SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Mark One
[X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended April 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF
[ ] THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-17263
CHAMPIONS SPORTS, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1401755
(State or other jurisdiction of organization)
(I.R.S. Employer Identification No.)
Suite 610, 1749 Old Meadow Road, McLean, VA 22102
(Address of principal executive offices)
(Zip code)
(703) 556-3332
(Registrant's telephone number, including area code)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
Preferred Stock, par value $10.00 per share
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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
Check it there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrants's knowledge, in a definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB. [X]
For the year ended April 30, 1996, the revenues of the registrant were
$2,138,732.
The aggregate market value of the Common Stock of the Registrant held
by non-affiliates of the Registrant, based on the average bid and asked price on
July 15, 1996, was approximately $675,000.
As of July 15,1996, the Registrant had a total of 8,500,638 shares of
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
Item 1. Business
(a) Development of Business.
CHAMPIONS Sports, Inc. (the "Company" or "CSI") was
incorporated under the laws of the State of Delaware on June 4, 1985 under the
name "International Group, Inc." In September 1985, the Company completed a
public offering of 40,000,000 Units, each Unit consisting of one share of Common
Stock and warrants to purchase three shares of Common Stock, at a price of $0.01
per Unit. The net proceeds of the offering to the Company were approximately
$357,000.
On January 16, 1986, the Company acquired 100% of the
outstanding shares of CHAMPIONS Sports International, Inc. ("CSII"), in exchange
for 195,555,555 shares of the Company's Common Stock. In February, 1986,
International Group, Inc. changed its name to CHAMPIONS Sports, Inc. Between
1987 and 1988, most of the original warrants issued in September 1985 were
exercised by stockholders and consequently the Company received additional
capital of $2,356,268. On September 12, 1989, CSII was merged with and into the
Company, with the Company as the surviving corporation. In November 1991, the
Company effected a reverse split of its outstanding shares on a 1 for 100 basis.
In November 1992, the Company completed a public offering of 350,000 Shares of
Series A 12% Cumulative Convertible Preferred Stock. In March 1993, the Company
completed an exchange offer converting all, except 64,575 preferred shares, into
2,171,657 shares of common stock. Subsequently. an additional 8,500 preferred
shares have been converted into 40,035 shares of common stock.
The Company operates one Company owned CHAMPIONS Sports Bar Restaurant and
is the licensor of sixteen. Fifteen of these are licensed with Marriott
International Inc., with whom the Company has a national licensing agreement.
These CHAMPIONS are located in Marriott hotels in Boston, MA; Tampa, FL;
Atlanta, GA; Chicago, IL; Baltimore, MD; Los Angeles, CA; Portland, OR; Irvine,
CA; Springfield, MA; Orlando, FL; Charlotte, NC; Philadelphia, PA; Dubai, United
Arab Emirates; Frankfurt, Germany and Amman, Jordan. One additional CHAMPIONS,
licensed to another company, is located in Jakarta, Indonesia. The Company-owned
CHAMPIONS is located in San Antonio, TX.
(b) Description of Business.
1. Concept
CHAMPIONS is a sports theme restaurant bar whose concept combines casual
dining, sports viewing with strategic marketing and promotions. The CHAMPIONS
popularity is defined in the CHAMPIONS' motto: "Good Food, Good Times, Good
Sports." This concept is based, in large measure, on the format implemented in
the first CHAMPIONS location which opened in the Georgetown section of
Washington, D.C. in 1983. The Company does not own, operate or manage this
property nor does it receive any revenues or continuing royalties therefrom. A
strong food component has been added to the original concept so that most of the
CHAMPIONS being promoted by the Company are now full-fledged restaurants as well
as bar establishments. The current CHAMPIONS concept seeks a 60/40 division
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between food and beverage sales. The sports theme of CHAMPIONS is based upon
management's belief that sports appeals to most socio-economic, age and gender
groups worldwide. The sports atmosphere at CHAMPIONS is created by the presence
of hundreds of items of original sports memorabilia such as uniforms, sports
equipment, posters, advertising, signs, magazine covers, official programs, film
posters, and photographs from local, national and international celebrities and
sporting events, past and present. The sports decor seeks to establish a feeling
a comfort and belonging for all customers. In addition, CHAMPIONS' atmosphere is
enhanced by sports programming and viewing which is accomplished through a
network of strategically placed TV monitors designed to continuously show local,
national and international sporting events without taking away from the casual
dining experience. Although sports is a theme in CHAMPIONS restaurants it is not
the dominant factor. At the heart of the CHAMPIONS concept is the food. The
menu, which attracts guests for lunch, happy hour and dinner, appeals to those
interested in dining at a moderate price. It incorporates traditional American
cuisine as well as popular regional items. The development of CHAMPIONS has
allowed the Company to focus more on food and incorporate a full service food
operation as an integral part of the concept. CHAMPIONS' average check is about
$10.75 per person, placing it within the "casual dining" segment of the
restaurant industry. This segment seeks to attract customers who want a higher
quality of food and service than that commonly provided at "fast food" or
"family style" restaurants. The basic premise of CHAMPIONS' marketing success
today is its ability to develop a variety of promotions: contests, movie
premiers and appearances by sports and media celebrities. Although no element of
the CHAMPIONS' concept is unique, the combination of food, atmosphere, sports
memorabilia, sports viewing, marketing and promotions defines the concept.
2. Operations
As of the end of the fiscal year, the Company was
engaged in the following types of operations:
(I) Company-Owned Operations
The Company currently operates one Company-owned restaurant. This CHAMPIONS
sports bar restaurant has been in operation since 1989 and is located in the
River Center Mall in San Antonio, Texas.
San Antonio restaurant provided approximately 80% of the Company's revenues
for FY 1996, as reflected in the consolidated financial statements included
herein.
The estimated cost of opening a new CHAMPIONS sports bar restaurant is
approximately $1,000,000 to $1,300,000. Presently, the Company does not have
sufficient cash reserves to open more Company owned CHAMPIONS restaurants. The
Company is seeking additional financing and also considering possible
acquisitions or mergers to meet its longer term liquidity needs to finance its
future expansion.
