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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Check One)

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For The Fiscal Year Ended June 29, 2003

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ___ to ___

Commission File Number: 0-22639

CHAMPPS ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)

303-804-1333
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:
None

Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.01 per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark if the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers, pursuant to Item 405 of Resolution S-K is not contained herein, and will not be contained to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K: [X]

The aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price of the Common Stock of the registrant as quoted on the National Association of Securities Dealers Automated Quotation System on September 19, 2003 was $63,267,969.

The aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price of the Common Stock of the registrant as quoted on the National Association of Securities Dealers Automated Quotation System on December 29, 2002 was $81,408,215

Number of shares of Common Stock, $.01 par value, outstanding at September 19, 2003: 12,778,050

DOCUMENTS INCORPORATED BY REFERENCE

The sections of the Company’s definitive Proxy Statement, listed below, which have been or will be filed by the Company with the Securities and Exchange Commission, are incorporated in this Annual Report by reference and shall be deemed to be a part hereof:

Cross Reference Sheet between Items of
Registrant’s Proxy Statement and Form 10-K

Copies of all documents incorporated by reference other than exhibits to such documents will be provided without charge to each person who receives a copy of this Annual Report upon written request addressed to: Investor Relations, Champps Entertainment, Inc., 10375 Park Meadows Drive, Suite 560, Littleton, Colorado 80124. The annual report is also available at our web site at www.champps.com.

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FORM 10-K INDEX

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K and the documents incorporated by reference into the Annual Report on Form 10-K include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We use words such as “may,” “believe,” “estimate,” “expect,” “plan,” “intend,” “project,” “anticipate” and similar expressions to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events, activities or developments. Our actual results could differ materially from those discussed in or implied by these forward-looking statements. Forward-looking statements include statements relating to, among other things:

These forward-looking statements are subject to numerous risks, uncertainties and assumptions about us, including the factors described under “Item 1. Business — Risk Factors.” The forward-looking events we discuss in this Annual Report on Form 10-K might not occur in light of these risks, uncertainties and assumptions. We undertake no obligation and disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Unless otherwise provided in this Annual Report on Form 10-K, references to “the Company,” “Champps,” “we,” “us” and “our” refer to Champps Entertainment, Inc. and our consolidated subsidiaries. Our fiscal years ended June 29, 2003, June 30, 2002 and July 1, 2001 are referred to as fiscal 2003, 2002 and 2001, respectively. Fiscal 2003, 2002 and 2001 each contained 52 weeks.

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PART I

Item 1.        Business.

Overview

Champps offers an energetic, upscale casual dining experience with uncompromising service and an extensive menu of freshly prepared items, set in a comfortable atmosphere that promotes social interaction among our guests. As of September 19, 2003, we owned and operated 44 restaurants in 16 states and had 12 restaurants operating under franchise or license agreements in five states. Our menu is comprised of approximately 86 items, primarily made from scratch on the premises. We typically include a selection of 16 appetizers, ten main plate salads, 28 high-end sandwiches and specialty burgers and 26 entrée selections, along with an additional five to eight regularly changing specials. Our menu selection includes not only traditional American favorites such as Champp’s Meatloaf and Grilled Salmon, but also a variety of ethnic cuisine such as our Mongolian Egg Rolls and Wai Kan Chicken. This diversity is designed to provide our guests with appropriate choices to meet their dining preference throughout our four distinct day-parts: lunch, after-work, dinner and late night. We believe that our enticing offerings and generous portions, combined with an average check per dining room guest of approximately $13.03 in fiscal 2003, excluding alcoholic beverages, offer our guests exceptional value.

Our restaurants are designed to create an engaging and socially interactive dining experience. Through the use of multiple levels and other design elements such as ceramic Italian style tile, slate style floors and extensive wood accents, we are able to create a variety of dining atmospheres to satisfy a wide range of diners including families with children, business professionals, couples and singles, as well as sports fans of all ages. Our restaurants range from approximately 7,500 to nearly 12,100 square feet and seat 217 to 360 guests. We position multiple video walls and large televisions strategically throughout each restaurant to create an energetic and participatory dining experience. Our bar area, which is located away from the main dining area, creates a focal gathering point for our guests to socialize. We offer music, television broadcasts and special promotional events to increase guest traffic and promote repeat visits. During fiscal 2003, the average unit sales of our restaurants opened for the entire 12 months was approximately $4.9 million, which is among the highest in the casual dining industry.

We locate our restaurants in areas that have a combination of commercial office space, residential housing and high traffic areas such as shopping malls or multi-screen movie theaters to attract guests in all of our day-parts. Our restaurants principally rely on frequent visits and loyalty from our guests who work, reside or shop nearby, rather than tourist traffic. Typically, our restaurants are located within large metropolitan areas that draw fan interest in professional and collegiate sport teams to allow us to promote the broadcasting of these sporting events in our restaurants.

We opened seven restaurants in fiscal 2003. We expect to open six to eight restaurants in fiscal 2004 by expanding our presence in existing markets and selectively entering new markets. We have increased our number of company-owned restaurants from 18 in fiscal 1999 to 41 restaurants in fiscal 2003, representing a compounded annual growth rate of 22.8%. We believe that the flexibility of our day-part model, the diversity and quality of our freshly prepared menu items, our unique entertainment and excellent service have created an attractive, high sales volume restaurant model that provides us with considerable growth opportunities to develop our brand nationwide.

Business strategy

Our objectives are to build our brand awareness and guest loyalty and provide our guests with exceptional food, uncompromising service and an exciting ambiance during each of our four day-parts. To achieve our objectives, we have developed the following strategies:

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Offer a comprehensive menu featuring enticing foods and beverages. We offer an extensive and varied menu in each of our four day-parts. Our menu is designed to suit a wide variety of dining occasions that broadens our consumer appeal and keeps the menu fresh for our frequent diners. In contrast to many competing restaurant operations, substantially all of our menu items are prepared on the premises from scratch using high quality, fresh ingredients and proprietary recipes. Champps is recognized by our guests for providing exceptional value by offering generous food portions at moderate prices. Our sophisticated, full service bar offers approximately 18 selections of wine, 20 domestic and imported bottled and draft beers, as well as premium liquor and specialty drinks. For fiscal 2003, sales of alcoholic beverages represented approximately 29.5% of our total food and beverage sales.

Provide service that “WOWs” our guests. We strive to personalize the dining experiences of our guests by instilling both high standards and a sense of urgency among our associates to exceed each guest’s dining expectations. We position associates to greet guests when they enter our restaurants and train our managers to visit each table. We also encourage our bartenders to introduce themselves to each patron at the bar, and our servers typically are responsible for no more than three to four tables at a time. Our entire staff is dedicated to executing our standard of delivering orders within 12 minutes of being placed. We encourage a strong, team-oriented atmosphere among our associates that we believe creates uncompromising guest service and a sense of pride in the Champps brand.

Create a fun, high energy, social dining and entertainment experience. Our distinct dining experience features extensive entertainment and socially interactive activities designed to encourage guest frequency and attract guests outside of normal peak dining hours. For example, we increase guest traffic in our late night day-part by encouraging guest participation in a variety of promotional events we offer, such as the “Big Bike Give-Away” and Karaoke. Our special design elements, multiple dining levels, patio areas and sizable bar area allow us to comfortably serve guests seeking different dining experiences and further promote frequent visits. Our two to three video walls and ten to 12 televisions located throughout our restaurants, as well as our state-of-the-art audio systems, enable us to provide an exciting and socially interactive environment to view major sporting events. Our open display kitchens afford our guests the opportunity to observe our kitchen staff in action.

Capitalize on our proven multiple day-part model. Champps restaurants generally are open seven days a week from 11:00 a.m. to 1:00 a.m. We serve our guests during lunch, after work, during dinner and after dinner during our late night periods. For fiscal 2003, we generated 33.7% of our sales during lunch, 60.3% after work and during dinner and 6.0% during late night, demonstrating the versatility of our concept and our ability to serve guests for a variety of occasions such as professional lunches and everyday dining, as well as social and special occasions. We adjust our ambiance throughout the day by changing the music and choice of programming for each day-part. According to a market research study of over 1,100 of our guests completed during fiscal 2002, on average our guests visit Champps 2.7 times per month while 10.0% of our guests visit our restaurants on an average of 11 times per month. By operating in multiple day-parts, we are able to maximize revenue and leverage both development and operating costs. We believe the versatility of our operating strategy has allowed us to build strong guest loyalty with a high percentage of repeat business.

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Deliver strong unit economics. We believe our company-owned restaurants provide strong unit level economics. Our company-owned restaurants open throughout fiscal 2003 generated average restaurant sales of approximately $4.9 million and restaurant level operating cash flows of approximately $0.8 million¹, or 16.3% of average annual restaurant sales. The average cash investment cost for all of our restaurants opened since the beginning of fiscal 2001 was approximately $1.7 million, excluding pre-opening expense, which averaged approximately $0.4 million per restaurant. Although the reporting of restaurant level operating cash flows is a non-GAAP measure of our performance, we believe that a prudent investor needs to understand the economic model of Champps to make an informed investment decision.

Build awareness of the Champps brand. We believe that the Champps name has achieved substantial brand equity among our guests and has become well known within our markets for our high quality, innovative menu items, generous portions, uncompromising service and a fun, engaging dining experience. We have implemented a first time guest program that is intended to strengthen our brand loyalty by educating our first time guests about the Champps concept. In addition, we believe the most effective way to build brand awareness is to consistently deliver a dining experience that exceeds our guests’ expectations.

Growth strategy

We adhere to a disciplined growth strategy and believe that there are significant opportunities to expand our concept in existing and new markets throughout the United States. The future development of Champps restaurants will be accomplished primarily through the development of company-owned restaurants in existing markets. In addition, we plan to open approximately 25% to 30% of our new restaurants in new markets. Opening multiple units in existing markets enables us to leverage costs and gain efficiencies associated with regional supervision, marketing, purchasing and hiring. We believe this approach reduces the risks involved with opening new restaurants in markets where we better understand the existing competitive conditions, consumer tastes, demographics and discretionary spending patterns. In addition, our ability to hire qualified associates is enhanced in markets in which we are well known and we are able to utilize existing associates in new restaurants and capitalize on our brand awareness.

Our current expansion plans do not include adding new franchisees. Although our existing franchisees do not have the right to open additional restaurants, under certain circumstances we may permit our existing franchisees to open additional restaurants from time-to-time. Currently, an existing franchisee is negotiating to open a Champps restaurant in Des Moines, Iowa. Although we have no obligation to do so, in the future, we may seek to acquire some or all of our 12 franchised restaurants from our franchisees. This may require additional capital.

