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 ......June 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 August 11, 1997 ....
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<PAGE>
Champion Financial Corporation
Index
Part I: Financial Information
Item 1. Financial Statements
Balance Sheets as of June 30, 1997 and March 31, 1997 . . . .3
Statements of Operations for the three months ended
June 30, 1997 and June 30, 1996 . . . . . . . . . . . . . . . 4
Statements of Cash Flows for the three months ended
June 30, 1997 and June 30, 1996 . . . . . . . . . . . . . . . .5
Notes to Unaudited Consolidated Financial Statements. . . . . .6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . 9
Part II: Other Information
Exhibits - None
Signatures . . . . . . . . . . . . . . . . . . . . . . . . .11
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<PAGE>
<TABLE>
<CAPTION>
CHAMPION FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30,
1997 March 31,
(UNAUDITED) 1997
----------- ----------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 406,550 $ 896,096
Trade accounts receivable, less allowance for doubtful accounts of $15,000 280,200 250,795
Other current assets 20,113 14,415
---------- ----------
Total current assets 706,863 1,161,306
---------- ----------
Property and equipment, net (note 2) 158,072 158,109
Investment in healthcare technology company 309,626 --
Other assets, at cost 95,605 89,795
---------- ----------
$1,270,166 $1,409,210
========== ==========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 187,203 $ 267,351
Accrued expenses 72,937 89,972
Note payable -- 24,340
Deferred revenue 10,000 58,909
---------- ----------
Total current liabilities 270,140 440,572
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 119,656 88,268
---------- ----------
Total shareholders' equity 1,000,026 968,638
---------- ----------
Total Liabilities and shareholders' equity $1,270,166 $1,409,210
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
CHAMPION FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings and Retained Earnings
For the Three Months Ended, June 30, 1997 and 1996
(Unaudited)
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Repricing fees $ 578,442 $ 390,491
Member fees 138,976 75,928
Other fees 5,590 --
----------- -----------
723,008 466,419
----------- -----------
Cost of services:
PPO network fees 177,017 161,270
Commissions 100,017 36,540
Billing refunds 3,528 3,622
Contact lens purchases 2,467 1,056
Other (112) --
----------- -----------
282,917 202,488
----------- -----------
Gross profit from operations 440,091 263,931
----------- -----------
General and administrative expenses:
Wages and related 228,129 81,200
Other operating 157,036 96,836
Depreciation 11,637 3,000
Amortization 1,901 300
----------- -----------
398,703 181,336
----------- -----------
Earnings before income taxes 41,388 82,595
Income tax 10,000 --
----------- -----------
Net earnings $ 31,388 $ 82,595
Retained earnings(accumulated deficit) at beginning of quarter 88,268 84,901
----------- -----------
Retained earnings at end of quarter 119,656 167,496
=========== ===========
Earnings per share $ 0.01 $ 0.04
=========== ===========
Weighted average shares outstanding 5,473,302 2,200,000
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
CHAMPION FINANCIAL CORPORATION
Statements of Cash Flows
For the Three Months Endedl June 30, 1997 and 1996
(Unaudited)
1997 1996
--------- ---------
<S> <C> <C>
Operating activities:
Net earnings $ 31,388 $ 82,595
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 11,637 3,000
Amortization 1,901 300
Changes in operating assets and liabilities:
Increase in trade accounts receivable (29,405) (43,073)
Increase in other current assets (5,698) (28,792)
Decrease in accounts payable (80,148) (52,740)
Increase(decrease) in accrued expenses (17,035) 7,749
Increase line of credit -- 15,000
Decrease in deferred revenue (48,909) --
--------- ---------
Net cash provided by (used in) operating activities (136,269) (15,961)
--------- ---------
Investing activities:
Purchases of equipment (11,600) (16,686)
Preaquisition cost (7,711) --
Investment in healthcare technology company (309,626)
--------- ---------
Net cash provided by (used in) investing activities (328,937) (16,686)
--------- ---------
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 (489,546) (32,647)
Cash and cash equivalents at beginning of quarter $ 896,096 $ 34,577
--------- ---------
Cash and cash equivalents at end of quarter $ 406,550 $ 1,930
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
CHAMPION FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
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.
