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, 1998 .............................

[   ]          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) 451-8575 ..........
                           (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, 5,969,903 outstanding as of August 10, 1998 ....
<PAGE>
                         Champion Financial Corporation
                                      Index

<TABLE>
<CAPTION>
Part I:  Financial Information

         Item 1.  Financial Statements
<S>                                                                                           <C>
                  Consolidated Balance Sheets as of June 30, 1998 and March 31, 1998.......... 3

                  Consolidated Statements of Operations for the Three Months ended June 30,
                  1998 and 1997 .............................................................. 4

                  Consolidated Statements of Cash Flows for the Three Months ended June
                  30, 1998 and 1997 .......................................................... 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 ................................................................. 14
</TABLE>
                                       2
<PAGE>
                         CHAMPION FINANCIAL CORPORATION
                                AND SUBSIDIARIES
                          Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                               June 30,
                                                                                                 1998        March 31,
                                                                                              (UNAUDITED)      1998
                                                                                              -----------   -----------
                                                Assets
<S>                                                                                           <C>           <C>        
Current assets:
  Cash and cash equivalents                                                                   $    38,908   $   199,466
  Trade accounts receivable, less allowance for doubtful accounts of $332,111                   2,474,149     2,512,446
   at 6/30/98 and $250,000 at 3/31/98
  Other current assets                                                                            107,911        69,126
                                                                                              -----------   -----------
            Total current assets                                                                2,620,968     2,781,038
                                                                                              -----------   -----------

Property and equipment, net                                                                     2,687,222     2,851,957
Investment in healthcare technology company                                                       309,626       309,626
Intangibles, net of accumulated amortization of $262,219 at 6/30/98 and $146,030 at 3/31/98     8,890,276     9,006,465
Other assets, at cost                                                                             436,243       499,577
                                                                                              -----------   -----------
                                                                                              $14,944,335   $15,448,663
                                                                                              ===========   ===========


                                 Liabilities and Shareholders' Equity

Current liabilities:
  Accounts payable                                                                            $   910,113   $ 1,163,741
  Accrued expenses                                                                              1,687,981     2,269,678
  Current portion of long-term debt                                                               550,000       400,000
  Note payable                                                                                    200,000       200,000
                                                                                              -----------   -----------
          Total current liabilities                                                             3,348,094     4,033,419
                                                                                              -----------   -----------

Line of credit                                                                                    500,000       300,000
Long-term debt                                                                                  5,950,000     6,100,000
                                                                                              -----------   -----------
          Total liabilities                                                                   $ 9,798,094   $10,433,419


Shareholders' equity:
   Common stock, $.001 par value 100,000,000 shares authorized, 5,955,802 shares
      issued and outstanding at June 30, 1998 and 5,855,802 at March 31, 1998                       5,956         5,856
   Additional paid -in- capital                                                                 4,646,493     4,617,015
   Retained earnings                                                                              493,792       392,373
                                                                                              -----------   -----------
         Total shareholders' equity                                                             5,146,241     5,015,244

                                                                                              -----------   -----------
         Total liabilities and shareholders' equity                                           $14,944,335   $15,448,663
                                                                                              ===========   ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
                                       3
<PAGE>
                         CHAMPION FINANCIAL CORPORATION
                                AND SUBSIDIARIES
          Consolidated Statements of Operations and Retained Earnings
                                  (Unaudited)

                                              Three Months Ended
                                                    June 30,
                                            -----------------------
                                               1998         1997
                                            ----------   ----------
Revenues:
   Capitated fees                           $2,731,436   $  138,976
   Repricing fees                            1,801,479      578,442
   Other fees                                  196,970        5,590
                                            ----------   ----------
                                             4,729,885      723,008
                                            ----------   ----------

Operating expenses:
   Cost of services                            702,868      282,917
   Salaries and wages                        2,029,672      228,129
   General and administrative                1,391,469      157,036
   Depreciation and amortization               289,114       13,538
   Interest expense                            160,343         --
                                            ----------   ----------
                                             4,573,466      681,620
                                            ----------   ----------

Earnings before income taxes                   156,419       41,388

Income tax                                      55,000       10,000
                                            ----------   ----------

