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, 1997
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.
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(Exact name of registrant as specified in its charter)
Delaware 52-1401755
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(State or other jurisdiction of (I.R.S. Employer
organization) Identification No.)
2500 Wilson Blvd. Suite 305, Arlington, VA 22201
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(Address of principal executive offices)
(Zip code)
(703) 526-0400
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(Registrant's telephone number, including area code)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
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(Title of Class)
Preferred Stock, par value $10.00 per share
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(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, 1997, the revenues of the registrant were
$2,162,264
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, 1997, was approximately $4,000,000.
As of July 15,1997, 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 nineteen. Eighteen 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; Amman, Jordan; Beirut, Lebanon; Guatemala
City, Guatemala and Warsaw, Poland. 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 was added to the original concept so that 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 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
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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 1997, 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.
(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 eighteen 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; Amman, Jordan; Beirut, Lebanon;
Guatemala City, Guatemala and Warsaw, Poland. 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
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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 $6,401(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 $9,492 (with increases pegged to the
Consumer Price Index).
Marriott hotel locations accounted for about 18.8% of the Company's
revenues for FY 1997, as reflected in the consolidated financial statements
included herein.
(iii) Other Licensed Locations
A CHAMPIONS Sports Bar Restaurant is licensed to Majordomo Leisure
Consultants Pte. LTD in Jakarta. This licensed location accounted for less than
1% of the Company's revenues for FY 1997, as reflected in the consolidated
financial statements included herein.
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
bar restaurants 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
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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 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.
5. Government Regulation
In 1993, the Company suspended its sale of franchising in the United
States. 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 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, 1997, the Company had 2 full-time employees and on part -
time employee in its corporate office and 50 employees (both management &
hourly) at its San Antonio restaurant.
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Item 2. Properties.
The Company is leasing, on a month to month basis, its corporate office
located at 2500 Wilson Blvd., Suite 305, Arlington, VA 22201. The Company's
rental payments are $920 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 $18,500
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.
(a) Annual Meeting of Shareholders held was held at the office of the
Corporation on December 20, 1996.
(b) The Meeting involved the election of three directors:
Shares Voted FOR Shares Voted WITHHOLD
James Martell 6,196,048 129,194
George Naddaff 6,199,228 126,014
Michael Tomic 6,198,253 126,989
PART II
Item 5. Markets for Common Equity & Related Stockholder Matters.
(a) Principal Market or Markets.
In FY 1995, the Common Stock was traded on the NASDAQ SmallCap Market
until June 24, 1994. At that time, the Common Stock was delisted from the NASDAQ
SmallCap Market for falling below the minimum financial requirements. 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 and has not been trading since.
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Common Stock
High Low
$ $
Fiscal 1997
First Quarter 0.19 0.07
Second Quarter 1.62 0.07
Third Quarter 0.59 0.25
Fourth Quarter 0.97 0.38
Fiscal 1996
First Quarter 0.08 0.02
Second Quarter 0.17 0.08
Third Quarter 0.09 0.06
Fourth Quarter 0.17 0.08
(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, 1997, was 2,200 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, 1997.
(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, 1995, and 1996, the Company's Board of Directors voted each year to defer
payment of the annual dividend of $67,290 for 1994, $67,290 for 1995 and $67,290
for 1996 on the Series A, 12%, Cumulative Preferred Stock, in order to preserve
the Company's cash reserves.
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Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
(a) Results of Operations for Fiscal Years 1997 and 1996.
1. Revenues
For the fiscal year ended April 30, 1997, the Company's revenues increased
by 1.1% to $2,162,264 versus $2,138,732 in fiscal year 1996.
By component, food and beverage sales rose 1.9% to $1,735,016 for FY 1997
compared to $1,701,789 in FY 1996. The Company's management attributes the
slight increase in food and beverage sales to an increase in the average
customer check, offset by 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 1997. The
food to beverage ratio for the San Antonio location was 60/40 in FY 1997 and
62/38 in FY 1996.
