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, 2004
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)
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, 2004, the revenues of the registrant were
$1,999,173
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant based on the average bid and asked price on
July 15, 2004, was approximately $422,000.
As of July 15, 2004, the Registrant had a total of 8,824,658 shares of
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
PART I
Special Note Regarding Forward-Looking Statements ......................... 3
Item 1. Business ......................................................... 3
Item 2. Property ......................................................... 9
Item 3. Legal Proceedings ................................................ 9
Item 4. Submission of Matters to a Vote of Security Holders .............. 9
PART II
Item 5. Market for Common Equity and Related Stockholder Matters ......... 9
Item 6. Management's Discussion and Analysis or Plan of Operation ........ 11
Item 7. Financial Statements and Supplementary Data ...................... 15
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ............................. 15
Item 8A. Controls and Procedures .......................................... 15
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons, Compliance with Section 16(a) of the Exchange Act ...... 16
Item 10. Executive Compensation ........................................... 17
Item 11. Security Ownership of Certain Beneficial Owners
and Management .................................................. 19
Item 12. Certain Relationships and Related Transactions ................... 20
Item 13. Exhibits and Reports on Form 8-K ................................. 20
Item 14. Principal Accountant Fees and Services ........................... 20
Report of Independent Accountants and Financial Statements ...............F1-F19
Signatures ................................................................ 43
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ... 44
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ... 46
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ... 47
2
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements" (within the meaning of
the Private Securities Litigation Act of 1995) that inherently involve risk and
uncertainties. The Company generally uses words such as "believe," "may,"
"could," "will," "intend," "expect," "anticipate," "plan," and similar
expressions to identify forward-looking statements. One should not place undue
reliance on these forward-looking statements. The Company's actual results could
differ materially from those anticipated in the forward-looking statements for
many unforeseen factors, which may include, but are not limited to, changes in
general economic conditions, the ongoing threat of terrorism, customer
acceptance of products offered, other general competitive factors, ability to
have access to financing sources on reasonable terms and other risks that are
described in this document. Although the Company believes the expectations
reflected in the forward-looking statements are reasonable, they relate only to
events as of the date on which the statements are made, and the Company's future
results, levels of activity, performance or achievements may not meet these
expectations. The Company does not intend to update any of the forward-looking
statements after the date of this document to conform these statements to actual
results or to changes in the Company's expectations, except as required by law.
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, through FY 2002, an additional 11,450 preferred
shares were converted to 53,930 shares of common stock and in FY 2004, 20,675
preferred shares were converted to 310,199 shares of common stock.
3
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 an exclusive supplier of
sports memorabilia and a consultant to all new managed Marriott and Renaissance
Hotel sports bar restaurants worldwide. At April 30, 2004, the Company owns one
CHAMPIONS Sports Bar Restaurant in San Antonio, Texas that is licensed, royalty
free, from Marriott.
(b) Current Business Plan
In addition to operating the present ongoing business of the Company, see
Description of the Operating Business in Item I(c) below, the current business
plan for the Company is to actively pursue opportunities whereby the Company
will primarily serve as a vehicle for the acquisition of a target business that
the Company believes will have significant growth potential. The Company intends
to use its capital stock, to effect a business combination with a private
company that desires to establish a public trading market for its securities
while avoiding what it may deem to be adverse consequences of undertaking a
public offering itself, such as time delays, significant expense, loss of voting
control and other burdens including significant professional fees. The business
combination may be with a financially stable, mature company or a company that
is financially unstable or in its early stages of development or growth.
In seeking to attain this business objective, the Company will not restrict
its search to any particular industry. Rather, the Company may investigate
businesses of essentially any kind or nature and participate in any type of
business that may, in management's opinion, meet the business objectives as
described in this document. The Company emphasizes that the description in this
document of its business objectives is extremely general and is not meant to
restrict the discretion of management to search for and enter into potential
business opportunities.
The Company has not chosen the particular business in which the Company
will engage in and has not conducted any market studies with respect to any
business or industry to evaluate the possible merits or risks of the target
business or the particular industry in which the Company may ultimately operate.
To the extent that the Company may enter into a business combination with a
financially unstable company or an entity in its early stage of development or
growth, including entities without established records of sales or earnings, The
Company will become subject to numerous risks inherent in the business and
operations of financially unstable and early stage or potential emerging growth
companies. In addition, to the extent that the Company may enter a business
combination with an entity in an industry characterized by a high level of risk,
the Company will become subject to the currently unascertainable risks of that
industry. An extremely high level of risk frequently characterizes certain
industries that experience rapid growth. In addition, although the Company will
endeavor to evaluate the risks inherent in a particular industry or target
business, the Company cannot give assurance that the Company will properly
ascertain or assess all significant risk factors.
The Company anticipates that target business candidates will be brought to
its attention from various unaffiliated sources, including but not restricted
to, investment bankers, venture capitalists, securities broker-dealers, bankers
and other members of the financial community, who may present solicited or
unsolicited proposals. Company's officers and directors and their affiliates may
also bring to the Company's attention target business candidates. While the
Company does not presently anticipate engaging the services of professional
firms that specialize in business acquisitions on any formal or basis, the
Company may engage such firms in the future, in which event, the Company may pay
4
a finder's fee or other compensation for such introductions if they result in
consummated transactions. These fees are customarily between 1% and 5% of the
size of the overall transaction, based upon a sliding scale of the amount
involved.
The Company's management will have significant flexibility in identifying
and selecting a prospective target business. In evaluating a prospective target
business, the management will consider, among other factors, the following:
o the financial condition and results of operation of the target;
o the growth potential of the target and that of the industry in which the
target operates;
o the experience and skill of the target's management and availability of
additional personnel; o the capital requirements of the target;
o the competitive position of the target;
o the stage of development that the target's products, processes or
services are at;
o the degree of current or potential market acceptance of the target's
products, processes or services;
o proprietary features and the degree of intellectual property or
other protection of the target's products, processes or services;
o the regulatory environment of the industry in which the target operates;
o the prospective equity interest in, and opportunity for control
of, the target; and
o the costs associated with effecting the business combination.
These criteria are not intended to be exhaustive. Any evaluation relating
to the merits of a particular business combination will be based, to the extent
relevant, on the above factors as well as other considerations deemed relevant
by management in connection with effecting a business combination consistent
with Company's business objective.
In connection with Company's evaluation of a prospective target business,
the Company anticipates that it will conduct due diligence review that will
encompass, among other things, meetings with incumbent management and inspection
of facilities, as well as a review of financial or other information that will
be made available to the Company.
The Company will endeavor to structure a business combination so as to
achieve the most favorable tax treatment to the Company, the target business and
both of the companies' stockholders. There can be no assurance, however, that
the Internal Revenue Service or appropriate state tax authority will agree with
the tax treatment of the business combination.
Until the Company is presented with a specific opportunity for a business
combination, the Company is unable to ascertain with any degree of certainty the
time and costs required to select and evaluate a target business and to
structure and complete the business combination. Any costs incurred in
connection with the identification and evaluation of a prospective target
business with which a business combination is not ultimately completed will
result in a loss to the Company and will reduce the amount of capital otherwise
available to complete a business combination.