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(ii) Marriott Licensed Locations
In August, 1987, the Company executed a license agreement with Marriott
authorizing Marriott to operate a CHAMPIONS sports bar restaurant in the
Marriott Copley Place Hotel in Boston, Massachusetts. The success of the Boston
Marriott's CHAMPIONS led to the execution of a master licensing agreement in
February 1988 with Marriott that enabled Marriott to open ten CHAMPIONS
locations in Marriott hotels. In August 1990, the Company executed a new
non-exclusive licensing agreement whereby the Company agreed to the acquisition
by Marriott of the rights to the "CHAMPIONS" service mark for use in over 100
specified hotels nationwide. There are presently fifteen CHAMPIONS located in
the following Marriott hotels: Boston, MA; Springfield, MA; Baltimore/Washington
Airport, MD; Atlanta, GA; Tampa, FL; Chicago O'Hare Airport, IL; Irvine, CA; Los
Angeles, CA; Portland, OR; Orlando, FL; Charlotte, NC; Philadelphia, PA; Dubai,
United Arab Emirates; Frankfurt, Germany and Amman, Jordan. During FY 1996, the
CHAMPIONS licensed locations in New York, NY and Raleigh, NC closed. Marriott is
not required to open CHAMPIONS locations in any of the listed hotels. However,
if the Company wishes to open, operate or grant a right to another to open or
operate a CHAMPIONS sports bar restaurant within a certain restricted radius of
any of the Marriott sites (which range from 1/2 to 5 miles), Marriott must
decide within three business days of notification whether to allow the CHAMPIONS
to open. If Marriott denies the Company the right to open a CHAMPIONS within a
restricted radius, then Marriott must commence a good faith build-out of a
CHAMPIONS sports bar restaurant at the applicable Marriott location within six
months. If Marriott does not commence construction within that period, Marriott
will lose its exclusive territory around that site. In fiscal year 1991, the
Company received a one-time licensing fee of $1,000,000 from Marriott. Under the
terms of the licensing agreement, which was modified effective January 1994,
Marriott is required to purchase memorabilia, for each new CHAMPIONS location in
a Marriott hotel, at certain prescribed prices. An annual fee of $6,245(with
increases pegged to the Consumer Price Index) is paid to the Company by Marriott
for each domestic Marriott CHAMPIONS location. Future international Marriott
CHAMPIONS will be paying an annual fee of $9,261 (with increases pegged to the
Consumer Price Index). The Company plans to open a CHAMPIONS in the Marriott
hotel in Beirut, Lebanon in fiscal year 1997 and is in discussions with Marriott
International, Inc. to open more locations.
It is the determination of the Company's management that the non-exclusive
Marriott licensing agreement has little, if any, effect in limiting its
expansion of Company-owned and other licensed CHAMPIONS restaurants.
Marriott hotel locations accounted for about 8.3% of the Company's revenues
for FY 1996, as reflected in the consolidated financial statements included
herein.
(iii) Other Licensed Locations
In FY 1996, the Company opened a CHAMPIONS
Sports Bar Restaurant in Jakarta, Indonesia pursuant to a licensing agreement
with Majordomo Leisure Consultants Pte, LTD. The Company also received $85,000,
in FY 1996, from Majordomo for the exclusive rights to open additional CHAMPIONS
Sports Bar Restaurants in Indonesia.
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Other licensed locations accounted for about 9.8% of the Company's revenues
for FY 1996, as reflected in the consolidated financial statements included
herein.
(iv) Franchising
In FY 1994 and continuing through FY 1996, the Company has suspended its
efforts to sell new franchises. In FY 1995, there were two franchises (Fairfax,
and Herndon, VA) in operation. Subsequent to April 30, 1995, these two
franchises closed their operations. As of the end of FY 1996, no individual or
company had the right to open a CHAMPIONS in any specific location or area in
the U.S. with the exception of the Marriott International, Inc., pursuant to
their licensing agreement with the Company.
3. Competition
The food and beverage is highly competitive, as is the business of
licensing and franchising such businesses. Most of the companies offering such
franchises are substantially larger than the Company, and have greater
resources, operating histories and experience. They include many national,
regional and local chains with more locations and larger advertising budgets.
Food and beverage businesses are also affected by changing customer tastes,
local and national economic conditions that affect spending habits, population
shifts and traffic patterns. Quality of service, attractiveness of facilities
and price are also important factors.
The popularity of the concept of sports bars has spawned a number of
companies seeking to capitalize on that market. While the Company believes that
its Champions concept is superior, there are other "sports" bar restaurants in
operation.
4. Service Mark
The Company owns the federally registered service mark "Champions" (the
"Mark"), which was issued on January 21, 1986 (Registration No. 1,379,648), for
"Discotheque Services" and for "Bar and Cocktail Lounge Services" (collectively,
the "Services"). The duration of the Champions Mark is 20 years subject to
renewal. Such registration constitutes constructive notice of the claim of
ownership to the Mark nationally and is prima facie evidence of the validity and
registration of the Mark, of the ownership of the Mark and the exclusive right
to use the Mark in interstate commerce in connection with the Services. However,
no assurance can be given that no other person has the right to use the Mark in
the United States. Any person who used that Mark or one similar thereto prior to
the date of federal registration is entitled, under trademark "common law," to
continue using that Mark in their limited geographic area of operation at the
date of such registration. If any such prior user exists and is engaged in the
same general business as that of the Company, then the Company may not use that
Mark in such geographic area. The Company maintains vigorous efforts to
ascertain the existence of others illegally using the Mark and makes every
effort to
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have them cease such infringing actions. The Company has also registered and is
in the process of registering the service mark "Champions" in a number of
foreign countries.
In the event that the Company ceases the business of marketing and managing
Champions sports bar restaurants, which is not anticipated, the Mark would
revert to Tramps Management, Inc., whose only shareholders are Michael O'Harro
and James Desmond, the founders of the original Champions concept. Messrs.
O'Harro and Desmond would then transfer to the Company all of the Common Stock
of the Company held by them at that time, if any.
5. Government Regulation
The Company has presently suspended its sale of franchises. If the Company
resumes its sale of franchises in the future, it will be subject to FTC
regulations and state laws which regulate the offer and sale of franchises and
laws regarding the franchisor - franchisee relationship.