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.
Investments in Affiliated Companies
In May 1997, the company paid $309,626 to purchase a 12.4% investment in
Hayes, Inc. Hayes is involved in the healthcare technology business. The
investment in the common stock of Hayes is accounted for by the cost
method.
Cash Equivalents
Cash equivalents of $406,550 at June 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 per Share
Earnings per share are based upon the weighted average number of shares of
common stock. There are no significant dilutive factors outstanding.
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.
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<PAGE>
CHAMPION FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
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.
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.
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.
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<PAGE>
CHAMPION FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(2) Property and Equipment
A summary of property and equipment by major classification at June 30,
1997 follows:
Furniture and fixtures $ 66,710
Equipment 144,158
-------
210,868
Accumulated depreciation (52,796)
-------
$ 158,072
=========
(3) Note Payable
The Company's subsidiary, National Health Benefits and Casualty
Corporation, maintains an $80,000 line of credit with a financial
institution. Borrowings pursuant to the line of credit bear interest at
prime plus 2%. The line is collateralized by accounts receivable and
furniture and equipment and is guaranteed by the Company's shareholders.
There were no drawings against this line of credit at June 30, 1997.
(4) Accrued Expenses
A summary of accrued expenses at June 30, 1997 follows:
Commission $ 22,887
Audit Fees 6,000
Income taxes 25,000
Paid time off 10,000
Other 9,050
-------
$ 72,937
========
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This 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 three months ended June 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 June 30, 1997 were
$723,008 compared to $466,419 for the quarter ended June 30, 1996, an increase
of $256,589 or 55%. The revenue increase is primarily attributable to the growth
in the company's managed health care programs. The company entered into a
contract with Farmer's Insurance Group of Companies to provide health care cost
containment services throughout the United States. This contract is expected to
substantially contribute to the revenue growth in future periods.
The company had net income of $31,388 in the quarter ended June 30, 1997
compared to net income of $82,595 in the quarter ended June 30, 1996. The
decrease in net income is primarily the result of the company's additional
staffing and facilities' costs required to provide the infrastructure to
accommodate the company's anticipated future revenue growth.
COST OF SERVICES
The company's cost of services consists 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. Cost of services increased
40% in the quarter, to $282,917 compared with $202,488 in the quarter ended June
30, 1996. The increase in the company's cost of services is the direct result of
the 55% increase in revenues for the quarter. Cost of services as a percentage
of revenue for the quarter, decreased to 39% from 43% from the quarter in fiscal
year 1997. 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.
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<PAGE>
GENERAL AND ADMINISTATIVE EXPENSES
For the quarter ended June 30, 1997, general and administrative expenses were
$398,703 compared to $181,336 for the quarter ended June 30, 1996. This increase
was due primarily to expenses for additional management and administrative
personnel to accommodate the increase in business and future growth. The company
expects general and administrative expenses to increase in the future due to the
costs associated with a publicly traded entity.
LIQUIDITY & CAPITAL RESOURCES
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.
Working capital was $436,723 while cash equivalents comprised of $406,550.
During the quarter, the company used $309,626 for a 12.4% investment in Hayes.
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.
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, if at all.
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<PAGE>
Champion Financial Corporation
SIGNATURE
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: AUGUST 11, 1997 BY: BY:/S/ STEPHEN J. CARDER
STEPHEN J. CARDER
EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
AND TREASURER
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF
JUNE 30, 1997, AND STATEMENT OF INCOME FOR THE
THREE MONTHS ENDING JUNE 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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 406,550
<SECURITIES> 0
<RECEIVABLES> 280,200
<ALLOWANCES> 15,000
<INVENTORY> 0
<CURRENT-ASSETS> 706,863
<PP&E> 210,868
<DEPRECIATION> (52,796)
<TOTAL-ASSETS> 1,270,166
<CURRENT-LIABILITIES> 270,140
<BONDS> 0
0
0
<COMMON> 5,473
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 723,008
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 681,620
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 41,388
<INCOME-TAX> 10,000
<INCOME-CONTINUING> 31,388
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,388
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