In fiscal 2001, fiscal 2002 and fiscal 2003, we opened four, six and seven new restaurants, respectively. We plan to open six to eight restaurants in fiscal 2004. As of September 19, 2003, we have opened three restaurants, begun construction on three restaurants and have signed agreements for four additional restaurants that will open in fiscal 2004 or 2005. In addition, we have identified multiple sites that meet our growth objectives for the remainder of fiscal 2004 and partially through fiscal 2005.

(1) Average restaurant level operating cash flow for 2003 (in 000's)

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We believe that our site selection strategy is critical to our success and we devote substantial effort to evaluating each potential site at the highest levels within our organization. Our chief executive officer, chief operating officer and the respective regional directors of operations must approve each restaurant site. Our site selection criteria focuses on locating in larger metropolitan areas with average household income of at least $75,000 and population density in excess of 75,000 within a three mile radius. In addition, site visibility, traffic patterns, accessibility, adequate parking, competitive restaurants, associate availability, proximity to entertainment activities, as well as areas near a combination of commercial office space, residential housing and high traffic areas, influence our site selection criteria. Potential sites are also evaluated by our vice president of development to insure we meet our construction obligations and capital expenditure projections, our legal counsel to insure we negotiate favorable terms in our leases and our chief financial officer to insure we meet our profit and investment return objectives.

Unit level economics and day-part allocation

Our current restaurants range in size from approximately 7,500 to 12,100 square feet and have approximately 207 to 360 indoor seats and approximately 42 additional patio seats on average. We lease 40 of our restaurants and own one. During fiscal 2003, our base of restaurants opened for the entire 12-month period, generated average sales of approximately $4.9 million and restaurant level operating cash flows of approximately $0.8 million, or 16.3% of restaurant sales. Based on the Company’s average net cash investment to build a restaurant of approximately $1.7 million, our restaurants opened for the entire 12-month period generated a cash-on-cash return of over 47.1%.

Our prototype restaurant is approximately 9,000 square feet and has seating for approximately 320 guests. We have also constructed a second smaller prototype of 7,500 square feet that has seating for approximately 250 guests. The average net investment cost for our restaurants depends upon whether we lease the restaurant or complete the restaurant through a build-to-suit transaction, the terms of the lease entered into, the amount of tenant improvement allowance we receive and whether we enter into an operating lease for any equipment. The average cash investment cost for all of our restaurants opened since the beginning of fiscal 2001 was approximately $1.7 million, net of tenant improvement allowance and excluding pre-opening expense of $0.4 million.

Our success in four distinct day-parts demonstrates the strength of our concept. The following table depicts the amount and percentage of contribution to each day-part of overall company-owned restaurant sales during fiscal 2003. During this period, our food and alcoholic beverage sales as a ratio of total food and beverage sales was 70.5% and 29.5%, respectively. Our dinner day-part includes our happy hour, which we refer to as sales of alcoholic beverages that occur between 4:00 p.m. and 10:00 p.m. Our bar area produces approximately 20.5% of our total restaurant sales, 63.3% of which are generated from 4:00 p.m. to 10:00 p.m., which signifies our strong after work and happy hour business. Champps merchandise and other sales totaled $408,000 and were 0.2% of overall sales and are not included below.

Sales — Fiscal 2003 (in 000‘s)

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Restaurant design and ambiance

Our restaurants have an ambiance enhanced by a layout that encourages social interaction and promotes a high-energy environment. All of our restaurants have multiple levels that enable us to channel guests towards a specific location depending upon their dining preferences while also creating an open atmosphere and the ability for guests to have a panoramic view of the entire restaurant. The majority of our restaurants have a large “L” shaped bar area, located on the first level. The bar’s numerous angles and bends provide our guests with a place to meet and socialize. We place large video walls and additional televisions strategically throughout each restaurant, which together with a state of the art sound system, provide a source of entertainment for our guests. We monitor the selection of our broadcasts, music and volume in each dining area to create different dining environments. We also use plasma televisions to incorporate the latest technologies and keep our restaurants up to date.

Our restaurant interiors utilize a combination of dark cherry stained wood and brick throughout the dining area, Italian style ceramic tile in the kitchen and bathrooms, slate style tile in the bar area and noise reducing carpet in the dining room. Our bars are generally stainless steel and we use accented black granite or wood trim at our specially designed hostess stands to enhance our contemporary feel. The majority of our restaurants include an indoor patio area with a large fireplace and several have outdoor patios, all of which provide our guests with multiple settings to choose from. Our display kitchens are presented behind a floor-to-ceiling glass wall to provide a focal point for the dining room. We use a variety of directional lighting and chandeliers are used frequently to create a warm environment in our dining rooms and bar area.

The exterior of our restaurants typically employ brick, stone and stucco to create a highly visible restaurant that features a well-lit, large Champps sign and logo. We extensively landscape our restaurants and where appropriate, vary the exterior design to coordinate with the surrounding area. Lighted trees, directional lighting on our buildings and large entries further increase our visual appeal.

Menu

We offer our guests a comprehensive selection of approximately 86 items, primarily made on the premises from scratch, which typically includes a selection of 16 appetizers, ten main plate salads, 28 high-end sandwiches and specialty burgers and 26 entrée selections. Our menu selection includes not only traditional American favorites such as Champp’s Meatloaf and Grilled Salmon, but also a variety of ethnic cuisine such as Mongolian Egg Rolls and Wai Kan Chicken. For example, one of our most popular entrees is the Sicilian Parmesan Crusted Chicken that is created with three large chicken breasts crusted with an Italian herb mix and shredded parmesan cheese before pan frying in olive oil and accompanied by tender angel hair noodles, our freshly prepared traditional marinara sauce and fresh garlic buttered toasted crostini. We continuously experiment with food and beverage items to develop proprietary recipes with high flavor profiles to ensure that our menu is imaginative and exciting to our guests. We also feature five to eight specials that change regularly, allowing us to continually refine our menu offerings and keep our selections fresh for our frequent users. We believe that the broad range of our menu provides multiple dining options during each of our day-parts.

We emphasize freshness and quality in our food preparation and focus on maintaining our reputation for creative and high quality menu offerings. Our fresh sauces, salad dressings, batters and mixes are prepared daily in our restaurants using high-quality and fresh ingredients.

The food items on our menu range from $4.95 to $12.95 for appetizers, $5.95 to $12.95 for burgers and sandwiches, and $7.45 to $18.95 for dinner salads and entrees. For fiscal 2003, our average guest check in our dining room was approximately $13.03, excluding alcoholic beverages. Our sophisticated, full service bar offers approximately 18 selections of wine, most of which are available by the glass, 20 draft and bottled domestic and imported beers, as well as premium liquor and specialty drinks. Sales of alcoholic beverages represented approximately 29.5% of total food and beverage sales during fiscal 2003.

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Food preparation and quality control

We believe our food quality and control standards are among the highest in the industry. Our systems are designed to provide freshly prepared items based on the specifications set by our corporate executive chef and overseen by an assistant general manager and up to three management assistants. We invest substantial time in training and testing of our kitchen associates to adhere to our strict standards and preparation guidelines to maintain our quality control. The design of our facilities enables us to ensure food is maintained in accordance with the requirements of the Food and Drug Administration. We audit our sanitary conditions at each restaurant and train all of our management associates regarding safe handling practices of all perishable food products.

Guest loyalty

We believe our restaurants generate higher than average repeat visits due to our four day-part offerings of lunch, after work, dinner and late night, as well as the increased guest traffic generated from the broadcasting of major sporting events. Based upon a market research study of over 1,100 of our guests completed during fiscal 2002, we determined that on average our guests visit Champps 2.7 times per month as compared to approximately 1.9 visits per month for the casual dining industry, while 10.0% of our guests visit our restaurants on average 11 times per month. The social interaction that is created within our restaurants also provides our guests with a comfortable setting to meet family, friends and co-workers. We rely on frequent visits and loyalty from our guests to generate the high volume of sales in our restaurants.

Marketing and advertising

Historically, we have relied primarily on guest referrals rather than external marketing initiatives to promote our brand. Within our restaurants we continually promote special events and upcoming entertainment activities as well as special menu items or drinks to drive guest frequency and sales. We have implemented a first time guest program that is intended to strengthen our brand loyalty by educating our first time guests about the Champps concept. During fiscal 2003, 2002 and fiscal 2001, our expenditures for advertising and promotions were less than 1.5% of total restaurant sales.

Our associates are integral to the success of our in-store marketing strategy. Our hosts introduce our specials to our guests upon seating, and at the end of each dining experience, our wait staff is instructed to inform our guests of upcoming special or promotional events. We communicate special events to our guests with poster stanchions or special displays, as well as table displays. Finally, when exiting our restaurants, the greeters thank each guest for coming to Champps and invite them to come back soon.

On occasion, we engage in paid advertising for individual restaurant locations, including newspaper and radio advertisements, and have tested cable television advertising in select markets. We utilize a variety of printed marketing materials, including restaurant location brochures, hotel concierge cards, take-out menus and direct and electronic mailings.

Operations

Restaurant management. At September 19, 2003, we had nine regional directors who typically oversee approximately four to seven restaurants each. These regional directors supervise the general managers at each restaurant in their region. Due to the complexity of our operations and to ensure our high level of guest service, our restaurant management is divided into three areas, the general manager, front-of-house managers and back-of-house managers, each of whom are supported by additional staff members. Our managers are frequently promoted from within Champps to encourage continuity and opportunities for development, as well as enhance our corporate culture. We compensate our management team through a combination of base salary and bonuses based on achieving established performance levels for revenue, profit and guest service.

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Restaurant associates and service. We believe that our uncompromising service is one of our differentiating factors. Our service is based on a team concept to ensure that guests are made to feel that any associate can help them and that they are never left unattended. To maintain these high standards, we seek to hire and train personnel who believe in our philosophy and are passionate about guest service. We strive to personalize the dining experiences of our guests by instilling both high standards and a sense of urgency among our associates. All associates meet with their managers at two daily pre-shift motivational and informational meetings in which service standards, restaurant promotions, specials and quality control are reviewed. We frequently reward individual and restaurant achievement through several recognition programs intended to build and maintain associate morale. For example, our “Pin Program” rewards and recognizes the efforts of associates with pins that are worn proudly on uniforms to publicly acknowledge their commitment to guest service.

Training.The restaurant management team is provided with an intensive eight-week training program to ensure they have appropriate knowledge to excel in their position. All members of management are required to receive kitchen training to understand the importance of the food preparation process and how the quality of our menu is a significant driver of repeat guest visits. In addition, all field management associates with a minimum of six months experience with Champps complete a one-week training program entitled “Champps Management Leadership Conference.” This program combines hands-on training and demonstrations with classroom instruction from each of the various corporate departments in order to educate them on Company policies, train them to be more effective managers and prepare them for promotional opportunities including general manager positions. We also host an annual general managers’ conference focusing on strategic issues in addition to conducting other training classes. This conference also serves as a platform to recognize the general managers who exceeded our expectations.