Revenues from merchandise and memorabilia sale and continuing license fees
were $405,501 for the current fiscal year compared to $244,234 in FY 1996. Sales
of memorabilia are directly tied to the number of new Champions locations which
open during the fiscal year. The Company provided memorabilia to three licensed
locations in FY 1997 and two licensed locations in FY 1996. Furthermore, in FY
1997, 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. Initial licensing fees for the year ended April 30, 1996
were $160,000.
During FY 1997, the Company received other revenues of $19,882 from vendor
promotional rebates and commissions. During FY 1996, the Company received other
revenues of $29,123 from the sale of excess equipment, vendor promotional
rebates and commissions.
2. Expenses
The Company's cost of food and beverage during the year ended April, 30,
1997 was 26.9% of related sales compared to 28.1% in the preceding year. This
decrease in product costs in FY 1997 is attributed to stable wholesale prices as
there was no retail price adjustments during either comparable year and to
improved inventory and production controls by the restaurant's management.
Restaurant payroll and related costs total ed $582,818 or 33.5% of food and
beverage sales in FY 1997 versus $604,496 or 35.5% of related sales in FY 1996.
The 2.0% decrease in direct labor costs is a result of better managed staffing
scheduling by the restaurant's management.
Restaurant occupancy costs for FY 1996 were $206,860 contrasted to $195,629
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 1997 were $368,298 and
$301,090 in FY 1996. 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 increased by 22.3% from the
prior year, primarily due to costs associated with the annual meeting of
security holders and relocation of the Company's corporate offices.
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Interest expense in both FY 1997 and 1996 was less than 1% of the Company's
expenses.
Restaurant promotional costs decreased from $51,951 in FY 1996 to $43,148
in FY 1997. The Company decreased advertising expenditures for its restaurant in
San Antonio in FY 1997.
3. Profits / Losses
For FY 1997, the Company generated a profit of $67,388 on a consolidated
basis, from its operations, and a $215,892 gain from deferred income tax asset.
For FY 1997, the Company owned location in San Antonio, TX produced an operating
profit of $137,873 before depreciation and amortization and a net profit of
$98,117 after deprecation and amortization.
For FY 1996, the Company produced a profit of $49,381 from its operations.
There were no extraordinary items recorded. For FY 1996, the Company owned
location in San Antonio produced a operating profit of $67,269 before
depreciation and amortization and a loss of $28,161 after depreciation and
amortization..
(b) Liquidity and Capital Resources for Fiscal Years 1997 and 1996.
The Company's cash position on April 30, 1997 was $244,961 compared to
$167,010 on April 30, 1996, an increase of $77,951. On both April 30, 1997 and
April 30, 1996, $25,080 was held in a certificate of deposit.
For the year ended April 30, 1997, the Company's operations provided cash
in excess of expenses of $110,572. The Company met its cash requirements from
its cash reserves, cash flow from its San Antonio Champions location and from
revenues generated from licensed locations.
During the year ended April 30, 1997, the Company reduced its accounts
payable by $3,680 and repaid borrowings of $25,819 in principal and $3,182
interest, increased its accounts receivable by $11,054, inventories by $4,759
and other accrued expenses by $11,430. The Company realized a gain of $215,892
from a deferred tax asset recorded during the year. During FY 1997, the Company
purchased equipment totaling $6,802.
For the year ended April 30, 1996, the Company's operations used $30,502 in
cash. The Company meet its cash needs from its cash reserves, cash flow from its
San Antonio Champions location and from revenues generated from licensed
locations, and by reducing its general and administrative expenses.
During the year ended April 30, 1996, the Company reduced its accounts
payable by $70,148, 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 $18,670 in principal and $5,329 in interest. The
Company made no expenditures for capital equipment during the fiscal year.
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The Company's working capital as of April 30, 1997 was a $229,720
contrasted to a negative $17,363 on April 30, 1996.This improvement in working
capital from the preceding year is attributed to the net profit from operations
and the recognition of the deferred tax asset. The Company is seeking merger or
acquisition candidates to meet its longer term liquidity needs. There is no
assurance that the Company will be able to structure such merger or acquisitions
on terms satisfactory to the Company.