             Net earnings                      101,419       31,388

Retained earnings at beginning of quarter      392,373       88,268
                                            ----------   ----------

Retained earnings at end of quarter            493,792      119,656
                                            ==========   ==========

Earnings per share-Basic                    $     0.02   $     0.01
                                            ==========   ==========

Weighted average shares outstanding-Basic    5,955,802    5,473,302
                                            ==========   ==========


See accompanying notes to unaudited consolidated financial statements.
                                       4
<PAGE>
                         Champion Financial Corporation
                     Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                 Three Months Ended June 30,
                                                                                 ---------------------------
                                                                                     1998          1997
                                                                                   ---------    ---------
<S>                                                                                <C>          <C>      
Operating activities:
   Net earnings                                                                    $ 101,419    $  31,388
   Adjustments to reconcile net income to net cash provided by
   operating activities:
   Depreciation and amortization                                                     289,114       13,538
   Bad debt expense                                                                   82,111         --
   Interest expense on debentures                                                     29,578         --
   Increase (decrease) in cash resulting from changes in operating  
     assets and liabilities:
     Trade accounts receivable                                                       (43,814)     (29,405)
     Other current assets                                                            (38,785)      (5,698)
     Accounts payable                                                               (253,628)     (80,148)
     Accrued expenses                                                               (581,697)     (17,035)
     Deferred revenue                                                                   --        (48,909)
                                                                                   ---------    ---------
         Net cash provided by (used in) operating activities                        (415,702)    (136,269)
                                                                                   ---------    ---------

Investing activities:
   Purchases of equipment                                                             (8,190)     (11,600)
   Preaquisition cost                                                                   --         (7,711)
   Investment in healthcare technology company                                          --       (309,626)
                                                                                   ---------    ---------
        Net cash provided by (used in) investing activities                           (8,190)    (328,937)
                                                                                   ---------    ---------

Financing activities:
   Decrease in other assets                                                           63,334         --
   Payments on note payable                                                             --        (24,340)
   Net proceeds from line of credit                                                  200,000         --
                                                                                   ---------    ---------
         Net cash provided by (used in) financing activities                         263,334      (24,340)
                                                                                   ---------    ---------

Net decrease in cash and cash equivalents                                           (160,558)    (489,546)

Cash and cash equivalents at beginning of quarter                                  $ 199,466    $ 896,096
                                                                                   ---------    ---------

Cash and cash equivalents at end of period                                         $  38,908    $ 406,550
                                                                                   =========    =========
</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

       Basis of Presentation

       The accompanying  unaudited consolidated financial statements of Champion
       Financial  Corporation and Subsidiaries  have been prepared in accordance
       with  generally  accepted  accounting  principles  for interim  financial
       information  and pursuant to rules and  regulations of the Securities and
       Exchange  Commission.  Accordingly,  they  do  not  include  all  of  the
       information  and  footnotes  required by  generally  accepted  accounting
       principles  for a  complete  financial  statement  presentation.  In  the
       opinion of management  such unaudited  interim  information  reflects all
       adjustments,  consisting only of normal recurring adjustments,  necessary
       to present the Company's financial position and results of operations for
       the periods presented.  The results of operations for interim periods are
       not  necessarily  indicative  of the  results to be  expected  for a full
       fiscal  year.  The  consolidated  Balance  Sheet as of March 31, 1998 was
       derived from audited  consolidated  financial  statements as of that date
       but does not  include  all the  information  and  footnotes  required  by
       generally  accepted  accounting  principles.  It is suggested  that these
       consolidated  financial  statements  be  read  in  conjunction  with  the
       Company's  audited  consolidated  financial  statements  included  in the
       Company's Annual Report Form 10-KSB, for the year ended March 31, 1998.

       Description of Business

       Champion  Financial   Corporation  is  a  healthcare  management  company
       dedicated to  controlling  the cost,  improving the quality and enhancing
       the delivery of healthcare  services.  The Company also provides  related
       products and services  designed to reduce  healthcare  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  healthcare  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.

       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.

       Cash Equivalents

       The  Company  considers  all  highly  liquid  instruments  with  original
       maturities of three months or less to be cash equivalents.