We provide all new associates with complete orientation and training for their positions to ensure they are able to meet our high standards and understand our company policies. For servers, we require a minimum of six days training on how to serve our food, the composition and preparation techniques for each menu item, direction on how to treat and serve our guests and ways to promote our business. Our food preparation staff undergoes an intensive five-day hands-on training program for their respective positions, which includes a review of our safety procedures. The training encompasses classroom instruction, on-the-job training programs for each position, and testing of the new associate’s progress at pre-determined stages within the training schedule.

When we open a new restaurant, we provide an extensive and varied level of training to associates in each position to ensure the smooth and efficient operation of the restaurant from the first day it opens to the public. This training helps provide our guests with a quality dining experience from opening day on. Our training programs enable us to promote existing associates and managers as new restaurants open. We believe that we can support our expansion strategy as a result of having a large manager base in existing restaurants that can be promoted or transferred to new restaurants, combined with our thorough training programs and hiring of outside personnel.

Restaurant franchise and licensing agreements

As of September 19, 2003, we had 12 franchised restaurants that began operations between 1991 and 2000. The franchise in Duluth, MN was closed by the franchisee in July 2002. For fiscal 2002, the Duluth franchise recorded sales of approximately $1.0 million and we recorded net franchise royalty income of approximately $18,000. Seven of our current franchised restaurants are located in the Minneapolis, MN area. We also have one franchised restaurant in Charlotte, NC, Sioux City, SD, Omaha, NE, and two in Milwaukee, WI. Three franchisees own eight of the 12 franchised restaurants.

Our revenue from current franchisee agreements represented approximately 0.3% of our revenue in fiscal 2003. The franchisee is responsible for all direct costs involved in the construction and maintenance of their restaurants. We provide menu development and marketing support on a limited basis. Franchisees are required to provide periodic financial reports and annual financial statements to our corporate office for performance measurement and fee calculations. Currently, we are not actively seeking additional franchisees. Although our existing franchisees do not have the right to open additional restaurants, under certain circumstances we may permit our existing franchisees to open additional restaurants from time-to-time. Currently, an existing franchisee is negotiating to open a Champps restaurant in Des Moines, Iowa. Although we have no obligation to do so, we may seek to acquire one or more of our existing franchised restaurants if they meet our acquisition criteria.

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Accounting and management information systems

We use an automated data processing system and standardized reporting procedures to provide each of our company-owned restaurants with centralized financial and management controls. Our management information system tracks each restaurant’s weekly sales reports, vendor invoices, payroll information and other operating information which is connected to our centralized accounting and management information systems at our corporate headquarters in real time. By having a system where data can be input remotely and controlled centrally, the overhead functions are streamlined and administrative expenses are reduced.

While we continue to monitor our computer hardware and financial software for potential upgrades, we believe our existing management information systems are sufficient to support our long-term expansion plans.

Purchasing

We endeavor to obtain high quality menu ingredients and other supplies and services for our operations from reliable sources at competitive prices. We rely on SYSCO Corporation, a national food distributor, as the primary supplier of our food. In August 2003, we entered into a new five-year distribution agreement with SYSCO. By utilizing a distribution company with a national presence, we are able to ensure consistent application of menu specifications throughout the country at a pre-negotiated price. We also periodically enter into selective short-term agreements for the products we use most extensively. This helps us to consistently maintain our product costs. We believe that all essential food and beverage products are available from several qualified suppliers at competitive prices should an alternative source be required.

To maximize purchasing efficiencies and to provide for the freshest ingredients for our menu items, each restaurant’s management determines the quantities of food and supplies required. Our centralized purchasing staff, under the direction of our chief operating officer, specifies the products to be used at our restaurants, designates the vendors and provides suppliers with detailed ingredient specifications.

Competition

The restaurant industry is highly competitive. We compete with other national and international restaurant chains as well as local and regional operations. Competition within the industry is based principally on the quality, variety and price of food products served. Changes in consumer preferences, economic conditions, environmental conditions, demographic trends and the location and number of, and type of food served by, competing restaurants could adversely affect our business as could the availability of experienced management and hourly associates. We believe that the flexibility of our multiple day-part model, the diversity and quality of our freshly prepared menu items and our unique entertainment and excellent service have created an attractive, high sales volume restaurant model that provides us with considerable growth opportunities to develop our brand nationwide.

Associates

As of September 19, 2003, we had approximately 5,270 associates on the Champps team, approximately 385 of which were restaurant management and field support personnel and 40 whom worked at corporate headquarters. We do not have any collective bargaining agreements. We consider our associate relations to be good.

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History

The original Champps concept began operations in 1984 and grew to eight restaurants by December 1995. In 1996, William H. Baumhauer, chief executive officer and president of DAKA International, Inc., a large publicly traded food service management and restaurant company, led DAKA’s purchase of Champps to add to its portfolio of restaurant concepts. As part of a corporate restructuring in 1997, DAKA spun off its food service businesses and the shareholders retained ownership of the restaurant businesses, which included Champps, Fuddruckers, the Great Bagel & Coffee Company, Casual Dining Ventures and Restaurant Consulting Service. The new company was named Unique Casual Restaurants, Inc. At the end of 1998 and early 1999, Fuddruckers and Restaurant Consulting Services were sold to separate buyers. In June 1999, Unique Casual Restaurants closed Great Bagel & Coffee Company and Casual Dining Ventures and changed its name to Champps Entertainment, Inc.

Shortly thereafter, Mr. Baumhauer, who had left the DAKA organization in May 1998, was recruited back to Champps as president and chief executive officer. Upon his return, Mr. Baumhauer set in motion a series of strategic initiatives that included hiring a new management team, consolidating our headquarters, improving our operational and financial reporting procedures, standardizing the purchasing process and establishing new associate training and retention practices. As a result, our restaurant level operating profit margin increased from 7.6% in 1999 to 10.5% in fiscal 2003. In addition, our income from continuing operations increased from a negative $14.1 million in fiscal 1999 to a positive $3.9 million in fiscal 2003. We have also implemented a disciplined expansion strategy and have added 27 restaurants since Mr. Baumhauer’s return.

Operating Locations

We lease all but one of our restaurants. The leases for our restaurants expire at varying times commencing in 2009. Nearly all of our leases are for fifteen to twenty year terms with renewal options extending our leases from five to twenty additional years. Currently, our leases, with option periods, expire between 2010 and 2041.

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The following table sets forth data regarding our 41 company-owned restaurants at June 29, 2003.

Company-owned restaurants

Restaurants to open

As of September 19, 2003, we have opened three additional restaurants during fiscal 2004, one in Lansing, Michigan, one in Colorado Springs, Colorado and one in Richmond, Virginia. We have begun construction on restaurants located in Wilmington, Delaware, Rochester, New York, and Fairfax, Virginia. We also have signed agreements to open restaurants in Baltimore, Maryland, Westlake, Ohio, Philadelphia, Pennsylvania and Orland Park, Illinois.

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Franchised restaurants

As of September 19, 2003, we have 12 franchised restaurants, seven of which are located in the Minneapolis, MN area, two in Milwaukee, WI, and one in each of Charlotte, NC, Sioux City, SD and Omaha, NE. A franchise located in Duluth, MN was closed by the franchisee in July 2002.

Trademarks

Through our operating subsidiaries, we have registered a number of trademarks and service marks with the United States Patent and Trademark Office and with certain states, including, but not limited to the trade names: “Champ’s,” “Champps,” and “Champps Americana.”

Pursuant to a Master Agreement dated February 1, 1994, whereby Champps acquired the “Champ’s” and “Champps” service marks, trademarks and trade names, we agreed to pay the seller an annual fee. For fiscal 2004, the maximum fee is equal to the lesser of $322,422 or one-quarter percent (0.25%) of the gross sales of certain Champps restaurants excluding two of our oldest restaurants. The maximum fee payable is increased annually by the lesser of the increase in the consumer price index or 4.0%. In fiscal 2003, we paid $0.3 million under this agreement.

Government regulation

Our business is subject to various federal, state and local laws, including health, sanitation and safety standards, federal and state labor laws, zoning restrictions and state and local licensing. We are also subject to federal and state laws regulating franchise operations and sales, which impose registration and disclosure requirements on franchisors in the offer and sale of franchises or impose substantive standards on the relationship between franchisor and franchisee.

Our restaurants are subject to state and local licensing and regulation with respect to selling and serving alcoholic beverages. Typically, licenses must be renewed annually and may be revoked or suspended for cause. The failure to receive or retain, or a delay in obtaining, a liquor license in a particular location would adversely affect ours, or a franchisee’s, operation in that location.

In addition, our restaurants are subject to “dram shop” statutes in certain states, which generally give a person injured by an intoxicated person the right to recover damages from the establishment that has wrongfully served alcoholic beverages to the intoxicated person. We carry liquor liability coverage in the amount of $1.0 million per occurrence subject to an aggregate annual policy limit of $5.0 million, with a $0.25 million deductible per occurrence.

Risk factors related to our business

Our growth strategy depends on our ability to open new restaurants, and we may not be able to achieve our planned unit expansion

Our ability to expand our operations through the opening of new restaurants is critical to our future success. Since fiscal 1997 through fiscal 2003, we have expanded our operations from 12 company-owned restaurants in nine states to 41 company-owned restaurants in 16 states. We expect to open an additional six to eight restaurants in fiscal 2004. We have experienced delays in restaurant openings from time to time and may experience delays in the future. We cannot guarantee that we will be able to achieve our expansion goals or that new restaurants will be operated profitably. Further, we cannot assure that any restaurant we open will obtain operating results similar to those of our existing restaurants or will not adversely affect the results of other Champps restaurants in the same market. The success of our planned expansion will depend upon numerous factors, many of which are beyond our control, including the following:

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In addition, we contemplate entering new markets in which we have no operating experience. These new markets may have different demographic characteristics, competitive conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause the new restaurants to be less successful in these new markets than in our existing markets.

Our growth strategy may strain our management, financial and other resources. For instance, our existing systems and procedures, restaurant management systems, financial controls, information systems, management resources and human resources may be inadequate to support our planned expansion of new restaurants. We may not be able to respond on a timely basis to all of the changing demands that the planned expansion will impose on our infrastructure and other resources.

The inability to develop and construct our restaurants within budget and projected time periods will adversely affect our business and financial condition

Critical to our success is our ability to construct our restaurants within budget and on a timely basis. Many factors may affect the costs associated with the development and construction of our restaurants, including:

If we are unable to develop new restaurants within anticipated budget or time periods, our revenue will not meet our expectations and labor costs may exceed our projections. In addition, returns on our investments may be impaired and the amount of capital available for other new restaurants may not be available.

