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, 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, 6,769,903 outstanding as of November 12, 1998.
<PAGE>
                         Champion Financial Corporation
                                      Index



Part I: Financial Information

        Item 1. Financial Statements

                Consolidated Balance Sheets as of September 30, 1998
                and March 31, 1998...........................................  3

                Consolidated Statements of Operations for the Three 
                Months and Six Months Ended September 30, 1998 and 1997......  4

                Consolidated Statements of Cash Flows for the
                Six Months Ended September 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

        Item 4.  Submission of Matters to a Vote of Security Holders......... 14

        Exhibits - None

        Signatures........................................................... 15



                                        2
<PAGE>
                         CHAMPION FINANCIAL CORPORATION
                                AND SUBSIDIARIES
                          Consolidated Balance Sheets

                                                   September 30,      March 31,
                                                       1998             1998
                                                   -----------       -----------
                                                    (UNAUDITED)
                                     Assets

Current assets:
  Cash and cash equivalents                        $   157,350      $   199,466
  Trade accounts receivable, less
   allowance for doubtful accounts of
   $101,777 and $250,000, respectively               2,370,657        2,512,446
  Other current assets                                  91,072           69,126
                                                   -----------      -----------
      Total current assets                           2,619,079        2,781,038
                                                   -----------      -----------

Property and equipment, net                          2,785,973        2,851,957
Investment in healthcare technology company            309,626          309,626
Intangibles, net of accumulated amortization
  of $378,407 and $146,030, respectively             8,774,088        9,006,465
Other assets, at cost                                   86,810          499,577
                                                   -----------      -----------
                                                   $14,575,576      $15,448,663
                                                   ===========      ===========

                      Liabilities and Shareholders' Equity

Current liabilities:
  Accounts payable                                 $ 1,181,580      $ 1,163,741
  Accrued expenses                                   1,750,817        2,269,678
  Current portion of long-term debt                    475,000          400,000
  Note payable                                         200,000          200,000
                                                   -----------      -----------
      Total current liabilities                      3,607,397        4,033,419
                                                   -----------      -----------

Line of credit                                         450,000          300,000
Long-term debt                                       2,825,000        6,100,000
                                                   -----------      -----------
      Total liabilities                            $ 6,882,397      $10,433,419

Shareholders' equity:
  Common stock, $.001 par value 100,000,000
   shares authorized, 6,769,903 shares issued
   and outstanding at September 30, 1998 and
   5,855,802 at March 31, 1998                           6,770            5,856
  Additional paid-in-capital                         7,148,179        4,617,015
  Retained earnings                                    538,230          392,373
                                                   -----------      -----------
      Total shareholders' equity                     7,693,179        5,015,244
                                                   -----------      -----------

      Total liabilities and shareholders' equity   $14,575,576      $15,448,663
                                                   ===========      ===========

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,
                                       ----------------------   ----------------------
                                          1998         1997        1998        1997
                                          ----         ----        ----        ----
<S>                                    <C>         <C>          <C>         <C>
Revenues:
  Capitated fees                       $2,498,772  $   99,094   $5,230,208  $  238,070
  Repricing fees                        1,842,609     565,847    3,644,088   1,144,291
  Other fees                              155,075       4,995      352,045      10,585
                                       ----------  ----------   ----------  ----------
                                        4,496,456     669,936    9,226,341   1,392,946
                                       ----------  ----------   ----------  ----------
Operating expenses:
  Cost of services                        578,906     245,145    1,281,774     528,062
  Salaries and wages                    2,036,600     240,113    4,066,272     468,242
  General and administrative            1,439,378     144,904    2,830,847     301,942
  Depreciation and amortization           293,185      14,701      582,299      28,239
  Interest expense                         88,949          --      249,292          --
                                       ----------  ----------   ----------  ----------
                                        4,437,018     644,863    9,010,484   1,326,485
                                       ----------  ----------   ----------  ----------

Earnings before income taxes               59,438      25,073      215,857      66,461