       Earnings Per Share

       The Company adopted  Statement of Accounting  Standards No. 128 "Earnings
       per Share"  (SFAS 128) during  1997.  The  Company's  Earnings per Common
       Share (EPS) figures for the prior period were not effected by adoption of
       SFAS 128. In accordance  with SFAS 128, basic EPS is computed by dividing
       net income,  after deducting  preferred stock dividends  requirements (if
       any),  by  the  weighted   average  number  of  shares  of  common  stock
       outstanding.
                                       6
<PAGE>
                         CHAMPION FINANCIAL CORPORATION
                                AND SUBSIDIARIES

         Notes to Unaudited Consolidated Financial Statements, Continued


       Diluted EPS reflects the maximum  dilution that would result after giving
       effect  to  dilutive  stock  options  and  warrants  and to  the  assumed
       conversion of all dilutive convertible securities and stock.

       For  purposes  of  the  diluted  earnings  per  share  calculation,   the
       convertible debentures had an antidilutive effect.

       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.  The recorded  balance of long-term  debt
       approximates  fair  value,  as the terms of the debt are similar to rates
       currently offered to the Company for similar debt instruments.

       Revenue Recognition

       Repricing  fees are derived from a negotiated  percentage  of the medical
       savings generated from customer claims managed by the Company or on a per
       member per month basis.  The percentage of savings fees are recognized as
       revenue as the Company  renders  services  and  notifies  the health care
       provider of their required  billings  reduction for a specified period of
       time. The Company receives monthly  capitation fees based upon the number
       of each customer's members regardless of services actually provided.

       Cost of Services

       The major components of cost of services  consist of utilization  review,
       case management and external marketing commissions.

       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 seven years for
       furniture and fixtures. Computer software is amortized over three to five
       years.

       Intangibles

       Intangibles, which represent the excess of purchase price over fair value
       of net tangible assets acquired,  are amortized on a straight-line  basis
       over the  expected  periods  to be  benefited,  generally  20 years.  The
       Company assesses the  recoverability  of intangible assets by determining
       whether the  amortization of the  intangibles  over their remaining lives
       can be recovered through  undiscounted future operating cash flows of the
       acquired  operation.  The amount of  intangible  impairment,  if any,  is
       measured based on projected  discounted future operating cash flows using
       a discount  rate  reflecting  the  Company's  average cost of funds.  The
       assessment  of the  recoverability  of  intangibles  will be  impacted if
       estimated future operating cash flows are not achieved.
                                       7
<PAGE>
                         CHAMPION FINANCIAL CORPORATION
                                AND SUBSIDIARIES

         Notes to Unaudited Consolidated Financial Statements, Continued


       Income Taxes

       The  Company  accounts  for income  taxes  under the asset and  liability
       method. Deferred tax assets and liabilities are recognized for the future
       tax  consequences  attributable  to  differences  between  the  financial
       statement  carrying  amounts of existing assets and liabilities and their
       respective  tax bases and  operating  loss and tax credit  carryforwards.
       Deferred tax assets and  liabilities are measured using enacted tax rates
       expected to apply to taxable income in the years in which those temporary
       differences  are  expected  to be  recovered  or  settled.  The effect on
       deferred  tax  assets  and  liabilities  of a  change  in  tax  rates  is
       recognized in income in the period that includes the enactment date.

       A valuation  allowance must be established to reduce  deferred income tax
       benefits  if it is more  likely  than not that a portion of the  deferred
       income tax benefits will not be realized. It is management's opinion that
       the entire  deferred tax benefit may not be  recognized  in future years.
       Therefore,  a valuation  allowance  equal to the deferred tax benefit has
       been established.

       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  exceed  the fair value of the
       assets.

       Year 2000

       Management  has developed a plan to address the Year 2000 problem and all
       computer  systems  are in the  process  of  conversion  to be  Year  2000
       compliant. The Year 2000 problem is the result of computer programs being
       written using two digits rather than four digits to define the applicable
       year.  The total cost of the project is not  material  and the Company is
       expensing all associated costs as they are incurred.