Although the Company intends to carefully scrutinize the management of a
prospective target business before effecting a business combination, the Company
cannot give assurance that its assessment of the target's management will prove
to be correct, especially in light of the possible inexperience of Company's
5
management in evaluating certain types of businesses. In addition, the Company
cannot give assurance that the target's future management will have the
necessary skills, qualifications or abilities to manage a public company
intending to embark on a program of business development. Furthermore, the
future role of Company's officers and directors, if any, in the target business
cannot presently be stated with any certainty. It is possible that one or more
of the Company's officers and directors will remain associated in some capacity
with the Company following a business combination and will devote their efforts
to the affairs of the new business combination. Moreover, the Company cannot
give assurance that its officers and directors will have significant experience
or knowledge relating to the operations of the particular target business.
The Company may seek to recruit additional managers to supplement the
incumbent management of the target business. The Company, however, cannot give
assurance that it will be able to recruit additional managers who have the
requisite skills, knowledge or experience necessary to enhance the incumbent
management.
The Company expects to encounter intense competition from other entities
having a similar business objective. Many of these entities, including financial
consulting companies and venture capital firms, have longer operating histories
and have extensive experience in identifying and effecting business
combinations, directly or through affiliates. Many of these competitors possess
significantly greater financial, technical and other resources. The Company
cannot give assurance that it will be able to effectively compete with these
entities. In the event the Company is unable to compete effectively with these
entities, the Company may be forced to evaluate less attractive prospects for a
business combination. If the Company is forced to evaluate these less attractive
prospects, the Company cannot give assurance that the stated business objectives
will be met.
(c) Description of the Operating 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 Food, Good Times, Good Sports." This
concept is based, in large measure, on the format implemented in the first
CHAMPIONS location that opened in the Georgetown section of Washington, D.C. in
1983. 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
6
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 the CHAMPIONS concept is unique, the combination of food, atmosphere,
sports memorabilia, sports viewing, marketing and promotions defines the
concept.
2. Operations
As of the end of the fiscal year, the Company was engaged in the following
types of operations:
(i) Company-Owned 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 99% of the
Company's revenues for FY 2004, as reflected in the consolidated financial
statements included herein.
(ii) Supplier of Sports Memorabilia and Consulting Services to Marriott
In 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
does not pay any annual fees as before. In FY 2004, the Company provided no
sports memorabilia and consulting services to any Champions Sports Bar
Restaurants pursuant to the 1997 agreement with Marriott.
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.
As part of the current business plan, in addition to, operating the present
ongoing Company business, the Company is actively pursuing opportunities whereby
the Company will primarily serve as a vehicle for the acquisition of a target
business that the Company believes will have significant growth potential, The
Company expects to encounter intense competition from other entities having a
7
similar business objective. Many of these entities, including financial
consulting companies and venture capital firms, have longer operating histories
and have extensive experience in identifying and effecting business
combinations, directly or through affiliates. Many of these competitors possess
significantly greater financial, technical and other resources. The Company
cannot give assurance that it will be able to effectively compete with these
entities. In the event the Company is unable to compete effectively with these
entities, the Company may be forced to evaluate less attractive prospects for a
business combination. If the Company is forced to evaluate these less attractive
prospects, the Company cannot give assurance that the stated business objectives
will be met.
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 provide
a person injured by an intoxicated person the right to recover damages from an
establishment that 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.
8
6. Employees
As of April 30, 2004, the Company had 2 employees in its corporate office
in Arlington, Virginia and 46 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 $500 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 June 2005. The lease provides monthly rental payments of
$23,536 including CAM charges and real estate taxes. In addition, the lease
requires a percentage of the unit's revenues at the location in excess of
$1,745,000 per year.
Item 3. Legal Proceedings.
The Company knows of no material pending legal proceedings as to which the
Company is a party or of which its properties are the subject, and no such
proceedings are known to the Company to be contemplated by governmental
authorities.
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5. Markets for Common Equity & Related Stockholder Matters.
(a) Principal Market or Markets.
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.
9
Common Stock
High Low
Fiscal 2004 $ $
First Quarter 0.04 0.01
Second Quarter 0.01 0.01
Third Quarter 0.03 0.01
Fourth Quarter 0.05 0.01
High Low
Fiscal 2003 $ $
First Quarter 0.06 0.01
Second Quarter 0.04 0.02
Third Quarter 0.04 0.01
Fourth Quarter 0.03 0.01
(b) Approximate Number of Holders of Common Stock
and the Preferred Stock.
The number of holders of record of the Company's common stock as of July
15, 2004 was 2,164 and the Company estimates that there are approximately 3,000
additional beneficial shareholders. There is one beneficial holder of the
Company's preferred stock as of July 15, 2004.
(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. Any future decisions as to the payment of
dividends will be at the discretion of the Company's Board of Directors, subject
to applicable law. From November 1994 through November 2002, 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 and in November 2003 cancelled the payment of the annual dividend
on the Series A, 12% Cumulative Preferred Stock.
10
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
THERE IS SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A
GOING CONCERN DUE TO RECURRING LOSSES AND WORKING CAPITAL SHORTAGES, WHICH
MEANS THAT THE COMPANY MAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS IT
OBTAINS ADDITIONAL FUNDING. THE COMPANY IS ACTIVELY PURSUING MERGER OR
ACQUISITION CANDIDATES AND OTHER FINANCING POSSIBILITIES TO MEET ITS
LIQUIDITY NEEDS. THERE IS NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO
STRUCTURE A MERGER OR ACQUISITION, OR RAISE ADDITIONAL FINANCING TO
CONTINUE OPERATIONS ON TERMS SATISFACTORY TO THE COMPANY.
(a) Results of Operations for Fiscal Years 2004 and 2003.
1. Revenues
For the fiscal year ended April 30, 2004, the Company's revenues decreased
slightly from $2,006,406 to $1,999,173.
By component, food and beverage sales increased 5.3% to $1,981,113 from to
$1,882,118. The Company attributes the increased food and beverage sales to an
increase in menu prices in the first quarter of 2004 and to a slight increase in
customer volume. The food to beverage ratio for the San Antonio location was
approximately 60% to 40% for both comparable years. Food and beverage sales
accounted for 99% and 93.8% of the Company's total revenue in the comparable
periods.
For the fiscal year ended April 30, 2003, the Company's revenues decreased
6.6% to $2,006,406 from $2,147,995 in FY 2002.
Revenues from merchandise and memorabilia sales and consulting fees
accounted for less than 1% of the Company's total revenue in FY 2004 compared to
5.79% in FY 2003. Sales of memorabilia are directly tied to the number of new
Champions locations that open during the fiscal year. In FY 2004, the Company
did not provide any sports memorabilia to any Champions locations. In FY 2003,
the Company provided sports memorabilia to one Champions location. During FY
2004 and FY 2003, the Company other revenues accounted for less than 1% of its
total revenues.
2. Expenses
The Company's cost of food and beverage was 29.6% for FY 2004 and 24.6% for
FY 2003.
Restaurant payroll and related costs were 32% of food and beverage sales in
FY 2004 and 35.3% of related sales in FY 2003. Restaurant occupancy costs for FY
2004 were 12.7% of food and beverage sales compared to 13.3% in FY 2003.