(c) Miscellaneous
Stockholders' equity on April 30, 1997 was $651,671 compared to $435,681 on
April 30, 1996. In both November, 1995 and 1996, 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 preserve
the Company's cash reserves. This dividend is cumulative and has been recorded
on the Company's balance sheet as a current liability. During FY 1997, the
Company held its annual meeting of security holders. In FY 1996, the Board of
Directors voted to defer the annual meeting of security holders until such time
as the Company's cash position improves due to its determination that expenses
associated with the meeting would cost approximately $30,000.
On October 2, 1996, Champions Sports, Inc. signed a joint venture letter of
agreement with Business Expansion Capital Corporation, a privately held
corporation, to assist Champions Sports, Inc. in actively searching and
selection of merger or acquisitions candidate(s).
Business Expansion Capital Corporation is owned by George A. Naddaff. The
term of the agreement is for two years. Champions Sports, Inc. will issue
8,500,000 performance based warrants exercisable at $0.11 per share, subject to
Champions Sports, Inc's. approval of a successful acquisition or merger.
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
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
George A. Naddaff Director
Michael M. Tomic Director
James M. Martell, age 50, 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 50, 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.
George A. Naddaff, age 67, was appointed to the Board of Directors the
Company in October 1996. He is the sole officer, director and stockholder of
Business Expansion Capital Corporation ("BECC"), which he founded in 1987. BECC
invests in developing enterprises capable of expansion through replication of a
successful prototype operation. In 1997, Mr Naddaff became CEO of Ranch 1, a
chain of chicken sandwich stores in New York City. From 1994 to 1996, Mr.
Naddaff served as Chairman and Director of Food Trends Acquisition Corporation a
publicly traded company which merged with Silver Diner, Inc., a company for
which he presently serves as a Director. Since 1995, Mr. Naddaff has been a
Director of Vie de France, a publicly-traded manufacturer of frozen foods. In
September 1995, Mr. Naddaff was named as Vice-Chairman of First Mortgage
Network, Inc., a privately held national company providing mortgage services, In
September 1992, he co-founded Olde World Bakeries, Ltd. ("OWB") with Douglas M.
Suliman, Jr. and since, inception, was its Chief Executive Officer. OWS was a
commercial bread bakery which developed a chain of retail gourmet coffee and
breakfast shops, In December 1994, OWB sold its assets and discontinued its
business. From 1988 until June 1992, Mr. Naddaff was Chairman, Chief Executive
Officer and a Director of New Boston Chicken, Inc. ("Boston Chicken") and from
1988 until 1989, he also served as its President. Boston Chicken, operates and
franchises limited service restaurants that specialize in complete meals
featuring rotisserie
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roasted chicken. In addition, to formulating overall strategic direction, he was
in charge of Boston Chicken's franchise expansion program and was primarily
responsible for site selection for both franchised and Boston Chicken-owned
locations. Mr. Naddaff also was active in the development of Mulberry Child Care
Centers, Inc. ("MCC,,), which developed a chain of child care centers in the
northeast United States. Mr. Naddaff was Chairman of MCC until 1991 when he sold
his interest. Boston Chicken and MCC were organized with the assistance of BECC
during BECC's first 15 months of operations.
Michael M. Tomic, age 51, 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.
Item 10. Executive Compensation.
The following table sets forth cash compensation for services
rendered during FY 1997, and 1996 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, 1997 87,000 42,600
Chairman, President, and 1996 87,000 34,200
Chief Executive Officer
In FY 1997 all officers of the Company as a group (2 in number) received
cash compensation of $199,975. 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
13
<PAGE>
damages determined pursuant to a formula prescribed in the contract. Since 1994,
in order to preserve the Company's cash reserves, Mr. Martell has been 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.
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 non qualified 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, 1997 all 840,000
shares are reserved and available for issuance.
Item 11. 7 Security Ownership of Certain Beneficial Owners and Management.
