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, 2002
----------------------------------------
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, 2002, the revenues of the registrant were
$2,147,995.
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 12, 2002, was approximately $255,000.
As of July 12, 2002, the Registrant had a total of 8,514,459 shares of
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Business
(a) Development of Business.
CHAMPIONS Sports, Inc. (the "Company" or "CSI") was incorporated under the
laws of the State of Delaware on June 4, 1985 under the name "International
Group, Inc." In September 1985, the Company completed a public offering of
40,000,000 Units, each Unit consisting of one share of Common Stock and warrants
to purchase three shares of Common Stock, at a price of $0.01 per Unit. The net
proceeds of the offering to the Company were approximately $357,000.
On January 16, 1986, the Company acquired 100% of the outstanding shares of
CHAMPIONS Sports International, Inc. ("CSII"), in exchange for 195,555,555
shares of the Company's Common Stock. In February, 1986, International Group,
Inc. changed its name to CHAMPIONS Sports, Inc. Between 1987 and 1988, most of
the original warrants issued in September 1985 were exercised by stockholders
and consequently the Company received additional capital of $2,356,268. On
September 12, 1989, CSII was merged with and into the Company, with the Company
as the surviving corporation. In November 1991, the Company effected a reverse
split of its outstanding shares on a 1 for 100 basis. In November 1992, the
Company completed a public offering of 350,000 Shares of Series A 12% Cumulative
Convertible Preferred Stock. In March 1993, the Company completed an exchange
offer converting all, except 64,575 preferred shares, into 2,171,657 shares of
common stock. Subsequently, an additional 11,450 preferred shares have been
converted into 53,930 shares of common stock.
The Company is a licensee of one CHAMPIONS Sports Bar Restaurant and the
exclusive supplier of sports memorabilia and consultant to Marriott
International, Inc. (Marriott). Effective November, 1997, the Company sold the
rights to the CHAMPIONS brand to Marriott and became a licensee of CHAMPIONS
Sports Bar Restaurants and an exclusive supplier of sports memorabilia and a
consultant to all new managed Marriott and Renaissance Hotel sports bar
restaurants worldwide. At April 30, 2002, the Company owns the one CHAMPIONS
Sports Bar Restaurant in San Antonio, Texas.
(b) Description of Business.
1. Concept
The Company operates a restaurant in San Antonio, Texas by the name of
CHAMPIONS which has a sports theme concept that combines casual dining, sports
viewing with strategic marketing and promotions. The CHAMPIONS popularity is
defined in the CHAMPIONS motto: "Good 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. The Company does not own, operate or manage this property. A strong food
component was added to the original concept so that the CHAMPIONS in San
Antonio, Texas is a full-fledged restaurant as well as bar. The sports theme of
CHAMPIONS is based upon management's belief that sports appeals to most
socio-economic, age and gender groups worldwide. The sports atmosphere at
CHAMPIONS is created by the presence of hundreds of items of original sports
memorabilia such as uniforms, sports equipment, posters, advertising, signs,
magazine covers, official programs, film posters, and photographs from local,
national and international celebrities and sporting events, past and present.
The sports decor seeks to establish a feeling a comfort and belonging for all
customers. In addition, CHAMPIONS atmosphere is enhanced by sports programming
and viewing which is accomplished through a network of strategically placed TV
monitors designed to continuously show local, national and international
sporting events without taking away from the casual dining experience. Although
sports is a theme in CHAMPIONS restaurants it is not the dominant factor. At the
heart of the CHAMPIONS concept is the food. The menu, which attracts guests for
lunch and dinner, appeals to those interested in dining at a moderate price. It
incorporates traditional American cuisine as well as popular regional items.
CHAMPIONS average check is about $14.25 per person, placing it within the
"casual dining" segment of the restaurant industry. This segment seeks to
attract customers who want a higher quality of food and service than that
commonly provided at "fast food" or "family style" restaurants. Although no
element of 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 95% of the
Company's revenues for FY 2002, 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 2002, the Company provided sports
memorabilia and consulting services to Champions Sports Bar Restaurant that
opened in Marriott hotel in Uniondale, New York Indianapolis, Indiana. Marriott
hotel locations accounted for about 5% of the Company's revenues for FY 2002, as
reflected in the consolidated financial statements included herein.
.
3. Competition
The food and beverage industry is highly competitive. Food and beverage
businesses are affected by changing customer tastes, local and national economic
conditions that affect spending habits, population shifts and traffic patterns.
Quality of service, attractiveness of facilities and price are also important
factors. The popularity of the concept of sports bar restaurants has spawned a
number of companies seeking to capitalize on that market. While the Company
believes that the Champions concept is superior, there are other "sports" bar
restaurants in operation. The sports memorabilia business is also highly
competitive.
