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
For the fiscal year ended April 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ________
Commission file number 0-17263
CHAMPIONS SPORTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1401755
(State or other jurisdiction of (I.R.S. Employer
organization) Identification No.)
2420 Wilson Blvd., Suite 214, Arlington, VA 22201
(Address of principal executive offices)
(Zip code)
(703) 526-0400
(Registrant's telephone number, including area code)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
Preferred Stock, par value $10.00 per share
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all 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 if 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 definitive proxy or
information statements incorporated by reference in Part III of this Form10-KSB
or any amendment to this Form 10-KSB. [X]
For the year ended April 30, 1999, the revenues of the registrant were
$2,197,667.
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 19, 1999, was approximately $600,000.
As of July 19,1999, the Registrant had a total of 8,513,591 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 11,250 preferred shares have been
converted into 52,988 shares of common stock.
The Company is a licensee of one CHAMPIONS Sports Bar Restaurant and the
exclusive supplier of sports memorabilia and consultant 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, 1999, the Company owns the one CHAMPIONS
Sports Bar Restaurant in San Antonio, Texas.
(b) Description of Business.
1. Concept
The Company operates a restaurant in San Antonio, Texas by the name of
CHAMPIONS which has a sports theme concept that combines casual dining, sports
viewing with strategic marketing and promotions. The CHAMPIONS popularity is
defined in the CHAMPIONS motto: "Good
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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 in San Antonio, Texas is a full-fledged restaurant as well
as bar. 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. CHAMPIONS average check is about
$14.25 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.. Although no element of he CHAMPIONS concept is
unique, the combination of food, atmosphere, sports memorabilia, sports viewing,
marketing and promotions defines the concept.
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.
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
78% of the Company's revenues for FY 1999, as reflected in the consolidated
financial statements included herein.
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(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. In FY 1999, the Company signed
agreements to provide sports memorabilia to Champions locations in Turkey,
Panama, People's Republic of China, and Cancun, Mexico.
Marriott hotel locations accounted for about 20% of the Company's revenues
for FY 1999, as reflected in the consolidated financial statements included
herein.
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 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
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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.
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, 1999, the Company had 2 full-time employees in its
corporate office in Arlington, Virginia and 45 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 2420 Wilson Blvd., Suite 214, Arlington, VA 22201. The
Company's rental payments are $400 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
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party or of which its properties are the subject, and no such proceedings are
known to the Company to be contemplated by governmental authorities.
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5. Markets for Common Equity & Related Stockholder Matters.
(a) Principal Market or Markets.
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 1999
First Quarter 0.50 0.19
Second Quarter 0.27 0.07
Third Quarter 0.14 0.06
Fourth Quarter 0.09 0.06
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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
(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 19 1999, was 2,150 and the Company estimates that there are
approximately3,000 additional beneficial shareholders. There are about 30
beneficial holders of the Company's preferred stock as of July 19, 1999.
(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.
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
(a) Results of Operations for Fiscal Years 1999 and 1998.
Revenues
For the fiscal year ended April 30, 1999, the Company's revenues
decreased by 5.6% to $2,197,677 versus $2,327,778in fiscal year 1998.
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By component, food and beverage sales decreased 8.3% to $1,714,237 for
FY1999 compared to $1,869,646 in FY 1998. The Company's management attributes
the decrease in food and beverage sales to a delay in the NBA season during FY
1999 in which the customer count decreased. In FY 1998, the San Antonio
CHAMPIONS benefitted from two, one time events, the Big Twelve Tournament and
the NCAA Championship. The food to beverage ratio for the San Antonio location
was approximately 60/40 for both comparable years.
Revenues from merchandise and memorabilia sales and continuing license
fees accounted for 19.8% of the Company's total revenue in FY 1999 compared to
18.1% in FY 1998. Sales of memorabilia are directly tied to the number of new
Champions locations which open during the fiscal year. In FY 1999, the Company
signed agreements to provide sports memorabilia to Champions locations in
Turkey, Panama, People's Republic of China, and Cancun, Mexico. In FY 1998, the
Company opened two Champions locations and received continuing licensing fees,
which were discontinued in FY 1999 pursuant to the November, 1997 agreement with
Marriott for the sale of the rights to the CHAMPIONS brand. During FY 1999, the
Company received other revenues of $22,986 from vendor promotional rebates and
commissions compared to $24,834 in FY 1998. Interest income represented 1% of
the Company's total revenues in FY 1999 and less than 1% in the comparable year.
