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, 1998
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
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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 101, 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 report
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of1934 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 registrant's knowledge, in a definitive proxy or
information statements incorporated by reference in Part III of this Form10-KSB.
[X]
For the year ended April 30, 1998, the revenues of the registrant were
$2,327,778.
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, 1998, was approximately $2,200,000.
As of July 15,1998, 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 promotes a sports theme restaurant bar concept through a
Company owned and licensed operations and is also an exclusive supplier of
sports memorabilia to Marriott International, Inc. (Marriott). Effective
November, 1997, the Company sold the rights to the CHAMPIONS brand to Marriott
and became a licensee of CHAMPIONS Sports Bar Restaurants and an exclusive
supplier of sports memorabilia and a consultant to all new managed Marriott and
Renaissance Hotel sports bar restaurants worldwide. At April 30, 1997 there were
20 Champions Sports Bar Restaurants. Of these twenty, eighteen were in Marriott
hotels pursuant to a 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. Of the two other CHAMPIONS, one was Company owned, located in San
Antonio, TX and the other was licensed to a company in Jakarta, Indonesia. At
April 30, 1998, the Company owns the one CHAMPIONS in San Antonio, TX and
licenses one.
(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 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.
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2. Operations
As of the end of the fiscal year, the Company was engaged in the following
types of operations:
(i) Company-Owned Operation The Company currently operates one
Company-owned restaurant. This location is licensed from Marriott royalty free
to use the name CHAMPIONS pursuant to a licensing agreement signed in FY 1998.
This CHAMPIONS sports bar restaurant has been in operation since 1989 and is
located in the River Center Mall in San Antonio, Texas. The San Antonio
restaurant provided approximately 80% of the Company's revenues for FY 1998, as
reflected in the consolidated financial statements included herein.
(ii) Supplier of Sports Memorabilia and Consulting Services to Marriott
Effective November, 1997, the Company sold the rights to the CHAMPIONS
brand to Marriott and became a licensee of CHAMPIONS Sports Bar Restaurants and
an exclusive supplier of sports memorabilia and a consultant to all new managed
Marriott and Renaissance Hotel sports bar restaurants worldwide. Under the terms
of this agreement, Marriott is required to purchase sports memorabilia and for
the Company to serve as a consultant for each new CHAMPIONS or like sports bar
restaurant that opens in a new Marriott or Renaissance Hotel worldwide at the
same prescribed prices (with increases pegged to the Consumer Price Index) as
paid to the Company by Marriott in its previous agreement, except that Marriott
will not pay any annual fees as before. At April 30, 1997 there were 20
Champions Sports Bar Restaurants. Of these twenty, eighteen were in Marriott
hotels pursuant to a 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. With the
addition of Munich CHAMPIONS in Germany and Leipzig CHAMPIONS also in Germany,
at April 30, 1998 there were 20 Marriott Sports Bar Restaurants.
Marriott hotel locations accounted for about 18.0% of the Company's
revenues for FY 1998, as reflected in the consolidated financial statements
included herein.
(iii) Licensed Location
A CHAMPIONS Sports Bar Restaurant is licensed to Majordomo Leisure
Consultants Pte. LTD in Jakarta, Indonesia. Due to the financial and political
situation in Indonesia, this licensed location accounted for no revenues for the
Company for FY 1998.
3. Competition
The food and beverage industry is highly competitive. Food and beverage
businesses are 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 the Champions concept is superior, there are other "sports" bar
restaurants in operation.
The sports memorabilia business is also highly competitive. There is no
assurance that the Company will be the exclusive supplier of sports memorabilia
to all new Marriott and Renaissance Sports Bar Restaurants if its agreement with
Marriott is not automatically renewed in November, 1999.
4. Service Mark
The Company sold the federally registered service mark "Champions" to
Marriott pursuant to the November, 1997 agreement and transferred to Marriott
all of its international service marks that the Company had registered. .