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The failure of our existing or new restaurants to perform as anticipated could adversely affect our business

As of June 29, 2003, we owned and operated 41 restaurants, seven of which were opened within the preceding 12-month period. The results achieved by these restaurants may not be indicative of longer-term performance or the potential market acceptance of restaurants in other locations. We cannot assure you that any new restaurant that we open will have similar operating results to those of prior restaurants. We anticipate that our new restaurants will take at least several months to reach planned operating levels due to inefficiencies typically associated with new restaurants, including lack of market awareness, inability to hire sufficient staff and other factors.

Because of our small restaurant base, our operating results could be materially and adversely affected by the negative performance of a small number of restaurants

Due to our small restaurant base, poor operating results at any one or more of our restaurants could materially and adversely affect our business, financial condition, results of operations or cash flows. In addition, we locate our restaurants close to areas that have a combination of commercial office space, residential housing and high traffic areas, such as shopping malls or multi-screen movie theaters. Changes in levels of office occupancy, new or competing real estate development projects, or delays in the development of the projects where we are located may adversely affect the performance of a restaurant. In addition, our operating results achieved to date may not be indicative of our future operating results with a larger number of restaurants.

We may require additional capital to expand our business in accordance with our growth strategy

Changes in our operating plans, acceleration of our expansion plans, lower than anticipated sales, increased expenses or other events may cause us to seek additional debt or equity financing on an accelerated basis. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could negatively impact our growth and other plans, as well as our financial condition and results of operations. Additional debt financing, if available, may involve significant cash payment obligations and covenants or financial ratios that restrict our ability to operate or grow our business. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

Our franchisees could take actions that could harm our business

Franchisees are independent operators and are not employed by us. We provided training and support to franchisees, but any number of factors beyond our control may diminish the quality of franchised restaurant operations. Consequently, franchisees may not successfully operate restaurants in a manner consistent with our standards and requirements or may not hire and train qualified managers and other restaurant personnel. If franchisees do not operate in accordance with our standards, our image and reputation may suffer materially and system-wide sales could significantly decline. Also, the presence of franchised restaurants may limit our ability to expand in a desired market.

Our operations are susceptible to changes in food availability and costs, which could adversely affect our operating results

Our profitability depends in part on our ability to anticipate and react to changes in food costs. We rely on SYSCO Corporation, a national distributor, as the primary supplier of our food. Any increase in distribution prices or failure of SYSCO to perform could cause our food costs to increase. There also could be a significant short-term disruption in our supply chain if SYSCO failed to meet our distribution requirements or our relationship was terminated. Further, various factors beyond our control, including adverse weather conditions, governmental regulation, production, availability and seasonality may affect our food costs or cause a disruption in our supply. We cannot predict whether we will be able to anticipate and react to changing food costs by adjusting our purchasing practices and menu prices, and a failure to do so could materially and adversely affect our operating results.

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Changes in consumer preferences or discretionary consumer spending could negatively impact our results of operations

Our continued success depends, in part, upon the popularity of the menu items served in the Champps environment and our dining style. Shifts in consumer preferences away from our cuisine or dining style could materially and adversely affect our future profitability. In addition, our success depends to a significant extent on numerous factors affecting discretionary consumer spending, including economic conditions, disposable consumer income and consumer confidence. Adverse changes in these factors could reduce guest traffic or impose practical limits on pricing, either of which could materially and adversely affect our operating results.

Health concerns relating to the consumption of our food products could negatively impact our results of operations

We are subject to the risk that consumer preferences could be affected by health concerns about the consumption of particular food products. Beef and chicken are the key ingredients in many of our menu items. Negative publicity concerning food quality, illness and injury, publication of government or industry findings concerning food products served by us, or other health concerns or operating issues stemming from one restaurant or a limited number of restaurants may adversely affect demand for our food and could result in a decrease in guest traffic to our restaurants.

If we lose the services of our president or other key associates, our business could suffer

Our future success significantly depends on the continued service and performance of William H. Baumhauer, our president and chief executive officer, as well as other key executives. Our future performance will depend on our ability to motivate and retain Mr. Baumhauer and other executive officers and key associates, such as regional directors of operation, restaurant general managers and kitchen managers. Competition for these associates is intense. In May 2003, Mr. Baumhauer’s employment agreement was amended and extended through June 30, 2005. The loss of the services of Mr. Baumhauer or members of our senior management and key associates or the inability to attract additional qualified personnel as needed could materially harm our business. We do not currently have key person life insurance for any of our officers or directors.

We face indemnification liability from our predecessor companies

In connection with the spin-off in late 1997 from DAKA International, Inc., we assumed certain contingent liabilities of DAKA and its subsidiary, Daka, Inc. In March 2000, a former associate of Daka was awarded approximately $0.2 million in compensatory damages, $4.8 million in punitive damages and $0.3 million in legal fees in a jury trial based on the associate’s claim of negligent supervision and retaliation due to alleged conduct that occurred in 1996 at a former Daka food service location. The amount of these awards accrues interest at a rate of 6.0% per annum. On September 20, 2000, Daka filed a Notice of Appeal with the Court of Appeals for the District of Columbia and this matter is now pending in that court. On February 9, 2001, Daka also filed its Notice of Appeal in connection with the court’s award of legal fees and this matter is pending in that court. Under our Post-Closing Covenant Agreement with DAKA, we have been responsible for handling the defense of these claims, including the appeals. At June 29, 2003, our consolidated balance sheet included our accrual of approximately $0.3 million in respect of the potential award in this matter and related legal expenses. If Daka does not prevail on its appeals in substantially all material respects, we would be required to take a charge to net income in the amount by which our final payout exceeds our reserve for this matter, and this charge could be a significant amount in relation to our income from operations at the time. In addition, the payment of a substantial amount of cash as a result of an adverse ruling by the Court of Appeals could result in delays in our expansion plans or could result in our needing to seek additional financing sources to support our expansion or our day-to-day operations. It is also possible that Daka could settle this case in advance of a final judicial determination, and the settlement amount itself could be substantial. Depending on the timing and nature of the ruling by the Court of Appeals, or the timing of any settlement of this case, we also could incur substantial additional legal expenses in pursuing Daka’s appeal and the ultimate resolution of this matter.

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We are also engaged in various tax audits arising from the operations of these predecessor companies. In December 2001, the State of Florida proposed to assess subsidiaries of DAKA $2.4 million in unpaid state sales taxes, and an additional $2.9 million in penalties and interest through December 2001. We are contractually obligated to indemnify DAKA for this matter, and are currently protesting this proposed assessment. A final determination of this matter requiring a substantial payment by us would have the same adverse consequences as a substantial final payment in the lawsuit referred to in the preceding paragraph.

We reserve in our financial statements for these and other matters, which reserves are reviewed periodically to determine their adequacy. Although we believe that our current reserves are proper under generally accepted accounting principles in light of our analysis of the outcome of the related matters, there can be no guarantees that we will not have to recognize additional expenses as these matters are ultimately resolved, which expenses could be significant.

Litigation could have a material adverse affect on our business

We are subject to complaints or allegations from current and former or prospective associates from time to time. In addition, we are the subject of complaints or litigation from guests alleging illness, injury or other food quality, health or operational concerns. We may be adversely affected by publicity resulting from such allegations, regardless of whether such allegations are valid, whether we are liable, or whether such allegations involve one of our franchisees or licensees. A lawsuit or claim could result in an adverse decision or result that could have a material adverse affect on our business.

We are also subject to state “dram shop” laws and regulations, which generally provide that a person injured by an intoxicated person may seek to recover damages from an establishment that wrongfully served alcohol to such person. While we carry liquor liability coverage as part of our existing comprehensive general liability insurance, we may still be subject to a judgment in excess of our insurance coverage and we may not be able to obtain or continue to maintain such insurance coverage at reasonable costs, or at all.

If we are unable to protect our intellectual property rights, it could reduce our ability to capitalize on our brand names

Pursuant to a Master Agreement dated February 1, 1994, we acquired the “Champps,” “Champ’s” and “Champps Americana” service mark, trademark and trade name. Our business prospects will depend, in part, on our ability to develop favorable consumer recognition of the Champps name and logo. Our trademarks could be infringed in ways that leave us without redress, such as by imitation. In addition, we rely on trade secrets and proprietary know-how, and we employ various methods to protect our concepts and recipes. However, such methods may not afford adequate protection and others could independently develop similar know-how or obtain access to our know-how, concepts and recipes. Moreover, we may face claims of infringement that could both interfere with our use of our proprietary know-how, concepts, recipes, trade secrets or trademarks or subject us to damages. Defending against such claims may be costly and, if unsuccessful, may prevent us from continuing to use such proprietary information in the future.

Although “Champps”, “Champ’s” and “Champps Americana” are federally registered trademarks, there are other restaurants and bars that operate under similar names. If these restaurants or bars are affected by negative publicity and consumers confuse these competitors with our Champps branded restaurants, our operating results could be adversely affected.

We are subject to extensive governmental regulations concerning the sale and serving of alcoholic beverages and wages paid to our associates that could adversely affect our operations and our ability to expand and develop our restaurants

The restaurant industry is subject to various federal, state and local governmental regulations. While at this time we have been able to obtain and maintain the necessary governmental licenses, permits and approvals, the failure to maintain these licenses, permits and approvals, including food and liquor licenses, could adversely affect our operating results. Difficulties or failure in obtaining the required licenses and approvals could delay or result in our decision to cancel the opening of new restaurants. Local authorities may suspend, revoke or deny renewal of our food and liquor licenses if they determine that our conduct does not meet applicable standards or if there are changes in regulations.

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For fiscal 2003, approximately 29.5% of our restaurant food and beverage sales was attributable to the sale of alcoholic beverages, and we believe our ability to serve these beverages is an important factor in attracting guests. Alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal authorities for a license or permit to sell alcoholic beverages on the premises and to provide service for extended hours and on Sundays. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time, which could include sales to minors or intoxicated persons. Alcoholic beverage control regulations relate to numerous aspects of daily operations of our restaurants. The failure of a restaurant to obtain or retain liquor or food service licenses would adversely affect the restaurant’s operations.

Various federal and state labor laws govern our relationship with our associates and affect our operating costs. These laws include minimum wage requirements, overtime pay, unemployment tax rates, workers’ compensation rates, and citizenship requirements. Additional government imposed increases in minimum wages, overtime pay, paid leave of absence and mandated health benefits, increased tax reporting and tax payment requirements for associates who receive gratuities or a reduction in the number of states that allow tips to be credited toward minimum wage requirements could harm our operating results.

On June 17, 2002, the United States Supreme Court ruled that the Internal Revenue Service (“IRS”) can use aggregate tip estimates to ensure that the employer is paying FICA taxes on allegedly underreported tips. Under the ruling, the IRS does not need to examine individual associates’ records and it is permissible for the IRS to estimate the amount of cash tips given to associates based on tips included on credit card receipts.