Income tax                                 15,000          --       70,000      10,000
                                       ----------  ----------   ----------  ----------

      Net earnings                         44,438      25,073      145,857      56,461

Retained earnings at beginning of
  period                                  493,792     119,656      392,373      88,268
                                       ----------  ----------   ----------  ----------

Retained earnings at end of period        538,230     144,729      538,230     144,729
                                       ==========  ==========   ==========  ==========

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

Weighted average shares outstanding-
  Basic and Diluted                     6,230,772   5,473,302    6,126,661   5,473,302
                                       ==========  ==========   ==========  ==========
Proforma adjusted earnings per share
  for anticipated reverse stock split  $     0.01  $     0.01   $     0.05  $     0.02
                                       ==========  ==========   ==========  ==========
Adjusted weighted average shares
  outstanding                           3,115,386   2,736,651    3,063,331   2,736,651
                                       ==========  ==========   ==========  ==========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       4
<PAGE>
                         Champion Financial Corporation
                     Consolidated Statements of Cash Flows

                                                  Six Months Ended September 30,
                                                  ------------------------------
                                                      1998             1997
                                                      ----             ----
Operating activities:
  Net earnings                                    $  145,857        $  56,461
  Adjustments to reconcile net income to net
  cash provided by operating activities:
  Depreciation and amortization                      582,299           28,239
  Bad debt expense                                    90,000               --
  Stock-based employee compensation                   15,000
  Interest expense on debentures                      29,578               --
  Increase (decrease) in cash resulting from
   changes in operating assets and liabilities:
   Trade accounts receivable                          51,789          (49,864)
   Other current assets                              (21,946)          (2,346)
   Accounts payable                                   17,839         (101,577)
   Accrued expenses                                 (518,861)         (23,022)
   Deferred revenue                                       --          (58,909)
                                                  ----------        ---------
      Net cash provided by (used in)
        operating activities                         391,555         (151,018)
                                                  ----------        ---------
Investing activities:
  Purchases of equipment                            (289,051)         (29,321)
  Proceeds from the sale of equipment                  5,113               --
  Preaquisition cost                                      --          (18,516)
  Investment in healthcare technology company             --         (309,626)
                                                  ----------        ---------
      Net cash provided by (used in)
        investing activities                        (283,938)        (357,463)
                                                  ----------        ---------
Financing activities:
  Increase in other assets                           (99,733)              --
  Payments on long term debt                        (200,000)              --
  Net proceeds(payments) from line of credit         150,000          (24,340)
                                                  ----------        ---------
      Net cash provided by (used in)
        financing activities                        (149,733)         (24,340)
                                                  ----------        ---------

Net decrease in cash and cash equivalents            (42,116)        (532,821)

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

Cash and cash equivalents at end of period        $  157,350        $ 363,275
                                                  ==========        =========
Supplemental schedule of noncash financing
activities:
  Settlement on convertible debenture              3,000,000
                                                  ==========
  Issuance of common stock                         2,532,078
                                                  ==========

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  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

    The Company receives  monthly  capitation fees based upon the number of each
    customer's members regardless of services actually provided.  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.

    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.

(2) PROPERTY AND EQUIPMENT

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

       Furniture and fixtures                        $  905,908
       Computer software                                602,077
       Equipment                                      1,916,461
                                                     ----------
                                                      3,424,446
       Accumulated depreciation                        (638,473)
                                                     ----------
                                                     $2,785,973
                                                     ==========

                                       8
<PAGE>
                         CHAMPION FINANCIAL CORPORATION
                                AND SUBSIDIARIES
         Notes to Unaudited Consolidated Financial Statements, Continued


(3) 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 September
    30, 1998). The line is collateralized by substantially all the assets of the
    Company.  There were $450,000 in  borrowings  against this line of credit at
    September 30, 1998.

    In  connection  with the  acquisition  of  HealthStar,  the  Company  issued
    $4,000,000   Series  A  8%  Senior   Subordinated   Convertible   Redeemable
    debentures.  On August 31, 1998, $3,000,000 of the debentures were converted
    into 800,000 shares of common stock and  $1,000,000 of the  debentures  were
    converted into a promissory note.


