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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ________
Commission file number 0-17263
CHAMPIONS SPORTS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-1401755
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(State or other jurisdiction of (I.R.S. Employer
organization) Identification No.)
2420 Wilson Blvd., Suite 214, Arlington, VA 22201
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(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
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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 if 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, 2000, the revenues of the registrant were
$2,217,328.
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 17, 2000, was approximately $673,950.
As of July 17, 2000, the Registrant had a total of 8,514,459 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 11,450 preferred shares have been
converted into 53,930 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, 2000, 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
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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. 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 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.
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
83.3% of the Company's revenues for FY 2000, 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
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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 does not pay any annual fees as before. In FY
2000, the Company signed agreements to provide sports memorabilia to Champions
locations in Aruba, Tampa, Florida and Tunisa.
Marriott hotel locations accounted for about 12.4% of the Company's
revenues for FY 2000, 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.
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.
The Company may be subject to "dram-shop" statutes, which generally
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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, 2000, the Company had 2 full-time employees in its
corporate office in Arlington, Virginia and 56 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 $350 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 2000
First Quarter 0.125 0.07
Second Quarter 0.15 0.07
Third Quarter 0.125 0.07
Fourth Quarter 0.38 0.10
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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(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 17 2000, was 2,150 and the Company estimates that there are approximately
3,000 additional beneficial shareholders. There are about 30 beneficial holders
of the Company's preferred stock as of July 17, 2000.
(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 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 2000 and 1999.
Revenues
For the fiscal year ended April 30, 2000, the Company's revenues
increased by less than 1% to $2,217,328 versus $2,197,677 in FY 1999.
By component, food and beverage sales increased 7.7% to $1,846,255 for
FY2000 compared to $1,714,237 in FY 1999. The Company's management attributes
the increase in food and beverage sales to an increase in customer volume during
the NBA championship payoff games held in San Antonio and to increase in menu
prices. During FY1999, a delay in the NBA season had a negative impact on food
and beverage sales. The food to beverage ratio for the San Antonio location was
approximately 60/40 for both comparable years. Food and beverage sales account
for 83.3 % of the Company's total revenue.
Revenues from merchandise and memorabilia sales and consulting fees
accounted for 14.9%
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of the Company's total revenue in FY 2000 compared to 19.8% in FY 1999. Sales of
memorabilia are directly tied to the number of new Champions locations which
open during the fiscal year. In both FY2000 and FY1999, the Company signed
agreements to provide sports memorabilia to three Champions locations. During FY
2000, the Company received other revenues of $18,465 from vendor promotional
rebates and commissions compared to $22,986 in FY 1999. Interest income
represented approximately 1% of the Company's total revenues in both FY 2000 and
FY1999.
2. Expenses
The Company's cost of food and beverage during the year ended April 30,
2000 was 25.6% of related sales, compared to 26.7% in the preceding year. The
decrease in product costs in FY 2000 is attributed to stable wholesale prices,
an increase in customer volume and a increase in menu prices.
Restaurant payroll and related costs remained constant during both
comparable years at 34.1% of food and beverage sales in FY 2000 and 35.0% of
related sales in FY1999. Restaurant occupancy costs for FY 2000 were 11.3% of
food and beverage sales compared to 12.1% in FY1999.
Other restaurant costs decreased as a percentage of food and beverage
sales to 19.4% compared to 21.3 % in the prior year. General and administrative
costs incurred in FY 2000 were $322,475 and $346,176 in FY 1999. The primary
components of G&A expenses are operating the Company's corporate office,
including salaries. Interest expense in both FY 2000 and 1999 was less than 0.2%
of the Company's expenses.
3. Profits / Losses
For FY 2000, the Company's net income was $51,512 from its operations
before dividends accrued on the outstanding preferred stock, net of conversions,
of $47,490, producing a net income available to common shareholders of $4,022.
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 shareholders of $50,893.
(b) Liquidity and Capital Resources for Fiscal Years 2000 and 1999
The Company's cash position on April 30, 2000 was $591,208 compared to
$726,241 on April 30, 1999, an decrease of $135,033.
During the past fiscal year, the Company's operating activities used
cash in excess of expenses of $18,350. The Company increased its accounts
receivable and other current assets by
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$139,668, and increased its current liabilities by $20,719. The Company used
cash to purchase equipment for $13,495 and $5,895 to repay an equipment lease.
Furthermore, the Company purchased equity positions in two non publically traded
companies for $100,000, and realized a gain of $2,636 from the purchase and sale
of marketable securities. Cash used for interest payment in FY 2000 were $4,264.
The Company's operating activities coupled with its cash reserves provided
sufficient cash flow for the Company to meet its cash needs in FY 2000.