4. Service Mark
The Company sold the federally registered service mark "Champions" to
Marriott pursuant to the November, 1997 agreement and transferred to Marriott
all of its international service marks that the Company had registered.
5. Government Regulation
The Company's CHAMPIONS sports bar restaurant is subject to federal, state
and local governmental regulations, including regulations relating to alcoholic
beverage control, public health and safety, zoning and fire codes. The failure
to retain food, liquor or other licenses would adversely affect the operations
of the Company's restaurant. While the Company has not experienced and does not
anticipate any problems in retaining required licenses, permits or approvals,
any difficulties, delays or failures in retaining such licenses, permits or
approvals could adversely affect the restaurant. The license to sell alcoholic
beverages must be renewed annually and may be suspended or revoked at any time
for cause, including violation by the Company or its employees of any law or
regulation pertaining to alcoholic beverage control, such as those regulating
the minimum age of patrons or employees, advertising, wholesale purchasing, and
inventory control, handling and storage. However, the restaurant is operated in
accordance with standardized procedures designed to assure compliance with all
applicable codes and regulations.
The Company may be subject to "dram-shop" statutes, which generally 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.
6. Employees
As of April 30, 2002, the Company had 2 full-time 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 $450 per month. The Company is leasing 5,289
square feet of space for its restaurant in San Antonio, TX pursuant to a lease,
which expires in November 2004 with an option for an additional five years. 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.
Common Stock
High Low
$ $
Fiscal 2002
First Quarter 0.14 0.07
Second Quarter 0.09 0.06
Third Quarter 0.10 0.05
Fourth Quarter 0.09 0.05
Fiscal 2001
First Quarter 0.16 0.10
Second Quarter 0.53 0.11
Third Quarter 0.29 0.17
Fourth Quarter 0.20 0.125
(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
12, 2002 was 2,140 and the Company estimates that there are approximately 3,000
additional beneficial shareholders. There are about 30 beneficial holders of the
Company's preferred stock as of July 12, 2002.
(c) Dividends.
Holders of common stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends have been paid with
respect to the Company's common stock and no dividends are anticipated to be
paid in the foreseeable future. Since November 1994, the Company's Board of
Directors voted each year to defer payment of the annual dividend on the Series
A, 12%, Cumulative Preferred Stock, in order to preserve the Company's cash
reserves.
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
(a) Results of Operations for Fiscal Years 2002 and 2001.
1. Revenues
For the fiscal year ended April 30, 2002, the Company's revenues decreased
2.8% to $2,147,995 from $2,210,348 in FY 2001.
By component, food and beverage sales increased 2.9% to $1,995,226 for FY
2002 compared to $1,939,841in FY 2001. The Company's management attributes the
increase in food and beverage sales to an increase in customer volume, as there
was no significant price increase during the last year. The food to beverage
ratio for the San Antonio location was approximately 62% to 38% for both
comparable years. Food and beverage sales accounted for 92.9% and 87.8% of the
Company's total revenue in the comparable periods.
Revenues from merchandise and memorabilia sales and consulting fees
accounted for 6.2% of the Company's total revenue in FY 2002 compared to 10.7%
in FY 2001. Sales of memorabilia are directly tied to the number of new
Champions locations that open during the fiscal year. In FY 2002, the Company
provided sports memorabilia to one Champions location compared to two locations
in FY 2001. During FY 2002 and FY 2001, the Company other revenues accounted for
less than 1% of its total revenues. Interest income represented approximately
0.5% of the Company's total revenues in FY 2002 and 1.2% in FY 2001.
2. Expenses
The Company's cost of food and beverage remained constant at 26.0% and
25.6% of related sales for the comparable periods.
Restaurant payroll and related costs also remained constant during both
comparable years at 34.2% of food and beverage sales in FY 2002 and 34.7% of
related sales in FY 2001. Restaurant occupancy costs for FY 2002 were 12.3% of
food and beverage sales compared to 14.7% in FY 2001.
Other restaurant costs decreased as a percentage of food and beverage sales
at 18.2% for FY 2002 compared to 19.4% for FY 2001 General and administrative
costs incurred in FY 2002 were $309,892 and $353,882 in FY 2001.The primary
components of G&A expenses are operating the Company's corporate office,
including salaries. Interest expense in both FY 2002 and 2001 was immaterial.
3. Profits / Losses
For FY 2002, the Company's loss was $147,312 from its operations before
dividends accrued on the outstanding preferred stock of $63,750, producing a net
loss for common shareholders of $211,062, or $0.02 per common share. The San
Antonio Champions location produced a net profit of $163,536. During FY 2002,
the Company wrote off an equity investment in a non publicly traded company of
$50,000.
