U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended......September 30, 1997..........................
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from .................. to ..................
Commission file number ............0-19499 ............
.................Champion Financial Corporation..................
(Exact name of small business issuer as
specified in its charter)
Utah 88-0169547
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
9495 E. San Salvador Drive
Scottsdale, Arizona 85258
(Address of principal executive offices)
...........(602) 614-4285 ..........
(Issuer's telephone number)
.......................................................................
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date: .......Common stock, $0.001 par
value, 5,473,302 outstanding as of October 28, 1997 ....
1
<PAGE>
Champion Financial Corporation
Index
<TABLE>
<CAPTION>
Part I: Financial Information
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997 and March 31, 1997 ........3
Consolidated Statements of Operations and Retained Earnings for the Three
Months and Six Months ended September 30, 1997 and 1996 ........................4
Consolidated Statements of Cash Flows for the Six Months ended September
30, 1997 and 1996 ..............................................................5
Notes to Unaudited Consolidated Financial Statements ...........................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations .................................................................10
Part II: Other Information
Exhibits - None
Signatures ...................................................................12
</TABLE>
2
<PAGE>
CHAMPION FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
1997 March 31,
(UNAUDITED) 1997
------------- ----------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 363,275 $ 896,096
Trade accounts receivable, less allowance for doubtful accounts of $15,000 300,659 250,795
Other current assets 16,761 14,415
---------- ----------
Total current assets 680,695 1,161,306
---------- ----------
Property and equipment, net (note 2) 162,993 158,109
Investment in healthcare technology company(note 3) 309,626 --
Other assets, at cost 104,509 89,795
---------- ----------
$1,257,823 $1,409,210
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 165,774 $ 267,351
Accrued expenses(note 4) 66,950 89,972
Note payable -- 24,340
Deferred revenue -- 58,909
---------- ----------
Total current liabilities 232,724 440,572
Shareholders' equity:
Common stock, $.001 par value 100,000,000 shares authorized, 5,473,302 shares
issued and outstanding 5,473 5,473
Additional paid -in- capital 874,897 874,897
Retained earnings 144,729 88,268
---------- ----------
Total shareholders' equity 1,025,099 968,638
---------- ----------
Total liabilities and shareholders' equity $1,257,823 $1,409,210
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
CHAMPION FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Repricing fees $ 565,847 $ 423,277 $ 1,144,291 $ 813,768
Member fees 99,094 66,815 238,070 142,743
Other fees 4,995 10,585 --
----------- ----------- ----------- -----------
669,936 490,092 1,392,946 956,511
----------- ----------- ----------- -----------
Costs of service:
PPO network fees 155,615 194,385 332,632 355,655
Commissions 82,598 48,530 182,615 85,070
Billing refunds 3,824 13,719 7,352 17,341
Contact lens purchases 3,108 3,773 5,575 4,829
Other -- (112) --
----------- ----------- ----------- -----------
245,145 260,407 528,062 462,895
----------- ----------- ----------- -----------
Gross profit from operations 424,791 229,685 864,884 493,616
----------- ----------- ----------- -----------
General and administrative expenses:
Wages and related 240,113 163,545 468,242 244,745
Other operating 144,904 123,117 301,942 219,953
Depreciation 12,800 6,000 24,437 9,000
Amortization 1,901 300 3,802 600
----------- ----------- ----------- -----------
399,718 292,962 798,423 474,298
----------- ----------- ----------- -----------
Earnings before income taxes 25,073 (63,277) 66,461 19,318
Income taxes(note 5) 10,000
----------- ----------- ----------- -----------
Net earnings $ 25,073 $ (63,277) $ 56,461 $ 19,318
Retained earnings at beginning of period 119,656 167,496 88,268 84,901
----------- ----------- ----------- -----------
Retained earnings at end of period 144,729 104,219 144,729 104,219
=========== =========== =========== ===========
Earnings(loss) per share $ 0.01 $ (0.03) $ 0.01 $ 0.01
=========== =========== =========== ===========
Weighted average shares outstanding 5,473,302 2,200,000 5,473,302 2,200,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
CHANPION FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1997 1996
--------- ---------
<S> <C> <C>
Operating activities:
Net earnings $ 56,461 $ 19,318
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 24,437 9,000
Amortization 3,802 600
Changes in operating assets and liabilities:
Increase in trade accounts receivable (49,864) (3,300)
Increase in other current assets (2,346) (31,577)
Increase(decrease) in accounts payable (101,577) 1,254
Increase(decrease) in accrued expenses (23,022) 26,596
Increase line of credit -- 15,000
Decrease in deferred revenue (58,909) --
--------- ---------
Net cash provided by (used in) operating activities (151,018) 36,891
--------- ---------
Investing activities:
Purchases of equipment (29,321) (29,180)
Preaquisition cost (18,516) --
Investment in healthcare technology company (309,626) --