The reporting of tips is the responsibility of the associates receiving the tips. We encourage our associates to abide by the law and report 100% of the tips that they receive. While we believe our associates adequately report tips, we have implemented tip reporting policies and procedures that are in full compliance with the recommended IRS policies and procedures as defined in our Tip Reporting Alternative Commitment agreement that was executed by the Company and the IRS in fiscal 2003.

Our success depends on our ability to compete effectively in the restaurant industry

The restaurant industry is highly competitive. Although we believe that our operating concept, quality of food, ambiance and overall dining experience differentiates us from competitors, we may be unable to compete effectively with new restaurant concepts or with larger, better-established competitors, which have substantially greater financial resources and operating histories than ours.

We may not be able to generate sufficient future taxable income to fully utilize our income tax operating loss and credit carryforwards

As of June 29, 2003, we had federal net operating loss (“NOL”) carryforwards of approximately $56.4 million and FICA and targeted job tax credit carryforwards of approximately $3.5 million. The federal NOL’s expire at various times through 2020 and the FICA tip and targeted job tax credits expire at various times through 2023. While we expect to fully utilize the carryforwards to reduce our income tax liabilities, future income may not be sufficient for full utilization of the carryforwards.

Strategic Alternatives

From time to time, as a matter of standard business practice, the management of the Company investigates various strategic alternatives in an attempt to maximize shareholder value. These strategic alternatives include potential acquisitions, mergers with other companies and go private transactions. As of September 19, 2003, the Company has not entered into any definitive agreements relative to any strategic alternative that has been considered or brought before management. Should a strategic alternative be presented that has the potential to maximize shareholder value, the board of directors would assign an independent committee to determine the merits of the proposed transaction and seek shareholder approval, if necessary.

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Item 2.        Properties.

The Company leases approximately 12,600 square feet of office space at its corporate headquarters in Littleton (Douglas County), Colorado, at an average annual rent of $275,000. The lease term for the office space ends June 2008. See “Item 1. Business – Operating Locations” for a listing of the Company’s owned and franchised restaurant locations.

Item 3.        Legal Proceedings.

We assumed certain contingent liabilities of DAKA and its subsidiary, Daka, Inc. in connection with their spin-off. In the third quarter of fiscal 2000, a Washington, D.C. superior court jury awarded a former Daka associate $0.2 million in compensatory damages, $4.8 million in punitive damages and a subsequent award of $0.3 million for legal fees and costs, based on the associate’s claim of negligent supervision and retaliation, due to alleged conduct that occurred in 1996 at a former Daka food service location. While Daka was formerly a subsidiary of DAKA International and while DAKA International is now a subsidiary of Compass Group, PLC., the events at issue in the case took place while a predecessor company of Champps owned Daka. On September 20, 2000, Daka filed a Notice of Appeal with the Court of Appeals for the District of Columbia. The Company may be liable for the payment of any amounts ultimately due by Daka upon final determination of the case. The Company has not accrued any amounts related to the punitive damages in this matter based upon relevant legal precedents the Company believes, and its outside legal counsel concurs, that the punitive damages will not be upheld. The Company has accrued approximately $0.3 million associated with this matter based on our estimate of the ultimate compensatory damages and legal fees anticipated to be awarded. Revisions to our estimate may be made in the future and will be reported in the period in which additional information is known. Based upon our analysis, and the advice of outside legal counsel, the Company believes that the ultimate outcome of this matter will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

In December 2001, the State of Florida proposed to assess subsidiaries of DAKA $2.4 million in unpaid state sales taxes, and an additional $2.9 million in penalties and interest through December 2001. We are contractually obligated to indemnify DAKA for this matter and are currently protesting this proposed assessment. We believe that DAKA has meritorious legal and factual defenses to these matters and have submitted the same to the State of Florida. Further, we are engaged in various other actions arising in the ordinary course of business. We believe based on management’s analysis and the advice of outside counsel that the ultimate collective outcome of these other matters will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

As of June 29, 2003, we had an aggregate of approximately $0.6 million reserved for liabilities associated with predecessor companies, $0.3 million of which are reserved for the Daka associate judgment noted above and $0.2 million for the proposed sales tax assessment noted above. These amounts have been reserved to fund the probable amounts that we expect to pay. We have not reserved for the entire amounts of such judgments or claims based on our internal analysis and consultation with outside counsel.

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Item 4.        Submission of Matters to a Vote of Security Holders.

The Company’s Proxy Statement dated April 30, 2003 for the Special Meeting of Stockholders held on June 4, 2003, as filed with the Securities and Exchange Commission on April 29, 2003, is incorporated herein by reference.

PART II

Item 5.        Market for the Registrant’s Common Stock and Related Stockholder Matters.

The Company’s common stock is listed on the NASDAQ National Market (“Nasdaq”) under the symbol “CMPP.” The following table sets forth, for the periods indicated, the high and low closing sales prices per share for the common stock as reported by Nasdaq.

On September 19, 2003, there were approximately 2,462 holders of record of the Company’s common stock. On September 19, 2003, the closing price of the Company’s common stock was $7.13 per share.

The Company has never declared or paid dividends on its common stock. The Company currently intends to retain future earnings for use in the operation and expansion of its business and therefore does not anticipate paying cash dividends in the foreseeable future. Moreover, certain of the Company’s credit arrangements prohibit the declaration or payment of any dividends or other distributions on any shares of capital stock, subject to specified exceptions.

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Item 6.        Selected Financial Data.

SELECTED FINANCIAL DATA

The following table presents selected consolidated data from continuing operations and balance sheet data of the Company. Data for 1999 have been restated to account for the Company’s Fuddruckers segment as a discontinued operation. The balance sheet data as of June 29, 2003, June 30, 2002, July 1, 2001, July 2, 2000 and June 27, 1999 and the statements of operations data for each of the five fiscal years in the period ended June 29, 2003 presented below are derived from the Company’s audited consolidated financial statements.

For purposes of this Form 10-K and financial reporting purposes, the Company has been treated as if it was a stand-alone entity for all periods presented.

Certain amounts have been reclassified for earlier periods to conform to the fiscal 2003 presentation. The reclassifications have no impact on net income (loss) or earnings (loss) per share.

The selected consolidated financial data should be read in conjunction with the consolidated financial statements and related notes thereto of the Company and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” included elsewhere in this Annual Report on Form 10-K.

Amounts are in thousands except per share data.

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Item 7.         Management's Discussion and Analysis of Results of Operations and Financial Condition.

Overview

As of June 29, 2003, we owned and operated 41 upscale casual dining restaurants in 16 states and had 12 restaurants operating under franchise or license agreements in five states. Our restaurants offer an extensive and varied menu in each of four distinct day-parts: lunch, after work, dinner and late night. We believe that the flexibility of our multiple day-part model, the diversity and quality of our freshly prepared menu items, our unique entertainment and uncompromising service have created an attractive, high sales volume restaurant model that provides us with considerable growth opportunities to develop our brand nationwide.

The original Champps concept began operations in 1984 and grew to eight restaurants by December 1995. In 1996, William H. Baumhauer, the chief executive officer and president of DAKA International, Inc., a large publicly traded food service management and restaurant company, led DAKA’s purchase of Champps as an addition to DAKA’s portfolio of restaurant concepts. As part of a corporate restructuring in 1997, DAKA spun off its foodservice business and the shareholders retained ownership of the restaurant businesses, which included Champps and several other businesses (including Fuddruckers restaurants). The new company was named Unique Casual Restaurants, Inc. During 1998 and the first half of 1999, Unique Casual Restaurants sold or closed its businesses other than Champps and changed its name to Champps Entertainment, Inc.

Shortly thereafter, Mr. Baumhauer, who had left the DAKA organization in May 1998, was recruited back to Champps as president and chief executive officer. Upon his return, Mr. Baumhauer hired a new management team, consolidated our headquarters, implemented procedures to improve operational and financial reporting procedures, standardized the purchasing process and established new associate training and retention practices. As a result of the changes we implemented following Mr. Baumhauer’s return in 1999, our restaurant-level operating profit increased $12.3 million or 183.6% from $6.7 million for fiscal 1999 to $19.0 million for fiscal 2003. As a percent of restaurant sales, our restaurant-level operating profit margin increased from 7.6% in fiscal 1999 to 10.5% in fiscal 2003.

Our restaurants open throughout fiscal 2003 generated average unit sales of approximately $4.9 million, among the highest in the casual dining industry. As a result of our existing high unit volumes, we do not expect that increases in comparable restaurant sales will provide significant sources for overall growth in our revenue, and our comparable restaurant sales will continue to fluctuate over time. Instead, we anticipate that our disciplined expansion strategy will be the principal driver for our future revenue growth. We opened seven restaurants in fiscal 2003 and expect to open six to eight restaurants in fiscal 2004. We believe that there are significant opportunities to expand our concept both in our existing markets and in new markets throughout the United States. The majority of our growth will be in existing markets, which will enable us to leverage costs and gain efficiencies associated with regional supervision, marketing, purchasing and hiring in these markets.

Our growth strategy will have several impacts on our financial results, in addition to increases in our restaurant sales. As we open more restaurants, our aggregate pre-opening expense will increase. Pre-opening expense has historically been approximately $0.4 million per location. Because our openings will not necessarily be spaced evenly throughout a fiscal year, our pre-opening expense will fluctuate, possibly significantly, on a quarterly basis. In addition, new restaurants tend to have higher operating costs as a percentage of restaurant sales than do more established restaurants, which will impact negatively our overall operating margins in periods following large numbers of restaurant openings. On the other hand, because a substantial portion of our general and administrative expense does not increase proportionately with increases in restaurant sales and because we believe that our corporate infrastructure is substantially in place to support our planned growth, we expect that general and administrative expense as a percentage of restaurant sales will be positively impacted over time as we grow our restaurant base. We are not pursuing new franchise arrangements as part of our growth strategy and do not expect franchising and royalty revenue to be significant in the future.

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Critical accounting policies

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. The estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that are believed to be reasonable.

Items significantly impacted by estimates and judgments include, but are not limited to, representations, warranties and indemnities provided in connection with the spin-off of DAKA International, Inc. in 1997 and the subsequent sale of our Fuddruckers business unit in 1998, the useful lives and recoverability of our long-lived assets such as property, equipment and intangibles, fair value attributed to assets and liabilities of acquired businesses, valuation of deferred tax assets, self-insured risks relating to workers’ compensation and general liability claims and legal liabilities.

Loss contingencies and self-insurance reserves

We maintain accrued liabilities and reserves relating to the resolution of certain contingent obligations and reserves for self-insurance. Significant contingencies include those related to litigation and state tax assessments. We account for contingent obligations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies,” which requires that we assess each contingency to determine estimates of the degree of probability and range of possible settlement. Those contingencies that are deemed to be probable and where the amount of such settlement is reasonably estimable are accrued in our financial statements. If only a range of loss can be determined, we accrue to the best estimate within that range; if none of the estimates within that range is better than another, we accrue to the low end of the range. We determine reserves for self-insurance based on the insurance companies incurred loss estimates and management’s judgment.