5. Government Regulation
The Company's CHAMPIONS sports bar restaurant is subject to federal,
state and local governmental regulations, including regulations relating to
alcoholic beverage control, public health and safety, zoning and fire codes. The
failure to 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 retaining required licenses, permits or
approvals, any difficulties, delays or failures in retaining such licenses,
permits or approvals could adversely affect the restaurant. The license 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, the restaurant
is operated in accordance with standardized procedures designed to assure
compliance with all applicable codes and regulations.
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The Company may be subject 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 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, 1998, the Company had 2 full-time employees in its
corporate office and 50 employees (both management and hourly) at its San
Antonio restaurant.
Item 2. Properties.
The Company is leasing, on a month to month basis, its corporate office
space located at 2500 Wilson Blvd., Suite 101, 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, TX pursuant to a lease
which expires in November 2004. The lease provides monthly rental payments of
$18,650 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
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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.
Common Stock
High Low
$ $
Fiscal 1998
First Quarter 0.68 0.50
Second Quarter 0.75 0.43
Third Quarter 0.59 0.25
Fourth Quarter 0.36 0.22
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
(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, 1998, was 2,150 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, 1998.
(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. Since November, 1994, the Company's Board of
Directors voted each year to defer payment of the annual dividend of $67,290 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 1998 and 1997.
1. Revenues
For the fiscal year ended April 30, 1998, the Company's revenues
increased by 7.7% to $2,327,778 versus $2,162,264 in fiscal year 1997.
By component, food and beverage sales rose 7.8% to $1,869,646 for FY
1998 compared to $1,735,016 in FY 1997. The Company's management attributes the
increase in food and beverage sales to an increase in the average customer check
and 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 for both
comparable years.
Revenues from merchandise and memorabilia sale and continuing license
fees were $421,442 for the current fiscal year compared to $405,501 in FY 1997.
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
Champions locations in FY 1998 and FY 1997. Furthermore, in FY 1998, the
continuing licensing fees the Company received nominally escalated by
adjustments for increase in the Consumer Price Index and increases in the number
of locations. During FY 1998, the Company received other revenues of $24,834
from vendor promotional rebates and commissions compared to $19,882 in FY 1997.
2. Expenses
The Company's cost of food and beverage during the year ended April 30,
1998 was 27.6% of related sales compared to 26.9% in the preceding year. This
slight increase in product costs in FY 1998 is attributed to nominal wholesale
prices increases as there was no retail price adjustments during either
comparable year.
Restaurant payroll and related costs totaled $652,901 or 34.9% of food
and beverage sales in FY 1998 versus $582,818 or 33.6% of related sales in FY
1997. The increase in direct labor costs is a result of increases in the minium
wage and scarcity of qualified restaurant employees in the San Antonio area.
Restaurant occupancy costs for FY 1998 were $191,644 contrasted to
$206,860 in the prior fiscal year. This decrease is attributed to a decrease in
common area charges and real estate tax assessments passed through by the
landlord.
Other restaurant cost increased from 20.2% of food and beverage sales
in FY 1997 to 21.9% of related sales in FY 1998. This increase is a result of
higher costs of repairs and maintenance for the facility.
General and administrative costs incurred in FY 1998 were $341,734 and
$368,298 in FY 1997. The primary components of G&A expenses are operating the
Company's corporate office,
including salaries. By comparison, general and administrative expenses
decreased by 7.2% from the prior year. Interest expense in both FY 1997 and 1996
was less than 1% of the Company's expenses.
3. Profits / Losses
For FY 1998, the Company generated a profit of $71,481 on a
consolidated basis, from its operations, and a $290,641 gain from the sales of
the Champions brand and trademark to Marriott in FY 1998. For the year, the
Company owned Champions location in San Antonio, Texas generated a profit of
$95,091.
For FY 1997, the Company produced a profit of $67,388, on a
consolidated basis, from its operations and a gain from recording a deferred
income tax asset of $215,892. The Company owned location in San Antonio, TX
produced an operating profit of $98,117 in FY 1997.