Other restaurant costs decreased as a percentage of food and beverage sales
at 20.3% for FY 2004 compared to 21.5% for FY 2003 General and administrative
11
costs incurred in FY 2004 were $169,143 and $280,847 in FY 2003.The primary
components of G&A expenses are operating the Company's corporate office,
including salaries. The decrease in G&A expense is attributed to the executive
officers of the Company ceasing to receive their salaries effective January
2004. Interest expense in both FY 2004 and 2003 was immaterial.
The Company has undertaken significant expense reduction actions in
FY 2004 in order to preserve the Company's cash. Its corporate officers have not
taken any salaries since December 2003. The Company is continually evaluating
other cost reductions.
3. Profits / Losses
For FY 2004, the Company's loss was $107,687 from its operations before
dividends accrued on the outstanding preferred stock of $21,580, producing a net
loss for common shareholders of $129,267, or $0.01 per common share. The San
Antonio Champions location produced a net profit of $68,934.
For FY 2003, the Company's loss was $145,994 from its operations before
dividends accrued on the outstanding preferred stock of $63,750, producing a net
loss for common shareholders of $209,744
(b) Liquidity and Capital Resources for Fiscal Years 2004 and 2003
We are currently experiencing a severe shortage of working capital.
The Company's cash position on April 30, 2004 was $120,116 compared to
$195,101 on April 30, 2003, a decrease of $74,985.
During FY 2004, the Company's operating activities used cash of $67,693.
The Company used cash to purchase equipment for its San Antonio restaurant for
$2,931. The Company's operating activities and cash reserves were sufficient to
meet its cash requirement during FY 2004.
During FY 2003, The Company's operating activities used cash of $248,117.
The Company purchased equipment for its San Antonio Champions location for
$9,135 and repaid a capital lease for $1,929. The Company's operating activities
and cash reserves were sufficient to meet its cash requirement during FY 2003.
The Company's working capital as of April 30, 2004 was a negative $304,695
contrasted to a negative $463,353 on April 30, 2003.
The Company is facing liquidity problems and is uncertain that it will be
able to continue operations without an infusion of cash. The Company continues
to review and evaluate its operations and priorities. The Company is actively
pursuing merger or acquisition candidates and other financing possibilities to
meet its liquidity needs. There is no assurance that the Company will be able to
structure a merger or acquisition, or raise additional financing to continue
operations on terms satisfactory to the Company.
12
Furthermore, The Company's independent auditor has expressed substantial
doubt that the Company can continue as a going concern.
(c) Miscellaneous for Fiscal Years 2004 and 2003
Stockholders' equity on April 30, 2004 was a negative $92,704 compared to a
negative $209,749 on April 30, 2003. The Company's Board of Directors voted in
FY 2004 to cancel the payment of the annual dividend on the Series A, 12%,
Cumulative Preferred Stock in order to preserve the Company's cash reserves. In
FY 2003 the Company's Board of Directors voted to defer payment of the 12%
annual dividend of the Company's preferred stock This dividend was cumulative
and was recorded on the Company's balance sheet as a current liability. In
addition, in FY 2004 and 2003, the Board of Directors voted to defer the annual
meeting of shareholders in order to preserve the Company's cash reserves.
Impact of inflation
Inflationary factors have not had a significant effect on the Company's
operations
Risk factors
The risks and uncertainties described below are not the only ones facing
the Company. Additional risks not presently known or that the Company currently
considers being insignificant may also impair the Company's business operations
in the future. The Company's business, financial condition and plan of
operations could be materially adversely affected by any of the following risks.
o The Company had a loss for the year ended April 30, 2004 and
there is substantial doubt about the Company's ability to continue as
a going concern due to recurring losses and working capital shortages,
which means that the Company may not be able to continue operations
unless it obtains additional funding or merges with or is acquired by
another company. The Company is actively pursuing merger or
acquisition candidates and other financing possibilities to meet its
liquidity needs. There is no assurance that the Company will be able
to structure a merger or acquisition, or raise additional financing to
continue operations on terms satisfactory to the Company.
o The loss of the services of the Company's key employee, James
Martell, the Company's Chairman, President and CEO, may have a
material adverse affect on the Company's business, financial condition
and its ability to obtain additional funding or structuring a merger
or acquisition.
o The Company may, in the future, issue additional shares of the
Company's common stock, which would reduce shareholders' percent of
ownership and may dilute their share value. The Company's Articles of
Incorporation authorize the issuance of 50,000,000 shares of common
stock, par value $.001 per share. As of July 25, 2004 the Company had
8,824,658 shares of common stock issued and outstanding. The future
issuance of all or part of the remaining authorized common stock may
result in substantial dilution in the percentage of the common stock
13
held by the Company's then existing shareholders. The Company may
value any common stock issued in the future on an arbitrary basis. The
issuance of common stock for future services or acquisitions or other
corporate actions may have the effect of diluting the value of the
shares held by the shareholders, and might have an adverse effect on
any trading market for the Company's common stock.
o The Company's common stock may be affected by sporadic or
limited trading volume and may fluctuate significantly. Although the
Company's common stock has been continually traded publicly since
1985, and at times actively, it can be currently considered to be
trading on a sporadic or limited basis on the OTC Bulletin Board in
comparison to the NASDAQ National Market, the American Stock Exchange,
New York Stock Exchange and other national securities exchanges and
there can be no assurance that an active trading market for the common
stock will develop. As a result, this could adversely affect the
shareholders' ability to sell their common stock in short time
periods, or possibly at all. Therefore, the Company cannot assure that
there will be liquidity in the common stock. The common stock has
experienced, and is likely to experience in the future, significant
price and volume fluctuations, which could adversely affect the market
price of the common stock without regard to the Company's operating
performance. In addition, the Company believes that factors such as
quarterly fluctuations in the Company's financial results and changes
in the overall economy or the condition of the financial markets could
cause the price of the common stock to fluctuate substantially.
o The Company's common stock is deemed to be "penny stock," which
may make it more difficult for shareholders to resell their shares due
to suitability requirements. The common stock is a penny stock. Penny
stocks generally are equity securities with a price of less than $5.00
per share other than securities registered on certain national
securities exchanges or quoted on the NASDAQ Stock Market, provided
that current price and volume information with respect to transactions
in such securities is provided by the exchange or system. The
Company's securities may be subject to "penny stock rules" that impose
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited
investors (generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with their
spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction
involving a penny stock, unless exempt, the "penny stock rules"
require the delivery, prior to the transaction, of a disclosure
schedule prescribed by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable
to both the broker-dealer and the registered representative and
current quotations for the securities. Finally, monthly statements
must be sent disclosing recent price information on the limited market
in penny stocks. Consequently, the "penny stock rules" may restrict
the ability of broker-dealers to sell Company's securities and may
have the effect of reducing the level of trading activity of the
common stock in the secondary market. The foregoing required penny
14
stock restrictions will not apply to securities if such securities
maintain a market price of $5.00 or greater. The Company can give no
assurance that the price of its securities will reach or maintain such
a level.
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-3 through F-19 hereof.
Item 8. Changes In and Disagreements with Accountants on Accounting
& Financial Disclosure.
In June 2004, the Company changed independent auditors from Michael F.