The assessment of loss contingencies and self-insurance reserves is a highly subjective process that requires judgments about future events. Contingencies are reviewed at least quarterly to determine the adequacy of the accruals and related financial statement disclosure. The ultimate settlement of loss contingencies and self-insurance reserves may differ materially from amounts we have accrued in our financial statements.

Valuation of long-lived assets

We evaluate the carrying value of long-lived assets including property, equipment and related identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Under SFAS No. 144, an assessment is made to determine if the sum of the expected future undiscounted cash flows from the use of the assets and eventual disposition is less than the carrying value. If the sum of the expected undiscounted cash flows is less than the carrying value, an impairment loss is recognized based on fair value.

We evaluate impairment of goodwill and other unidentifiable intangible assets in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets.” Under the provisions of SFAS No. 142, we are required to assess impairment at least annually by means of a fair value-based test. At June 29, 2003, we evaluated our goodwill and determined that the goodwill was not impaired. The determination of fair value requires us to make certain assumptions and estimates related to our business and is highly subjective. Actual amounts realized through operations or upon disposition of related assets may differ significantly from our estimate.

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Leases

We lease most of our properties including our corporate office. We account for our leases under the provisions of SFAS No. 13 “Accounting for Leases” and subsequent amendments which requires that leases be evaluated and classified as operating leases or capital leases for financial reporting purposes. In addition, the Company records the total rent payable during the lease term on a straight-line basis over the term of the lease and records the difference between the rent paid and the straight-line rent as a deferred rent liability. Lease incentive payments (“tenant improvement allowances”) received from landlords are recorded as deferred rent liabilities and are amortized on a straight-line basis over the lease term as a reduction in rent. Future authoritative changes to the methods of accounting for leases could have a material impact on the Company’s reported results of operations and financial position.

Valuation of deferred tax assets

We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the carrying value for financial reporting purposes and the tax basis of assets and liabilities in accordance with SFAS No. 109, “Accounting for Income Taxes.” Deferred tax assets and liabilities are recorded using the enacted tax rates expected to apply to taxable income in the years in which such differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities, resulting from a change in tax rates, is recognized as a component of income tax expense (benefit) in the period that such change occurs. Net operating loss and other credit carryforwards, including FICA tip tax credits and targeted jobs tax credits, are recorded as deferred tax assets. A valuation allowance is recorded for the tax benefit of the deferred tax assets not expected to be utilized based on projected future taxable income. As of June 29, 2003, we had a net deferred tax asset of $24.7 million. As a result of our improved profitability in recent years and our estimates of projected future taxable income, we believe that it is more likely than not that we will be able to realize the majority of these net deferred tax assets. As of June 29, 2003, we had federal net operating loss carryforwards of approximately $56.4 million, expiring at various dates through 2020.

Our accounting policies are more fully described in Note 1 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Financial definitions

Revenue.Our revenue is comprised of restaurant sales, and net franchise royalties and fees. Our restaurant sales are comprised almost entirely of food and beverage sales, with less than 0.2% of the restaurant sales represented by sales of Champps merchandise and other revenue.

Comparable restaurant sales.  In calculating company-owned comparable restaurant sales, we include restaurants open at least 66 weeks. As of June 29, 2003, we had 33 company-owned restaurants open at least 66 weeks.

Product costs. Product costs are composed primarily of food and beverage expenses. The components of product costs are variable and increase with sales volume.

Labor costs. Labor costs include direct hourly and management wages, our restaurant associates wages while training, bonuses, workers’ compensation and payroll taxes and benefits for our restaurants.

Other operating expense. Other operating expense includes restaurant supplies, marketing costs specifically related to the restaurants’ activities, utilities, repairs and maintenance, banking fees and credit card fees and other directly related costs of our restaurants. Other operating expenses generally increase with sales volume but decline as a percentage of restaurant sales.

Occupancy. Occupancy costs include equipment operating leases, fixed rent, percentage rent, common area maintenance charges, general liability and property insurance and real estate and personal property taxes.

Depreciation and amortization. Depreciation and amortization principally includes depreciation on capital expenditures for restaurants. Typically, our assets are depreciated over their estimated useful lives, which is generally seven years for restaurant equipment, five years for data processing equipment and over the life of the lease, including certain option periods, for leasehold improvements. Depreciation and amortization excludes corporate level depreciation and amortization, which are included in general and administrative expense.

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Restaurant level operating profit. Restaurant level operating profit is composed of restaurant sales less restaurant operating costs, which includes product costs, labor costs, other operating expense, occupancy and depreciation and amortization.

General and administrative. General and administrative includes all corporate and administrative functions that support existing operations and provide infrastructure to facilitate our future growth. Components include executive and management salaries, regional supervisory and staff salaries, bonuses and related associate taxes and benefits, travel, information systems, corporate rent and related occupancy and operating costs, corporate depreciation and amortization and professional and consulting fees.

Pre-opening expense. Pre-opening expense, which is expensed as incurred, consists of the costs of hiring and training the initial work force, travel, the cost of food and beverages used in training, marketing costs and other costs directly related to the opening of a new restaurant.

Expenses related to predecessor companies. Expenses related to predecessor companies consists of expenses for obligations of indemnity related to the Company's spin-off in 1997.

Interest expense and income, net. Interest expense and income, net consists of interest expense on notes payable and capitalized lease obligations and amortization of loan fee costs partially offset by interest income earned on excess cash balances and interest capitalized as a part of the construction process.

Other (income) expense. Other (income) expense generally consists of losses on asset disposals from asset replacements.

Loss from discontinued operations. Loss from discontinued operations consists of expenses for obligations of indemnity related to the Company's sale of Fuddruckers in 1998.

Income before provision for income taxes. Net income before provision for income taxes is composed of restaurant level operating profit and franchise and royalty income less general and administrative expense, pre-opening expense, interest expense and income, net and other (income) expense. In certain years, expenses related to predecessor companies, impairment, exit and other charges, loss on sale of investments, debt extinguishment costs and losses on discontinued operations are also included.

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RESULTS OF OPERATIONS

The following table sets forth certain financial information for the Company (dollars in 000‘s).

Fiscal 2003 compared to fiscal 2002

Total revenue. Total revenue increased approximately $22.2 million, or 14.0%, to $180.7 million for fiscal 2003 from $158.5 million for the comparable prior period. The increase was primarily due to the full-year operation of six additional restaurants opened in fiscal 2002, seven additional restaurants opened in fiscal 2003 and menu price increases having an impact on sales of approximately 1%. This increase was partially offset by a decrease in comparable restaurant sales of 1.6%. Comparable food sales increased 1.0% due largely to increases in customer traffic partially offset by a lower guest check average; however, comparable alcohol sales decreased 6.8%. The comparable alcohol sales decrease was due, in part, to a strategic de-emphasis of the Company’s late night promotions as the promotions are costly and can alienate dinner guests. Sales in the January through March 2003 period were also negatively affected by severe weather primarily in Ohio, Indiana, the mid-Atlantic and Colorado markets. Furthermore, sales were negatively affected by weakening consumer confidence and the impact of the war in Iraq. During fiscal 2003, food sales and alcoholic beverage sales represented 70.5% and 29.5% of our total food and beverage sales, respectively. During fiscal 2002, food sales and alcoholic beverage sales represented 67.8% and 32.2% of our total food and beverage sales, respectively.

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Restaurant operating costs.

Restaurant level operating profit. Restaurant level operating profit increased approximately $1.0 million, or 5.6%, to $19.0 million for fiscal 2003 compared with $18.0 million for the comparable prior period. Restaurant level operating profit as a percentage of restaurant sales decreased to 10.5% for fiscal 2003 from 11.4% for the comparable prior period. The decrease was due to higher restaurant expenses as a percent of sales associated with the opening of seven new restaurants in fiscal 2003. The income generated from new restaurants is typically lower during the first four months of operation compared to an existing restaurant. In addition, lower comparable restaurant sales resulted in a higher percentage of fixed expenses during fiscal 2003.

General and administrative expense. General and administrative expense increased $1.3 million, or 15.1%, to $9.9 million for fiscal 2003 from $8.6 million for the comparable prior period. The increase was largely due to a $180,000 reversal of bad debt from a franchisee in fiscal 2002, approximately $441,000 of litigation settlement costs, $160,000 of expenses related to terminated projects and higher computer expense due to the new restaurants and increased professional fees in fiscal 2003. General and administrative expense as a percentage of total revenue increased to 5.5% for fiscal 2003 from 5.4% for the comparable prior period.

Pre-opening expense. Pre-opening expense increased $0.5 million to $3.1 million during fiscal 2003 from $2.6 million for the comparable prior period. We opened seven new restaurants in fiscal 2003 and opened six new restaurants for the comparable prior period. Although pre-opening expense is incurred prior to the opening of a new restaurant, we continue to incur pre-opening expense for trainers up to two weeks after a new restaurant opens. Pre-opening expense has historically been approximately $0.4 million per location.

Expenses related to predecessor companies and loss from discontinued operations. Expenses related to the Daka spin-off and Fuddruckers sale decreased $0.2 million to $0.3 million from $0.5 million. The decrease is primarily the result of the length of time since these transactions were completed in 1997 and 1998.

Interest expense and income, net. Interest expense and income, net increased $0.2 million to $1.8 million from $1.6 million in the prior period primarily due to interest expense on additional debt. As of June 29, 2003, we had a total of $28.6 million in notes payable and capitalized leases versus $21.8 million as of June 30, 2002.

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Debt extinguishment costs. Debt extinguishment costs of $0.3 million were incurred in fiscal 2003 as a result of the repayment of $5.2 million of notes payable before their scheduled maturity. No debt extinguishment costs were incurred in the prior fiscal year.

Other (income) expense. The Company recorded other expense of $0.3 million in fiscal 2003 compared to a nominal amount in the prior fiscal year. The increase in expense resulted from losses on asset disposals from asset retirements.

Income before provision for income taxes. Income before provision for income taxes decreased $1.4 million, or 26.4%, to $3.9 million from $5.3 million for the comparable prior period.

Provision for income tax benefit/expense. For fiscal 2003, we recognized an income tax benefit of $13.2 million compared to income tax expense of $0.2 million in fiscal 2002. The income tax benefit in fiscal 2003 was primarily the result of a reversal of the remaining valuation allowance on the Company’s deferred tax assets associated with net operating loss carryforwards. The reversal of the valuation allowance resulted from a determination by management that the net operating loss carryforwards are not limited under tax law and the Company’s future taxable income will, more likely than not, be sufficient to realize the carryforwards before expiration.