For FY 2001, the Company's net loss was $468,931 from its operations before
dividends accrued on the outstanding preferred stock of $63,752, and took a
non-cash charge of $207,952 for a change in valuation for a deferred tax asset,
producing a net loss available to common shareholders of $740,635, or $0.09 per
common share. The San Antonio Champions location produced a profit of $74,623.
During FY 2001, the Company wrote off investments in a subsidiary of $242,101
and $50,000 in an equity investment on a non-publicly traded company.
(b) Liquidity and Capital Resources for Fiscal Years 2002 and 2001
The Company's cash position on April 30, 2002 was $449,282 compared
to$451,650 on April 30, 2001, a decrease of $2,368.
During FY 2002, The Company's operating activities used cash of $32,684.
The Company used cash of $14,390 to purchase replacement equipment for its San
Antonio Champions location and repaid a capital lease of $10,294. In January
2002, the Company entered into an agreement with a private investor, to purchase
from the Company 4,000,000 shares of the Company's common restricted stock at a
purchase price of $0.125 per share in the aggregate amount of $500,000 payable
in monthly installments to be used by the Company to provide general working
capital. The purchaser has paid a total of $55,000 at April 30, 2002 and has not
met the payment terms of the agreement. The Company believes that the agreement
may not be fulfilled. The Company's operating activities coupled with its cash
reserves provided sufficient cash flow for the Company to meet its cash needs in
FY 2002.
In FY 2001, The Company's operating activities provided cash of $144,678.
The Company decreased its accounts receivable and other current assets by
$120,083 and increased its accounts payable and other current liabilities by
$145,060. The Company wrote down its deferred tax asset totaling $207,952. The
Company used $33,723 in cash to purchase equipment for its restaurant in San
Antonio and invested $242,101 in Champions Tech Ventures, Inc. Cash paid for
interest expense in FY2001 was $3,518. The Company's operating activities
coupled with its cash reserves provided sufficient cash flow for the Company to
meet its cash needs in FY 2001.
The Company's working capital as of April 30, 2002 was a negative $294,573
contrasted to $216,239 on April 30, 2001.
The Company continues to review and evaluate its operations and priorities.
The Company is pursuing merger or acquisition candidates and other opportunities
to meet its longer-term liquidity needs. There is no assurance that the Company
will be able to structure a merger or acquisition on terms satisfactory to the
Company.
(c) Miscellaneous
Stockholders' equity on April 30, 2002 was a negative $5,005 compared to
$157,057 on April 30, 2001. In FY 2002 and 2001, the Company's Board of
Directors voted to defer payment of the 12% annual dividend of the Company's
preferred stock, in order to preserve the Company's cash reserves. This dividend
is cumulative and has been recorded on the Company's balance sheet as a current
liability. In addition, in FY 2002 and 2001, the Board of Directors voted to
defer the annual meeting of security holders in order to preserve the Company's
cash reserves.
This document contains "forward-looking statements" (within the meaning of
the Private Securities Litigation Act of 1995) that inherently involve risk and
uncertainties. The Company's actual results could differ materially from those
anticipated in the forward-looking statements as a result of unforeseen external
factors. These factors may include, but are not limited to, changes in general
economic conditions, the ongoing threat of terrorism, customer acceptance of
products offered and other general competitive factors, and the ability to have
access to financing sources on reasonable terms. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis, judgment, belief or expectation only as of the date
hereof.
Item 7. Financial Statements and Supplementary Data.
The Report of Independent Accountants appears at page F-1 and the
Consolidated Financial Statements and Notes to the Consolidated Financial
Statements appear at pages F-2 through F-14 hereof.
Item 8. Changes In and Disagreements with Accountants
on Accounting & Financial Disclosure.
During the two most recent fiscal years, there have been no changes in the
Company's independent accountants and there have been no disagreements between
the Company and its independent accountants on any matter of accounting
principles or practices or financial statement disclosure.
Item 9. Directors and Executive Officers.
The Executive Officers and Directors of the Company are as
follows:
NAME POSITION(S) PRESENTLY HELD
James M. Martell Chairman, President, Chief Executive Officer
and Director
James E. McCollam Controller, Chief Accounting Officer,
Corporate Secretary
Durwood C. Settles Director
Michael M. Tomic Director
James M. Martell, age 55, 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 55, 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, he
was employed by Marriott Corporation in various positions in the corporate
accounting department. He earned a Bachelor of Science degree in Finance from
the University of Maryland 1970.