2. Expenses
The Company's cost of food and beverage during the year ended April 30,
1999 was 26.7% of related sales, compared to 27.6% in the preceding year. This
slight decrease in product costs in FY 1999 is attributed to stable wholesale
prices , as there was no retail price adjustments during either comparable year.
Restaurant payroll and related costs remained constant during both
comparable years at 35.09% of food and beverage sales in FY 1999 and 34.9% of
related sales in FY1998. Restaurant occupancy costs for FY 1999 increased 8% to
$206,888 from $191,644 due to increases in common area charges and real estate
tax assessments passed through by the landlord.
Other restaurant costs remained constant at 21.3% and 21.9% of related
food and beverage sales. General and administrative costs incurred in FY 1999
were $346,176 and$341,734 in FY 1998. The primary components of G&A expenses are
operating the Company's corporate office, including salaries. Interest expense
in both FY 1999 and 1998 was less than 1% of the Company's expenses.
3. Profits / Losses
For FY 1999 the Company's net income was $16,397 from its operations,
before dividends accrued on the outstanding preferred stock of $67,290, creating
a net loss available to common
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shareholders of $50,893.
For FY 1998, the Company's net income was $354,182 before the dividend
accrued on the outstanding preferred stock of $67,290, producing a net income
available for common shareholders of $286,892. 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.
(b) Liquidity and Capital Resources for Fiscal Years 1999 and 1998
The Company's cash position on April 30, 1999 was $726,241 compared to
$631,230 on April 30, 1998, an increase of $95,011.
During the past fiscal year, the Company's operating activities
generated cash in excess of expenses of $105,486. The Company realized a gain on
the disposal of a fixed assets of $4,000, reduced its inventories by $49,418 and
current liabilities by $20,233. The Company purchased equipment for $32,286 and
repaid capitol lease for $5,756. Cash used to pay interest was $5,097. The
Company's operating activities provided sufficient cash flow for the Company to
meet its cash needs
During FY 1998, 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. Also, 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.
The Company's working capital as of April 30, 1999 was a $535,863
contrasted to a $549,005 on April 30, 1998.
The Company is actively pursuing merger or acquisition candidates and
other investment opportunities 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, 1999 was $887,670 compared to
$938,563 on April 30, 1998. In FY 1999 and 1998, 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
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recorded on the Company's balance sheet as a current liability. In addition, in
FY 1999 and 1998, the Board of Directors voted to defer the annual meeting of
security holders in order to preserve the Company's cash reserves.
The agreement between Business Expansion Capitol Corporation and
Champions Sports expired in October, 1998 and was not renewed.
This document contains "forward-looking statements" (within the meaning
of the Private Securities Litigation Act of 1995) that inherently involves risk
and uncertainties. The Company's actual result could differ materially for those
anticipated in there 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.
(d) Year 2000
The Company has taken appropriate measures by purchasing software and
computer equipment that is compliant with identifying the year 2000. However,
the Company relies on outside vendors and financial institutions and there is no
assurance that these vendors and financial institutions will be able to meet the
year 2000 requirements.
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.
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Item 9. Directors and Executive Officers.
The Executive Officers and Directors of the Company are as
follows:
NAME POSITION(S) PRESENTLY HELD
James M. Martell Chairman, President, Chief Executive
Officer, Director
James E. McCollam Controller, Chief Accounting Officer,
Corporate Secretary
Michael M. Tomic Director
James M. Martell, age 52, has served as Chairman since November 1991and
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 52, 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. He earned a Bachelor of Science degree in
Finance from the University of Maryland 1970.
Michael M. Tomic, age 53, 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.
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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.
George Naddaff, owner of Business Expansion Capitol Corporation,
resigned from the Board of Directors of the Company after the agreement between
Business Expansion Capitol Corporation and the Company expired in October, 1998.
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 1999, and 1998 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, 1999 87,000 73,000
Chairman, President,& 1998 87,000 61,039
Chief Executive Officer
In FY 1999 all officers of the Company as a group (2 in number)
received cash compensation of $233,000. 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
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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. This agreement was extended for one year in FY 1999.