Fiscal 2002 compared to fiscal 2001

Total revenue. Total revenue increased approximately $25.2 million, or 18.9%, to $158.5 million for fiscal 2002 from $133.3 million for the comparable prior period. The increase was primarily due to the operation of six additional restaurants in fiscal 2002 partially offset by a decrease in comparable restaurant sales of 1.1%. Comparable restaurant sales decreased primarily as the result of the terrorist attacks of September 11th and their subsequent effect on consumer confidence and the economy in general. During fiscal 2002, food sales and alcoholic beverage sales represented 67.8% and 32.2% of our total food and beverage sales, respectively. During fiscal 2001, food sales and alcoholic beverage sales represented 66.8% and 33.2% of our total food and beverage sales, respectively.

Restaurant operating costs.

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Restaurant level operating profit. Restaurant level operating profit increased approximately $1.8 million, or 11.1%, to $18.0 million for fiscal 2002 compared with $16.2 million for the comparable prior period. Restaurant level operating profit as a percentage of restaurant sales decreased to 11.4% for fiscal 2002 from 12.2% for the comparable prior period. The decrease was due to higher expenses associated with the opening of six new restaurants in fiscal 2002 plus three new restaurants in late fiscal 2001. The income generated from new restaurants is typically lower during the first four months of operation compared to an existing restaurant. In addition, lower comparable restaurant sales resulted in a higher percentage of fixed expenses during fiscal 2002.

General and administrative expense. General and administrative expense increased $0.9 million, or 11.7%, to $8.6 million for fiscal 2002 from $7.7 million for the comparable prior period. The increase was largely due to the addition of support personnel. However, general and administrative expense as a percentage of total revenue decreased to 5.4% for fiscal 2002 from 5.8% for the comparable prior period due to the larger revenue base in fiscal 2002.

Pre-opening expense. Pre-opening expense increased $1.1 million to $2.6 million during fiscal 2002 from $1.5 million for the comparable prior period. We opened six new restaurants in fiscal 2002 and opened four new restaurants for the comparable prior period. In addition, two of the restaurants opened in the last quarter of fiscal 2001, were open only in the last week of that quarter. Although pre-opening expense is incurred prior to the opening of a new restaurant, we continue to incur pre-opening expense for trainers up to two weeks after a new restaurant opens. Pre-opening expense has historically been approximately $0.4 million per location.

Expenses related to predecessor companies and loss from discontinued operations. Expenses related to the Daka spin-off and Fuddruckers sale decreased $0.1 million to $0.5 million from $0.6 million. The decrease is primarily the result of the length of time since these transactions were completed in 1997 and 1998.

Interest expense and income, net. Interest expense and income, net increased $0.1 million to $1.6 million from $1.5 million in the prior period primarily due to interest expense on additional debt partially offset by increased capitalized interest from higher construction spending. As of June 30, 2002, we had a total of $21.8 million in notes payable and capitalized leases versus $17.1 million as of July 1, 2001.

Income before provision for income taxes. Income before provision for income taxes decreased $0.3 million, or 5.4%, to $5.3 from $5.6 million for the comparable prior period. During fiscal 2002, $0.5 million was added to reserves for predecessor company obligations and discontinued operations as compared to $0.6 million for the comparable period.

Provision for income tax benefit/expense. For fiscal 2002, we recognized a provision for state and local income tax expense of $0.2 million compared to $0.3 million in fiscal 2001. For the comparable prior year period, we recorded a benefit for income taxes of $7.9 million primarily related to the recognition of a portion of our deferred tax assets.

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FINANCIAL CONDITION AND LIQUIDITY

The working capital needs of companies engaged in the restaurant industry are generally low as sales are made for cash, and purchases of food and supplies and other operating expenses are generally paid in 30 to 60 days after receipt of invoices and labor costs are paid bi-weekly.

Historically, our primary sources of liquidity for funding our operations and expansion have been net cash from operations, and standard restaurant financing methods, such as build-to-suit transactions, sale-leaseback transactions, mortgage facilities, notes payable, tenant improvement allowances and equipment financing. Capital expenditures for the purchase of property and equipment were $24.5 million, $17.3 million and $15.2 million for fiscal 2003, 2002 and 2001, respectively.

In December 2002, the Company received $15.0 million of gross proceeds from the issuance of 5.5% convertible subordinated notes (“notes”) and warrants. Approximately $1.5 million of issuance costs were incurred relative to the notes. The notes are due December 2007 and require interest only payments semi-annually on June 1^st and December 1^st in arrears. In the second quarter of fiscal 2003, the Company utilized a portion of the notes and warrants proceeds for the repayment of $5.2 million of notes payable before scheduled maturity plus prepayment costs of $0.2 million. The Company intends to use the remaining proceeds for working capital and to build new restaurants.

Between December 2001 and February 2002, we entered into two term loans collateralized by equipment with General Electric Capital Business Asset Funding Corporation (“GE Capital”). As of June 29, 2003, we had approximately $3.7 million outstanding under these term loans. These loans bear interest at the 30-day commercial paper rate, plus 3.75% and mature between December 2006 and February 2007. The GE Capital loans require that we maintain certain financial ratios for maximum debt to net worth, a minimum debt coverage, a minimum earnings before interest, taxes, depreciation and amortization compared to debt and for maximum funded indebtedness. We were in compliance with all of these financial ratios as of June 29, 2003.

The Company has a build-to-suit facility with AEI Fund Management, Inc. This agreement provides a commitment for the completion of seven new restaurants with an additional funding commitment of $24.5 million. At June 29, 2003, we had completed the construction of two restaurants under this commitment located in Houston, Texas and in Cincinnati, Ohio. The third restaurant to be completed under this commitment is currently being negotiated. The commitment expires the earlier of November 30, 2005 or upon AEI’s acceptance or rejection of seven additional restaurant sites. The funding of this build-to-suit facility is subject to various pre-closing conditions.

In February 2003, the Company entered into a bank credit commitment with First National Bank of Colorado under which it may borrow up to $8,000,000. The commitment has two components: $2,000,000 is available to provide short-term working capital and to support the issuance of letters of credit; the remaining $6,000,000 is available to provide interim financing associated with construction of new restaurant locations. Advances under the $6,000,000 facility will be in the form of individual promissory notes that require assignment of related tenant improvement allowance proceeds and that will mature 90 days following estimated restaurant opening date. The commitment expires on January 2005 at which time all outstanding borrowings are due. As of June 29, 2003, the Company had not borrowed under these facilities. In July 2003, the Company borrowed $350,000 under the construction facility and placed letters of credit in the amount of $488,000 pursuant to the short-term working capital facility. The $350,000 construction facility loan was repaid in September 2003.

At June 29, 2003, our unrestricted cash was $5.1 million and restricted cash was $0.7 million. Restricted cash includes certificates of deposits to serve as cash collateral for stand-by letters of credit and are classified as current assets in the accompanying consolidated balance sheets. We anticipate that our operations will continue to generate positive operating cash flow for fiscal 2004. However, there are also significant cash expenditures anticipated related to the opening of new restaurants and the remodeling and improvements of existing restaurants.

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In September 2002, the Company executed a proposal for an additional $5.0 million term loan collateralized with equipment with GE Capital. The Company received $0.5 million of proceeds in fiscal 2003 and received the remaining $4.5 million proceeds in August 2003. The loan amortizes on a straight-line basis with a final payment due in August 2008. These funds are intended to supplement funding for the construction of the six to eight restaurants in fiscal 2004.

During fiscal 2003, we generated positive cash flow from operating activities of $10.1 million. During the year, we received $15.0 million from the issuance of notes and warrants, $0.5 million from the GE Capital term loans and landlord contribution in the form of landlord tenant improvement allowances totaling $6.4 million.

During fiscal 2003, we opened seven restaurants. For fiscal 2003, total capital expenditures for new restaurants were approximately $21.7 million and $2.8 million for renovations to existing restaurants and corporate upgrades.

During fiscal 2002, we generated positive cash flow from operating activities of $8.9 million. During the same period, we received $11.4 million associated primarily with the proceeds from the GE Capital term loans of $5.0 million and landlord tenant improvement allowances totaling $6.4 million.

During fiscal 2002, we opened six restaurants. For fiscal 2002, total capital expenditures for new restaurants were approximately $14.0 million and $3.3 million for renovations to existing restaurants and corporate upgrades. This amount was partially offset from receipts from equipment capital leases of $1.8 million.

During fiscal 2001, we generated cash flow from operating activities of $9.7 million. During the same period, we received $3.6 million primarily from the sale-leaseback of our Las Colinas, Texas restaurant for $3.1 million and $0.5 million from the sale of a former Fuddruckers restaurant location.

During fiscal 2001, we opened four restaurants. Total capital expenditures for new restaurants during fiscal 2001 were approximately $12.9 million before the receipt of $0.5 million from a tenant improvement note payable in fiscal 2001. Capital expenditures for remodels and improvements to existing restaurants were approximately $2.3 million in fiscal 2001.

During fiscal 2004, we anticipate opening six to eight restaurants. As of September 10, 2003, we had opened two restaurants, begun construction on four restaurants and had signed agreements for four additional restaurants. We have identified multiple potential sites and are negotiating contracts on additional sites for restaurants to be opened in fiscal 2004 and 2005. Our capital expenditures for fiscal 2004 are expected to be approximately $18.4 million for new restaurants and $2.4 million for remodeling and improvements in existing restaurants and for capital expenditures for our corporate office. These expenditures will be funded through our unrestricted cash, cash flow from operations, tenant improvement allowances and additional financing. We anticipate the receipt of tenant improvement allowances to offset capital expenditures of approximately $5.1 million in fiscal 2004.

We also anticipate that we will make cash payments in fiscal 2004 associated with liabilities previously recorded in fiscal 1998 and 1999 for prior year insurance claims, tax audits and legal settlements related to our indemnification obligations arising from the spin-off of DAKA and the Fuddruckers sale transaction. During fiscal 2003, 2002 and 2001, we made payments of $1.0 million, $1.4 million and $2.7 million, respectively, to reduce these liabilities. Anticipated expenditures for these liabilities are estimated to range between $0.5 million and $0.6 million for 2004, based upon current estimates. Additionally, the Company anticipates paying on-going legal costs of between $0.2 million and $0.4 million in fiscal 2004 related to these liabilities.

Currently the Company has approximately $0.6 million accrued for liabilities associated with predecessor companies related to the McCrea judgment and the Florida Department of Revenue’s proposed assessment. Although the Company believes, and outside legal counsel concurs, that the punitive damages in the McCrea case will not be upheld and the Company believes it has meritorious legal and factual defenses regarding the Florida Department of Revenue’s proposed assessment, if the McCrea punitive damages are upheld or if the Florida Department of Revenue finalizes their assessment for an amount similar to their proposed assessment and the assessment is ultimately paid, the Company’s consolidated financial position, results of operations and cash flows would be impacted. Although the Company believes that it has sufficient liquidity to make payments in these matters, the future growth plans of the Company may be impacted.