The Company's business is subject to additional extensive federal, state
and local governmental regulations, including regulations relating to alcoholic
beverage control, public health and safety, zoning and fire codes. The failure
to obtain or retain food, liquor or other licenses would adversely affect the
operations of the Company's restaurant. While the Company has not experienced
and does not anticipate any problems in obtaining required licenses, permits or
approvals, any difficulties, delays or failures in obtaining such licenses,
permits or approvals could delay or prevent the opening of a restaurant in a
particular area. Each restaurant has appropriate licenses from regulatory
authorities to sell liquor and/or beer and wine, and each restaurant has food
service licenses from local health authorities. Licenses to sell alcoholic
beverages must be renewed annually and may be suspended or revoked at any time
for cause, including violation by the Company or its employees of any law or
regulation pertaining to alcoholic beverage control, such as those regulating
the minimum age of patrons or employees, advertising, wholesale purchasing, and
inventory control, handling and storage. However, each restaurant is operated in
accordance with standardized procedures designed to assure compliance with all
applicable codes and regulations.
The Company may be subject in certain states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment which wrongfully served alcoholic beverages to
such person. While the Company carries liquor liability coverage, a judgment
against the Company under a dram-shop statute in excess of the Company's
liability coverage, or inability to continue to obtain such insurance coverage
at reasonable costs, could have a material adverse effect on the Company.
The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.
Management believes that federal and state environmental regulations have not
had a material effect on the Company's operations, but more stringent and varied
requirements of local governmental bodies with respect to zoning, land use and
environmental factors could delay construction of new restaurants and add
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to their cost.
The Company is also subject to the Fair Labor Standards Act, the
Immigration Reform and Control Act of 1986 and various state laws governing such
matters as minimum wages, overtime, tip credits and other working conditions. A
significant number of the Company's hourly personnel are paid at rates related
to the federal minimum wage and, accordingly, increases in the minimum wage or
decreases in the allowable tip credit will increase the Company's labor cost.
6. Employees
As of April 30, 1996, the Company had 3 full-time employees in its
corporate office and 57 employees (both management & hourly) at its San Antonio
restaurant.
Item 2. Properties.
The Company is leasing, on a month to month basis, its corporate office
located at 1749 Old Meadow Road, Suite 610, McLean, VA 22102. The Company's
rental payments are $700 per month. The Company is leasing 5,289 square feet of
space for its restaurant in San Antonio, Texas pursuant to a lease which expires
in November 2004. The lease provides monthly rental payments of $16,720
including CAM charges and real estate taxes. In addition, the lease requires a
percentage of the unit's revenues at the location in excess of $1,745,000 per
year.
Item 3. Legal Proceedings.
The Company knows of no material pending legal proceedings as to which the
Company is a party or of which its properties are the subject, and no such
proceedings are known to the Company to be contemplated by governmental
authorities.
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5. Markets for Common Equity & Related Stockholder Matters.
(a) Principal Market or Markets.
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In FY 1995, the Common Stock was traded on NASDAQ SmallCap Market
(CSBR) until June 24, 1994. At that time, the Common Stock was delisted from
NASDAQ SmallCap Market for falling below the financial requirements of the
NASDAQ SmallCap Market. The Common Stock is presently trading on the OTC
Bulletin Board under the symbol CSBR. In October 1993, the series A 12%
Cumulative Convertible Preferred Stock was delisted from NASDAQ due to lack of
the required two market makers necessary for continued listing.
Common Stock
High Low
$ $
Fiscal 1996
First Quarter 5/64 1/64
Second Quarter 11/64 5/64
Third Quarter 3/32 1/16
Fourth Quarter 11/64 5/64
Fiscal 1995
First Quarter 1/4 1/16
Second Quarter 1/16 1/32
Third Quarter 1/8 1/32
Fourth Quarter 1/16 1/32
(b) Approximate Number of Holders of Common Stock and
the Preferred Stock.
The number of holders of record of the Company's common stock as of July
15, 1996, was 2,195 and the Company estimates that there are approximately 3,000
additional beneficial shareholders. There are 30 beneficial holders of the
Company's preferred stock as of July 15, 1996.
(c) Dividends. Holders of common stock are entitled to receive
such dividends as may be declared by the Company's Board of Directors. No
dividends have been paid with respect to the Company's common stock and no
dividends are anticipated to be paid in the foreseeable future. In November,
1994 and 1995, the Company's Board of Directors voted each year to defer payment
of the annual dividend of $67,290 for 1994 and $67,290 for 1995 on the Series A,
12%, Cumulative Preferred
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Stock, in order to preserve the Company's cash reserves.
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
(a) Results of Operations for Fiscal Years 1996 and 1995.
1. Revenues
For the fiscal year ended April 30, 1996, the Company's revenues were
$2,138,732 versus $2,167,396 in fiscal year 1995, a decrease of 1.3%
By component, food and beverage sales decreased 5.5% to $1,701,789 for FY
1996 compared to $1,801,258 in FY 1995. The Company's management attributes the
decrease in food and beverage sales to increased competition in the River Walk
area of San Antonio, TX where the restaurant is located which resulted in a
decline in customer volume, as there were no significant price adjustments in FY
1996. The food to beverage ratio for the San Antonio location was 62/38 in FY
1996 and 64/36 in FY 1995.
Revenues from merchandise and memorabilia sale and continuing license fees
were $244,234 for the current fiscal year compared to $312,498 in FY 1995. Sales
of memorabilia are directly tied to the number of new Champions locations which
open during the fiscal year. The Company provided memorabilia to two licensed
locations in both FY 1996 and FY 1995 . Furthermore, in FY 1996, the continuing
licensing fees the Company received nominally escalated by adjustments for
increase in the Consumer Price Index and increases in the number of licensed
locations. During FY 1995, the Company received continuing franchise fees of
$48,819 from two franchised location in the northern Virginia area. These two
franchised location ceased operations during the first quarter of FY 1996. The
Company no longer has any franchised operations and is not pursuing the opening
of any future franchised locations.
Initial licensing fees for the year ended April 30, 1996 were $160,000
compared to $7,500 for the preceding year. During FY 1995, the Company deferred
recognition of an initial licensing fee for a Champions location in Jakarta,
Indonesia. This location opened during the second quarter of FY 1996. An
additional licensed location opened in Amman, Jordan during the third quarter of
FY 1996.
During FY 1996, the Company received other revenues of $29,123 from the
sale of excess equipment, vendor promotional rebates and commissions. In FY
1995, this amount was $45,587.
2. Expenses
The Company's cost of food and beverage during the years ended April, 30,
1996 and 1995 remained relatively constant at 28.1% and 28.2% of related sales
of $1,701,789 and $1,801,258 respectively. This relative same cost as
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the preceding year is attributed to stable wholesale prices as there was no
retail price adjustments during either comparable year.