As of July 15, 1997, the following were persons known to the
Company to own beneficially more than 5% of the Company's outstanding Common
Stock,
Name and Address of Common Stock Beneficially Percent
Beneficial Owner Owned
James M. Martell 1,548,000 18.2%
2500 Wilson Blvd.
Arlington, VA 22201
Robert Scheuermann 641,500 7.3%
4720 65th Avenue, NE
Olympia, WA 98516
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, President 1,548,000 18.2%
& Director
Michael M. Tomic Director 225,000 2.6%
James E. McCollam Controller, 2,000 *
Chief Accounting Officer
& Corporate Secretary
All officers & directors as a group 1,775,000 20.8%
- -----------------
*Less than 1.0%
14
<PAGE>
Item 12. Certain Relationships and Related Transactions.
During FY 1997 and FY 1996, there were no related party
transactions.
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, 1997 and 1996 F-2
Consolidated Statements of Operations for the Years Ended
April 30, 1997 and 1996 F-3
Consolidated Statements of Stockholder's Equity for the Years
ended April 30, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the Years ended
April 30, 1997 and 1996 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.
15
<PAGE>
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
For The Year Ended April 30, 1997
<PAGE>
Table of Contents
Page
Independent Auditor's Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
<PAGE>
PKF
worldwide
[GRAPHIC OMITTED]
PANNELL
KERR
FORSTER PC
Certified Public Accountants
[GRAPHIC OMITTED]
5845 Richmond Highway
Suite 630
Alexandria, VA 22303
Telephone (703) 329-1952
Telefax (703) 329-1959
[email protected]
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, 1997 and 1996, 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, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
June 6, 1997
/s/ Pannell Kerr Forster PC
<PAGE>
<TABLE>
F-2
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
Assets
April 30
---------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 244,961 $ 167,010
Accounts receivable - trade 15,599 4,545
Inventories 57,919 53,160
Prepaid expenses 19,174 20,516
Deferred tax asset (note 3) 215,892 0
------------------ ------------------
Total current assets 553,545 245,231
------------------ ------------------
Property and equipment
Furniture and equipment 516,956 516,383
Leasehold improvements 567,312 567,312
------------------ ------------------
1,084,268 1,083,695
Accumulated depreciation and amortization (644,362) (596,322)
------------------ ------------------
439,906 487,373
------------------ ------------------
Other assets
Deposits 11,052 11,052
----------------- ------------------
Total assets $ 1,004,503 $ 743,656
------------------ ------------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 49,658 $ 53,338
Dividend payable on preferred stock (note 6) 201,870 134,580
Note payable (note 2) 17,201 31,010
Other accrued expenses 50,733 39,303
Current portion of deferred lease concessions 4,363 4,363
------------------ ------------------
Total current liabilities 323,825 262,594
------------------ ------------------
Deferred lease concessions, net of current portion 29,007 33,371
------------------ ------------------
Note payable, net of current portion (note 2) 0 12,010
------------------ ------------------
Commitments and contingencies (notes 4 and 5)
Stockholders' equity (notes 6 and 7)
Preferred stock
Series A, 12% Convertible Cumulative; $10 par value;
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 shares
authorized and unissued for 1997 and 1996 0 0
Common stock, par value $.001 per share, 50,000,000 shares
authorized; 8,500,564 shares issued and outstanding 8,501 8,501
Additional paid-in capital 5,308,112 5,308,112
Accumulated deficit (5,225,694) (5,441,684)
------------------ ---------------
Total stockholders' equity 651,671 435,681
------------------ --------------
Total liabilities and stockholders' equity $ 1,004,503 $ 743,656
================== ===============
See notes to consolidated financial statements
</TABLE>
<PAGE>
F-3
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended April 30
1997 1996
Revenue
Food and beverage 1,735,016 $1,701,789
Merchandise, memorabilia and continuing
license fees 405,501 244,234
Initial license fees 0 160,000
Interest income 1,865 3,586
Other income 19,882 29,123
------ ------
2,162,264 2,138,732