--------- ---------
Net cash provided by (used in) investing activities (357,463) (29,180)
--------- ---------
Financing activities:
Payoff on note payable (24,340) --
--------- ---------
Net cash provided by (used in) financing activities (24,340) --
--------- ---------
Net decrease in cash and cash equivalents (532,821) 7,711
Cash and cash equivalents at beginning of year $ 896,096 $ 34,577
--------- ---------
Cash and cash equivalents at end of period $ 363,275 $ 42,288
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
CHAMPION FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Description of Business
Champion Financial Corporation is a health care management company
dedicated to controlling the costs, improving the quality and enhancing the
delivery of health care services. The Company also provides related
products and services designed to reduce health care costs. The Company
markets and provides programs and services to insurance companies,
self-insured businesses for their medical plans and third parties that
administer employee medical plans. These programs and services assist its
clients in reducing health care costs for group health plans and for
workers' compensation coverage and automobile accident injury claims.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Results of
operations during interim periods are not necessarily indications of annual
operating results.
Principles of Consolidation
The consolidated financial statements include the financial statements of
the Company and its two wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation. The excess of purchase price over fair value of assets
required is amortized on a straight-line basis over a ten-year period.
Cash Equivalents
Cash equivalents of $363,275 at September 30, 1997 consist of money market
accounts with the Company's primary financial institution. The Company
considers all highly liquid instruments with original maturities of three
months or less to be cash equivalents.
Earnings (Loss) per Share
Earnings (loss) per share are based upon the weighted average number of
shares of common stock. There are no significant dilutive factors
outstanding.
6
<PAGE>
CHAMPION FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties. Management believes that the recorded amounts of current assets
and current liabilities approximate fair value because of the short
maturity of these instruments.
Business and Credit Concentration
The Company operates in a very competitive market. Its success is dependent
upon the ability of its marketing group to continue to identify and
contract with insurance companies and self-funded companies. The Company's
customers are located throughout the United States. Four customers
accounted for the majority of the company's revenues.
Revenue Recognition
Repricing fees are derived from a negotiated percentage of the medical
savings generated from customer claims managed by the Company. These fees
are recognized as revenue when the Company notifies the health care
provider of their required billing reduction. PPO network fees are paid to
regional providers, who are not contracted directly with the company for
access to their networks. Commissions are paid to external and internal
brokers based upon a percentage of fees generated.
Member fees are derived from companies that purchase annual memberships in
the FAVS program. The membership fees are received at the inception of the
annual contract; revenue is deferred at that point and recognized on a
straight-line basis over the 12-month period.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets,
which approximates three years for equipment to five years for furniture
and fixtures.
7
<PAGE>
CHAMPION FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Impairment of Long-Lived Assets
Management reviews the possible impairment of long-lived assets and certain
identifiable intangible assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
(2) Property and Equipment
A summary of property and equipment by major classification at September
30, 1997 follows:
Furniture and fixtures $ 90,721
Equipment 137,868
---------
228,589
Accumulated depreciation (65,596)
---------
$ 162,993
=========
(3) Investment in Healthcare Technology Company
In May 1997, the company paid $309,626 to purchase a 12.4% interest in
Hayes, Inc. which is involved in the healthcare technology business. Hayes
is involved in the creation of new research technology methods for
hospitals and physicians. The investment in the common stock of Hayes is
accounted for by the cost method.
8
<PAGE>
CHAMPION FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(4) Accrued Expenses
A summary of accrued expenses at September 30, 1997 follows:
Commission $16,000
Audit Fees 12,000
Income taxes 25,000
Paid time off 10,000
Other 3,950
-------
$66,950
=======
(5) Income Taxes
At September 30, 1997, the Company has available net operating loss
carryforwards of approximately $500,000 and capital loss carryforwards of
approximately $1,000,000. There are certain limitations and restrictions on
the use of these losses; however, management expects to fully offset
federal income taxes in the current fiscal year. State and local taxes are
recognized as incurred.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the financial statements and
footnotes for the quarter ended September 30, 1997 and the year ended March 31,
1997 contained in the Company's Form 10-K filed with the Securities and Exchange
Commission on June 27, 1997.