During FY 1999, 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 and leased 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
The Company's working capital as of April 30, 2000 was a $466,762
contrasted to a $535,863 on April 30, 1999.
The Company continues to review and evaluate its operations and
priorities. The Company is actively pursuing merger or acquisition candidates
and other opportunities to meet its longer term liquidity needs. There is no
assurance that the Company will be able to structure a merger or acquisition on
terms satisfactory to the Company.
(c) Miscellaneous
Stockholders' equity on April 30, 2000 was $891,692 compared to
$887,670 on April 30, 1999. In FY 2000 and 1999, the Company's Board of
Directors voted to defer payment of the 12% annual dividend of the Company's
preferred stock, 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. In addition, in FY 2000 and 1999, 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 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.
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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-12 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
Michael M. Tomic Director
James M. Martell, age 53, has served as Chairman since November 1991and
as President and Chief Executive Officer from May 1990 to June 1992 and from
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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 53, 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 54, 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.
Item 10. Executive Compensation.
The following table sets forth cash compensation for services rendered
during FY 2000, and 1999 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 $100,000.
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Name and FY Annual Other
Principal Position Year Salary ($) Compensation ($)
------------------ ---- ---------- ----------------
James M. Martell, 2000 148,208 0
Chairman, President,& 1999 87,000 73,000
Chief Executive Officer
In FY 2000, all officers of the Company as a group (2 in number)
received cash compensation of $221,028. 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 an officer or director 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 had been receiving an annual base salary of
$87,000 plus 20% of all fees received from international locations. This
agreement was extended for two years in FY 2000 at an annual salary of $148,000.
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 30, 2001.
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, 2000, all 840,000
shares are reserved and available for issuance.
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Item 11. Security Ownership of Certain Beneficial Owners and Management.
As of July 17, 2000, 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
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 17, 2000 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 2000 and FY 1999, 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, 2000 and 1999 F-2
Consolidated Statements of Operations for the Years Ended
April 30, 2000 and 1999 F-3
Consolidated Statements of Stockholder's Equity for the Years
ended April 30, 2000 and 1999 F-4
Consolidated Statements of Cash Flows for the Years ended
April 30, 2000 and 1999 F-5
Notes to the Consolidated Financial Statements F-6/F-12
(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, 2000
<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 PAANNELL
worldwide KERR
[graphics omitted] FORESTER 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, 2000 and 1999, 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, 2000 and 1999, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
June 16, 2000
/s/ Pannell Kerr Forester PC
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F-2
<TABLE>
<CAPTION>
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
Assets
April 30
------------------------------------
2000 1999
---------------- ----------------
Current assets
<S> <C> <C>
Cash and cash equivalents $591,208 $726,241
Accounts receivable - trade 114,063 800
Inventories (note 1) 24,181 20,176
Prepaid expenses 25,632 3,232
Deferred tax asset (note 2) 207,952 207,952
---------------- ----------------
Total current assets 963,036 958,401
---------------- ----------------
Property and equipment
Furniture and equipment 552,634 539,139
Leasehold improvements 570,962 570,962
---------------- ----------------
1,123,596 1,110,101
Accumulated depreciation and amortization (781,214) (729,420)
---------------- ----------------
342,382 380,681
---------------- ----------------
Other assets
Available for sale investments, at cost (note 1) 100,000 -
Deposits 11,052 11,052
---------------- ----------------
Total assets $1,416,470 $1,350,134
================ ================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $48,173 $36,817
Dividend payable on preferred stock (note 6) 383,940 336,450
Other accrued expenses 51,386 38,023
Current portion of deferred lease concession 4,363 4,363
Current portion of capital lease obligation (note 4) 8,412 6,885
---------------- ----------------
Total current liabilities 496,274 422,538
---------------- ----------------
Capital lease obligation, net of current portion (note 4) 12,223 19,645
Deferred lease concession, net of current portion 16,281 20,281
---------------- ----------------
Total liabilities 524,778 462,464
---------------- ----------------
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; 53,125 and 55,775
shares issued and
outstanding for 2000 and 1999, respectively 531,252 557,752
Common stock, par value $.001 per share, 50,000,000
shares authorized; 8,514,459 and 8,501,977 shares
issued and outstanding for 2000 and 1999, respectively 8,514 8,502
Additional paid-in capital 5,337,599 5,311,111
Accumulated deficit (4,985,673) (4,989,695)