Costs and expenses
Cost of food and beverage sales 466,218 478,995
Cost of merchandise, memorabilia and
continuing license fees 62,016 33,049
Restaurant payroll and related costs 582,818 604,496
Restaurant occupancy costs 206,860 195,629
Other restaurant costs 308,067 351,994
General and administrative 368,298 301,090
Promotion 43,148 51,951
Depreciation and amortization 54,269 67,269
Interest 3,182 4,878
----- -----
2,094,876 2,089,351
Income before income tax benefit 67,388 49,381
Income tax benefit (note 3) (215,892) 0
Net income $ 283,280 $ 49,381
Earnings per common and common equivalent share:
Net income $ 0.03 $ 0.01
Earnings per common share - assuming full dilution:
Net income $ 0.03 $ 0.01
See notes to consolidated financial statements
<PAGE>
<TABLE>
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
F-4
Consolidated Statements of Stockholders' Equity
For the Years Ended April 30, 1997 and 1996
<CAPTION>
Series A, 12%
Convertible
Cumulative
Common Stock Preferred Stock Additional
Amount Amount Paid-in Accumulated
Shares at Par Shares at Par Capital Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1995 7,300,564 $ 7,301 56,075 $ 560,752 $ 5,249,312 $(5,423,775) $ 393,590
For the year ended April 30, 1996
Dividend on preferred stock
accrued and unpaid 0 0 0 0 0 (67,290) (67,290)
Options exercised (note 7) 1,200,000 1,200 0 0 58,800 0 60,000
Net income 0 0 0 0 0 49,381 49,381
Balance, April 30, 1996 8,500,564 8,501 56,075 560,752 5,308,112 (5,441,684) 435,681
For the year ended April 30, 1996
Dividend on preferred stock
accrued and unpaid 0 0 0 0 0 (67,290) (67,290)
Net income 0 0 0 0 0 283,280 283,280
Balance, April 30, 1997 8,500,564 $ 8,501 56,075 $ 560,752 $ 5,308,112 $(5,225,694) $ 651,671
</TABLE>
<PAGE>
F-5
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
`
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Years Ended April 30
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 283,280 $ 49,381
Adjustments to reconcile net income
to net cash provided (used)
by operating activities:
Depreciation and amortization 54,269 67,269
Changes in assets and liabilities:
Accounts receivable (11,054) 38,207
Inventories (4,759) (11,925)
Prepaid expenses 1,342 (19,506)
Deferred income taxes (215,892) 0
Accounts payable (3,680) (70,148)
Deferred revenue 0 (75,000)
Other accrued expenses 11,430 (4,417)
Deferred lease concessions (4,364) (4,363)
Net cash provided (used)
by operating activities 110,572 (30,502)
Cash flows from investing activities:
Purchases of property and equipment (6,802) 0
Net cash provided by
investing activities (6,802) 0
Cash flows from financing activities:
Options exercised 0 60,000
Repayments on borrowings (25,819) (18,670)
Net cash provided (used)
by financing activities (25,819) 41,330
Net increase in cash and cash equivalents 77,951 10,828
Cash and cash equivalents at beginning of year 167,010 156,182
Cash and cash equivalents at end of year $ 244,961 $167,010
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 3,182 $ 5,329
See notes to consolidated financial statements
<PAGE>
F-6
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
April 30, 1997
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, 1997, there are twenty Champions Sports Bar Restaurants. Of these twenty,
eighteen 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.
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 the straight-line method 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, 1997 and
1996, was $54,269 and $67,269, respectively.
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.
<PAGE>
F-7
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1997
Note 1 - Organization and summary of significant accounting policies (continued)
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, 1997 and
1996, were as follows:
1997 1996
---------- -------
Restaurant food, beverage and supplies $ 16,332 $ 17,156
Promotional merchandise for sale to
restaurant customers 7,966 5,966
Memorabilia for sale to licensees 33,621 30,038
--------- ---------
$ 57,919 $ 53,160
-------- --------
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
1997 1996
For earnings per common
and common equivalent share 8,600,564 7,831,302
For earnings per common share
assuming full dilution 8,864,677 8,095,415
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.
