casualty
Corporation at December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Phoenix, Arizona
March 6, 1997
1
<PAGE>
National Property Casualty Corporation
Balance Sheets
<TABLE>
<CAPTION>
December 31
1996 1995
------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 4,164 $ 1,462
Accounts receivable, less allowance for doubtful accounts of
$15,000 in 1996 and $-0- in 1995 (Note 4) 218,370 96,686
------------------------------------
Total current assets 222,534 98,148
Equipment, net (Note 3) 39,639 19,756
Other 10,157 5,539
------------------------------------
Total assets $272,330 $123,443
====================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 97,138 $ 73,768
Line of credit (Note 4) 60,000 10,000
Accrued expenses (Note 5) 73,797 15,087
Deferred revenue (Note 6) 58,909 -
------------------------------------
Total current liabilities 289,844 98,855
Shareholders' equity:
Common stock, no par value
1,000,000 shares authorized, 10,000 shares issued and
outstanding
10,000 10,000
Retained earnings (deficit) (27,514) 14,588
------------------------------------
Total shareholders' equity (deficit) (17,514) 24,588
------------------------------------
Total liabilities and shareholders' equity $272,330 $123,443
====================================
</TABLE>
See accompanying notes.
2
<PAGE>
National Property Casualty Corporation
Statements of Operations and Changes in Retained Earnings
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995
------------------------------------
<S> <C> <C>
Revenues:
Repricing fees $1,632,903 $ 888,933
Member fees 200,012 44,784
------------------------------------
1,832,915 933,717
Cost of sales:
PPO network fees 666,305 436,211
Commissions 207,741 51,172
------------------------------------
Revenues less cost of sales 958,869 446,334
Expenses:
Wages and related 536,127 256,891
Other operating 339,719 111,992
Depreciation 22,000 6,000
Interest 3,125 1,614
------------------------------------
Total expenses 900,971 376,497
Net income 57,898 69,837
Retained earnings (deficit) at beginning of year 14,588 (55,249)
Distribution to shareholders (100,000) -
------------------------------------
Retained earnings (deficit) at end of year $ (27,514) $ 14,588
====================================
</TABLE>
See accompanying notes.
3
<PAGE>
National Property Casualty Corporation
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995
------------------------------------
<S> <C> <C>
Operating activities
Net income $ 57,898 $ 69,837
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 22,000 6,000
Changes in operating assets and liabilities:
Increase in accounts receivable (121,684) (96,686)
Increase in accounts payable 23,370 73,768
Increase in accrued expenses 58,710 15,087
Increase in deferred revenue 58,909 -
------------------------------------
Net cash provided by operating activities 99,203 68,006
Investing activities
Purchases of equipment (41,883) (21,591)
------------------------------------
Net cash used in investing activities (41,883) (21,591)
Financing activities
Increase in other assets (4,618) (4,717)
Increase in line of credit 50,000 10,000
Decrease in shareholder note payable - (50,236)
Distribution to shareholders (100,000) -
------------------------------------
Net cash used in financing activities (54,618) (44,953)
------------------------------------
Net increase in cash 2,702 1,462
Cash at beginning of year 1,462 -
------------------------------------
Cash at end of year $ 4,164 $ 1,462
====================================
Supplemental financial disclosure
Interest paid $ 3,125 $ 1,614
</TABLE>
See accompanying notes.
4
<PAGE>
National Property Casualty Corporation
Notes to Financial Statements
December 31, 1996
1. Description of Business
National Property Casualty Corporation (the Company) began operations in
September 1994, and provides management of health care services and workers'
compensation claims for property and casualty companies. The Company also
operates a point of sale vision care program, First American Vision Services
(FAVS), which permits members to purchase eye wear at a reduced price from its
vision network providers, and a chiropractic network designed to assist property
and casualty insurance companies in the reduction of costs associated with soft
tissue claims.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Repricing Fees
Repricing fees are based on a percentage of the medical savings generated from
medical and workers compensation claims managed by the Company.
Equipment
Equipment is stated at cost. Depreciation is computed using the straight line
method over the estimated useful life of the respective assets which
approximates three to five years.
Revenue
Revenue is concentrated from four major customers who contributed the following
proportions to repricing fees in 1996:
Employers Health Insurance 27%
State Farm Insurance 21
Health Claim Services 14
Prudential Property and Casualty 11
5
<PAGE>
National Property Casualty Corporation
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Income Taxes
The Company elected and has been granted S Corporation status under the
regulations of the Internal Revenue Service. Consequently, the Company's taxable
income is passed through to its shareholders, and the accompanying financial
statements do not reflect a provision for income taxes or deferred tax assets or
liabilities.