Durwood C. Settles, age 59, 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
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 56, 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 2002, and 2001 which was paid by the Company to, or accrued by the
Company for, each of the Company's most highly compensated executive officers
whose cash compensation in such year equaled or exceeded $100,000:
Name and FY Annual Other
Principal Position Year Salary ($) Compensation ($)
--------------------------------------------------------------------------
James M. Martell, President 2002 148,022 0
2001 148,022 0
In FY 2002, all officers of the Company as a group (2 in number) received
cash compensation of $221,023. The Board of Directors has the right to change
and increase the compensation of executive officers at any time. The Company has
no arrangement by which any of its directors are compensated for services solely
as directors, and these individuals will not receive any additional remuneration
for their services as directors. The Company may from time to time pay
consulting fees to its officers and directors.
Except as described below, the Company has no compensatory plan or
arrangement which would result in executive officers receiving compensation as a
result of their resignation, retirement or any other termination of employment
with the Company or its affiliates, or from a change in control of the Company
or a change in responsibilities following a change in control of the Company.
The Company entered into 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 2001,
the Board of Directors reissued 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.
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 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.
The Company has a Stock Option Plan intended to assist the Company in
securing and retaining key employees and consultants by allowing them to
participate in the ownership and growth of the Company through the grant of
incentive and non-qualified options. Incentive stock options granted under the
Plan are intended to be "Incentive Stock Options" as defined by Section 422 of
the Internal Revenue Code. An aggregate of 840,000 shares of Common Stock has
been reserved for issuance under the Plan. As of April 30, 2001, all 840,000
shares were reserved and available for issuance. The plan expires on August 2,
2002.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
As of July 12, 2002, 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 18.2
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 12, 2002 (1) Percentage
--------------------------------------------------------------------------------
James M. Martell President & Director 1,548,000 18.2
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 20.8
*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.
Item 12. Certain Relationships and Related Transactions.
During FY 2002 and FY 2001, there were no related party
transactions.
Item 13. Exhibits and Reports on Form 8-K.
(a) Index to Financial Statements PAGE
Independent Auditor's Report F-1
Consolidated Balance Sheets as of April 30, 2002 and 2001 F-2
Consolidated Statements of Operations for the Years Ended
April 30, 2002 and 2001 F-3
Consolidated Statements of Stockholder's Equity for the Years
ended April 30, 2002 and 2001 F-4
Consolidated Statements of Cash Flows for the Years ended
April 30, 2002 and 2001 F-5
Notes to the Consolidated Financial Statements F-6/F-14
(b) There were no Form 8-K's filed during the last quarter of
the period covered by this report.
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
For The Year Ended April 30, 2002
Table of Contents
Page
Independent Auditors' Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Changes in
Stockholders' (Deficiency) Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
PKF PANNELL
worldwide KERR
[graphic omitted] FORESTER PC
CERTIFIED PUBLIC ACCOUNTANTS
10304 Eaton Place
Suite 400
Fairfax, VA 22030
Telephone (703)385-8809
Telefax (703)385-8890
pkfcpa@pkfwash.com
Independent Auditors' Report
To the Stockholders and Board of Directors
Champions Sports, Inc.
Arlington, Virginia
We have audited the accompanying consolidated balance sheets of Champions
Sports, Inc. and its subsidiaries as of April 30, 2002 and 2001, and the related
consolidated statements of operations, changes in stockholders' (deficiency)
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Champions Sports, Inc. and subsidiaries at April 30, 2002 and 2001, and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Pannel Kerr Foster PC
June 21, 2002
F-2
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
Assets
April 30
-----------------------------------
2002 2001
----------------- ----------------
Current assets
Cash and cash equivalents $ 449,282 $ 451,650
Accounts receivable - trade 54 1,326
Inventories 25,555 25,056
Prepaid expenses 14,035 17,411
Total current assets 488,926 495,443
----------------- ----------------
Property and equipment
Furniture and equipment 577,371 562,981
Leasehold improvements 584,772 584,772
----------------- ----------------
1,162,143 1,147,753
Accumulated depreciation and amortization (876,432) (828,013)
----------------- ----------------
285,711 319,740
----------------- ----------------
Other assets
Available for sale investments, at cost (note 8) - 50,000
Deposits 11,052 11,052
----------------- ----------------
Total assets $ 785,689 $ 876,235
================= ================
Liabilities and Stockholders' (Deficiency) Equity
Current liabilities
Accounts payable $ 88,104 $ 126,240
Dividend payable on preferred stock (note 6) 511,442 447,692
Other accrued expenses 52,790 58,479
Deferred revenue 124,871 64,625
Current portion of deferred lease concession 4,363 4,363
Current portion of capital lease obligation (note 4) 1,929 10,283
----------------- -------------
Total current liabilities 783,499 711,682
----------------- -------------
Capital lease obligation, net of current portion (note 4) - 1,940
Deferred lease concession, net of current portion 7,195 11,556
---------------- -------------