Moore, CPA (sole practitioner) to Bagell, Josephs & Co. L.L.C. Information
concerning the change in accountants was included in the Company's Form 8-K
filed with the Securities and Exchange Commission on June 28, 2004. For FY 2003,
the Company changed independent auditors from Pannell Kerr Forster PC to Michael
F. Moore, CPA (sole practitioner). There have been no disagreements between the
Company and its independent accountants on any matter of accounting principles
or practices or financial statement disclosure during the last two fiscal years.
Item 8 A. Controls and Procedures
Disclosure controls are procedures that are designed with the objective of
ensuring that information required to be disclosed in the Company's reports
under the Securities Exchange Act of 1934, such as this Form 10-KSB is reported
in accordance with the Securities and Exchange Commission's rules. Disclosure
controls are also designed with the objective of ensuring that such information
is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer as appropriate to allow timely decisions
regarding required disclosure.
Within the 90 days prior to the date of this report, the Company carried
out an evaluation under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Securities Exchange
ActRule 13a-14. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
in the Company's periodic SEC filings. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.
Certifications of the Chief Executive Officer and Chief Financial Officer
regarding, among other items, disclosure controls and procedures are included
immediately after the signature section of this Form 10-KSB.
15
PART III
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 and Director
James E. McCollam Controller, Chief Accounting Officer, Corporate Secretary
Durwood C. Settles Director
Michael M. Tomic Director
James M. Martell, age 57, has served as President from May 1990 to June
1992 and from January 1993 to September 1993 and from March 1994 to the present
and as Chief Executive Officer from May 1990 to June 1992 and from January 1993
to September 1993 and from March 1994 to August 2000 and from June 2001 to the
present and as Chairman from November 1991 to August, 2000 and from June 2001 to
the present. Mr. Martell served as 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 57, 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 that owned and operated two
restaurants and nightclubs in the Washington D.C. area. From 1973 to 1977,
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.
Durwood C. Settles, age 61, has served as Director of the Company since
March 2001. Mr. Settles is a Certified Public Accountant in individual practice
since 1983. From 1973 to 1982, Mr. Settles was with Coopers & Lybrand in
Washington, D.C. as a member of the audit staff and as Manager-Special Projects.
During the period 1974 to 1986, Mr. Settles served as Controller or Treasurer of
the various political campaign organizations of Congressman Richard A. Gephardt
of Missouri, Governor Charles S. Robb of Virginia, and Congressman Joseph L.
Fisher of Virginia. From 1970 to 1973, Mr. Settles was an owner and executive of
a company that manufactured and sold Plexiglas furniture located in Kensington,
Maryland. From 1966 to 1969, Mr. Settles was a promoter of popular music
concerts in various cities in the Eastern and Southern United States. From 1964
to 1966, Mr. Settles was a Group Pension Management Assistant and Computer Files
Service Supervisor with the Mutual of New York Life Insurance Company (MONY) in
New York, New York. Mr. Settles received a Bachelor of Arts degree in Economics
16
in 1964 from Davidson College, Davidson, North Carolina and completed accounting
studies in 1973 at George Washington University, Washington, D.C.
Michael M. Tomic, age 58, 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 2004, and 2003 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 $100,000:
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long Term Compensation
------------------- ----------------------
Number of
Restricted
Securities All other
Name and FY Salary Bonus Underlying Compensation
Principal Position Year ($) ($) Options ($)
------------------ ---- --- --- ------- ---
James M. Martell, 2004 49,333 0 8,000,000 0
President, CEO 2003 123,333 0 0 0
In FY 2004, all executive officers of the Company as a group (2 in number)
received cash compensation of $73,666. Effective January 2004, salaries to all
executive officers were suspended in order to preserve the Company's cash
position and will not be paid until the cash position of the Company improves.
In FY 2003, all officers of the Company as a group (2 in number) received cash
compensation of $184,166. The Board of Directors has the right to change and
increase the compensation of executive officers at any time. The Company has no
17
arrangement by which any of its directors are compensated for services solely as
directors, and these individuals do 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 an employment agreement with Mr. Martell in
September 1993, under which Mr. Martell received 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.
.. This agreement was extended for two years in FY 2000 at an annual salary of
$148,000 and further extended for another three years in FY 2002. In FY 2003,
Mr. Martell's salary was reduced in the interim to $74,000 and since January
2004 Mr. Martell has not taken a salary in order to preserve the Company's cash
position. In FY 2001, the Board of Directors reissued to Mr. Martell the options
to purchase the 200,000 shares of Company's Common stock at $0.11 per share
instead of $1.00 per share as previously granted and extended the expiration of
those options to August 22, 2003. These options expired in FY 2004. 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. Mr. Martell
in FY 1996 exercised this option for 1,200,000 restricted shares for $60,000. In
January 2004, the Board of Directors granted to Mr. Martell a seven-year option
to purchase 8,000,000 restricted shares of the Company's Common Stock at $0.01
per share.
In FY 2001, the Board of Directors, as part of its efforts to diversify
into high technology, granted the following options to the Company's Officers,
Directors and Advisory Board Members: a three year option to purchase 575,000
restricted shares of the Company's Common Stock at $0.11 per share to James J.
Heigl, then Chairman and CEO in FY 2001; a three year option to purchase 550,000
restricted shares of the Company's Common Stock at $0.11 per share to Harry
Alton Lee, then COO and Director in FY 2001; a three year option to purchase
900,000 restricted shares of the Company's Common Stock at $0.11 per share to
Michael Tomic, Director; a three year option to purchase 100,000 restricted
shares of the Company's Common Stock at $0.11 per share to Durwood Settles,
Director; a three year option to purchase 50,000 restricted shares of the
Company's Common Stock at $0.11 per share to James McCollam, Chief Accounting
Officer and Controller; and three year options to purchase 5,000 restricted
shares of the Company's Common Stock at $0.28 per share to each of its Advisory
Board Members. In FY 2004 the Board of Directors extended the options that were
granted in FY 2001 to Michael Tomic, Durwood Settles and James McCollam for one
additional year. All other options granted in FY 2001 expired unexercised in FY
2004.
Restricted Options Grants
The folowing table represents the restricted stock options granted in FY
2004 to the exectutive officer indentified in the Summary Compensation
table above.
18
Restricted Options Granted in the Last Fiscal Year
--------------------------------------------------
Number of
Restricted
Securities Percent of Total
Name of Executive Underlying Options Granted
Options Granted to Employees in Exercise Price of
Date of expiration Fiscal Year Options
(#) (%) ($)
--------------------------------------------------------------------------------
James M. Martell 8,000,000 100 0.01
1/12/11
--------------------------------------------------------------------------------
Item 11. Security Ownership of Certain Beneficial Owners and Management.
As of July 15, 2004, 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 (1) Percentage
---------------- ---------------------- ----------
James M. Martell 1,548,000 17.5
2420 Wilson, Blvd., Suite 214
Arlington, VA 22201
(1) Beneficial Ownership includes shares for which an individual, directly
or indirectly, has or shares, or has the right within 60 days to have or share,
voting or investment power or both. Beneficial ownership as reported in the
above table has been determined in accordance with Rule 13d-3 of the Exchange
Act.