Restaurant payroll and related costs totaled $604,496 or 35.5% of food and
beverage sales in FY 1996 versus $597,407 or 33.2% of related sales in FY 1995.
Restaurant occupancy costs for FY 1996 were $195,629 contrasted to $184,944
in the prior fiscal year. This increase is attributed to an increase in common
area charges passed through by the landlord.
General and administrative costs incurred in FY 1996 were $301,090 and
$354,515 in FY 1995. The primary components of G&A expenses are operating the
Company's corporate office, including executive and staff salaries. By
comparison, general and administrative expenses decreased by 15.1% from the
prior year. Interest expense in both FY 1996 and 1995 was less than 1% of the
Company's expenses.
Restaurant pomotional costs increased from $16,435 in FY 1995 to $51,951 in
FY 1996. The Company increased advertising expenditures for its restaurant in
San Antonio as it faced increased competition in the River Walk area where it is
located.
3. Profits / Losses
For FY 1996, the Company generated a profit of $49,381 on a consolidated
basis, from its operations. There were no extraordinary items recorded. For FY
1996, the Company owned location in San Antonio, TX produced an operting profit
of $67,269 before depreciation and amortization and a loss of $28,161 after
deprection and amotization.
For FY 1995, the Company produced a profit of $24,151 from its operations
and an extraordinary gain from lease settlements and debt extinguishment of
$183,983 net of the tax benefit of $112,573. For FY 1995, the Company owned
location in San Antonio produced a operating profit of $193,796 before
depreciation and amortization and a profit of $98,869 after depreciation and
amortization.
(b) Liquidity and Capital Resources for Fiscal Years 1996
and 1995.
The Company's cash position on April 30, 1996 was $141,930 compared to
$131,102 on April 30, 1995, an increase of $10,828. On both April 30, 1996 and
April 30, 1995, $25,080 was held in a certificate of deposit.
For the year ended April 30, 1996, the Company's operations used
$20,501 in cash, contrasted to providing $30,606 in excess of revenues
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for its operating activities during FY 1995. The Company meet its cash needs
from its cash reserves, cash flow from its San Antonio Champions location and
from revenues generated from licensing agreements, and by further reducing its
general and administrative expenses.
During the year ended April 30, 1996, the Company reduced its accounts
payable by $60,148, its accounts receivable by $38,207. Also, during this
period, the Company increased its inventories and prepaid expenses by
approximately $31,000. An officer of the Company exercised an option to purchase
1,200,000 restricted shares of the Company's common stock for $60,000. The
Company repaid borrowings of $28,671 in principal and $5,329 in interest. The
Company made no expenditures for capital equipment during the fiscal year.
During FY 1995, the Company reduced its accounts payable by $129,308, other
accrued expenses of $28,093 and repaid borrowing of $13,656. Also during FY
1995, the Company collected a note amounting to $14,585, increased its accounts
receivable by $40,617 and reduced other current assets by $42,004. Additionally,
the Company purchased $3,969 in equipment for its San Antonio location and sold
$17,655 of surplus equipment. The Company deferred recognition of $75,000 in
revenues in FY 1995 until FY 1996.
The Company's working capital as of April 30, 1996 was a negative $17,363
contrasted to a negative $91,351 on April 30, 1995. The Company is seeking
additional financing and also possible mergers or acquisitions to meet its
longer term liquidity needs and to finance its future expansion. There is no
assurance that the Company will be able to obtain such financing or acquisitions
on terms satisfactory to the Company.
(c) Miscellaneous.
Stockholders' equity on April 30, 1996 was $435,681 compared to $393,590 on
April 30, 1995. In both November, 1994 and 1995, the Company's Board of
Directors voted to defer payment of the 12% annual dividend of the Company's
preferred stock, in the amount of $67,290 for each year, in order to perserve
the Company's cash reserves. This dividend is cumulative and has been recorded
on the Company's balance sheet as a current liability. The Board of Directors
also voted to defer the annual shareholder's meeting until such time as the
Company's cash position improves due to its determination that expenses
associated with the meeting would cost approximately $50,000.
Item 7. Financial Statements and Supplementary Data.
The Report of Independent Accountants appears at page F-1 and the
Consolidated Financial Statements and Notes to the Consolidated Financial
Statements appear at pages F-2 through F-15 hereof.
Item 8. Changes In and Disagreements with Accountants on
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Accounting & Financial Disclosure.
During the two most recent fiscal years, there have been no changes in the
Company's independent accountants and there have been no disagreements between
the Company and its independent accountants on any matter of accounting
principles or practices or financial statement disclosure.
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Item 9. Directors and Executive Officers.
The Executive Officers and Directors of the Company are as
follows:
NAME POSITION(S) PRESENTLY HELD
James M. Martell Chairman, President,
Chief Executive Officer, Director
James E McCollam Controller, Chief Accounting Officer,
Corporate Secretary
Michael M. Tomic Director
James M. Martell, age 49, has served as Chairman since November 1991
and as President and Chief Executive Officer from May 1990 to June 1992 and from
January 1993 to September 1993 and from March 1994 to the present and Director
of the Company since its inception on June 4, 1985. Additionally, he served the
Company as Vice President from October 1988 to May 1990, as Treasurer from June
1985 to January 1989, and as Secretary from June 1985 to January 1986. Mr.
Martell is a director and officer of all of the Company's wholly-owned
subsidiaries, except for the Been Corporation. From 1983 to 1987, Mr. Martell
was a partner along with Mr. Tomic in Tomar Associates, a consulting company
specializing in European-American joint ventures, venture capital financing,
technology transfer, and corporate finance. From 1981 to 1983, Mr. Martell was a
partner in International Group, a partnership involved in promoting national and
international business development. From 1973 to 1981, he served in various
administrative positions at the U.S. Department of Energy. Mr. Martell received
a Bachelor of Science degree in Chemistry in 1968, and a Master of Science
degree in Geochemistry in 1973, from George Washington University.
James E. McCollam, age 49, has served as Chief Accounting Officer of
the Company since July 1992 and Controller since May 1988. From 1984 to 1987 he
was Controller of the Winston Group, Inc., a five unit food service organization
in the Washington D.C. metropolitan area. From 1977 to 1983, he was the
Controller of Capitol Hill Cabaret, Inc., an organization which owned and
operated two restaurants and nightclubs in the Washington D.C. area. From 1973
to 1977, he was employed by Marriott Corporation in various positions in the
corporate accounting department. From 1971 to 1973, he served in the United
States Army. He earned a Bachelor of Science degree in Finance from the
University of Maryland 1970.