Total liabilities 790,694 725,178
----------------- -------------
Commitments and contingencies (notes 3, 4, 5, and 9)
Stockholders' (deficiency) equity (notes 6, 7, and 9)
Preferred stock
Series A, 12% Convertible Cumulative; $10 par value; preferred as to
dividends and liquidation; 56,075 shares authorized and 53,125 shares
issued and
outstanding for 2002 and 2001, respectively 531,252 531,252
Common stock, par value $.001 per share, 50,000,000
shares authorized and 8,514,459 shares
issued and outstanding for 2002 and 2001, respectively 8,514 8,514
Additional paid-in capital 5,392,599 5,337,599
Accumulated deficit (5,937,370) (5,726,308)
-------------- ------------
Total stockholders' (deficiency) equity (5,005) 151,057
-------------- ----------
Total liabilities and stockholders' (deficiency) equity $ 785,689 $ 876,235
============== ============
See notes to consolidated financial statements
F-3
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended April 30
---------------------------------------
2002 2001
-------------------- -----------------
Revenue
Food and beverage $ 1,995,226 $ 1,939,841
Merchandise, memorabilia, and consulting fees 132,995 236,516
Interest income 7,814 26,190
Other income 11,960 7,801
-------------------- -----------------
2,147,995 2,210,348
-------------------- -----------------
Costs and expenses
Cost of food and beverage sales 518,367 495,754
Cost of merchandise and memorabilia 76,919 143,951
Restaurant payroll and related costs 681,806 673,052
Restaurant occupancy costs 245,038 284,660
Other restaurant costs 363,264 375,996
General and administrative 309,892 353,882
Depreciation and amortization 48,419 56,365
Interest 1,602 3,518
Impairment of investments (note 8) 50,000 292,101
-------------------- -----------------
2,295,307 2,679,279
-------------------- -----------------
Operating (loss) before income tax expense (147,312) (468,931)
Income tax expense (note 2) - 207,952
-------------------- -----------------
Net (loss) (147,312) # (676,883)
Preferred stock dividends (63,750) (63,752)
-------------------- -----------------
Net (loss) available to common stockholders $ (211,062) $ (740,635)
==================== =================
Basic (loss) per common share (note 1) $ (0.02) $ (0.09)
==================== =================
(Loss) per common share - assuming dilution (note 1) $ (0.02) $ (0.09)
==================== =================
See notes to consolidated financial statements
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' (Deficiency) Equity
For The Years Ended April 30, 2002 and 2001
Series A, 12%
Convertible Cumulative
Common Stock Preferred Stock Additional
------------------------- -----------------------
Amount Amount Paid-in Accumulated
Shares at Par Shares at Par Capital Deficit Total
------------------------------------------------- --------------- ---------------------------
Balance, April 30, 2000 8,514,459 $ 8,844 53,125 $ 531,252 5,337,599 $(4,985,673) $ 891,692
For the year ended April 30, 2001
Dividend on preferred stock
accrued and unpaid - - - - - (63,752) (63,752)
Net (loss) - - - - - (676,883) (676,883)
---------------- -------------------- ----------- --------------- ----------------- ----------
Balance, April 30, 2001 8,514,459 8,514 53,125 531,252 5,337,599 (5,726,308) 151,057
For the year ended April 30, 2002
Dividend on preferred stock
accrued and unpaid - - - - - (63,750) (63,750)
Subscriptions received,
stock unissued (note 9) - - - - 55,000 - 55,000
Net (loss) - - - - - (147,312) (147,312)
------------------------------------------------- --------------- ----------------- ----------
Balance, April 30, 2002 8,514,459 $ 8,514 53,125 $ 531,252 $ 5,392,599 $ (5,937,370) $ (5,005)
================================================= =============== ================= ==========
See notes to consolidated financial statements
F-5
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Years Ended April 30
------------------------------------
2002 2001
----------------- -----------------
Cash flows from operating activities:
Net (loss) $ (147,312) $ (676,883)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 48,419 56,365
Impairment of investments 50,000 292,101
Deferred income taxes - 207,952
Changes in assets and liabilities:
Accounts receivable 1,272 112,737
Inventories
(499) (875)
Prepaid expenses 3,376 8,221
Accounts payable (38,136) 78,067
Other accrued expenses (5,689) 7,093
Deferred revenue 60,246 64,625
Deferred lease concessions (4,361) (4,725)
----------------- -----------------
Net cash provided (used) by
operating activities (32,684) 144,678
----------------- -----------------
Cash flows from investing activities:
Purchases of property and equipment (14,390) (33,723)
Investment in Champions Tech Ventures, Inc. - (242,101)
----------------- -----------------
Net cash (used) by investing activities (14,390) (275,824)
----------------- -----------------
Cash flows from financing activities:
Subscriptions received, stock unissued (note 9) 55,000 -
Principal payments on capital lease (10,294) (8,412)
----------------- -----------------
Net cash provided (used) by financing activities 44,706 (8,412)
----------------- -----------------
Net (decrease) in cash and cash equivalents (2,368) (139,558)
Cash and cash equivalents at beginning of year 451,650 591,208
----------------- -----------------
Cash and cash equivalents at end of year $ 449,282 $ 451,650
================= =================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 1,602 $ 3,518
================= =================
Supplemental disclosure of non-cash investing and financing activities:
Accrued dividend on preferred stock $ 63,750 $ 63,752
================= =================
See notes to consolidated financial statements
F-6
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
April 30, 2002
Note 1 - Organization and summary of significant accounting policies
Organization
Champions Sports, Inc., (Company) a Delaware corporation, promoted a sports
theme restaurant bar concept through Company owned and licensed operations. The
Company sold the rights to the Champions brand to Marriott International, Inc.