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(b) Liquidity and Capital Resources for Fiscal Years 1998 and 1997.
The Company's cash position on April 30, 1998 was $631,230
compared to $244,961 on April 30, 1997, an increase of $386,269.
During the past fiscal year, the Company operating activities generated
cash in excess of expenses of $422,708 including the one time gain for the sale
of the Champions trademark and brand to Marriott. The Company's operating
activities provided sufficient cash flow for the Company to meet its cash needs.
During the past fiscal year, the Company reduced its current assets by nearly
$19,000 and reduced its accounts payable and other accrued expenses by
approximately $10,000. The Company utilized $17,225 to purchase new equipment
and additional $17,201 to repay borrowings. The company had an income tax
expense of $7,490 in FY 1998.
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 its then 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.
The Company's working capital as of April 30, 1998 was a $549,005
contrasted to a $229,720 on April 30, 1997. This improvement in working capital
from the preceding year is attributed to the net profit from operations and the
sale of the Champions brand to Marriott. The Company is actively pursuing merger
or acquisition candidates to meet its longer term liquidity needs. There is no
assurance that the Company will be able to structure such a merger or
acquisition on terms satisfactory to the Company.
(c) Miscellaneous
Stockholders' equity on April 30, 1998 was $938,563 compared to
$651,671 on April 30, 1997. In both November, 1998 and 1997, 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 FY1997, the
Company held its annual meeting of security holders. In FY 1998, the Board of
Directors voted to defer the annual meeting of security holders in order to
preserve the Company's cash reserves.
This document contains "forward-looking statements" (within the meaning of
the Private Securities Litigation Act of 1995) that inherently involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of unforeseen
external factors. These factors may include, but are not limited to, changes in
general economic conditions, customer acceptance of products offered and other
general competitive factors.
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.
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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-13 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.
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 51, 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 51, 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.
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George A. Naddaff, age 68, 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. 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. 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 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. In November 1996, Mr. Naddaff acquired major stock in a New York
based restaurant chain called Ranch*1, a chain of chicken sandwich stores in New
York City. The company currently operates 30 units in the New York metro area.
He is the Chairman of the Board at Ranch*1. Mr. Naddaff serves as a consultant
to Red River Barbeque, a five unit restaurant chain in the Washington D.C. area
and also serves as a consultant to Jreck Subs Group, Inc., a 360 unit pizza and
sub chain. Jreck Subs is a public company located in Orlando, Florida. Mr.
Naddaff serves as Director of Strategic Planning for Adventures in Advertising,
located in Quincy, Massachusetts. AIA is a promotional products company with 130
franchisees. AIA is a rapidly growing concept that deals with logo merchandise
for large corporations. In March, 1998, Mr. Naddaff acquired Frame King Express
with a group of investors. Frame King Express is a 16 store chain of frame shops
located in Boston and San Francisco. The company plans to franchise this
concept. Mr. Naddaff serves as the Chairman of the Board.
Michael M. Tomic, age 52, 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 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 1998, and 1997 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, 1998 87,000 61,039
Chairman, President,& 1997 87,000 42,600
Chief Executive Officer
In FY 1998 all officers of the Company as a group (2 in number)
received cash compensation of $228,139. 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. 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, 1998 all 840,000
shares are reserved and available for issuance.
Page 11
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
As of July 15, 1998, 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
Beneficial Owner Beneficially Owned Percentage
---------------- ------------------ ----------
James M. Martell 1,548,000 18.2%
2500 Wilson Blvd.
Arlington, VA 22201
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, 1998 Percent
- ---- ----- ------------- -------
James M. Martell Chairman, President, 1,548,000 18.2%
CEO & 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%
Item 12. Certain Relationships and Related Transactions.
During FY 1998 and FY 1997, 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, 1998 and 1997 F-2
Consolidated Statements of Operations for the Years Ended
April 30, 1998 and 1997 F-3
Consolidated Statements of Stockholder's Equity for the Years
ended April 30, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the Years ended
April 30, 1998 and 1997 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.