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
toparticipate 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, 1999 all 840,000
shares are reserved and available for issuance.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
As of July 19, 1999, 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%
2420 Wilson, Blvd. Suite 214
Arlington, VA 22201
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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 19, 1999 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 1999 and FY 1998, there were no related party
transactions.
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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, 1999 and 1998 F-2
Consolidated Statements of Operations for the Years Ended
April 30, 1999 and 1998 F-3
Consolidated Statements of Stockholder's Equity for the Years
ended April 30, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the Years ended
April 30, 1999 and 1998 F-5
Notes to the Consolidated Financial Statements F6/F-13
(b) There were no Form 8-K's filed during the last quarter of
the period covered by this report.
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CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
For The Year Ended April 30, 1999
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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
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PKF PANNELL
worldwide KERR
[graphics omitted] FORSTER PC
Certified Public Accountants
10304 Eaton Place
Suite 440
Fairfax, VA 22030
Telephone (703) 385-8809
Telefax (703) 385-8890
[email protected]
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, 1999 and 1998, 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, 1999 and 1998, 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 14, 1999
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<TABLE>
<CAPTION>
2
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CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
Assets
April 30
---------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Current assets
Cash and cash equivalents $726,241 $631,230
Accounts receivable - trade 800 612
Inventories 20,176 69,594
Prepaid expenses 3,232 3,850
Deferred tax asset (note 2) 207,952 207,952
--------------- ---------------
Total current assets 958,401 913,238
--------------- ---------------
Property and equipment
Furniture and equipment 539,139 530,531
Leasehold improvements 570,962 570,962
--------------- ---------------
1,110,101 1,101,493
Accumulated depreciation and amortization (729,420) (700,356)
--------------- ---------------
380,681 401,137
--------------- ---------------
Other assets
Deposits 11,052 13,065
--------------- ---------------
Total assets $1,350,134 $1,327,440
=============== ===============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $36,817 $42,672
Dividend payable on preferred stock (note 6) 336,450 269,160
Other accrued expenses 38,023 48,038
Current portion of deferred lease concession 4,363 4,363
Current portion of capital lease obligation (note 4) 6,885 -
--------------- ---------------
Total current liabilities 422,538 364,233
--------------- ---------------
Capital lease obligation, net of current portion (note 4) 19,645 -
Deferred lease concession, net of current portion 20,281 24,644
--------------- ---------------
--------------- ---------------
Total liabilities 462,464 388,877
--------------- ---------------
Commitments and contingencies (notes 3, 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; 56,075 shares
authorized; 55,775 and 56,075 shares issued and
outstanding for 1999 and 1998, respectively 557,752 560,752
Common stock, par value $.001 per share, 50,000,000
shares authorized; 8,501,977 and 8,500,564 shares
issued and outstanding for 1999 and 1998, respectively 8,502 8,501
Additional paid-in capital 5,311,111 5,308,112
Accumulated deficit (4,989,695) (4,938,802)
--------------- ---------------
Total stockholders' equity 887,670 938,563
--------------- ---------------
Total liabilities and stockholders' equity $1,350,134 $1,327,440
=============== ===============
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
3
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended April 30
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Revenue
Food and beverage $1,714,237 $1,869,646
Merchandise, memorabilia and continuing
license fees 435,843 421,442
Interest income 24,601 11,856
Other income 22,986 24,834
---------------- ----------------
2,197,667 2,327,778
---------------- ----------------
Costs and expenses
Cost of food and beverage sales 457,455 515,775
Cost of merchandise, memorabilia and
continuing license fees 136,753 88,315
Restaurant payroll and related costs 600,516 652,901
Restaurant occupancy costs 206,888 191,644
Other restaurant costs 364,911 409,479
General and administrative 346,176 341,734
Depreciation and amortization 63,474 55,994
Interest 5,097 455
---------------- ----------------