(Marriott) and became a licensee of Champions Sports Bar Restaurants (note 5).
Substantially all memorabilia sales are to Marriott. At April 30, 2002 and 2001,
respectively, the Company, through its subsidiaries, owns and licenses, without
any royalty fee, one Champions Sports Bar Restaurant.
C.S.B.R., Inc., (CSBR) and The Been Corporation (Been) were organized on June
16, 1989 and October 11, 1989, respectively, for the purpose of owning and
operating a Champions Sports Bar Restaurant in San Antonio, Texas.
Basis of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material inter-company transactions have been eliminated
in consolidation.
Property and equipment
Property and equipment are stated at cost. Depreciation 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 and $19,096 for the years ended April 30, 2002
and 2001, respectively. Amortization expense was $37,269 for both years ended
April 30, 2002 and 2001. Fully depreciated assets in the amount of $109,688 and
$109,186 are included in property and equipment at April 30, 2002 and 2001,
respectively.
F-7
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 2002
Note 1 - Organization and summary of significant accounting policies (continued)
--------------------------------------------------------------------------------
Inventories
Inventories consist of goods and supplies held for sale in the ordinary course
of business and are stated at the lower of cost, determined on the first-in
first-out basis, or market. The components of inventories at April 30, 2002 and
2001, were as follows:
2002 2001
----------- -----------
Resstaurant food and beverage $17,535 $ 15,669
Promotional merchandise for sale to
restaurant customers 8,020 9,387
--------- ----------
$25,555 $ 25,056
======= ========
Net (loss) per share
Basic earnings per common share is computed by dividing the net (loss), adjusted
for preferred stock dividends, by the weighted average number of common shares
outstanding during the period.
The weighted average number of common shares used to compute earnings per share
is:
At April 30, 2002
(Loss) Available To Common Per
Common Stockholders Shares Share
Basic (loss) per
Common Share $(211,062) 8,514,459 $ (.02)
========== =========
At April 30, 2001
(Loss) Available To Common Per
Common Stockholders Shares Share
Basic (loss) per
Common Share $(740,635) 8,514,459 $ (.09)
========= =========
The effect of including the options in diluted (loss) per share would be
antidilutive, and, therefore, are not included in the calculation of diluted
(loss) per share.
Cash and cash equivalents
The statements of cash flows are prepared on the basis of cash and equivalents.
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less,
unless restricted as to use, to be cash equivalents. At April 30, 2002 and 2001,
respectively, and 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, 2002
Note 1 - Organization and summary of significant accounting policies (continued)
--------------------------------------------------------------------------------
Investments
Investments consisted of equity holdings in companies which are not publicly
traded. There was no readily determinable fair market value for the securities
and, as such, they were stated at cost. To the extent that the cost of these
investments is greater than expected future earnings from these investments,
they are considered to be impaired and are written off.
Income taxes
To the extent that taxable income differs from financial reporting net income
due to temporary differences, deferred taxes are recognized. The Company
accounts for general business tax credits, if any, by the flow-through method.
Deferred revenue
Deferred revenue consists primarily of payments received in advance of revenue
being earned under memorabilia sales agreements.
Financial statement estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair value of financial instruments
The carrying amounts of the Company's financial instruments, including cash and
cash equivalents, accounts receivable, accounts payable, and accrued expenses,
approximate fair values because of the short maturities of these instruments.
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 (note 7). The Company
uses the fair value method to account for options granted to advisors for the
purchase of common stock.