(3)    Property and Equipment

       A summary of property and equipment by major  classification  at June 30,
       1998 follows:


                   Furniture and fixtures     $   790,025  
                   Computer software              608,000  
                   Equipment                    1,750,672  
                                              -----------  
                                                3,148,697  
                   Accumulated depreciation      (461,475) 
                                              -----------  
                                                           
                                              $ 2,687,222  
                                              ===========  
                                       8
<PAGE>
                         CHAMPION FINANCIAL CORPORATION
                                AND SUBSIDIARIES


         Notes to Unaudited Consolidated Financial Statements, Continued


(4)    Debt

       The Company  maintains a $1,500,000  line of credit with Harris Trust and
       Savings  Bank.  The line of credit bears  interest at prime (8.5% at June
       30, 1998). The line is  collateralized by substantially all the assets of
       the  Company.  There were  $500,000 in  borrowings  against  this line of
       credit at June 30, 1998.

<TABLE>
<CAPTION>
       Debt consists of the following at June 30, 1998:
<S>                                                                                          <C>              
           8% Series A Senior Subordinated Convertible Debentures due 
             December 3, 1999 in an aggregate principal amount, interest payable
             quarterly                                                                       $       4,000,000

           Note payable to Harris Trust and Savings Bank due on December 14,
             2000, with quarterly principal payments ranging from $100,000 -
             $150,000 plus interest on the unpaid balance at prime (8.5% at June
             30, 1998), secured by substantially all the assets of the Company                       2,500,000

           Unsecured note payable to an individual, interest payable monthly at 
             8%, due December 15, 1998                                                                 200,000
                                                                                                ------------------
                                                                                                     6,700,000
           Less current maturities                                                                     750,000
                                                                                                ------------------
                                                                                             $       5,950,000
                                                                                                ==================



(5)    Accrued Expenses

       A summary of accrued expenses at June 30, 1998 follows:

           Salaries and benefits                                                             $         623,605
           Professional fees                                                                           275,470
           Income taxes                                                                                 33,300
           Transaction and restructuring costs                                                         138,997
           Interest                                                                                     63,648
           Other                                                                                       552,961
                                                                                                ------------------

                                                                                             $       1,687,981
                                                                                                ==================
</TABLE>
(6)    Common Stock Transaction

       During the quarter ended June 30, 1998, the Company agreed to issue 9,101
       shares of common  stock  valued at $29,578  (market  value) for  interest
       payments due on convertible  debentures.  This is in accordance  with the
       terms of the convertible debenture agreement.  These shares are reflected
       in additional paid in capital.
                                       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 June 30, 1998 and the year ended March 31, 1998
contained in the Company's  Form 10-KSB filed with the  Securities  and Exchange
Commission on June 29, 1998.

The managed healthcare cost containment  industry is highly  fragmented,  with a
large  number of  competitors.  The  Company  does not  believe  that any single
company  commands  significant  market  share.  The  management  of the  Company
believes the level of competition will continue to increase in the future.  Most
of the Company's  competitors  are national  managed care  providers,  insurance
companies,  HMOs, and third-party administrators that have implemented their own
managed  care  programs.   Several  large   insurance   companies  for  workers'
compensation,   health  and   automobile   have  also   implemented   their  own
cost-containment  programs  through the  carrier's  own  personnel.  Many of the
Company's current and potential  competitors are  significantly  larger and have
greater  financial,  technical,  marketing,  and  management  resources than the
Company.

The Company competes on the basis of its specialized  knowledge and expertise in
the managed healthcare services industry and on its ability to deliver effective
services to the customer  with a high level of customer  satisfaction  at a very
affordable  price.  There can be no  assurance  that the Company will be able to
compete   successfully.   The  managed   healthcare   industry  has  experienced
significant changes in recent years,  primarily as a result of rising healthcare
costs.  The Company will be required to respond to various  competitive  factors
affecting the healthcare  industry,  including new medical technologies that may
be introduced;  general trends  relating to the demand for healthcare  services;
regulatory,  economic,  and political factors;  changes in patient demographics;
and competitive pricing strategies by HMOs and other healthcare plans.

Results of Operations

         When  comparing  the Company's  financial  results for the three months
ended June 30, 1998 to the three months ended June 30, 1997,  it is important to
note that the  majority of the increase in the level of revenues and expenses is
due  primarily to the  Company's  acquisition  of  HealthStar,  Inc.,  which was
completed on December 15, 1997.