<PAGE>
F-8
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1997
Note 1 - Organization and summary of significant accounting policies (continued)
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 and
cash equivalent, accounts receivable, accounts payable, accrued expenses, and
note payable approximate fair values because of the short maturities of these
instruments.
Reclassifications
Certain items in the 1996 statements have been reclassified to conform with 1997
presentation. These reclassifications have no effect on the 1996 net income as
previously reported.
Note 2 - Note payable
In April 1995, the Company converted an account payable with a vendor to a note
payable, bearing interest at 10% annually and maturing at December 1997. The
balance outstanding at, April 30, 1997 and 1996 was $17,201 and $43,020,
respectively.
Note 3 - Income taxes
Income tax (benefit) expense consists of the following for the years ended April
30, 1997 and 1996:
1997 1996
--------------- ---------
Current $ - $ -
Deferred 158,069 (40,000)
Increase (decrease)
in valuation allowance (373,961) 40,000
------------- ------------
Total income taxes (benefit) expense $ (215,892) $ -
------------- ----------------
<PAGE>
F-9
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1997
Note 3 - Income taxes (continued)
Temporary differences which give rise to deferred tax assets and liabilities are
as follows:
1997 1996
-------------- ---------
Deferred tax assets:
Deferred rent concessions $ 12,668 $ 14,324
Net operating losses available for
carryforward 1,537,774 1,694,251
Tax credits available for carryforward 7,611 7,611
-------------- --------------
Total deferred tax assets 1,558,053 1,716,186
Valuation allowance (1,338,847) (1,712,808)
----------- -----------
Net deferred tax assets 219,206 3,378
Deferred tax liabilities:
Depreciation (3,314) (3,378)
-------------- --------------
Net deferred tax asset (liability) $ 215,892 $ -
------------ -------------
A reconciliation of income taxes computed at federal statutory rates to income
taxes recorded by the Company is as follows:
Years Ended April 30
1997 1996
Federal income taxes at statutory rate $ (22,912) $ (16,790)
State income taxes net of Federal income
tax benefit (2,669) (1,955)
Effect of non-deductible expenses (345) (377)
Benefit of net operating loss carryforward 25,926 19,122
------------- ------------
Total income taxes $ - $ -
---------------- -------------
<PAGE>
F-10
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1997
Note 3 - Income taxes (continued)
At April 30, 1997, the Company has net operating loss carryforwards of
approximately $4,000,000 for tax reporting purposes. The net operating loss
carryforwards for income tax purposes expire approximately as follows:
2005 $ 562,000
2006 9,000
2007 561,000
2008 1,004,000
2009 1,915,000
-----------
$4,051,000
During the years ended 1997 and 1996, the Company used net operating losses of
approximately $93,000 and $50,000, respectively, to offset taxable income.
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.
Rental expense charged for 1997 and 1996 was $179,650 and $177,794,
respectively. There were no contingent rentals in 1997 or 1996. Future minimum
payments under the remaining noncancellable restaurant lease as of April 30,
1997, are as follows:
1998 129,580
1999 129,580
2000 140,158
2001 140,158
2002 140,158
Thereafter 280,316
---------
Total $959,950
<PAGE>
F-11
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1997
Note 5 - Marriott license
The Company has a trademark license agreement with Marriott International,
Incorporated, (Marriott) which grants Marriott a non-exclusive license to use
the proprietary Champions trademark at Marriott's primary market areas within
the United States
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. During fiscal 1996, this
agreement was modified to an annual royalty of $6,250 within the United States
and $9,261 for locations outside the United States.
Total annual license and memorabilia fees under this agreement were $372,687 and
$178,104 for 1997 and 1996, respectively.
Note 6 - Preferred stock
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. As of fiscal 1997,
the Company has the right to convert the Series A preferred stock into 4.71
shares of the Company's common stock. There were no conversions of Series A
preferred stock in 1997 or 1996.
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.