9
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 2002
Note 2 - Income taxes
Income tax expense consists of the following for the years ended April 30, 2002
and 2001:
2002 2001
------------- -------------
Current $ - $ -
Deferred (52,140) (179,690)
Increase in valuation allowance 52,140 387,642
------------- ------------
Total income tax expense $ - $ 207,952
================= ===========
Temporary differences, which give rise to deferred tax assets are as follows:
2002 2001
-------------- -------------
Deferred tax assets
Deferred rent concessions $ 4,387 $ 6,043
Net operating losses
available for carryforward 1,623,515 1,575,201
Depreciation 44,013 38,531
------------- ------------
Total deferred tax assets 1,671,915 1,619,775
Valuation allowance (1,671,915) (1,619,775)
----------- -----------
Net deferred tax assets $ - $ -
============== =============
A reconciliation of income taxes computed at Federal statutory rates to income
taxes recorded by the Company is as follows:
Years Ended April 30
---------------------------
2002 2001
------------- ------------
Federal income taxes at statutory rate $ (44,606) $ (159,437)
State income taxes net of Federal income
tax benefit (5,195) (18,569)
Effect of non-deductible items (2,339) (1,684)
Change in valuation allowance 52,140 387,642
------------- ------------
Total income tax expense $ - $ 207,952
============ ===========
10
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 2002
Note 2 - Income taxes (continued)
At April 30, 2002, the Company has net operating loss carryforwards of
approximately $4,277,000 for tax reporting purposes. The net operating loss
carryforwards for income tax purposes expire approximately as follows:
2005 $ 137,000
2006 9,000
2007 561,000
2008 1,004,000
2009 1,915,000
2011 11,000
2012 28,000
2019 33,000
2020 106,000
2021 392,000
2022 81,000
-------------
$4,277,000
During the years ended April 30, 2002 and 2001, the Company did not utilize
available net operating losses.
Note 3 - Commitments and contingencies
Operating leases
The Company leases, as lessee, restaurant space under an operating lease which
expires initially in 2004 and which has renewal options. The lease escalates for
increases in the landlord's expenses or for increases in the Consumer Price
Index, and requires additional rentals based on a percentage of restaurant sales
over a defined amount. The lease grants the Company certain concessions which
are amortized to lease expense over the term of the lease.
Rental expense charged to expense during the years ended April 30, 2002 and 2001
was $214,096 and $252,738, respectively. Included in this expense are contingent
rentals of $11,949 and $14,701 in 2002 and 2001, respectively. Future minimum
payments under the noncancellable restaurant lease as of April 30, 2002 are as
follows:
2003 $140,158
2004 58,400
----------
Total $198,558
========
Note 4 - Capital lease obligation
The Company is the lessee of equipment under a capital lease. The equipment cost
of $32,286 is amortized over its useful life, and such amortization is included
in the depreciation and amortization expense for 2002 and 2001, respectively.
This lease expires in 2003 with payments due of $1,929.
11
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 2002
Note 5 - Marriott license
The Company is an exclusive supplier of sports memorabilia and a consultant to
all new Champions Sports Bars located in Marriott and Renaissance Hotels
worldwide. Total annual license and memorabilia fees under this agreement were
$89,523 and $187,770 for 2002 and 2001, respectively.
Note 6 - Preferred stock
The Series A preferred stock requires a dividend of 12 percent per annum, and
the dividends are cumulative and are to be accrued on the Company's books if not
paid. The dividend may be paid in common stock of the Company at the Company's
discretion. The number of shares comprising the dividend paid in common stock
shall be determined by dividing $1.20 by the closing bid price for the common
stock on the payment date. The Series A preferred stock is preferred in
liquidation or dissolution up to the amount of their par value ($10 per share).
The Series A preferred stock is convertible into 4.71 shares of the Company's
common stock. There were no conversions in 2002 and 2001.
For each of the eight fiscal years ended April 30, 2002, the Company's Board of
Directors voted to defer payment of the annual dividend on the Series A
preferred stock in the amount of $63,750 and $63,752, in 2002 and 2001,
respectively. Preferred stock dividends in arrears at April 30, 2002 and 2001
aggregated $511,442 ($9.63 per share) and $447,692 ($8.42 per share),
respectively.
Note 7 - Common stock options
Options to purchase a total of 450,000 shares at $1.00 per share were granted to
two executive officers during fiscal 1994. The options expired, unexercised in
September 2001. In fiscal 2001, the exercise price of 200,000 of these shares
was reduced from $1.00 per share to $0.11 per share.
Options to purchase a total of 1,300,000 shares of common stock at an exercise
price of $.05 per share were granted to two executive officers in July 1995. An
officer exercised an option to purchase 1,200,000 of these shares in December
1995 for $60,000 cash. The remaining options of 100,000 shares of common stock
expired, unexercised in July 2001.