    Debt consists of the following at September 30, 1998:

       8% Convertible Promissory Note due March 31, 1999               1,000,000

       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 September 30, 1998),
         secured by substantially all the assets of the Company        2,300,000

       Unsecured note payable to an individual, interest payable
         monthly at 8%, due December 15, 1998                            200,000
                                                                      ----------
                                                                       3,500,000
       Less current maturities                                           675,000
                                                                      ----------
                                                                      $2,825,000
                                                                      ==========
(4) ACCRUED EXPENSES

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

       Salaries and benefits                                          $  758,603
       Professional fees                                                 296,593
       Income taxes                                                       44,735
       Transaction and restructuring costs                                41,596
       Other                                                             609,290
                                                                      ----------
                                                                      $1,750,817
                                                                      ==========
(5) REVERSE STOCK SPLIT

    On October 8, 1998, at the annual shareholders  meeting of the Company,  the
    shareholders  approved  a 1for  2  reverse  stock  split  of  the  Company's
    outstanding common stock to be effective on November 16, 1998. The effect of
    the reverse stock split is reflected in proforma earnings per share.

                                       9
<PAGE>
ITEM2. 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, 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 and six months
ended  September 30, 1998 to the three and six months ended  September 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 $3,826,520 to $4,496,456 for the three months ended
September  30, 1998  compared to $669,936 for the three  months ended  September
30,1997,  an increase of 571%.  Total revenue for the six months ended September
30, 1998 increased $7,833,395 or 562% to $9,226,341,  compared to $1,392,946 for
the six months ended September 30, 1997. The increase was a result of operations

                                       10
<PAGE>
from the newly acquired subsidiary  HealthStar,  Inc. Revenues for the Company's
NHBC division were unchanged from prior year's levels.

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 $333,761 to $578,906 for the three months ended September 30,
1998 from $245,145 in 1997.  Cost of services for the six months ended September
30, 1998  increased  $753,712  to  $1,281,774  compared to $528,062  for the six
months  ended  September  30,  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 for the six months ended  September 30, 1998 decreased from 38% in 1997
to 14% 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.  For the quarter
ended  September  30,  1998,  salaries  and wages were  $2,036,600  compared  to
$240,113 for the quarter ended  September  30, 1997, an increase of  $1,796,487.
For the six  months  ended  September  30,  1998  salaries  and wages  increased
$3,598,030  to  $4,066,272  from  $468,242.  Approximately  $1.7 million of this
increase  is due to the  addition  of  HealthStar  for the  three  months  ended
September  30, 1998 and $3.4  million of the  increase  for the six months ended
September 30, 1998.

     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.  For  the  quarter  ended
September 30, 1998, general and administrative expenses were $1,439,378 compared
to $144,904 for the quarter ended September 30, 1997. General and administrative
expenses for the six months ended  September 30, 1998 were  $2,830,847  compared
with $301,942 for the six months ended  September 30, 1997. 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.

     For  the  three  months  ended   September  30,  1998,   depreciation   and
amortization  increased  $278,484 to $293,185  from $14,701 for the three months
ended  September  30,  1997.  For the  six  months  ended  September  30,  1998,
depreciation  and  amortization  was $582,299  compared with $28,239 for the six
months ended  September  30, 1997,  an increase of  $554,060.  This  significant
increase is due to goodwill  created as a result of the HealthStar  acquisition.
Goodwill of approximately $9,000,000 is being amortized over 20 years.

     For the quarter ended  September 30, 1998,  the Company  incurred  interest
expense of $88,949.  The  Company's  interest  expense for the six months  ended
September 30, 1998 was $249,292.  Interest  expense 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  September  30,  1998.  The
interest rate on the convertible  promissory note is 8.0%, and the interest rate
on the seller note payable is 8.0%.