3. Equipment
A summary of equipment by major classification, at of December 31, follows:
1996 1995
-------------- --------------
Furniture and fixtures $ 5,973 $ 5,973
Equipment 61,722 19,839
-------------- --------------
67,695 25,812
Accumulated depreciation (28,056) (6,056)
-------------- --------------
$ 39,639 $ 19,756
============== ==============
4. Line of Credit
In 1996, the Company maintained a line of credit with a financial institution of
which $60,000 was outstanding as of December 31, 1996. The line of credit bears
interest at prime plus 2 percent and matures on May 1, 1997. The line is
collateralized by the Company's accounts receivable and is guaranteed by the
Company's shareholders.
5. Accrued Expenses
A summary of accrued expenses at December 31, follows:
1996 1995
-------------- --------------
Payroll $ 23,163 $ 10,686
Commission 26,227 -
Paid time off 10,000 -
Other 14,407 4,401
============== ==============
$ 73,797 $ 15,087
============== ==============
6
<PAGE>
National Property Casualty Corporation
Notes to Financial Statements (continued)
6. Deferred Revenue
The Company receives annual membership fees through contracts entered into with
the FAVS program. The membership fees are received at the inception of the
annual contracts, and revenue is deferred and recognized over the life of the
contracts, on a straight line basis.
7. Related Party Transactions
In 1996, the Company made lease payments totaling $14,310 on behalf of a company
which is wholly owned by a shareholder of the Company, and $11,133 on behalf of
a shareholder of the Company.
8. Commitments and Contingencies
Leases
Future minimum lease payments at December 31, 1996, by year and in the
aggregate, under noncancelable operating lease arrangements with initial or
remaining terms of one year or more consist of the following:
1997 $127,884
1998 127,884
1999 42,628
---------------
$298,396
===============
Amounts charged to expense for operating leases totaled $73,252 in 1996 and
$13,505 in 1995.
9. Subsequent Event
Effective January 1, 1997, the outstanding stock of the Company was merged into
National Health Benefits and Casualty Corporation, a Nevada Corporation, owned
by the same shareholders of the Company.
Effective January 14, 1997, all of the outstanding stock of National Health
Benefit and Casualty Corporation was acquired by Champion Financial Corporation.
7
<PAGE>
(b) Pro Forma Financial Information
Unaudited Pro Forma Condensed Combined Statements of
Operations
On January 14, 1997, Champion Financial Corporation or the ("Company")
acquired 100% of the outstanding common stock of National Health Benefits &
Casualty Corporation ("NHBC"). Prior to the acquisition, National Property
Casualty Corporation ("NPCC"), a subchapter S. Corporation was merged into NHBC
as of January 1, 1997. NHBC was organized as a Delaware Corporation in July
1996. The sole stockholders of NHBC are the sole shareholders of NPCC. There
were no operations of NHBC until January 1, 1997, when NPCC was merged into
NHBC. The following Unaudited Pro Forma Condensed Combined Statements of Income
and Unaudited Pro Forma Condensed Balance Sheet have been prepared as if the
Acquisition of NHBC and merger of NPCC had been consummated at the beginning of
the period presented.
The pro forma information is based on the historical statements of
operations of the acquired business giving effect to the transaction under the
purchase method of accounting and the assumptions and adjustments described in
the accompanying notes.
The Unaudited Pro Forma Condensed Combined Financial Statements do not
purport to present the financial condition and results of operations of the
company had the business combination taken place on the date specified, nor are
they necessarily indicative of the results of operations that may be achieved in
the future.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Unadjusted Combined
CFC NPCC NHBC Total Adjustments Total
---------- ---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash $ 4,164 $ 4,164 $ 4,164
Prepaid Expenses 0 0
Accounts Receivable 218,370 218,370 218,370
---------- ---------- --------- ---------- ----------- ----------
Total Current assets 0 222,534 0 222,534 0 222,534
Property and Equipment
Office furniture and equipment 80,629 67,695 148,324 148,324
Less: Accumulated depreciation (15,975) (28,056) (44,031) (44,031)
---------- ---------- --------- ---------- ----------- ----------
Net Property and Equipment 64,654 39,639 0 104,293 0 104,293
Other Assets
Loan receivable and investments 4,400 4,400 4,400
Security Deposits 10,157 10,157 10,157
Organizational costs 1,100 1,100 1,100
Pre-acquisition costs 113,952 113,952 113,952
Assembled and trained work force B) 100,000 100,000
Goodwill B) 1,400,778 1,400,778
---------- ---------- --------- ---------- ----------- ----------
Total Other Assets 118,352 10,157 1,100 129,609 1,500,778 1,630,387