---------------- ----------------
Total stockholders' equity 891,692 887,670
---------------- ----------------
Total liabilities and stockholders' equity $1,416,470 $1,350,134
================ ================
</TABLE>
See notes to consolidated financial statements
<PAGE>
F-3
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended April 30
2000 1999
Revenue
Food and beverage $ 1,846,255 $ 1,714,237
Merchandise, memorabilia,
and consulting fees 330,319 435,843
Interest income 22,289 24,601
Other income 18,465 22,986
---------- ---------
2,217,328 2,197,667
---------- ---------
Costs and expenses
Cost of food and beverage sales 472,476 457,455
Cost of merchandise and memorabilia 118,592 136,753
Restaurant payroll and related costs 628,760 600,516
Restaurant occupancy costs 208,546 206,888
Other restaurant costs 358,909 364,911
General and administrative 322,475 346,176
Depreciation and amortization 51,794 63,474
Interest 4,264 5,097
---------- ---------
2,165,816 2,181,270
---------- ---------
Operating income before income tax expense 51,512 16,397
Income tax expense (note 2) - -
---------- ---------
Net income 51,512 16,397
Less preferred stock dividends (net of conversions) (47,490) (67,290)
---------- ---------
Net income (loss) available to common
stockholders $ 4,022 $ (50,893)
============ ==========
Basic earnings (loss) per share $ 0.00 $ (.00)
============ ==========
Earnings (loss) per common share - assuming
dilution $ 0.00 $ (.00)
============ ==========
See notes to consolidated financial statements
<PAGE>
F-4
<TABLE>
<CAPTION>
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For The Years Ended April 30, 2000 and 1999
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, 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
For the year ended April 30, 2000
Dividend on preferred stock
accrued and unpaid .................... -- -- -- -- -- (63,990) (63,990)
Dividend on preferred stock
adjusted for preferred stock converted to
common stock .......................... -- -- -- -- -- 16,500 16,500
Preferred stock converted
to common (note 6) .................... 12,482 12 (2,650) (26,500) 26,488 -- --
Net income .............................. -- -- -- -- -- 51,512 51,512
Balance, April 30, 2000 ................. 8,514,459 $8,514 53,125 $531,252$ 5,337,599 $4,985,673) $891,692
See notes to consolidated financial
statements
</TABLE>
<PAGE>
F-5
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase (Decrease) 4in Cash and Cash Equivalents
Years Ended April 30
2000 1999
---- ----
Cash flows from operating activities:
Net income $51,512 $16,397
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 51,794 63,474
Gain on sale of marketable securities (2,707) -
Gain on disposal of asset - (4,000)
Changes in assets and liabilities:
Accounts receivable (113,263) (188)
Inventories (4,005) 49,418
Prepaid expenses (22,400) 618
Accounts payable 11,356 (5,855)
Other accrued expenses 13,363 (10,015)
Deferred lease concessions (4,000) (4,363)
--------- --------
Net cash provided (used) by
operating activities (18,350) 105,486
--------- --------
Cash flows from investing activities:
Purchases of property and equipment (13,495) (4,719)
Available for sale investments (100,000) -
Purchase of marketable securities (964,975) -
Sale of marketable securities 967,682 -
--------- --------
Net cash (used) by investing activities (110,788) (4,719)
--------- --------
Cash flows from financing activities:
Principal payments on capital lease (5,895) (5,756)
--------- --------
Net increase (decrease) in cash and
cash equivalents (135,033) 95,011
Cash and cash equivalents at beginning of year 726,241 631,230
--------- --------
Cash and cash equivalents at end of year $591,208 $726,241
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $4,264 $5,097
========= ========
Supplemental disclosure of non-cash investing
and financing activities:
Cumulative dividend on preferred stock,
(net of conversions) $47,490 $67,290
========= ========
Equipment acquired through capital lease - $32,286
========= ========
See notes to consolidated financial statements
<PAGE>
F-6
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
April 30, 2000
Note 1 - Organization and summary of significant accounting policies
Organization
Champions Sports, Inc., (Company) a Delaware corporation, promoted a sports
theme restaurant bar concept through Company owned and licensed operations. 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).
Substantially all memorabilia sales are to Marriott. At April 30, 2000 and 1999,
respectively, 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
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>
F-7
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 2000
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, 2000 and
1999, were as follows:
2000 1999
---- ----
Restaurant food and beverage $ 15,127 $ 13,561
Promotional merchandise for sale to
restaurant customers 9,054 6,615
$ 24,181 $ 20,176
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, 2000
(Loss) available to Common Per
Common Stockholders Shares Share
------------------- ------ -----
Basic earnings per
Common Share $ 4,022 8,511,344 $ .00
At April 30, 1999
Earnings 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 for
1999 and have no material effect for 2000 and, therefore, are excluded from the
computation of basic earnings per share.
<PAGE>
F-8
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 2000
Note 1 - Organization and summary of significant accounting policies (continued)
Cash and cash equivalents
The statements of cash flows are prepared on the basis of cash and cash
equivalents. For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less, unless restricted as to use, to be cash equivalents. At April 30, 2000 and
1999, respectively, the Company had amounts on deposit at financial institutions
in excess of federally insured limits.