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 as of July 15, 2004 (1) Percentage
---- ----- ----------------------- ----------
James M. Martell President & Director 1,548,000 17.5
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 1,765,000 20.1
*Less than 1.0%
(1) Beneficial Ownership includes shares for which an individual,
directly or indirectly, has or shares, or has the right within 60 days
to have or share, voting or investment power or both. Beneficial
ownership as reported in the above table has been determined in
accordance with Rule 13d-3 of the Exchange Act.
19
Compliance with Section 16(a).
Section 16(a) of the Exchange Act, as amended, requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's common stock to file reports of their beneficial ownership and
changes in ownership (Forms 3,4 and 5, and any amendment thereto) with the SEC.
Executive officers, directors, and greater-than-ten percent holders are required
to furnish the Company with copies of all Section 16(a) forms they file. Based
on the Company's review of the activity of the officers and directors for the
fiscal year ended April 30, 2004, the Company believes that reports pursuant to
Section 16(a) were filed.
Item 12. Certain Relationships and Related Transactions.
During FY 2004 and FY 2003, there were no related party transactions.
Item 13. Exhibits and Reports on Form 8-K.
(a) Index to Financial Statements PAGE
Independent Auditors' Reports F-1 - 19
(b) Reports on Form 8-K
There were no Form 8-K's filed during the last quarter
of the period covered by this report. Subsequent to April
30, 2004, Form 8-K was filed on June 28, 2004 relating to a
change in the Company's independent accountant.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following is a summary of the fees billed to the Company by its
principal accountants during the fiscal years ended April 30, 2004, and April
30, 2003:
Fee category 2004 2003
------------ ---- ----
Audit fees $8,000 $21,000
Audit-related fees $2,891 $1,270
Tax fees $0 $0
All other fees $0 $0
-- --
Total fees $10,891 $22,270
======= =======
Audit fees. Consists of fees for professional services rendered by our
principal accountants for the audit of the annual financial statements.
20
Audit-related fees. Consists of fees for assurance and related services by
our principal accountants that are reasonably related to the performance of the
audit or review of financial statements and are not reported under "Audit fees."
Tax fees. Consists of fees for professional services rendered by our
principal accountants for tax compliance, tax advice and tax planning.
All other fees. Consists of fees for products and services provided by our
principal accountants, other than the services reported under "Audit fees,"
"Audit-related fees" and "Tax fees" above.
Audit Committee Policies and Procedures
The Company does not have an audit committee at this time.
21
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2004 AND 2003
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2004 AND 2003
Page(s)
Report of Independent Registered Public Accounting Firm - 2004 1
Independent Auditors' Report - 2003 2
Consolidated Balance Sheets as of April 30, 2004 and 2003 3
Consolidated Statements of Operations for the Years
Ended April 30, 2004 and 2003 4
Consolidated Statement of Changes in Stockholders'
(Deficit) for the Years Ended April 30, 2004 and 2003 5
Consolidated Statements of Cash Flows for the Years Ended
April 30, 2004 and 2003 6
Notes to Consolidated Financial Statements 7- 19
BAGELL, JOSEPHS & COMPANY, L.L.C.
Certified Public Accountants
High Ridge Commons
Suites 400-403
200 Haddonfield Berlin Road
Gibbsboro, New Jersey 08026
(856) 346-2828 Fax (856) 346-2882
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Champions Sports, Inc. and Subsidiaries
Arlington, Virginia
We have audited the accompanying consolidated balance sheet of Champions
Sports, Inc. and Subsidiaries as of April 30, 2004 and the related consolidated
statements of operations, changes in stockholders' (deficit), and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We have conducted our audit in accordance with auditing standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated 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 audit provides a reasonable basis for our opinion.
The accompanying consolidated financial statements for the year ended April
30, 2004 have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 8 to the consolidated financial statements, the
Company has sustained operating losses and capital deficits that raise
substantial doubt about its ability to continue as a going concern. Management's
operating and financing plans in regard to these matters are also discussed in
Note 8. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Champions
Sports, Inc. and Subsidiaries as of April 30, 2004 and the results of its
operations, changes in stockholders' (deficit) and their cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.
BAGELL, JOSEPHS & COMPANY, L.L.C.
BAGELL, JOSEPHS & COMPANY, L.L.C.
Certified Public Accountants
Gibbsboro, New Jersey
July 12, 2004
MEMBER OF: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
PENNSYLVANIA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
NEW YORK STATE SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
Michael F. Moore, CPA
Sole Practitioner
1412 Kingsvale Circle
Herndon, VA 20170
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Champions Sports, Inc
Arlington, Virginia
I have audited the accompanying consolidated balance sheet of Champions Sports,
Inc. and its subsidiaries as of April 30, 2003, and the related consolidated
statements of operations, changes in stockholders' (deficiency of net assets),
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with auditing standards generally accepted in
the United States of America. 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. I believe that my audit provides a reasonable basis for
my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidates financial position of
Champions Sports, Inc. as of April 30, 2003, and the results of their operations
and their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has suffered losses from operations and has a
net capital deficiency that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 9. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Michael F. Moore, CPA
Sole Practitioner
July 1, 2003
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2004 AND 2003
ASSETS
2004 2003
----------- -----------
CURRENT ASSETS
Cash and cash equivalents ............................................ $ 120,116 $ 195,101
Accounts receivable .................................................. 22,713 --
Inventories .......................................................... 30,349 23,750
Prepaid expenses ..................................................... 6,750 10,836
----------- -----------
Total current assets ................................................ 179,928 229,687
Property and equipment, net .............................................. 200,939 246,427
Deposits ................................................................. 11,052 11,052
----------- -----------
TOTAL ASSETS ............................................................. $ 391,919 $ 487,166
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable ..................................................... $ 92,758 $ 65,246
Dividend payable on preferred stock .................................. 350,460 575,192
Other accrued expenses ............................................... 38,569 49,280
Current portion of deferred lease concession ......................... 2,836 3,322
----------- -----------
Total current liabilities ............................ 484,623 693,040
----------- -----------
Deferred lease concession, net of current portion ........................ -- 3,875
TOTAL LIABILITIES ........................................................ 484,623 696,915
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' (DEFICIT)
Preferred stock, $10 par value; 56,075 shares
authorized; 32,450 and 53,125 shares issued and outstanding,
respectively ............................................................. 324,500 531,250
Common stock, $.001 par value; 50,000,000 shares
authorized 8,824,658 and 8,514,459 shares issued and
outstanding, respectively ................................................ 8,825 8,514
Additional paid-in capital ........................................... 5,850,349 5,397,598
Accumulated deficit .................................................. (6,276,378) (6,147,111)
---------- ----------
Total stockholders'equity (deficit) (92,704) (209,749)
------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) ............................ $ 391,919 $ 487,166
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
3
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED APRIL 30, 2004 AND 2003
2004 2003
---- ----
OPERATING REVENUE
Food and beverage .............................. $ 1,981,113 $ 1,882,118
Merchandise, memorabilia, and consulting fees .. 16,738 113,641
Other income ................................... 1,322 10,647
----- ------
Total operating revenue .......... 1,999,173 2,006,406
COSTS AND OPERATING EXPENSES
Cost of food and beverage ...................... 585,991 463,074
Cost of merchandise and memorabilia ............ 15,408 38,799
Restaurant payroll and related costs ........... 634,530 663,947