Michael M. Tomic, age 50, has served as a Director of the Company since
its inception on June 4, 1985. From June 1985 to January 1986, he also served as
Vice President of the Company. From 1983 to 1987, Mr. Tomic was a partner along
with Mr. Martell in Tomar Associates, a consulting company specializing in
European-American joint ventures, venture capital financing, technology
transfer, and corporate finance. He is a director of a sports equipment, retail,
wholesale and export business. He received a Bachelor of Science degree in
International Marketing and Economics in 1969 from the University of Maryland.
The term of office of each Director is until the next annual election of
Directors and until a successor is elected and qualified or until the Director's
earlier death, resignation or removal.
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Item 10. Executive Compensation.
The following table sets forth cash compensation for services
rendered during FY 1996, and 1995 which was paid by the Company to, or accrued
by the Company for, each of the Company's most highly compensated executive
officers whose cash compensation in such year equaled or exceeded $100,000.
Name and FY Annual Other
Principal Position Year Salary ($) Compensation ($)
- ----------------- ---- ---------- ----------------
James M. Martell, 1996 87,000 34,200
Chairman, President, and 1995 87,000 36,168
Chief Executive Officer
In FY 1996 all officers of the Company as a group (2 in number) received
cash compensation of $171,200. The Board of Directors has the right to change
and increase the compensation of executive officers at any time. The Company has
no arrangement by which any of its directors are compensated for services solely
as directors, and these individuals will not receive any additional remuneration
for their services as directors. The Company may from time to time pay
consulting fees to its officers and directors.
Except as described below, the Company has no compensatory plan or
arrangement which would result in executive officers receiving compensation as a
result of their resignation, retirement or any other termination of employment
with the Company or its affiliates, or from a change in control of the Company
or a change in responsibilities following a change in control of the Company.
The Company entered into a five-year employment agreement with Mr. Martell
in September 1993, under which Mr. Martell received a base annual salary of
$128,000 and options to purchase 200,000 shares of the Company's Common Stock at
$1.00 per share at any time prior to September 6, 2001, whether or not Mr.
Martell is an employee at such time. If there is a change in the management of
the Company and such management acts contrary to the policy of the current
Board, or if Mr. Martell's position as Chairman is terminated, Mr. Martell may
resign and become entitled to liquidated damages determined pursuant to a
formula prescribed in the contract. Mr. Martell, at the present, is temporarily
receiving an annual base salary of $87,000 plus 20% of all fees received from
international locations.
In FY 1996, the Board of Directors granted to Mr. Martell an option to
purchase 1,200,000 restricted shares of the Company's Common Stock at $0.05 per
share. This option for 1,200,000 restricted shares was exercised for $60,000 by
Mr. Martell. The Board of Directors also granted an option to Mr. McCollam to
purchase 100,000 restricted shares of the Company's Common Stock at $0.05 per
share exercisable at any time prior to July 24, 2000.
15
<PAGE>
The Company has a Stock Option Plan intended to assist the Company in
securing and retaining key employees and consultants by allowing them to
participate in the ownership and growth of the Company through the grant of
incentive and nonqualified options. Incentive stock options granted under the
Plan are intended to be "Incentive Stock Options" as defined by Section 422 of
the Internal Revenue Code. An aggregate of 840,000 shares of Common Stock has
been reserved for issuance under the Plan. As of April 30, 1996 all 840,000
shares are reserved and available for issuance.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
As of July 15, 1996, there were no persons known to the
Company to be beneficial owners of more than 5% of the Company's Common Stock.
The stock ownership by officers and directors of the Company
and all officers and directors as a group are as follows:
Common Stock
Beneficially
Owned
Name TITLE July 15, 1996 Percent
- ---- ----- ------------- -------
James M. Martell Chairman, 1,548,000 18.2%
President & Director
Michael M. Tomic Director 225,000 2.6%
James E. McCollam Controller,
Chief Accounting Officer
& Corporate Secretary 2,000 *
-----
All officers & directors as a group 1,775,000 20.8%
*Less than 1.0%
Item 12. Certain Relationships and Related Transactions.
During FY 1996, there were no related party transactions.
16
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Index to Financial Statements
PAGE
Independent Auditor's Report F-1
Consolidated Balance Sheets as of April 30,
1996 and 1995 F-2
Consolidated Statements of Operations
for the Years Ended April 30, 1996 and 1995 F-3
Consolidated Statements of Stockholder's Equity
for the Years ended April 30, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for ended
April 30, 1996 and 1995 F-5
Notes to the Consolidated Financial Statements F-6/F-13
(b) There were no Form 8-K's filed during the last quarter of
the period covered by this report.
17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CHAMPIONS SPORTS, INC
By____________________________
James E. McCollam
Chief Accounting Officer and Controller
Date: July 30, 1996
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By_____________________________
James M. Martell
Chairman and President
Date: July 30, 1996
By______________________________
Michael M. Tomic
Director
Date: July 30, 1996
32
<PAGE>
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
For The Year Ended April 30, 1996
<PAGE>
Independent Auditor's Report
To the Stockholders and Board of Directors
Champions Sports, Inc.