Investments
The Company owns equity securities in two companies, neither of which are
publicly traded. There is no readily determinable fair market value for the
securities and, as such, they are stated at cost.
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.
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 expense (benefit) consists of the following for the years ended April
30, 2000 and 1999:
2000 1999
---- ----
Current $ - $ -
Deferred 20,487 2,669
(Increase) in valuation allowance (20,487) (2,669)
------- ------
Total income tax expense $ - $ -
<PAGE>
F-9
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 2000
Note 2 - Income taxes (continued)
Temporary differences which give rise to deferred tax assets and liabilities are
as follows:
2000 1999
---- ----
Deferred tax assets
Deferred rent concessions $7,836 $10,071
Net operating losses available for carryforward 1,407,647 1,393,451
Depreciation 24,602 16,076
Total deferred tax assets 1,440,085 1,419,598
Valuation allowance 1,232,133) (1,211,646)
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
2000 1999
---- ----
Federal income taxes at statutory rate $17,514 $1,810
State income taxes net of Federal income
tax benefit 2,040 477
Effect of non-deductible expenses 933 382
Change in valuation allowance (20,487) (2,669)
Total income tax expense $ - $ -
At April 30, 2000, the Company has net operating loss carryforwards of
approximately $3,636,000 for tax reporting purposes. The net operating loss
carryforwards for income tax purposes expire approximately as follows:
2005 $75,000
2006 9,000
2007 561,000
2008 1,004,000
2009 1,915,000
2011 11,000
2012 28,000
2013 33,000
------
$3,636,000
==========
During the years ended April 30, 2000 and 1999, the Company used net operating
losses of approximately $67,000 and $46,000, respectively, to offset taxable
income.
<PAGE>
F-10
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 2000
Note 3 - Commitments and contingencies
Operating leases
The Company leases, as lessee, restaurant space under an operating lease which
expires initially in 2004 and 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 leases
office space on a month- to-month basis.
Rental expense charged to expense during the years ended April 30, 2000 and 1999
was $174,999 and $174,279, respectively. There were no contingent rentals in
2000 or 1999. Future minimum payments under the noncancellable restaurant lease
as of April 30, 2000 are as follows:
2001 $140,158
2002 140,158
2003 140,158
2004 140,158
---- -------
Total $560,632
========
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 2000 and 1999,
respectively.
Minimum future lease payments under the capital lease as of April 30, 2000 are
as follows:
2001 $11,838
2002 11,838
2003 1,973
Total future minimum lease payments 25,649
------
Less interest 5,014
-----
Principal payments due 20,635
Less current portion 8,412
-----
$12,223
<PAGE>
F-11
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 2000
Note 5 - Marriott license
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
$278,284 and $403,244 for 2000 and 1999, respectively.
Note 6 - Preferred stock
The Series A preferred stock requires 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 2,650 and 300 shares of Series A
preferred stock during 2000 and 1999, respectively.
For each of the five fiscal years ended April 30, 2000, the Company's Board of
Directors voted to defer payment of the annual dividend on the Series A
preferred stock in the amount of $63,990 for 2000 and $67,290 for the previous
four years. Preferred stock dividends in arrears at April 30, 2000 and 1999,
respectively, aggregated $383,940 ($7.22 per share) and $336,450 ($6.03 per
share), respectively.
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, 2000.
Options to purchase a total of 1,300,000 shares of common stock at an exercise
price of $.05 per share 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 2001. 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, 2000 and 1999,
respectively, is not material to the Company's consolidated financial
statements.
<PAGE>
F-12
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 2000
Note 7 - Common stock (continued)
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, 2000.
Stock option activity is summarized as follows:
Weighted average
Number of shares exercise price
Outstanding, April 30, 1998 550,000 $ 0.83
Granted - -
Exercised - -
Outstanding, April 30, 1999 550,000 0.83
Granted - -
Exercised - -
Outstanding, April 30, 2000 550,000 $ 0.83
The following table summarizes information about stock options outstanding and
exercisable at April 30, 2000.
Outstanding Exercisable
Weighted Weighted
Option Number Weighted Average Number Average
Price of Average Exercise of Exercise
Range Shares Life Price Shares Price
----- ------ ---- ----- ------ -----
$0.05 - $1.00 550,000 1.4 years $0.83 550,000 $0.83
<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 28, 2000
In accordance with the Exchange Act, this report has been signed below by
the following nd Controller 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 28, 2000
By: /s/ Michael M. Tomic
------------------------
Michael M. Tomic
Director
Date: July 28, 2000
16
<PAGE>
