-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oi14RB6n3FhWATol1ABrlM52x4yyr0MPzo/h5QXIxHod9ImbWoShlaat6S7iiNYD gJ26REfakfLtJCtoGnOO/g== 0000950147-97-000796.txt : 19971117 0000950147-97-000796.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950147-97-000796 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAMPION FINANCIAL CORP /MD/ CENTRAL INDEX KEY: 0000877050 STANDARD INDUSTRIAL CLASSIFICATION: PERIODICALS: PUBLISHING OR PUBLISHING AND PRINTING [2721] IRS NUMBER: 521949024 STATE OF INCORPORATION: UT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-19499 FILM NUMBER: 97717956 BUSINESS ADDRESS: STREET 1: 19 HILLSYDE COURT STREET 2: STE 1820 CITY: COCKEYSVILLE STATE: MD ZIP: 21030 BUSINESS PHONE: 4106280050 MAIL ADDRESS: STREET 1: 19 HILLSYDE COURT CITY: COCKEYSVILLE STATE: MD ZIP: 21030 10QSB 1 QUARTERLY REPORT 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 Champion Financial Corporation Index
Part I: Financial Information 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
2 CHAMPION FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets
September 30, 1997 March 31, (UNAUDITED) 1997 ------------- ---------- Assets 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 ========== ==========
See accompanying notes to unaudited consolidated financial statements. 3 CHAMPION FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended Six Months Ended September 30, September 30, ------------------------- ------------------------- 1997 1996 1997 1996 ----------- ----------- ----------- ----------- 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 =========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements. 4 CHANPION FINANCIAL CORPORATION Consolidated Statements of Cash Flows
Six Months Ended September 30, ------------------------------ 1997 1996 --------- --------- 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 ========= =========
See accompanying notes to unaudited consolidated financial statements. 5 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 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 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 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 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 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 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 EX-27 2 FINANCIAL DATA SCHEDULE
5 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. 1 U.S. Dollars 6-MOS MAR-31-1998 APR-01-1997 SEP-30-1997 1 363,275 0 300,659 15,000 0 680,695 228,589 (65,596) 1,257,823 232,724 0 0 0 5,473 0 0 0 1,392,946 0 0 528,062 15,000 0 66,461 10,000 56,461 0 0 0 56,461 0.01 0.01
-----END PRIVACY-ENHANCED MESSAGE-----