2,181,270 2,256,297
---------------- ----------------
Operating income 16,397 71,481
Gain on sale of name and trademarks (note 5) - 290,641
---------------- ----------------
Income before income tax expense 16,397 362,122
Income tax expense (note 2) - 7,940
---------------- ----------------
Net income 16,397 354,182
Less preferred stock dividends (67,290) (67,290)
---------------- ----------------
Net income (loss) available to common
stockholders $(50,893) $286,892
================ ================
Basic earnings (loss) per share $(.00) $.03
================ ================
Earnings (loss) per common share - assuming
dilution $(.00) $.03
================ ================
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
4
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For The Years Ended April 30, 1999 and 1998
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>
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
For the year ended April 30, 1999
Dividend on preferred stock
accrued and unpaid - - - - - (67,290) (67,290)
Preferred stock converted
to common (note 6) 1,413 1 (300) (3,000) 2,999 - -
Net income - - - - - 16,397 16,397
------------------------------------------------------------------------------------------
Balance, April 30, 1999 8,501,977 $8,502 55,775 $557,752 $5,311,111 $(4,989,695) $887,670
========= ====== ====== ======== ========== =========== ========
See notes to consolidated financial statements
</TABLE>
<PAGE>
5
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Years Ended April 30
----------------------------
1999 1998
---- ----
Cash flows from operating activities:
Net income $16,397 $354,182
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 63,474 55,994
Gain on disposal of asset (4,000) -
Changes in assets and liabilities:
Accounts receivable (188) 14,987
Inventories 49,418 (11,675)
Prepaid expenses 618 15,324
Deferred income taxes - 7,940
Accounts payable (5,855) (6,986)
Other accrued expenses (10,015) (2,695)
Deferred lease concessions (4,363) (4,363)
---------------- ----------
Net cash provided
by operating activities 105,486 422,708
---------------- ----------
Cash flows from investing activities:
Purchases of property and equipment(net of
deposits applied) (4,719) (17,225)
Deposits - (2,013)
---------------- ----------
Net cash (used) by
investing activities (4,719) (19,238)
---------------- ----------
Cash flows from financing activities:
Principal payments on capital lease (5,756) (17,201)
---------------- ----------
Net increase in cash and cash equivalents 95,011 386,269
Cash and cash equivalents at beginning of year 631,230 244,961
---------------- ----------
Cash and cash equivalents at end of year $726,241 $631,230
================ ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $5,097 $455
================ ==========
See notes to consolidated financial statements
<PAGE>
6
CHAMPIONS SPORTS , INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
April 30, 1999
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 Champions Sports Bars located in
Marriott and Renaissance Hotels worldwide. At April 30, 1999, the Company owns
and licenses, without any royalty fee, one 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.
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, 1999 and
1998, was $63,474 and $55,994, 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.
<PAGE>
7
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1999
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, 1999 and
1998, were as follows:
1999 1998
---------- ----------
Restaurant food and beverage $13,561 $28,603
Promotional merchandise for sale to
restaurant customers 6,615 8,786
Memorabilia for sale - 32,205
------------- --------
$20,176 $69,594
======= =======
Net income (loss) 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, 1999
(Loss) available to Common Per
Common Stockholders Shares Share
Basic (loss) per
Common Share $(50,893) 8,501,977 $ (.00)
======== =========
The stock options (note 7) and convertible preferred shares are antidilutive
and, therefore, are excluded from the computation of basic earnings per share.
<PAGE>
8
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1999
Note 1 - Organization and summary of significant accounting policies (continued)
Net income (loss) per share (continued)
At April 30, 1998
(Loss) available to Common Per
Common Stockholders Shares Share
Basic earnings per
Common Share $286,892 8,500,564 $ .034 Dilutive
Options - 88,889
--------- ---------
Assuming 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 anti-dilutive 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, 1999,
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 principles 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.
<PAGE>
9
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1999
Note 1 - Organization and summary of significant accounting policies (continued)
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.