Restaurant occupancy costs ..................... 250,645 251,899
Other restaurant costs ......................... 401,924 405,365
General and administrative ..................... 169,943 280,847
Depreciation and amortization .................. 48,419 48,419
Interest ....................................... - 50
------ ------
Total costs and operating expenses 2,106,860 2,152,400
--------- ---------
NET (LOSS) BEFORE PROVISION FOR INCOME TAXES ........ (107,687) (145,994)
Provision for income taxes ...................... -- --
NET LOSS ............................................ (107,687) (145,994)
Preferred stock dividends ........................... (21,580) (63,750)
------- -------
(LOSS) APPLICABLE TO COMMON STOCKHOLDERS ............ $ (129,267) $ (209,744)
=========== ===========
BASIC (LOSS) PER COMMON SHARE ....................... $ (0.01) $ (0.02)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING ................. 8,669,559 8,514,459
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
4
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
(Deficit) for the Years Ended April 30, 2004 and 2003
Series A, 12%
Convertible
Cumulative Additional
Common Stock Preferred Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficits Total
Balance, April 30, 2002 ....... 8,514,459 $ 8,514 53,125 $ 531,250 $ 5,392,598 $(5,937,367) $ 5,005)
Dividend on preferred stock
accrued and unpaid ............ -- -- -- -- -- (63,750) (63,750)
Subscriptions received,
stock unissued ............. -- -- -- -- 5,000 -- 5,000
Net loss for the year ......... -- -- -- -- -- (145,994) (145,994)
Balance, April 30, 2003 ....... 8,514,459 8,514 53,125 531,250 5,397,598 (6,147,111) (209,749)
--------- ----- ------ ------- --------- ---------- --------
Dividend on preferred stock
accrued and unpaid ........ -- -- -- -- -- (21,580) (21,580)
Preferred stock converted to
common stock, 15:1 .......... 310,199 311 (20,675) (206,750) 206,439 -- --
Cancellation of preferred stock
dividends due to conversion
to common stock ............ -- -- -- -- 246,312 -- 246,312
Net loss for the year ......... -- -- -- -- -- (107,687) (107,687)
Balance, April 30, 2004 ....... 8,824,658 $ 8,825 32,450 $ 324,500 $ 5,850,349 $(6,276,378) $ (92,704)
========= =========== ====== =========== =========== =========== ===========
5
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 2004 AND 2003
2004 2003
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
$(107,687) $(145,994)
--------- ---------
Net loss
Adjustments to reconcile net loss
to net cash (used in) operating activities:
Depreciation ............................................................. 48,419 48,419
Changes in assets and liabilities
Accounts receivable ..................................................... (22,713) --
Inventories ............................................................. (6,599) 1,805
Prepaid expenses ........................................................ 4,086 3,253
Accounts payable ........................................................ 27,512 (22,858)
Other accrued expenses .................................................. (10,711) (3,510)
Deferred revenue ........................................................ -- (124,871)
Deferred lease concession ............................................... (4,361) (4,361)
------ ------
Total adjustments ........................................................ 35,633 (102,123)
Net cash (used in) operating activities
(72,054) (248,117)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ...................................... (2,931) (9,135)
------ ------
Net cash (used in) investing activities ................................ (2,931) (9,135)
CASH FLOWS FROM FINANCING ACTIVITIES
Subscriptions received, stock unissued ................................... -- 5,000
Principal payments on capital lease ...................................... (1,929)
------ ------
Net cash provided by (used in) financing activities ................... -- 3,071
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .......................... (74,985) (254,181)
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR ......................................................... 195,101 449,282
------- -------
CASH AND CASH EQUIVALENTS - END OF YEAR ....................................... $ 120,116 $ 195,101
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest paid ........................................................ $ -- $ 50
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
Accrued dividend on preferred stock ...................................... $ 21,580 $ 63,750
========= =========
Increase in common stock due to conversion of preferred stock ............. $ 311 $ --
========= =========
Decrease in preferred stock due to conversion to common stock ............. $(206,750) $ --
========= =========
Increase in additional paid-in capital due to conversion of
preferred stock to common stock .................................. $ 206,439 $ --
========= =========
Cancellation of preferred stock dividends due to conversion to common stock $ 246,312 $ --
========= ========
The accompanying notes are an integral part of the consolidated
financial statements
6
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2004 AND 2003
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION
Champions Sports, Inc., (the "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. Substantially all memorabilia sales are to Marriott. At April 30,
2004 and 2003, respectively, the Company through its subsidiaries, owns and
licenses, without a royalty fee, one Champions Sports Bar Restaurant in San
Antonio, Texas.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany transactions have been
eliminated in consolidation.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization 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 expense was $11,150 for the years ended April 30, 2004 and
2003. Amortization expense was $37,269 for the years ended April 30, 2004 and
2003.
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,
2004 and 2003, were as follows:
2004 2003
---- ----
Restaurant food and beverage $ 23,214 $ 17,336
Promotional merchandise for sale to
restaurant customers 7,135 6,414
----- -----
$ 30,349 $ 23,750
======== ========
-7-
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2004 AND 2003
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net (Loss) Per Share
Historical net (loss) per common share is computed using the weighted
average number of common shares outstanding. Diluted earnings per share (EPS)
includes additional dilution from common stock equivalents, such as stock
issuable pursuant to the exercise of stock options and warrants. Common stock
equivalents were not included in the computation of diluted earnings per share
when the Company reported a loss because to do so would be antidilutive for
periods presented.
The following is a reconciliation of the computation for basic and diluted
EPS:
April 30, April 30,
2004 2003
---- ----
Net loss $ (129,267) $ (209,744)
---------- ----------
Weighted-average common shares
Outstanding (Basic) 8,669,559 8,514,459
Weighted-average common stock
Equivalents
Stock options - -
Warrants - -
Weighted-average common shares
Outstanding (Diluted) 8,669,559 8,514,459
========= =========
Options and warrants outstanding to purchase stock were not included in the
computation of diluted EPS for April 30, 2004 and 2003 because inclusion would
have been antidilutive.
Cash and Cash Equivalents
For purposes of the consolidated 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 various
times throughout the year the Company had amounts on deposit at financial
institutions in excess of federally insured limits.
-8-
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2004 AND 2003
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 109 (the Statement), Accounting for Income Taxes. The Statement
requires an asset and liability approach for financial accounting and reporting
for income taxes, and the recognition of deferred tax assets and liabilities for
the temporary differences between the financial reporting bases and tax bases of
the Company's assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled.
Deferred Revenue
Deferred revenue consisted of payments received in advance of revenue being
earned under memorabilia sales agreements.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts payable, and accrued expenses, approximate fair
values because of the short maturities of these instruments.
Options for Common Stock
The Company uses the intrinsic value method to account for options granted
to executive officers, directors and other key employees for the purchase of
common stock. No compensation expense is recognized on the grant date, since at
that date, the option price equals or is higher than the market price of the
underlying common stock. The Company discloses the pro forma effect of
accounting for stock options under the fair value method. The Company uses the
fair value method to account for options granted to advisors for the purchase of
common stock.
Stock-Based Compensation
Employee stock awards under the Company's compensation plans are accounted
for in accordance with Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees", and related interpretations. The
Company provides the disclosure requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), and related interpretations.