Page 12
<PAGE>
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
For The Year Ended April 30, 1998
<PAGE>
Table of Contents
Page
Independent Auditors' Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
<PAGE>
PKF
worldwide
[Graphic omitted]
PANNELL
KERR
FORSTER PC
Certified Public Accountants
5845 Richmond Highway
Suite 630
Alexandria, VA 22303
Telephone (703) 329-1952
Telefax (703) 329-1959
[Graphic omitted]
Independent Auditors' 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, 1998 and 1997, 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, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ PANNELL KERR FORSTER PC
June 25, 1998
<PAGE>
<TABLE>
F-2
---
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
Assets
April 30
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 631,230 $ 244,961
Accounts receivable - trade 612 15,599
Inventories 69,594 57,919
Prepaid expenses 3,850 19,174
Deferred tax asset (note 3) 207,952 215,892
--------------- ---------------
Total current assets 913,238 553,545
--------------- ---------------
Property and equipment
Furniture and equipment 530,531 516,956
Leasehold improvements 570,962 567,312
--------------- ---------------
1,101,493 1,084,268
Accumulated depreciation and amortization (700,356) (644,362)
--------------- ---------------
401,137 439,906
--------------- ---------------
Other assets
Deposits 13,065 11,052
--------------- ---------------
Total assets $ 1,327,440 $ 1,004,503
=============== ===============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 42,672 $ 49,658
Dividend payable on preferred stock (note 6) 269,160 201,870
Note payable (note 2) - 17,201
Other accrued expenses 48,038 50,733
Current portion of deferred lease concessions 4,363 4,363
--------------- ---------------
Total current liabilities 364,233 323,825
--------------- ---------------
Deferred lease concessions, net of current portion 24,644 29,007
--------------- ---------------
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 1998 and 1997 - -
Common stock, par value $.001 per share, 50,000,000
shares authorized; 8,500,564 shares issued and 8,501 8,501
outstanding
Additional paid-in capital 5,308,112 5,308,112
Accumulated deficit (4,938,802) (5,225,694)
--------------- ---------------
Total stockholders' equity 938,563 651,671
--------------- ---------------
Total liabilities and stockholders' equity $ 1,327,440 $ 1,004,503
=============== ===============
See notes to consolidated financial statements
</TABLE>
<PAGE>
F-3
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended April 30
------------------------------
1998 1997
------------ ------------
Revenue
Food and beverage $ 1,869,646 $ 1,735,016
Merchandise, memorabilia and continuing
license fees 421,442 405,501
Interest income 11,856 1,865
Other income 24,834 19,882
------------ ------------
2,327,778 2,162,264
------------ ------------
Costs and expenses
Cost of food and beverage sales 515,775 466,218
Cost of merchandise, memorabilia and
continuing license fees 88,315 62,016
Restaurant payroll and related costs 652,901 582,818
Restaurant occupancy costs 191,644 206,860
Other restaurant costs 409,479 351,215
General and administrative 341,734 368,298
Depreciation and amortization 55,994 54,269
Interest 455 3,182
------------ ------------
2,256,297 2,094,876
------------ ------------
Operating income 71,481 67,388
Gain on sale of name and trademarks (note 5) 290,641 -
------------ ------------
Income before income tax benefit (expense) 362,122 67,388
Income tax benefit (expense) (note 3) (7,940) 215,892
------------ ------------
Net income 354,182 283,280
Less preferred stock dividends (67,290) (67,290)
------------ ------------
Net income available to common
stockholders $ 286,892 $ 215,990
============ ============
Basic earnings per share $ .03 .03
============ ============
Earnings per common share -
assuming full dilution $ .03 .03
============ ============
See notes to consolidated financial statements
<PAGE>
F-4
<TABLE>
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For The Years Ended April 30, 1998 and 1997
<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, 1996 8,500,564 $ 8,501 56,075 $ 560,752 $ 5,308,112 $(5,441,684) $ 435,681
For the year ended April 30, 1997
Dividend on preferred stock
accrued and unpaid -- -- -- -- -- (67,290) (67,290)
Net income -- -- -- -- -- 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
----------- ----------- ----------- ----------- ----------- ----------- -----------