RESULTS OF OPERATIONS
The company's consolidated revenues for the quarter ended September 30, 1997
were $669,936 compared to $490,092 for the quarter ended September 30, 1996, an
increase of $179,844 or 37%. Net revenues for the six months ended September 30,
1997 increased $436,435 or 46% to $1,392,946, compared to $956,511 for the six
months ended September 30, 1996.
The company had net earnings of $25,073 in the quarter ended September 30, 1997
compared to a net loss of $63,277 for the quarter ended September 30, 1996, an
increase of $88,350 or 352%. Net earnings for the six months ended September 30,
1997 increased $37,143 or 52% to $56,461, compared to $19,318 for the six months
ended September 30, 1996.
COSTS OF SERVICE
The company's costs of service consist primarily of access fees paid to regional
PPO networks for providers not contracted directly with the company, commissions
paid to outside brokers and in-house marketing personnel and other services and
products provided by outside vendors. Costs of service decreased 6% in the
quarter, to $245,145 compared with $260,407 in the quarter ended September 30,
1996. Costs of service for the six months ended September 30, 1997 increased 14%
to $528,062 compared with $462,895 in the quarter ended September 30, 1996.
Costs of service as a percentage of revenue for the six months ended September
30, 1997, decreased to 38% from 48% from the six months ended September 30,
1996. The improvement is the result of the company's ongoing effort to contract
directly with the health care facilities and providers, thereby reducing network
provider access fees as a percentage of revenue.
10
<PAGE>
GENERAL AND ADMINISTATIVE EXPENSES
For the quarter ended September 30, 1997, general and administrative expenses
were $399,718 compared to $292,962 for the quarter ended September 30, 1996.
General and administrative expenses for the six months ended September 30, 1997
were $798,423 compared with $474,298 for the six months ended September 30,
1996. This increase was due primarily to expenses for additional management and
administrative personnel to accommodate the increase in business and expected
growth. The company expects general and administrative expenses to increase in
future periods.
LIQUIDITY & CAPITAL RESOURCES
The Company has an $80,000 secured line of credit with Norwest Bank of Arizona.
The line of credit bears interest at prime plus 2% and is secured by the
Company's accounts receivable and furniture and equipment.
The Company has historically funded its working capital requirements and capital
expenditures primarily from cash flow generated from operations supplemented by
short-term borrowings under the Company's line of credit.
At September 30, 1997 working capital was $447,971 which include cash
equivalents of $363,275. During this fiscal year, the company paid $309,626 for
a 12.4% investment in Hayes, Inc.
Although there can be no assurances, management of the Company anticipates
growth and expansion to accelerate in 1998 through the acquisition of
complementary businesses or business lines, management personnel and
infrastructure additions. The Company believes additional sources of cash flow
will be required, in addition to funds from the operations, in order to
accomplish its long-term strategies. There can be no assurance that the Company
will be able to obtain such funds on terms acceptable to the Company.
11
<PAGE>
CHAMPION FINANCIAL CORPORATION
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 Financial Corporation
DATE: OCTOBER 28, 1997 BY: BY:/S/ STEPHEN J. CARDER
STEPHEN J. CARDER
EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
AND TREASURER
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1997, AND STATEMENT OF INCOME FOR THE SIX MONTHS
ENDING SEPTEMBER 30, 1997, OF CHAMPION FINANCIAL CORPORATION AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 363,275
<SECURITIES> 0
<RECEIVABLES> 300,659
<ALLOWANCES> 15,000
<INVENTORY> 0
<CURRENT-ASSETS> 680,695
<PP&E> 228,589
<DEPRECIATION> (65,596)
<TOTAL-ASSETS> 1,257,823
<CURRENT-LIABILITIES> 232,724
<BONDS> 0
0
0
<COMMON> 5,473
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 1,392,946
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 528,062
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 66,461
<INCOME-TAX> 10,000
<INCOME-CONTINUING> 56,461
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,461
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