-9-
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2004 AND 2003
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation (continued)
Stock-based awards to non-employees are accounted for under the provisions
of SFAS 123 and has adopted the enhanced disclosure provisions of SFAS No. 148
"Accounting for Stock-Based Compensation- Transition and Disclosure, an
amendment of SFAS No. 123".
The Company measures compensation expense for its employee stock-based
compensation using the intrinsic-value method. Under the intrinsic-value method
of accounting for stock-based compensation, when the exercise price of options
granted to employees is less than the estimated fair value of the underlying
stock on the date of grant, deferred compensation is recognized and is amortized
to compensation expense over the applicable vesting period. In each of the
periods presented, the vesting period was the period in which the options were
granted. All options were expensed to compensation in the period granted rather
than the exercise date.
The Company measures compensation expense for its non-employee stock-based
compensation under the Financial Accounting Standards Board (FASB) Emerging
Issues Task Force (EITF) Issue No. 96-18, "Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services". The fair value of the option issued is used to
measure the transaction, as this is more reliable than the fair value of the
services received. The fair value is measured at the value of the Company's
common stock on the date that the commitment for performance by the counterparty
has been reached or the counterparty's performance is complete. The fair value
of the equity instrument is charged directly to compensation expense and
additional paid-in capital.
-10-
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2004 AND 2003
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
On October 3, 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), that is applicable to financial statements issued for
fiscal years beginning after December 15, 2001. The FASB's new rules on
asset impairment supersede SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and
portions of Accounting Principles Board Opinion 30, "Reporting the Results
of Operations." This Standard provides a single accounting model for
long-lived assets to be disposed of and significantly changes the criteria
that would have to be met to classify an asset as held-for-sale.
Classification as held-for-sale is an important distinction since such
assets are not depreciated and are stated at the lower of fair value and
carrying amount. This Standard also requires expected future operating
losses from discontinued operations to be displayed in the period (s) in
which the losses are incurred, rather than as of the measurement date as
presently required. The adoption of SFAS No. 144 did not have a significant
impact on the Company's results of operations or financial position. In
April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This statement rescinds SFAS No. 4, Reporting Gains and Losses
from Extinguishment of Debt, and an amendment of that statement, SFAS No.
44, Accounting for Intangible Assets of Motor Carriers, and SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
statement amends SFAS No. 13, Accounting for Leases, to eliminate
inconsistencies between the required accounting for sales-leaseback
transactions and the required accounting for certain lease modifications
that have economic effects that are similar to sales-leaseback
transactions.
Also, this statement amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. Provisions of SFAS
No. 145 related to the rescissions of SFAS No. 4 were effective for the
Company on November 1, 2002 and provisions affecting SFAS No. 13 were
effective for transactions occurring after May 15, 2002. The adoption of
SFAS No. 145 did not have a significant impact on the Company's results of
operations or financial position.
-11-
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2004 AND 2003
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (Continued)
In June 2003, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement covers
restructuring type activities beginning with plans initiated after December
31, 2002. Activities covered by this standard that are entered into after
that date will be recorded in accordance with provisions of SFAS No. 146.
The adoption of SFAS No. 146 did not have a significant impact on the
Company's results of operations or financial position.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure, an amendment of FASB
Statement No. 123"("SFAS 148"). SFAS 148 amends FASB Statement No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods
of transition for an entity that voluntarily changes to the fair value
based method of accounting for stock-based employee compensation. It also
amends the disclosure provisions of that Statement to require prominent
disclosure about the effects on reported net income of an entity's
accounting policy decisions with respect to stock-based employee
compensation. Finally, this Statement amends Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting", to require
disclosure about those effects in interim financial information. SFAS 148
is effective for financial statements for fiscal years ending after
December 15, 2002. The Company will continue to account for stock-based
employee compensation using the intrinsic value method of APB Opinion No.
25, "Accounting for Stock Issued to Employees," but has adopted the
enhanced disclosure requirements of SFAS 148.
In April 2003, the FASB issued SFAS Statement No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities", which
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging
activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement is effective for
contracts entered into or modified after June 30, 2003, except for certain
hedging relationships designated after June 30, 2003. Most provisions of
this Statement should be applied prospectively. The adoption of this
statement did not have a significant impact on the Company's results of
operations or financial position.
-12-
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2004 AND 2003
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (Continued)
In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity". This Statement establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). This statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at
the beginning of the first interim period beginning after June 15, 2003,
except for mandatorily redeemable financial instruments of nonpublic
entities, if applicable. It is to be implemented by reporting the
cumulative effect of a change in an accounting principle for financial
instruments created before the issuance date of the Statement and still
existing at the beginning of the interim period of adoption. The adoption
of this statement did not have a significant impact on the Company's
results of operations or financial position.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires a
company, at the time it issues a guarantee, to recognize an initial
liability for the fair value of obligations assumed under the guarantees
and elaborates on existing disclosure requirements related to guarantees
and warranties. The recognition requirements are effective for guarantees
issued or modified after December 31, 2002 for initial recognition and
initial measurement provisions. The adoption of FIN 45 did not have a
significant impact on the Company's results of operations or financial
position.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN
46"), Consolidation of Variable Interest Entities, an Interpretation of ARB
No. 51. FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated financial support
from other parties. FIN 46 is effective for all new variable interest
entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of
FIN 46 must be applied for the first interim or annual period beginning
after June 15, 2003. The adoption of FIN 46 did not have a significant
impact on the Company' results of operations or financial position.
-13-
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2004 AND 2003
NOTE 3- COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases, as tenant, restaurant space under an operating lease
which expires June 30, 2005. The lease escalates for increases in the landlord's
expenses of 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.
Rental expense charged to expense during the years ended April 30, 2004 and
2003 was $212,220 and $199,834, respectively. Future minimum payments under the
noncancellable restaurant lease as of April 30, 2004 are as follows:
2005 $ 140,159
2006 23,360
------
$ 163,519
=========
NOTE 4- CAPITAL LEASE OBLIGATION
The Company leased equipment under a capital lease. The equipment cost of
$32,286 was amortized over its useful life and such amortization was included in
the depreciation and amortization expense for 2003. During 2003, the lease
expired and the Company purchased the equipment
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.
NOTE 6- STOCKHOLDERS' DEFICIT
Common Stock
The Company has 50,000,000 shares authorized and 8,824,658 and 8,514,459
shares issued and outstanding at April 30, 2004 and 2003, respectively.
For the year ended April 30, 2004, the Company issued 310,199 shares of
common stock in conversion of 20,675 shares of preferred stock.
-14-
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2004 AND 2003
NOTE 6- STOCKHOLDERS' DEFICIT (CONTINUED)
Common Stock (Continued)
There were no issuances of common stock during the year ended April 30,
2003.
Preferred Stock
The Company has 56,075 shares of preferred stock authorized and 32,450
and 53,125 shares issued and outstanding at April 30, 2004 and 2003,
respectively.
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 book 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 in 2004
converted into 15 shares of the Company's common stock. There were no
conversions in 2003.
For each of the nine fiscal years ended April 30, 2004, the Company
deferred payment of the annual dividend on the Series A preferred stock.