Revenue

         The Company  derives the  majority of its revenue  from fees charged to
clients  for  access to the  Company's  network  of  contracted  providers.  The
Company's  client base consists of a variety of payors of medical claims such as
insurance  companies,  third-party  administrators  and self-insured  employers.
Access fees can be either a fixed,  monthly fee per enrolled subscriber which is
called a  capitated  fee or can be based on a  percentage  of the  amount of the
discount off of billed  charges which is granted by a contracted  provider.  The
Company's  participation  in the amount  saved  varies  from 20% to 25% with the
exact amount determined by contractual provisions with the Company's clients.

         Total revenue  increased  $4,006,877 to $4,729,885 for the three months
ended  June 30,  1998  compared  to  $723,008  for the three  months  ended June
30,1997,  an increase of 554%. The increase was a result of operations  from the
newly  acquired  subsidiary  HealthStar,  Inc..  Revenues for the Company's NHBC
division were unchanged from prior year's levels.
                                       10
<PAGE>
Operating Expenses

         Cost of services  includes the cost of outsourcing  the case management
and utilization review functions, commissions paid to outside brokers, fees paid
to other regional PPO networks for access to providers not  contracted  directly
with the Company and other  products and services  provided by outside  vendors.
Cost of services  increased $419,951 to $702,868 for the three months ended June
30,  1998  from  $282,917  in 1997.  The  entire  increase  is  attributable  to
HealthStar  and is  primarily  related  to the  cost  of  outsourcing  the  case
management and utilization review functions. As a percentage of revenue, cost of
services  decreased from 39.1% in 1997 to 14.9% in 1998. This margin improvement
is a result of the fact  that  HealthStar  contracts  directly  with  healthcare
providers which limits the fees paid to access other PPO networks.

         Salaries and wages includes all employee compensation including payroll
taxes,  health  insurance  and  other  employee  benefits.   Also  included  are
commissions paid to in-house sales and marketing  personnel.  Salaries and wages
increased  $1,801,543  from  $228,129 for the three months ended June 30,1997 to
$2,029,672 for the comparable period in 1998. Approximately $1.7 million of this
increase is due to the addition of HealthStar.  Other factors include the hiring
of additional  administrative  personnel and related expenses to accommodate the
increase in business and future growth.

         General  and  administrative   expenses  include  all  other  operating
expenses  such as  telephone  charges,  office  supplies,  postage,  travel  and
entertainment,  professional fees,  insurance,  rent and utilities.  General and
administrative expenses increased $1,234,433 from $157,036 in 1997 to $1,391,469
in 1998.  The majority of this increase is due to the addition of HealthStar and
legal  expenses  incurred by the  Company  for the  lawsuit  filed in March 1998
against the holders of the convertible debentures.

         Depreciation  and  amortization  increased  significantly  due  to  the
goodwill  created  as a  result  of  the  HealthStar  acquisition.  Goodwill  of
approximately $9,000,000 is being amortized over 20 years.

         Interest expense of $160,343 relates to the indebtedness  incurred as a
result of the  HealthStar  acquisition.  The interest rate on the Company's term
loan and line of credit  was 8.5% at June 30,  1998.  The  interest  rate on the
convertible debentures is 8.0%, and the interest rate on the seller note payable
is 8.0%.  Approximately  $64,000 is due to the amortization of prepaid financing
costs related to the  convertible  debentures  and the Harris Bank term loan and
line of credit.

         Net income for the three months ended June 30, 1998  increased  $70,031
or 223% from  $31,388 in June 30,  1997.  Net income was  impacted  adversely by
$150,000  in legal fees  incurred  for the  lawsuit  against  the holders of the
convertible  debentures.  Earnings per share for the three months ended June 30,
1998 was $0.02 compared to $0.01 for the three months ended June 30, 1997.

Liquidity and Capital Resources

         The Company has  historically  funded its working capital  requirements
and capital  expenditures  primarily from cash flow  generated  from  operations
supplemented by borrowings under the Company's line of credit.