Arlington, Virginia
We have audited the consolidated balance sheets of Champions Sports, Inc. and
subsidiaries as of April 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Champions Sports, Inc. and subsidiaries at April 30, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
June 18, 1996
<PAGE>
F-2
<TABLE>
Champions Sports, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
APRIL 30
1996 1995
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $141,930 $131,102
Certificate of deposit 25,080 25,080
Accounts receivable - trade 4,545 42,752
Inventories 53,160 41,235
Prepaid expenses 20,516 1,010
Total current assets 245,231 241,179
Property and Equipment
Furniture and Equipment 516,383 516,383
Leasehold improvements 567,312 567,312
1,083,695 1,083,695
Accumulated depreciation and amortization (596,322) (529,053)
487,373 554,642
Other assets
Deposits 11,052 11,052
Total assets $743,656 $806,873
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $53,338 $123,486
Dividend payable on preferred stock (note 6) 134,580 67,290
Notes payable (note 2) 31,010 18,670
Deferred revenue 0 75,000
Other accrued expenses 39,303 43,720
Current portion of deferred lease concession 4,363 4,363
Total current liabilities 262,594 332,529
Deferred lease concession (excluding current portion) 33,371 37,734
Note payable, excluding current portion 12,010 43,020
Commitments and contingencies ( notes 4 and 5)
Stockholders' equity (notes 6, 7 and 8) Preferred stock:
Series A, 12% convertible cumulative, par value $10 per share,
preferred as to dividends and liquidation: 650,000 shares
authorized 56,075 issued and outstanding. 560,752 560,752
Undesignated, par value $10 per share, 150,000 authorized
and unissued for 1996 and 1995. 0 0
Common stock, par value $.001 per share,
50,000,000 shares authorized, 8,500,564 and 7,300,564
shares issued and outstanding at
for 1996 and 1995, respectively. 8,501 7,301
Additional paid-in capital 5,308,112 5,249,312
Accumulated deficit (5,441,684) (5,423,775)
Total stockholders' equity 435,681 393,590
Total liabilities and stockholders' equity $743,656 $806,873
</TABLE>
<PAGE>
<TABLE>
F-3
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<CAPTION>
FOR THE YEARS ENDED APRIL 30
1996 1995
---- ----
<S> <C> <C>
Revenue
Food and Beverage sales $1,701,789 $1,801,258
Merchandise, memorabilia and continuing
license fees 244,234 312,498
Initial license fees 160,000 7,500
Interest income 3,586 553
Other income 29,123 45,587
------ ------
2,138,732 2,167,396
Expense
Cost of food and beverage sales 478,995 507,763
Cost of merchandise and memorabilia sales 33,049 60,084
Restaurant payroll and related costs 604,496 597,407
Restaurant occupancy costs 195,629 184,944
Other restaurant costs 351,994 323,747
General and administrative 301,090 354,515
Promotion 51,951 16,435
Depreciation and amortization 67,269 96,838
Interest expense 4,878 1,512
----- -----
2,089,351 2,143,245
Income before income tax and extraordinary item $49,381 $24,151
Extraordinary item - gain in debt extinguishment
(net of income tax of $112,573) (note 9) 0 183,983
Net Income $49,381 $320,707
======= ========
Earnings per common and common equivalent share:
Income before extra ordinary item $0.01 $0.02
Extraordinary item 0.00 0.02
Net income $0.01 $0.04
Earnings per common share - assuming full dilution:
Income before extraordinary item $0.01 $0.02
Extraordinary item 0.00 0.02
Net Income $0.01 $0.04
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
F-4
CHAMPIONS SPORTS, INC.
Consolidated Statements of Stockholders' Equity
For the Year Ended April 30, 1996 and 1995
<CAPTION>
Series A, 12%
Convertible Cumulative
Common Stock Preferred Stock ADDITIONAL
AMOUNT AT AMOUNT AT PAID IN ACCUMULATED
SHARES PAR SHARES PAR CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1994 7,268,536 $7,270 62,875 628,752 $5,181,333 (5,677,192) $140,173
For the year ended April 30, 1995
Conversion of preferred stock (note 6) 32,028 32 (6,800) (68,000) 67,968
Dividend on preferred stock accrued
and unpaid (67,290) (67,290)
Net income 320,707 320,707
Balance, April 30, 1995 7,300,564 $7,302 56,075 $560,752 $5,249,301 ($5,423,775) 393,590
For the year ended April 30, 1996
Dividend on preferred stock accrued
and unpaid (67,290) (67,290)
Options exercised (note 7) 1,200,000 $1,200 $58,800 60,000
Net income $49,381 49,381
Balance, April 30, 1996 8,500,564 $8,502 56,075 $560,752 $5,308,112 ($5,441,684) $435,681
========
</TABLE>
<PAGE>
<TABLE>
F-5
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<CAPTION>
APRIL 30
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $49,381 $320,707
Adjustments to reconcile net income
to cash provided by (used ) by operating activities:
Depreciation and amortization 67,269 96,838
Gain on sale of property and equipment 0 (12,013)
Interest income added to certificate of deposit 0 (77)
Extraordinary gain on debt extinguishment 0 (296,556)
Income tax on extraordinary item 0 112,573
Changes in asset and liabilities
Notes receivable 0 14,585
Accounts receivable 38,207 (40,617)
Inventories (11,925) 2,412
Prepaid expenses (19,506) 4,387
Deposits 0 35,205
Accounts payable (70,148) (129,308)
Deferred revenue (75,000) 67,500
Accrued income tax 0 (112,573)
Other accrued expenses (4,417) (28,093)
Deferred lease concessions (4,363) (4,364)
Net cash provided (used) by operating activities (30,502) 30,606
Cash flows from investing activities:
Purchases of property and equipment 0 (3,969)
Sale of property and equipment 0 17,655
Matuiries of certificate of deposit 0 25,000
Net cash provided by investing activities 0 38,686
Cash flows from financing activities:
Options exercised 60,000 0
Repayment of borrowings (18,670) (13,656)
Net cash provided (used) by financing activities 41,330 (13,656)
Net increase in cash and cash equivalents 10,828 55,636
Cash and cash equivalents at beginning of year 131,102 75,466
Cash and cash equivalents at end of year 141,930 131,102
Supplemental disclosure of cash flow information:
Cash paid during the year for interest 5,329 1,512
See notes to consolidated financial statements
</TABLE>
<PAGE>
F-6
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
April 30, 1996
Note 1 - Organization and summary of significant accounting policies
Organization
Champions Sports, Inc., a Delaware corporation, promotes a sports theme
restaurant bar concept through Company owned and licensed operations. At April
30, 1996, there are seventeen Champions Sports Bar Restaurants in operation. Of
these seventeen, fifteen are in Marriott hotels pursuant to a licensing
agreement (note 5), one is Company owned, and one is licensed overseas.
C.S.B.R., Inc., (CSBR) and The Been Corporation (Been) were organized on June
16, 1989 and October 11, 1989, respectively, for the purpose of owning and
operating a Champions Sports Bar in San Antonio, Texas. Operations in San
Antonio commenced on November 10, 1989.
During June 1992, the Company formed Champions of Miami, Inc. for the purpose of
owning and operating a Champions Sports Bar in Miami, Florida. Operations in
Miami commenced in October 1992 and ceased in November 1993, and the Company was
dissolved on January 15, 1995 (note 9).
During August 1993, the Company formed Champions of Centreville, Inc. for the
purpose of owning and operating a Champions Sports Bar in Centreville, Virginia.
At April 30, 1994, plans to open the operation had been abandoned and the
Company was dissolved on January 15, 1995 (note 9).