For the year ended April 30, 1998
Dividend on preferred stock
accrued and unpaid -- -- -- -- -- (67,290) (67,290)
Net income -- -- -- -- -- 354,182 354,182
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, April 30, 1998 8,500,564 $ 8,501 56,075 $ 560,752 $ 5,308,112 $ 4,938,802) $ 938,563
=========== =========== =========== =========== =========== =========== ===========
</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
---------------------
1998 1997
---------- ----------
Cash flows from operating activities:
Net income $354,182 $ 283,280
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 55,994 54,269
Changes in assets and liabilities:
Accounts receivable 14,987 (11,054)
Inventories (11,675) (4,759)
Prepaid expenses 15,324 1,342
Deferred income taxes 7,940 (215,892)
Accounts payable (6,986) (3,680)
Other accrued expenses (2,695) 11,430
Deferred lease concessions (4,363) (4,364)
---------- ----------
Net cash provided by operating activities 422,708 110,572
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (17,225) (6,802)
Deposits (2,013) -
---------- ----------
Net cash (used) by investing activities (19,238) (6,802)
---------- ----------
Cash flows from financing activities:
Repayments on borrowings (17,201) (25,819)
---------- ----------
Net cash (used) by financing activities (17,201) (25,819)
---------- ----------
Net increase in cash and cash equivalents 386,269 77,951
Cash and cash equivalents at beginning of year 244,961 167,010
---------- ----------
Cash and cash equivalents at end of year $631,230 $ 244,961
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 455 $ 3,182
========== ==========
<PAGE>
F-6
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
April 30, 1998
Note 1 - Organization and summary of significant accounting policies
Organization
Champions Sports, Inc., (Company) a Delaware corporation, promotes a sports
theme restaurant bar concept through Company owned and licensed operations.
Effective November 1997, the Company sold the rights to the Champions brand to
Marriott International, Inc. (Marriott) and became a licensee of Champions
Sports Bar Restaurants (note 5). The Company is an exclusive supplier of sports
memorabilia and a consultant to all new managed Marriott and Renaissance Hotel
Sports Bar Restaurants worldwide. At April 30, 1997, there were twenty Champions
Sports Bar Restaurants. Of these twenty, eighteen were in Marriott hotels
pursuant to a licensing agreement (note 5), one was Company owned, and one was
licensed overseas. At April 30, 1998, the Company owns one and licenses one,
without any royalty fee, Champions Sports Bar Restaurant.
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, 1998 and
1997, was $55,994 and $54,269, respectively.
License fee revenue
Initial license fees were recognized as revenue when all material services
provided for in the license agreement had been substantially performed by the
Company. Continuing license fees were recognized over the period of time to
which they related.
Due to the economic instability in East Asia, the license fee for the Jakarta
location has not been recognized in the current fiscal year.
<PAGE>
F-7
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1998
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, 1998 and
1997, were as follows:
1998 1997
------- -------
Restaurant food and beverage ..................... $28,603 $16,332
Promotional merchandise for sale to
restaurant customers ........................... 8,786 7,966
Memorabilia for sale ............................. 32,205 33,621
------- -------
$69,594 $57,919
======= =======
Net income per share
Basic earnings per common share is computed by dividing the net income reduced
by preferred stock dividends by the weighted average number of common shares
outstanding during the period.
The weighted average number of common shares used to compute earnings per share
is:
At April 30, 1998
Income available to Common Per
Common Shareholders Shares Share
------------------- ------ -----
Basic earnings per
Common Share $286,892 8,500,564 $.034 Dilutive
Options - 88,889
Assuming full dilution 286,892 8,589,453 .033 Dilutive
Convertible preferred
stock 67,290 264,113
-------- ---------
Assuming full conversion
which results in anti-dilution $354,182 8,853,566 .040 Anti
======== ========= dilutive
The convertible preferred shares are antidilutive and, therefore, are excluded
from the computation of diluted earnings per share.