         The Company had  approximately  $39,000 in cash and cash equivalents at
June 30, 1998.
                                       11
<PAGE>
         In connection  with the  acquisition of HealthStar,  the Company issued
$4,000,000 Series A 8% Senior Subordinated  Convertible  Redeemable  debentures.
The entire  proceeds of the issuance  and the  debentures  were  utilized in the
acquisition. Beginning on January 17, 1998, the debentures were convertible into
common shares of the Company's  stock based upon a formula related to the market
price of the stock.  In the event that the entire amount of the debentures  have
not  been  converted  prior  to the  maturity  date of  December  3,  1999,  the
debentures  will  automatically  convert to common  shares of the Company on the
said maturity date.

         Also in connection  with the  acquisition  of  HealthStar,  the Company
secured a $1,500,000 line of credit with Harris Trust and Savings Bank. The line
of credit  bears  interest  at the Prime  rate  (8.5% at March 31,  1998) and is
secured by substantially all of the assets of Champion and its subsidiaries.  At
June 30, 1998, the Company had borrowed $500,000 on the line of credit,  and had
approximately $750,000 of additional borrowing capacity available.

         Although  there  can  be  no  assurances,  management  of  the  Company
anticipates  growth and  expansion to continue 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 may be required in conjunction  with any such acquisition  activity.  There
can be no  assurance  that the Company may be able to obtain such funds on terms
acceptable  to the Company.  Management  currently  believes  that cash on hand,
amounts  available  under the revolving  line of credit and cash  generated from
future  operations  will be  sufficient  to fund the  Company's  operations  and
anticipated expansion plans.

Legal Proceedings

         In March 1998,  the  Company,  as assignee  of a  shareholder,  filed a
lawsuit in U.S.  District Court in Arizona,  alleging that a Canadian  brokerage
firm,  among  others,  perpetrated  a "scheme  and  conspiracy  to  defraud"  by
"manipulating  the market in  Champion  common  stock."  The suit  names  Thomas
Kernaghan & Co.  Ltd.;  Ronald G.  Williams;  Sheldon D. Taiger;  London  Select
Enterprises Ltd.; Select Capital Advisors, Inc.; Mark Valentine; and Bronia GmbH
as defendants.  The complaint alleges that the defendants manipulated the market
in and for Company's common stock and, more particularly  artificially depressed
the price at which the  Company's  common  stock  traded,  resulting in damages,
including  to the  business  and  reputation  of  the  Company.  Certain  of the
defendants have filed motions to stay and/or dismiss the lawsuit.

         Additionally, Thomson Kernaghan & Co. LTD and Bronia GmbH have filed an
arbitration  proceeding  against  the  Company  with  the  American  Arbitration
Association in New York City,  claiming that the Company  "wrongfully refused to
honor their  request to convert"  certain  debentures  into common  stock of the
Company.  The relief sought against the Company is to convert certain debentures
into common stock of the Company and for "liquidated and punitive damages."

         From time to time,  the  Company  is named as a  defendant  in  routine
litigation  incidental  to its  business.  Based  on the  information  currently
available,   the  Company  believes  that  none  of  such  current  proceedings,
individually  or in the  aggregate,  will have a material  adverse effect on the
Company.
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<PAGE>
New Accounting Standards

         Statement of Financial  Accounting  Standards  No. 130,  "Reporting  of
Comprehensive  Income"  establishes  standards  for  reporting  and  display  of
comprehensive  income  (all  changes  in  equity  during a period  except  those
resulting from investments by and distributions to owners) and its components in
financial  statements.  The  adoption  of this  statement  contains no change in
disclosure requirements for the Company.

         Statement of Financial  Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise  and Related  Information"  establishes  standards for
reporting  information about operating segments in annual financial  statements,
selected  information about operating  segments in interim financial reports and
disclosures  about products and services,  geographic area and major  customers.
This  pronouncement  will be required to be  implemented in the year ended March
31, 1999 and may result in presenting more detailed  information in the notes to
the Company's consolidated financial statements.
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<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:  August 10, 1998 BY:                    BY:/S/ STEPHEN J. CARDER

                                                     STEPHEN J. CARDER
                                                     PRESIDENT

                                                     CHIEF EXECUTIVE OFFICER
                                                     AND PRINCIPAL EXECUTIVE AND
                                                     FINANCIAL OFFICER
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