During fiscal years 1997, 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 arrears at April
30, 1997 aggregated $201,870 ($3.60 per share).
<PAGE>
F-12
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1997
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 had 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, 1997.
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 of 100,000 shares of common stock expire if
not exercised by July 2000. The effect of valuing the stock options as required
by the Statement of Financial Accounting Standards No 123, "Accounting for Stock
Based Compensation", at April 30, 1997 is not material to the Company's
consolidated financial statements.
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 have been granted under
the plan as of April 30, 1997.
Stock option activity is summarized as follows:
Number of shares Weighted average
exercise price
Outstanding, April 30, 1995 750,000 $ 1.85
Granted 1,300,000 .05
Exercised (1,200,000) .05
Expired (300,000) 3.125
------------ --------
Outstanding, April 30, 1996 550,000 0.83
Granted - -
Exercised - -
----------------- ----------
Outstanding, April 30, 1997 550,000 $ 0.83
============ ======
<PAGE>
F-13
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1997
Note 7 - Common stock (continued)
The following table summarizes information about stock options outstanding and
exercisable at April 30, 1997
Outstanding Exercisable
Weighted Weighted
Option Number Weighted Average Number Average
Price of Average Exercise of Exercise
Range Shares Life Price Shares Price
$.05 - $1.00 550,000 3.8 years 0.83 550,000 0.83
At April 30, 1996, options were exerciseable for 550,000 shares at a weighted
average exercise price of 0.83 per share.
On October 2, 1996, the Company entered into a joint venture agreement whereby
only upon the approval of the Board of Directors of a merger or acquisition,
8,500,000 warrants will be issued and exercisable at market price of $0.11 per
warrant. These warrants will automatically expire in two years. As of April 30,
1997, the Board of Directors have not approved a merger or acquisition and no
warrants have been issued.
Note 8 - Non-cash investing and financing activities
A summary of non-cash investing and financing activities for the years ended
April 30, 1997 and 1996, is as follows:
1997 1996
--------- -------
Cumulative dividend on preferred stock not yet paid $67,290 $67,290
Write-off of fully depreciated property and equipment 6,229 -
Note 9 - Recent accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" (SFAS No. 128), which revises the calculation and
presentation provisions of Accounting Principles Board Opinion 15 and related
interpretations. SFAS No. 128 is effective for financial statements with period
ending after December 15, 1997. Retroactive application will be required.
Adoption of this statement will not have a material effect on Company's reported
earnings per share.
<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 /s/ James E. McCollam
------------------------------------------
James E. McCollam
Chief Accounting Officer andController
Date: July 29, 1997
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 /s/ James M. Martell
-----------------------------------------------------
James M. Martell
Chairman and President
July 29, 1997
-----------------------------------------------------
By /s/ Michael M. Tomic
-----------------------------------------------------
Michael M. Tomic
Director
Date: July 29, 1997
-----------------------------------------------------
By /s/ George A. Naddaff
-----------------------------------------------------
George A. Naddaff
Director
-----------------------------------------------------
Date: July 29, 1997
-----------------------------------------------------
47
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
For the twelve months ended April 30, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 244,961
<SECURITIES> 0
<RECEIVABLES> 15,599
<ALLOWANCES> 0
<INVENTORY> 57,919
<CURRENT-ASSETS> 553,545
<PP&E> 1,084,268
<DEPRECIATION> (644,362)
<TOTAL-ASSETS> 1,004,503
<CURRENT-LIABILITIES> 323,825
<BONDS> 0
0
560,752
<COMMON> 8,501
<OTHER-SE> 82,418
<TOTAL-LIABILITY-AND-EQUITY> 1,004,503
<SALES> 2,140,517
<TOTAL-REVENUES> 2,162,264
<CGS> 528,234
<TOTAL-COSTS> 1,669,127
<OTHER-EXPENSES> 422,567
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,182
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 67,388
<DISCONTINUED> 0
<EXTRAORDINARY> (215,892)
<CHANGES> 0
<NET-INCOME> 283,280
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