<PAGE>
F-8
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1998
Note 1 - Organization and summary of significant accounting policies (continued)
Net income per share (continued)
At April 30, 1998
-----------------
Income available to Common Per
Common Shareholders Shares Share
------------------- ------ -----
Basic earnings per
Common Share $286,892 8,500,564 $.034 Dilutive
Options - 88,889
-------- ---------
Assuming full dilution 286,892 8,589,453 .033 Dilutive
Convertible preferred
stock 67,290 264,113
-------- ---------
Assuming full conversion
which results in anti-dilution $354,182 8,853,566 .040 Anti
======== ========= dilutive
The convertible preferred shares are antidilutive and, therefore, are excluded
from the computation of diluted earnings per share.
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. At April 30, 1998,
the Company had amounts on deposit at financial institutions in excess of
federally insured limits.
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 equivalents, accounts receivable, accounts payable, and accrued expenses,
approximate fair values because of the short maturities of these instruments.
<PAGE>
F-9
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1998
Note 2 - Note payable
In April 1995, the Company converted an account payable with a vendor to a note
payable, bearing interest at 10 percent annually and maturing at December 1997.
The balance outstanding at April 30, 1997 was $17,201. The balance was repaid
during fiscal year 1998.
Note 3 - Income taxes
Income tax benefit (expense) consists of the following for the years ended April
30, 1998 and 1997:
1998 1997
---- ----
Current $ - $ -
Deferred 137,810 158,069
(Decrease) in valuation allowance (129,870) (373,961)
--------- ---------
Total income tax benefit (expense) $ (7,940) $ 215,892
========= =========
Temporary differences which give rise to deferred tax assets and liabilities are
as follows:
1998 1997
---- ----
Deferred tax assets and (liabilities)
Deferred rent concessions $ 11,011 $ 12,668
Net operating losses available for carryforward 1,382,188 1,537,774
Depreciation 16,119 (3,314)
Tax credits available for carryforward 7,611 7,611
---------- -----------
Total deferred tax assets 1,416,929 1,554,739
Valuation allowance (1,208,977) (1,338,847)
---------- -----------
Net deferred tax assets $ 207,952 $ 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
--------------------
1998 1997
---- ----
Federal income taxes at statutory rate $ (123,121) $ (22,912)
State income taxes net of Federal income
tax benefit (14,341) (2,669)
Effect of non-deductible expenses (348) (345)
Change in valuation allowance 129,870 373,961
Expiration of capital loss carryforward - (132,143)
------------- -----------
Total income tax benefit (expense) $ (7,940) $ 215,892
========= ===========
<PAGE>
F-10
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1998
Note 3 - Income taxes (continued)
At April 30, 1998, the Company has net operating loss carryforwards of
approximately $3,919,000 for tax reporting purposes. The net operating loss
carryforwards for income tax purposes expire approximately as follows:
2005 $ 419,000
2006 9,000
2007 561,000
2008 1,004,000
2009 1,915,000
2010 -
2011 11,000
-------------
$3,919,000
During the years ended 1998 and 1997, the Company used net operating losses of
approximately $399,000 and $93,000, 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 now leases office space on a
month-to-month basis.