Basis of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material inter-company transactions have been eliminated
in consolidation.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed from the
date property is placed in service using straight-line and accelerated methods
over estimated useful lives as follows:
Life
Furniture and equipment 5-15 years
Leasehold improvements Remaining term of the lease
Depreciation and amortization expense for the years ended April 30, 1996 and
1995, was $67,269 and $96,838, respectively.
<PAGE>
F-7
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1996
Note 1 - Organization and summary of significant accounting policies (continued)
License fee revenue
Initial license fees are recognized as revenue when all material services
provided for in the license agreement have been substantially performed by the
Company. Continuing license fees are recognized over the period of time to which
they relate.
Inventories
Inventories consist of goods and supplies held for sale in the ordinary course
of business and are stated at the lower of cost, determined on the first-in
first-out basis, or market. The components of inventories at April 30, 1996 and
1995, were as follows:
1996 1995
------- -------
Restaurant food, beverage and supplies $17,156 $17,634
Promotional merchandise for sale to
restaurant customers ................ 5,966 8,029
Memorabilia for sale to licensees ..... 30,038 15,572
------ ------
$53,160 $41,235
======= =======
Net income per share
The computation of earnings per common and common equivalent share is based upon
the weighted average number of common shares outstanding during the period, plus
(in periods in which they have a dilutive effect) the effect of common shares
contingently issuable, primarily from stock options.
The fully diluted per share computation reflects the effect of common shares
contingently issuable upon the conversion of preferred stock. The weighted
average number of common and common equivalent shares used to compute earnings
per share is:
Years Ended April 30
1996 1995
---- ----
For earnings per common
and common equivalent share .............. 7,831,302 7,306,865
For earnings per common share
assuming full dilution ................... 8,095,415 7,570,978
<PAGE>
F-8
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1996
Note 1 - Organization and summary of significant accounting policies (continued)
Cash and cash equivalents
The statements of cash flows are prepared on the basis of cash and cash
equivalents. For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less, unless restricted as to use, to be cash equivalents.
Income taxes
To the extent that taxable income differs from financial reporting net income
due to temporary differences, deferred taxes are recognized.
Financial statement estimates
The preparation of financial statements in conformity with generally accepted
accounting procedures requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair value of financial instruments
The carrying amounts of the Company's financial instruments, including cash,
accounts receivable, accounts payable, accrued expenses, and long-term debt,
approximate fair values because of the short maturities of these instruments.
Note 2 - Note payable
During 1994, the Company obtained a non-interest bearing loan from a leasing
company to purchase equipment. The loan, in the original amount of $62,700, was
discounted at eight percent, was secured by the equipment, required monthly
payments of $3,300, and matured in March 1995. In April 1995, an agreement was
entered into with the leasing company to settle the loan. Accordingly, a balance
of $36,957 has been recognized as gain on debt settlement (note 9).
In April 1995, the Company converted an account payable with a vendor to a note
payable, bearing interest at 10% annually. The balance outstanding at April 30,
1996 is $43,020 with principal payments of $31,010 and $12,010 due in the fiscal
years 1997 and 1998 respectively.
<PAGE>
F-9
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1996
Note 3 - Income taxes
Income tax benefit (expense) consists of the following for the years ended April
30, 1996 and 1995:
1996 1995
---- ----
Current ...................................... $ -- $ --
Deferred ..................................... (40,000) (37,638)
------- -------
Increase (decrease)
in valuation allowance ..................... 40,000 150,211
Income tax benefit on
income before extraordinary item ........... -- 112,573
Deferred income taxes related
to extraordinary item ...................... -- (112,573)
--------- ---------
Total income taxes ........................... $ -- $ --
---------
Temporary differences which give rise to deferred tax assets and liabilities are
approximately as follows:
1996 1995
---- ----
Deferred tax assets:
Deferred rent concessions .................... $ 14,000 $ 16,000
Net operating losses available for
carryforward ............................... 1,687,000 1,664,000
Capital losses available for carryforward .... 242,000 242,000
Tax credits available for carryforward ....... 8,000 8,000
----------- -----------
Total deferred tax assets ................ 1,951,000 1,930,000
Valuation allowance .......................... (1,948,000) (1,908,000)
----------- -----------
Net deferred tax assets ................... 3,000 22,000
Deferred tax liabilities:
Depreciation ................................. (3,000) (22,000)
----------- -----------
Net deferred taxes ........................ $ -- $ --
----------- -----------
<PAGE>
F-10
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1996
Note 3 - Income taxes (continued)
A reconciliation of income taxes computed at federal statutory rates to income
taxes recorded by the Company is as follows:
Years Ended April 30
1996 1995
---- ----
Federal income taxes at statutory rate ........... $ (16,790) $ (33,711)
State income taxes net of Federal income
tax benefit .................................... (1,955) (3,927)
Effect of non-deductible expenses ................ (377) (295)
Benefit of net operating loss carryforward ....... 19,122 150,506
--------- ---------
Income tax benefit ............................... -- 112,573
Income tax on extraordinary item ................. -- (112,573)
--------- ---------
Total income taxes .......................... $ -- $ --
---------
At April 30, 1996, the Company has net operating loss carryforwards of
$4,445,455 for tax reporting purposes. The Company also has, for tax reporting
purposes, a capital loss carryforward of $638,261, and an investment tax credit
carryforward of $1,609, which can be used to reduce capital gains or income tax
liability in future periods. If not previously used, the investment tax credit
carryforward will expire in the fiscal year ending April 30, 2001, and $519,378
and $118,883 of the capital loss carryforward will expire in the fiscal years
ending April 30, 2006 and 2007, respectively. The net operating loss
carryforwards for income tax purposes expire as follows:
2004 $ 550,300
2005 328,715
2006 658,455
2007 1,199,483
2008 1,708,502
---------
$4,445,455
During the years ended 1996 and 1995, the Company used net operating losses of
approximately $50,000 and $309,000, respectively, to offset taxable income for
1996 and 1995.
Note 4 - Commitments and contingencies
Operating leases
The Company leases, as lessee, restaurant space under an operating lease which
has renewal options. The lease escalates for increases in the landlord's
expenses or for increases in the consumer price index, and requires additional
rentals based on a percentage of restaurant sales over a defined amount. The
lease grants the Company certain concessions which are amortized to lease
expense over the term of the lease. The Company had leases for two other
restaurants and office space that were terminated during 1995. The Company now
leases office space on a month-to-month basis.