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<PAGE>
     Net  earnings  for the three  months  ended  September  30, 1998  increased
$19,365 or 77% to $44,438 from $25,073 in the quarter ended  September 30, 1997.
For the six months ended September 30, 1998, net earnings  increased  $89,396 to
$145,857 or 158%,  compared to $56,461 for the six months  ended  September  30,
1997.

YEAR 2000

     The Company  has started  reviewing,  modifying,  and testing its  computer
applications  to  ensure  their  functionality  with  respect  to the Year  2000
changes. At present,  the Company does not anticipate that material  incremental
costs will be incurred in any single future year.  The Company is also dependent
on its contracting  medical providers and payer clients to successfully  address
their  respective  Year 2000  technology  issues in connection with their claims
processing  functions.  The Company has not determined whether such providers or
clients  face Year  2000  problems  that if not  resolved,  may have a  material
adverse affect on the Company's business or results of operations.

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  $157,350  in cash and cash  equivalents  at
September 30, 1998.

     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. Due to certain matters and litigation  related to assertions
made by the debenture holders, the Company entered into a settlement  agreement.
Under the  terms of that  agreement,  on  August  31,  1998,  $3,000,000  of the
debentures  were converted into 800,000 shares of common stock and $1,000,000 of
the debentures  were converted into a promissory note with the same terms as the
original  debentures.  The net effect of the settlement was essentially the same
as under the  original  terms of the  debentures.  The Company has the option to
make  principal  payments on the debenture as part of the  settlement  agreement
with the debenture  holders.  If principal payments are not made by the Company,
the settlement  agreement  reverts back to the conversion  terms of the original
debenture agreement.

     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  September  30,  1998) and is
secured by substantially all of the assets of Champion and its subsidiaries.  At
September 30, 1998, the Company had borrowed $450,000 on the line of credit, and
due to a bank  covenant  restriction  had  approximately  $500,000 of additional
availability.

     Although there can be no assurances,  management of the Company anticipates
growth and expansion to continue to accelerate through fiscal year 1999 with 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.

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<PAGE>
LEGAL PROCEEDINGS

     On August 31,  1998,  the Company  settled and  resolved  its  disputes and
misunderstandings   with   Thomson   Kernaghan   &   Co.,   Ltd.,   and   Bronia
Gmbh (collectively referred to as "Thomson"). The Company dismissed Thomson from
the lawsuit filed by the Company  against  Thomson in Federal  District Court in
Arizona, and Thomson has dismissed its arbitration  proceeding commenced against
the Company in New York.

     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>

PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders.

     (a)  The 1998 Annual Meeting of Stockholders of the Company was held on
          Thursday, October 8, 1998.

     (b)  Not applicable, pursuant to Instruction 3 to Item 4 of this
          Form 10-QSB.

     (c)  A description of the matters voted upon at the meeting along with
          an indication of the results of the votes on such matters are set
          forth below:

          1.   To adopt the 1998 Stock Option  Plan:  For:  3,807,333;  Against:
               1,120,090; Abstentions: 6,706.

          2.   To adopt the 1998 Employee Stock Purchase Plan:  For:  3,434,211;
               Against: 1,479,462; Abstention: 20,456.

          3.   To approve a reverse  stock  split of the  Company's  outstanding
               common stock: For:  4,753,904;  Against:  1,685,795;  Abstention:
               6,264.

          4.   To  approve  the  reincorporation  of the  Company  from  Utah to
               Delaware: For: 4,870,250; Against: 58,805; Abstention: 6,526.

          5.   To ratify  KPMG Peat  Marwick  LLP as the  Company's  independent
               auditors  for  the  fiscal  year  ending  March  31,  1999:  For:
               6,394,467; Against: 32,290; Abstentions: 20,766.

     (d)  Not applicable.

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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: November 12, 1998                      BY: /s/ STEPHEN J. CARDER
                                                --------------------------------
                                                     STEPHEN J. CARDER
                                                     PRESIDENT
                                                     CHIEF EXECUTIVE OFFICER
                                                     AND PRINCIPAL EXECUTIVE AND
                                                     FINANCIAL OFFICER



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