Rental expense charged for 1998 and 1997 was $174,217 and $179,650,
respectively. There were no contingent rentals in 1998 or 1997. Future minimum
payments under the noncancellable restaurant lease as of April 30, 1998, are as
follows:
1999 $129,580
2000 140,158
2001 140,158
2002 140,158
2003 140,158
Thereafter 140,158
---------
Total $830,370
<PAGE>
F-11
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1998
Note 5 - Marriott license
The Company had a trademark license agreement with Marriott International, Inc.,
which granted Marriott a non-exclusive license to use the proprietary Champions
trademark at Marriott's primary market areas within the United States. Marriott
was required to pay an annual royalty of $6,250 within the United States and
$9,261 for locations outside the United States, to be adjusted annually for
increases in the consumer price index, for each Champions Sports Bar operated by
Marriott. The Company was required to provide the sports memorabilia for each
new Champions Sports Bar opened by Marriott. The agreement was terminated in
November 1997 and replaced by Consulting Services and Sports Memorabilia Supply
Agreement for an initial term of two years and a renewal at Marriott's option of
an additional two years. Also, the Company sold the rights to the Champions
brand to Marriott International, Inc., and became a licensee of Champions Sports
Bar Restaurants. Currently, the Company is an exclusive supplier of sports
memorabilia and a consultant to all new Champions Sports Bars located in
Marriott and Renaissance Hotels worldwide.
Total annual license and memorabilia fees under this agreement were $380,988 and
$372,687 for 1998 and 1997, 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 percent 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 1998,
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 1998 or 1997.
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 expired in November
1997.
During fiscal years 1998, 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, 1998 aggregated $269,160 ($4.80 per share).
<PAGE>
F-12
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1998
Note 7 - Common stock
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, 1998.
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 Number 123, "Accounting for
Stock Based Compensation", at April 30, 1998, 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, 1998.
Stock option activity is summarized as follows:
Weighted average
Number of shares exercise price
Outstanding, April 30, 1996 550,000 $ 0.83
Granted - -
Exercised - -
Outstanding, April 30, 1997 550,000 0.83
------- -------
Granted - -
Exercised - -
------------- ---------
Outstanding, April 30, 1998 550,000 $ 0.83
======= ======
The following table summarizes information about stock options outstanding and
exercisable at April 30, 1998.
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 2.8 years $0.83 550,000 $0.83
At April 30, 1997, options were exercisable for 550,000 shares at a weighted
average exercise price of $0.83 per share.
<PAGE>
F-13
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1998
Note 7 - Common stock (continued)
On October 2, 1996, the Company entered into a performance based stock option
joint venture agreement whereby only upon the approval of the Board of Directors
of a merger or acquisition, 8,500,000 common shares will be issued and
exercisable at market price of $0.11 per share. These shares will automatically
expire in two years. As of April 30, 1998, the Board of Directors have not
approved a merger or acquisition and no shares 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, 1998 and 1997, is as follows:
1998 1997
--------- -------
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 June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), which revises the presentation
of the statements of operations. SFAS No. 130 is effective for financial
statements with years beginning after December 15, 1997. Adoption of this
statement will not have a material effect on the Company's net income.
<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 and Controller
Date: July 29, 1998
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
Date: July 29, 1998
By /s/ Michael M. Tomic
-----------------------
Michael M. Tomic
Director
Date: July 29, 1998
By /s/ George A. Naddaff
------------------------
George A. Naddaff
Director
Date: July 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<CASH> 631,230
<SECURITIES> 0
<RECEIVABLES> 612
<ALLOWANCES> 0
<INVENTORY> 69,594
<CURRENT-ASSETS> 913,238
<PP&E> 1,101,493
<DEPRECIATION> (700,356)
<TOTAL-ASSETS> 1,327,440
<CURRENT-LIABILITIES> 364,233
<BONDS> 0
560,752
0
<COMMON> 8,501
<OTHER-SE> 369,310
<TOTAL-LIABILITY-AND-EQUITY> 1,327,440
<SALES> 2,291,088
<TOTAL-REVENUES> 2,327,778
<CGS> 604,090
<TOTAL-COSTS> 1,254,024
<OTHER-EXPENSES> 397,728
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 455
<INCOME-PRETAX> 362,122
<INCOME-TAX> 7,940
<INCOME-CONTINUING> 71,481
<DISCONTINUED> 0
<EXTRAORDINARY> 290,641
<CHANGES> 0
<NET-INCOME> 354,182
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