The deferral was $21,580 and $63,750, in 2004 and 2003, respectively.
Preferred stock dividends in arrears at April 30, 2004 and 2003 aggregated
$350,460 ($10.83 per preferred share) and $575,192 ($10.83 per preferred
share), respectively. Effective November 2003, pursuant to a board
resolution, the Company cancelled its payment and/or accruing of preferred
stock dividends. Therefore only, $21,580 was accrued for the year ended
April 30, 2004.
Common Stock Options
The Company in 1993 adopted a stock option plan, which expired on
August 2, 2002. No options were exercised under the plan. All options granted by
the Company were granted pursuant to board resolutions and not under the stock
option plan.
-15-
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2004 AND 2003
NOTE 6- STOCKHOLDERS' DEFICIT (CONTINUED)
Common Stock Options (Continued)
Under the Black-Scholes option pricing model, the total value of the stock
options granted in 2003 is charged to operations as these options are fully
vested. SFAS No. 123, "Accounting for Stock-Based Compensation", encourages
adoption of a fair-value-based method for valuing the cost of stock-based
compensation. However, it allows companies to continue to use the
intrinsic-value method for options granted to employees and disclose pro forma
net loss. All of these options are vested as of April 30, 2004.
The following tables summarizes the activity of the Company's
stock option plan:
Year Ended
April 30, 2004
--------------
Weighted-
average
Number of exercise
Options price
------- -----
Outstanding - beginning of period 3,440,000 .13
Granted 8,000,000 .01
Forfeited (2,390,000) (.13)
-------------- -----------------
Outstanding - end of period 9,050,000 $ .011
Exercisable at end of period: 9,050,000 $ .011
Year Ended
April 30, 2003
--------------
Weighted-
Number average
Of exercise
Options price
------- -----
Outstanding - beginning of period 3,440,000 $ .13
Granted 0 .00
Forfeited 0 .00
--------- ------
Outstanding - end of period 3,440,000 $ .13
Exercisable at end of period: 3,440,000 $ .13
-16-
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2004 AND 2003
NOTE 6- STOCKHOLDERS' DEFICIT (CONTINUED)
Common Stock Options (Continued)
If compensation expense for the Company's stock-based compensation plans
had been determined consistent with SFAS 123, the Company's net income and net
income per share including pro forma results would have been the amounts
indicated below:
Year Ended April 30,
2004 2003
---- ----
Net loss:
As reported ($107,687) ($145,994)
Total stock-based employee
compensation expense determined
under fair value based
method for all awards, net of
related tax effects (80,000)
Pro forma Net loss per share: ($187,687) ($145,994)
As reported:
Basic ($0.01) ($0.02)
Diluted ($0.01) ($0.02)
Pro forma:
Basic ($0.01) ($0.02)
Diluted ($0.01) ($0.02)
The fair value of the options granted during 2004 and 2003 was estimated on
the date of grant using the Black-Scholes option pricing model. The
weighted-average assumptions used are as follows:
2004 2003
---- ----
Expected term 3 years -
Expected stock volatility 140% -
Risk-free interest rate 2.5% -
Dividend - -
-17-
CHAMPION SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2004 AND 2003
NOTE 7- STOCK AGREEMENT
In January 2002, the Company entered into a subscription agreement to sell
4,000,000 shares of common stock to an unrelated party at $0.125 per share for a
total of $500,000.
The purchaser paid $20,000 at the closing of the agreement and provided a
promissory note for $480,000. The note is non-interest bearing and requires
twenty-four monthly payments of $20,000 each. The note is secured by the stock
issued and the transfer of such stock is restricted until the note is paid off.
Certain other restrictions regarding the transfer of the stock also exist.
The purchaser paid a total of $55,000 during the year ended April 30, 2002
and $5,000 during the year ended April 30, 2003, and has defaulted under the
payment terms of the note. The stock has not been issued, and the agreement was
cancelled.
NOTE 8- GOING CONCERN
As shown in the accompanying consolidated financial statements the Company
has sustained net operating losses for the years ended April 30, 2004 and 2003,
and has sustained large accumulated deficits. In addition, the Company is in
search of acquiring a business, or finding a suitable merger candidate.
Management has restructured the Company and is continuing to search for a
more profitable company to acquire.
The Company's future success is dependent upon its ability to achieve
profitable operations and generate cash from operating activities, and upon
additional financing. There is no guarantee that the Company will be able to
raise enough capital or generate revenues to sustain its operations.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
NOTE 9- PROVISION FOR INCOME TAXES
Deferred income taxes will be determined using the liability method for the
temporary differences between the financial reporting basis and income tax basis
of the Company's assets and liabilities. Deferred income taxes will be measured
based on the tax rates expected to be in effect when the temporary differences
are included in the Company's consolidated tax return. Deferred tax assets and
liabilities are recognized based on anticipated future tax consequences
attributable to differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases.
At April 30, 2004, deferred tax assets consist of the following:
Net operating loss carryforwards $1,403,500
Less: valuation allowance (1,403,500)
$ -0-
-18-
CHAMPION SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2004 AND 2003
NOTE 9- PROVISION FOR INCOME TAXES (CONTINUED)
At April 30, 2004, the Company had federal net operating loss carryforwards
in the approximate amounts of $4,010,000 available to offset future taxable
income. The Company established valuation allowances equal to the full amount of
the deferred tax assets due to the uncertainty of the utilization of the
operating losses in future periods.
-19-
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 27, 2004
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, President and CEO
Date: July 27, 2004
By: /s/ Michael M. Tomic
------------------------
Michael M. Tomic
Director
Date: July 27, 2004
By: /s/ Durwood C. Settles
--------------------------
Durwood C. Settles
Director
Date: July 27, 2004
43
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Section 302 Certification
I, JAMES M. MARTELL, certify that:
(1) I have reviewed this annual report on Form 10-KSB of
CHAMPIONS SPORTS, INC., a Delaware corporation (the "registrant");
(2) Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
(4) The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and have:
(a) Designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
(b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the "Evaluation
Date"); and (c) Presented in this annual report our conclusions
about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
44
(5) The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
(6) The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: July 27, 2003
By: /s/ James M. Martell
------------------------
James M. Martell
Chief Executive Officer
45
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Section 302 Certification
I, JAMES E. McCOLLAM, certify that:
(1) I have reviewed this annual report on Form 10-KSB of CHAMPIONS
SPORTS, INC., a Delaware corporation (the "registrant");
(2) Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
(4) The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) Designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
(b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the "Evaluation
Date"); and
(c) Presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
registrant's board of directors (or persons performing the equivalent
function): (a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and (b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: July 27, 2003
By: /s/ James E. McCollam
-------------------------
James E. McCollam
Chief Financial Officer
46
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
In connection with the annual report of Champions Sports, Inc. (the
"Company") on Form 10-KSB for the year ended April 30, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"),
each of the undersigned, in the capacities and on the dates indicated
below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to their
knowledge:
1. The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operation of the Company.
Dated: July 27, 2004 By: /s/ James M. Martell
---------------------------
James M. Martell, Chief Executive Officer
Dated: July 27, 2004 By: /s/ James E. McCollam
----------------------------
James E. McCollam, Chief Financial Officer
47