Note 2 - Income taxes
Income tax (benefit) expense consists of the following for the years ended April
30, 1999 and 1998:
1999 1998
-------- --------
Current $ - $ -
Deferred 2,669 137,810
(Increase) decrease in
valuation allowance (2,669) (129,870)
------------ ----------
Total income tax expense $ - $ 7,940
============ ==========
Temporary differences which give rise to deferred tax assets and liabilities are
as follows:
1999 1998
-------------- -------------
Deferred tax assets and (liabilities)
Deferred rent concessions $ 10,071 $ 11,011
Net operating losses available
for carryforward 1,393,451 1,382,188
Depreciation 16,076 16,119
Tax credits available for carryforward - 7,611
------------- --------------
Total deferred tax assets 1,419,598 1,416,929
Valuation allowance (1,211,646) (1,208,977)
----------- -----------
Net deferred tax assets $ 207,952 $ 207,952
=========== ===========
A reconciliation of income taxes computed at Federal statutory rates to income
taxes recorded by the Company is as follows:
Years Ended April 30
1999 1998
Federal income taxes at statutory rate $ 1,810 $ 123,121
State income taxes net of Federal income
tax benefit 477 14,341
Effect of non-deductible expenses 382 348
Change in valuation allowance (2,669) (129,870)
------------- -----------
Total income tax expense $ - $ 7,940
============ ==========
<PAGE>
10
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1999
Note 2 - Income taxes (continued)
At April 30, 1999, the Company has net operating loss carryforwards of
approximately $3,873,000 for tax reporting purposes. The net operating loss
carryforwards for income tax purposes expire approximately as follows:
2005 $ 143,000
2006 9,000
2007 561,000
2008 1,004,000
2009 1,915,000
2011 11,000
2012 28,000
-------------
$3,671,000
During the years ended 1999 and 1998, the Company used net operating losses of
approximately $46,000 and $399,000, respectively, to offset taxable income.
Note 3 - 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 during the years ended 1999 and 1998 was $174,279 and
$174,217, respectively. There were no contingent rentals in 1999 or 1998. Future
minimum payments under the noncancellable restaurant lease as of April 30, 1999,
are as follows:
2000 $140,158
2001 140,158
2002 140,158
2003 140,158
2004 140,158
---------
Total $700,790
========
Note 4 - Capital lease obligation
The Company is the lessee of equipment under a capital lease effective July
1998. The equipment cost of $32,286 is depreciated over its useful life, and
such depreciation is included in the depreciation expense for 1999.
<PAGE>
11
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1999
Note 4 - Capital lease obligation (continued)
Minimum future lease payments under the capital lease as of April 30, 1999 are
as follows:
2000 $11,841
2001 11,841
2002 11,841
2003 1,974
---------
Total future minimum lease payments 37,497
Less interest (10,967)
--------
Principal payments due 26,530
Less current portion (6,885)
$19,645
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 a 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 $403,244 and
$380,988 for 1999 and 1998, respectively.
Note 6 - 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. There were conversions of 300 shares of Series A preferred stock
in 1999 and no conversions in 1998.
<PAGE>
12
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1999
Note 6 - Preferred stock (continued)
For each of the five fiscal years ended April 30, 1999, 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, 1999 aggregated $336,450 ($6.03 per share).
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, 1999.
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, 1999, 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, 1999.
Stock option activity is summarized as follows:
Weighted average
Number of shares exercise price
Outstanding, April 30, 1997 550,000 $ 0.83
Granted - -
Exercised - -
------------- ---------
Outstanding, April 30, 1998 550,000 0.83
Granted - -
Exercised - -
------------- ---------
Outstanding, April 30, 1999 550,000 $ 0.83
======= ======
<PAGE>
13
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 1999
Note 7 - Common stock (continued)
The following table summarizes information about stock options outstanding and
exercisable at April 30, 1999.
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 1.8 years $0.83 550,000 $0.83
Note 8 - Non-cash investing and financing activities
A summary of non-cash investing and financing activities for the years ended
April 30, 1999 and 1998, is as follows:
1999 1998
--------- ----------
Cumulative dividend on preferred
stock not yet paid $67,290 $67,290
Equipment acquired through capital lease $32,286 $ -
<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, 1999
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, 1999
By: /s/ Michael M. Tomic
Michael M. Tomic
Director
Date: July 29, 1999
-29-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> APR-30-1999
<CASH> 726,241
<SECURITIES> 0
<RECEIVABLES> 800
<ALLOWANCES> 0
<INVENTORY> 20,176
<CURRENT-ASSETS> 958,401
<PP&E> 1,101,101
<DEPRECIATION> 729,420
<TOTAL-ASSETS> 1,350,134
<CURRENT-LIABILITIES> 422,538
<BONDS> 0
557,752
0
<COMMON> 8,502
<OTHER-SE> 321,416
<TOTAL-LIABILITY-AND-EQUITY> 1,350,134
<SALES> 2,150,080
<TOTAL-REVENUES> 2,197,667
<CGS> 594,208
<TOTAL-COSTS> 1,301,612
<OTHER-EXPENSES> 409,650
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,097
<INCOME-PRETAX> 16,397
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,397
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,397
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