Options to purchase a total of 725,000 and 2,255,000 shares of common stock in
2002 and 2001, respectively, at an exercise price of $0.11 and 460,000 shares of
common stock in 2001 at an exercise price of $0.28 were granted to two executive
officers, other key employees, directors and advisors of the Company. All
options were issued at market price or higher on the date of the grant. These
options expire if not exercised by August 2003 and September 2003. None of these
options have been exercised as of April 30, 2002.
During fiscal 1993, the Company adopted a compensatory stock option plan for key
employees or consultants of the Company and its subsidiaries. The total number
of shares of the Company's common stock which may be issued under the plan is
840,000. The plan expires on August 2, 2002. No options have been granted under
the plan as of April 30, 2002.
12
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 2002
Note 7 - Common stock options (continued)
Stock option activity is summarized as follows:
Weighted Average
Number of Shares Exercise Price
Outstanding, April 30, 2000 550,000 $ 0.83
Granted 2,715,000 0.14
Expired - -
Exercised - -
---------------- ---------
Outstanding, April 30, 2001 3,265,000 0.20
Granted 725,000 0.11
Expired (550,000) 0.11
Exercised - -
---------------- ---------
Outstanding, April 30, 2002 3,440,000 $ 0.13
========= ======
The following table summarizes information about stock options outstanding and
exercisable at April 30, 2002.
Outstanding Exercisable
-------------------------------------------------------- ------------------------------
Weighted Weighted
Option Number Weighted Average Number Average
Price of Average Exercise of Exercise
Range Shares Life Price Shares Price
---------------- ----------- ------------- ------------ ----------- -----------
$0.11- $0.28 3,440,000 1.3 years $0.13 3,440,000 $0.13
The following table summarizes information about stock options outstanding and
exercisable at April 30, 2001.
Outstanding Exercisable
-------------------------------------------------------- ------------------------------
Weighted Weighted
Option Number Weighted Average Number Average
Price of Average Exercise of Exercise
Range Shares Life Price Shares Price
---------------- ----------- ------------- ------------ ----------- -----------
$0.05 - $1.00 3,265,000 2.0 years $0.20 3,265,000 $0.20
13
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 2002
Note 7 - Common stock options (continued)
The Company's net (loss) and net (loss) per common share would have been
increased to the pro forma amounts indicated below if compensation cost for the
Company's stock option plans had been determined based on the fair value at the
grant date for awards in accordance with the provisions of Statement of
Financial Accounting Standards No. 123 Accounting for Stock Based Compensation.
2002 2001
-------------- -------------
Net (loss):
As reported $(147,312) $(676,883)
Pro forma $(232,121) $(899,826)
Basic (loss) per share:
As reported $(.02) $(.09)
Pro forma $(.03) $(.11)
Diluted (loss) per share:
As reported $(.02) $(.09)
Pro forma $(.03) $(.11)
The effect of including the options in diluted (loss) per share would be
antidilutive, and, therefore, are not included in the calculation of diluted
(loss) per share.
The fair value of the options granted during 2002 and 2001 is estimated on the
date of grant using the Black-Scholes option pricing model. The weighted-average
assumptions used are as follows:
2002 2001
-------------- -------------
Expected term 2 years 3 years
Expected stock volatility 172% 172%
Risk-free interest rate 2.5% 3.75%
Dividend $0.00 $0.00
The fair value of the stock options granted to advisors of the Company is
immaterial, and has not been included in the financial statements.
Note 8 - Impairment of investments
During 2001, the Company established a wholly owned subsidiary, Champions Tech
Ventures, Inc. The Company incurred $242,101 of costs relating to this
subsidiary, which represented the cost to the Company of this investment. Prior
to the end of 2001, the Company reduced its holding in Champions Tech Ventures,
Inc., and in 2001 completely divested itself of ownership in Champions Tech
Ventures, Inc. The investment is considered, by management, to be fully
impaired.
During both 2002 and 2001, $50,000 was written off, representing the Company's
full interest in two unrelated companies.
14
CHAMPIONS SPORTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
April 30, 2002
Note 9 - 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 has paid a total of $55,000 at April 30, 2002, and has defaulted
under the payment terms of the note. The stock has not been issued, and
management believes the agreement may be cancelled and have not recorded the
note or stock issuance in the financial statements.
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 30, 2002
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ James M. Martell
James M. Martell
Chairman and President
Date: July 29, 2002
By: /s/ Michael M. Tomic
Michael M. Tomic
Director
Date: July 29, 2002
By: /s/ Durwood C. Settles
Durwood C. Settles
Director
Date: July 29, 2002