<PAGE>
F-11
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1996
Note 4 - Commitments and contingencies (continued)
Rental expense charged for 1996 and 1995 was $177,794 and $192,449,
respectively. There were no contingent rentals in 1996 or 1995. Future minimum
payments under the remaining noncancellable restaurant lease as of April 30,
1996, are as follows:
1997 $ 129,850
1998 129,850
1999 129,850
2000 135,004
2001 140,158
Thereafter 490,553
------------
Total $1,155,265
Note 5 - Marriott license
In 1990, the Company entered into a trademark license agreement with Marriott
International, Incorporated, which granted Marriott a non-exclusive license to
use the proprietary Champions trademark at Marriott's primary market areas
within the United States. The agreement required Marriott to pay an annual
royalty of $2,790, adjusted annually for increases in the consumer price index,
for each Champions Sports Bar operated by Marriott. Each hotel which opened a
new Champions was required to purchase its sports memorabilia from the Company.
During fiscal 1995, this agreement was modified so that Marriott is required to
pay an annual royalty of $5,880, to be adjusted annually for increases in the
consumer price index, for each Champions Sports Bar operated by Marriott. The
Company is required to provide the sports memorabilia for each new Champions
Sports Bar opened by Marriott.
Total annual license and memorabilia fees under these agreements were $178,104
and $207,377 for 1996 and 1995, respectively.
Note 6 - Preferred stock
During fiscal 1993, the Company designated 650,000 shares of preferred stock as
Series A, 12% Convertible Cumulative preferred stock. The Series A preferred
stock pays a dividend of 12% per annum, and the dividends are cumulative and are
to be accrued on the Company's books if not paid. The dividend may be paid in
common stock of the Company at the Company's discretion. The number of shares
comprising the dividend paid in common stock shall be determined by dividing
$1.20 by the closing bid price for the common stock on the payment date. The
Series A preferred stock is preferred in liquidation or dissolution up to the
amount of their par value ($10 per share). The Series A preferred stock is
convertible into 4.71 shares of the Company's common stock. After five years of
subscription, the Company has the right to convert the Series A preferred stock
into 4.71 shares of the Company's common stock.
<PAGE>
F-12
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1996
Note 6 - Preferred stock (continued)
The Company sold, for a nominal price, warrants to an underwriter of a public
offering in 1992, which entitles the underwriter to purchase up to 35,000 shares
of preferred stock at an exercise price of 165 percent of the initial offering
price to the public of the preferred stock. The warrants expire if not exercised
by November 1997.
In fiscal 1995, 6,800 shares of Series A preferred stock were converted to
32,028 common stock. There was no such conversion in 1996.
During fiscal years 1996 and 1995, the Company's Board of Directors voted to
defer payment of the annual dividend on the Series A preferred stock in the
amount of $67,290, for each year. Preferred stock dividends in arears at April
30, 1996 aggregated $134,580 ($2.40 per share).
Note 7 - Common stock
During fiscal 1992, the Company granted stock options covering 300,000 shares of
common stock at an exercise price of $3.125, to an investment banking company
acting as the Company's investment banker. Each option bears an expiration date
of four years from the date of the agreement. No options were exercised as of
April 30, 1996 and all the options had expired by that date.
Options to purchase a total of 450,000 shares at $1.00 per share were granted to
two executive officers during fiscal 1994. The options expire if not exercised
by September 2001. No options were exercised as of April 30, 1996.
Options to purchase a total of 1,300,000 shares of common stock at an exercise
price of $.05 were granted to two executive officers in July 1995. An officer
exercised an option to purchase 1,200,000 of these shares in December 1995 for
$60,000 cash. The remaining options expire if not exercised by July 2000.
Note 8 - Stock option plan
During fiscal 1993, the Company adopted a compensatory stock option plan for key
employees or consultants of the Company and its subsidiaries. The total number
of shares of the Company's common stock, which may be issued under the plan, is
840,000. The plan expires on August 2, 2002. No options were exercised under the
plan as of April 30, 1996.
<PAGE>
F-13
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1996
Note 9 - Extraordinary item - gain on debt extinguishment
In January 1995, Champions of Miami, Inc. and Champions of Centreville, Inc.
were dissolved. Certain accounts payable of these subsidiaries from various
vendors, who have no recourse against the Company, were written off. Also during
fiscal 1995, the Company terminated two leases with settlement payments for less
than the amounts owed to the landlords (note 4). Lastly, an account payable to a
certain vendor was converted to a note payable for a lesser amount (note 2). The
gain on extinguishment of these obligations is reflected in the financial
statements as an extraordinary item, and is summarized as follows:
Write-off of accounts payable of subsidiaries ................. $ 74,662
Settlements with landlords .................................... 165,082
Settlement of note payable .................................... 36,957
Conversion of account payable to note payable ................. 19,855
---------
Total gain on extinguishment of debt .......................... 296,556
Federal and state income taxes at statutory rates ............. (112,573)
---------
Net gain on extinguishment of debt ............................ $ 183,983
---------
Note 10 - Non-cash investing and financing activities
A summary of non-cash investing and financing activities for the years ended
April 30, 1996 and 1995, is as follows:
1996 1995
---- ----
Cumulative dividend on preferred stock not yet paid .... $67,290 $67,290
Conversion of preferred stock to common stock .......... -- 68,000
Conversion of account payable to note payable .......... -- 61,691
Write-off of fully depreciated assets .................. -- 88,417
Property and equipment surrendered to
creditors to settle accounts payable ................. -- 5,142
Note 11 - Accounting for stock options
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("Statement No. 123"), was issued.
This statement encourages, but does not require, a fair value based method of
accounting for employee stock options, and will be effective for fiscal years
beginning after December 15, 1995. While the Company is still evaluating
Statement No. 123, it currently expects to elect to continue to measure
compensation costs under APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and to comply with the pro forma disclosure requirements of Statement
No. 123. If the Company makes this election, Statement No. 123 will have no
impact on the Company's consolidated financial statements.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
For the twelve months ended April 30, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 141,930
<SECURITIES> 25,080
<RECEIVABLES> 4,545
<ALLOWANCES> 0
<INVENTORY> 53,160
<CURRENT-ASSETS> 20,516
<PP&E> 1,083,695
<DEPRECIATION> 487,373
<TOTAL-ASSETS> 743,656
<CURRENT-LIABILITIES> 262,594
<BONDS> 0
560,752
0
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<EPS-PRIMARY> .01
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</TABLE>