Total Assets $ 183,006 $ 272,330 $ 1,100 $ 456,436 $ 1,500,778 $1,957,214
========== ========== ========= ========== =========== ==========
Liabilities and shareholders' equity
Current liabilities:
Accounts Payable $ 148,230 $ 97,138 245,368 $ 245,368
Due to NPCC 100 100 A) (100) 0
Current portion of note payable- related party 8,709 8,709 8,709
Accrued expenses 31,907 31,907 31,907
Income tax payable D) 54,000 54,000
Payroll taxes payable 23,163 23,163 23,163
Line of credit 60,000 60,000 60,000
---------- ---------- --------- ---------- ----------- ----------
Total Current liabilities 156,939 212,208 100 369,247 53,900 423,147
Long Term Debt
Long-term portion of note payable-related party 15,631 0 15,631 0 15,631
---------- ---------- --------- ---------- ----------- ----------
Total Liabilities 172,570 212,208 100 384,878 53,900 438,778
Shareholders' equity:
Retained earnings(Deficit) (2,577,742) (85,412) (2,663,154) B) (50,122) (2,713,276)
Common stock 2,819 10,000 1,000 13,819 A) (10,000) 5,019
0 B) 1,200
Additional paid-in capital 2,584,450 2,584,450 A) 10,100 4,144,250
0 B) (10,100)
0 B) 1,559,800
Net Income 909 135,534 136,443 D) (54,000) 82,443
---------- ---------- --------- ---------- ----------- ----------
Total Equity(Deficit) 10,436 60,122 1,000 71,558 1,446,878 1,518,436
Total Liabilities & Equity $ 183,006 $ 272,330 $ 1,100 $ 456,436 $ 1,500,778 $1,957,214
========== ========== ========= ========== =========== ==========
</TABLE>
Page 1
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Unadjusted Pro Forma Combined
CFC NPCC NHBC Total Adjustments Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Repricing fees $ 1,632,903 $ 1,632,903 $ 1,632,903
Member fees 258,921 258,921 258,921
----------- ----------- ----------- ----------- ----------- -----------
$ 0 1,891,824 $ 0 1,891,824 -- 1,891,824
Cost of sales:
PPO network fees 666,305 666,305 666,305
Facility refunds 34,746 34,746 34,746
Contact lense purchases 8,391 8,391 8,391
Commissions 145,877 145,877 145,877
----------- ----------- ----------- ----------- ----------- -----------
Revenues less cost of sales 0 1,036,505 0 1,036,505 -- 1,036,505
Expenses:
Wages and related 570,330 570,330 570,330
Consulting and Professional 46,311 46,311 46,311
Occupancy and office expense 2,328 73,252 75,580 75,580
Other operating 233,579 233,579 233,579
Depreciation 6,847 22,000 28,847 28,847
Amortization C) 82,000 82,000
----------- ----------- ----------- ----------- ----------- -----------
Total expenses 55,486 899,161 0 954,647 82,000 1,036,647
Other Income (Expense)
Forgiveness of debt 58,087 58,087 58,087
Interest income 1,315 1,315 1,315
Interest and other investment expense (1,692) (3,125) (4,817) (4,817)
----------- ----------- ----------- ----------- ----------- -----------
Net other income 56,395 (1,810) 0 54,585 -- 54,585
----------- ----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes 909 135,534 0 136,443 (82,000) 54,443
Provision for Income Taxes D) 54,000 54,000
----------- ----------- ----------- ----------- ----------- -----------
Net Income(Loss) $ 909 $ 135,534 $ 0 $ 136,443 $ (180,078) $ (7,596)
=========== =========== =========== =========== =========== ===========
Net Income(Loss) Per Share $ (.003)
===========
Weighted Average Shares Outstanding 2,819,302
</TABLE>
Page 1
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Balance Sheets and Statements of
Operations
Note 1 Pro Forma Adjustments
a) On January 1, 1997, NPCC was merged into NHBC.
b) On January 14, 1997, Champion Financial acquired 100%
of the capital stock in NHBC through an exchange of
2,200,000 shares, $0.001 par value, of Champion
stock. The business combination has been accounted
for utilizing the purchase method. The NHBC assets
acquired and liabilities assumed were recorded at
their estimated fair market values. The excess of the
purchase price over the fair value of net assets
acquired is allocated to goodwill and assembled work
force. Goodwill is being amortized over twenty years
and the assembled work force is being amortized over
five years.
c) The excess of $1,500,778 purchase price over the net
assets acquired was recorded in the amount of
$1,400,778 as goodwill. Such amortization amounts to
approximately $70,000 annually, or $67,000 for the
nine month period ended December 31, 1996. The
remaining excess of $100,000 of the purchase price
over the net assets acquired recorded as assembled
work force intangible asset being amortized over five
years. Such amortization is $20,000 annually, or
$15,000 for the nine month period ended December 31,
1996.
d) Estimated provision for income taxes related to pro
forma adjustments are based on an assumed combined
federal and state income tax rate of 40%.
<PAGE>
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 hereunto duly authorized.
CHAMPION FINANCIAL CORPORATION
March 28, 1997 By /s/ Paul F. Caliendo
----------------------------------
Paul F. Caliendo
President and Chief Executive Officer