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We believe our end of the year cash balance of $5.1 million plus the proceeds from the $4.5 million GE financing, the $6.0 million interim construction financing commitment and anticipated tenant improvement allowances of approximately $5.1 million, together with our cash flow from operations, will be sufficient to fund our operations, debt repayment and expansion at least through the end of fiscal 2004. However, changes in our operating plans, acceleration of our expansion plans, lower than anticipated sales, increased expenses or other events, including those described in “Item 1 Business-Risk Factors,” may cause us to seek additional debt or equity financing on an accelerated basis. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could negatively impact our growth plans and our financial condition and results of operations. Any additional equity financing may be dilutive to the holders of our common stock and debt financing, if available, may involve significant cash payment obligations and covenants and/or financial ratios that restrict our ability to operate our business.

Contractual obligations and commitments

Payments, including interest, due by period as of June 29, 2003 (in 000‘s)

We are obligated under non-cancelable operating leases for our headquarters and all but one of our restaurants. The fixed terms of the restaurant leases range up to 20 years and generally contain multiple renewal options for various periods ranging from five to 20 years. Our restaurant leases also contain provisions that require additional payments based on sales performance and the payment of common area maintenance charges and real estate taxes. Amounts in this table do not reflect any of these additional amounts.

Impact of inflation

The primary inflationary factors affecting our operations are food, alcoholic beverages and labor costs. A large number of our restaurant associates are paid at rates based on the applicable minimum wage, and increases in the minimum wage directly affect our labor costs. Many of our leases require us to pay property taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases. We believe inflation has not had a material impact on our results of operations in recent years. We cannot predict whether inflation will have an impact on our results of operations in the future.

Recent accounting developments

SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 2003 and is otherwise effective June 30, 2003. This statement did not have any impact on our Consolidated Financial Statements.

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In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities”.  This interpretation provides guidance on the identification of, and financial reporting for, variable interest entities.  Variable interest entities are entities that lack the characteristics of a controlling financial interest or lack sufficient equity to finance its activities without additional subordinated financial support.  FIN 46 requires a company to consolidate a variable interest entity if that company is obligated to absorb the majority of the entity’s expected losses or entitled to receive the majority of the entity’s residual returns, or both.  FIN 46 also requires disclosures about variable interest entities that a company is not required to consolidate but in which it has a significant variable interest.  FIN 46 is applicable immediately to variable interest entities created after January 31, 2003.  For all variable interest entities created prior to February 1, 2003, FIN 46 is applicable to periods beginning after June 15, 2003.  The Company currently does not have any variable interest entities that fall under the scope of this interpretation. 

Item 7A.        Quantitative and Qualitative Market Risk Disclosures

The market risk exposure inherent in the Company’s financial instruments and consolidated financial position represents the potential losses arising from adverse changes in interest rates. The Company is exposed to such interest rate risk primarily in its significant investment in cash and cash equivalents and the use of fixed and variable rate debt to fund its acquisitions of property and equipment in past years and the implicit interest rates in the Company’s sale-leaseback arrangements.

Market risk for cash and cash equivalents and fixed rate borrowings is estimated as the potential change in the fair value of the assets or obligations resulting from a hypothetical ten percent adverse change in interest rates, which would not have been significant to the Company’s financial position or results of operations during fiscal 2003. The effect of a similar hypothetical change in interest rates on the Company’s variable rate debt and the investment rates implicit in the Company’s sale-leaseback arrangements also would have been insignificant due to the immaterial amounts of borrowings outstanding under the Company’s credit arrangements. For additional information about the Company’s financial instruments and these financing arrangements, see “Notes to Consolidated Financial Statements.”

Item 8.        Financial Statements and Supplementary Data.

The information required under this Item 8 is set forth on pages F-1 through F-26 of this Report.

Item 9.        Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

On August 2, 2002, the Company determined not to renew the engagement of Arthur Andersen LLP as independent accountants for the Company and the Company engaged KPMG LLP as the independent accountants to audit and report upon the Company’s financial statements for the current fiscal year ending June 30, 2002. The determination by management and the Audit Committee not to renew the engagement of Arthur Andersen LLP, which followed the recent announcement by the Securities and Exchange Commission (“SEC”) regarding the ability to use Arthur Andersen LLP to provide independent attestation of filings with the SEC, was approved by the Board of Directors. For the fiscal years ended July 1, 2001 and July 2, 2000, Arthur Andersen LLP had audited and reported upon the Company’s financial statements and had served as the Company’s independent accountants.

During the Company’s two fiscal years ended July 2, 2000 (“fiscal 2000”) and July 1, 2001 (“fiscal 2001”), and during subsequent interim periods through August 2, 2002, there were no disagreements with Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to their satisfaction would have caused them to make reference to the subject matter of the disagreement in connection with their reports. In addition, during the above period, there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

Although the Company requested a letter from Arthur Andersen LLP stating its agreement with such statements and although the Company used reasonable efforts to obtain such letter, the Company was not able to obtain the letter.

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During the two most recent fiscal years ended July 2, 2000 and July 1, 2001 and the period from July 1, 2001 to August 2, 2002, we did not consult with KPMG LLP with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, or any other matters or reportable events described in Items 304(a)(2)(i) and (ii) of Regulation S-K.

PART III

Item 10.        Directors and Executive Officers of the Registrant.

Our directors and executive officers include the following persons:

All executive officers hold office at the discretion of the board of directors.

William H. Baumhauer. Mr. Baumhauer is our chairman of the board and has been an officer of Champps since June 1999 and a director since August 1999. Mr. Baumhauer also held these positions with our predecessors or us from September 1988 until July 24, 1998, when he left the Company to serve as president and chief operating officer of Planet Hollywood International, Inc., a position he held until his return to Champps in June 1999.

Donnie N. Lamb. Mr. Lamb was appointed our senior vice president and chief operating officer in August 2002. Mr. Lamb started his employment with the Company in August 1996. He served as a director of operations from August 1996 through August 1999 when he was promoted to vice president – operations. Prior to August 1996, Mr. Lamb held multi-unit management positions with Houlihan’s and Ruby Tuesday, Inc.

Frederick J. Dreibholz. Mr. Dreibholz has served as vice president, chief financial officer and treasurer since October 1999. From November 1998 to October 1999, Mr. Dreibholz acted as a consultant to numerous restaurant and food service clients in South Florida and New York City. From April 1998 to November 1998, he served as chief financial officer of Unique Restaurant Concepts, Inc. and Sforza Enterprises, Inc. From November 1987 to April 1998, he served as chief financial officer of Flik International Corp.

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Donna L. Depoian. Ms. Depoian has served as our vice president, general counsel and secretary since May 1998. From February 1998 to May 1998, Ms. Depoian served as our acting general counsel and assistant secretary and from July 1997 to February 1998, as our corporate counsel and assistant secretary. From April 1994 to July 1997, Ms. Depoian served as corporate counsel and assistant secretary for DAKA International, Inc.

David J. Miller. Mr. Miller has served as our vice president of construction and design since October 1999. He started with the Company in May 1996 and served in the capacities of construction manager until October 1997 when he was promoted to corporate director of construction.

Timothy R. Barakett. Mr. Barakett has served as a director since March 1999. Since October 1995, Mr. Barakett has been the chairman and chief executive officer of Atticus Capital, L.L.C., a private investment management company. Mr. Barakett is also a principal and/or chief executive officer of other Atticus affiliates. Mr. Barakett also serves on the boards of RIT Capital Partners, plc and Vivarte, S.A. (formerly known as Groupe Andre, S.A.).

Stephen F. Edwards. Mr. Edwards has served as a director since May 2001. From July 2002 to present, Mr. Edwards has been the senior managing director of Atticus Capital, L.L.C., a private investment management company. From 1995 to June 2002, Mr. Edwards was a senior partner at Bruckman, Rosser, Sherrill & Co., LLC, a private equity investment firm specializing in the food service industry. He previously served on the board of directors of Town Sports International, Inc., Au Bon Pain, Inc., O’Sullivan Industries, Inc., Unwired PLC and American Paper Holdings, Inc. until June 2002.

James Goodwin. Mr. Goodwin has served as a director since March 1999. Since 1998, Mr. Goodwin has served as the chairman and managing member of Half Moon Capital Management, L.L.C.

Ian Hamilton. Mr. Hamilton has served as a director since December 2002. Mr. Hamilton is the founder of the Hamilton Group, a Sports Marketing and Entertainment Company, and currently serves as the executive producer of the Professional Bowlers Association on ESPN. Mr. Hamilton previously served as the global director of Tennis Sports Marketing for Nike, Inc. and also as the president of Planet Hollywood International’s Official All Star Café. Mr. Hamilton serves as a board member of U.S. Sports Development, Inc. and the Tim & Tom Gullikson Foundation.

Michael P. O’Donnell. Mr. O’Donnell was appointed a director in September 2002. On September 8, 2003, Mr. O'Donnell was appointed president, chief executive officer and a member of the board of director's of Sbarro, Inc. From August 1998 through May 2002, he served in various capacities for Outback Steakhouse, Inc. including president and chief executive officer of Roy’s, a joint venture between Outback Steakhouse and Roy Yamaguchi. He also served as chief executive officer for all new businesses for Outback Steakhouse while serving on the board of directors of Roy’s, Flemings, Carrabbas Italian Grill, and Cheeseburger in Paradise, all Outback joint ventures. From June 1995 to August 1998, Mr. O’Donnell was president, chief operating officer and partner of Ale House Restaurants, Inc. From January 1990 to May 1995, Mr. O’Donnell was chief executive officer and chairman of Ground Round Restaurants, Inc. Mr. O’Donnell also serves as a director of Boston Inner City Schools.

Charles G. Phillips. Mr. Phillips has served as a director since December 2002. Mr. Phillips served as president of Gleacher Partners from 1997 to 2001, where he also served as a managing director for eleven years. Prior to joining Gleacher Partners, Mr. Phillips held senior positions at other leading investment banking firms, including nine years at Morgan Stanley where he served as a managing director and founded and led that firm’s high yield finance activities in 1984. Mr. Phillips has been a director of several public and private companies and investment funds; he also serves on the governing bodies of a number of educational and non-profit organizations.

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Nathaniel Rothschild. Mr. Rothschild has served as a director since August 1999. Since August 1999, he has been the president of Atticus Capital, L.L.C., a private investment management company. Mr. Rothschild is also a principal and/or president of other Atticus affiliates. Since February 2003, Mr. Rothschild has been the chairman and a director of JNR (UK) Ltd., a London-based investment banking boutique specializing in emerging markets. In addition, Mr. Rothschild has been serving as the chairman of the board of directors (President du Conseil d’administration) of Vivarte, S.A. (formerly known as Groupe Andre, S.A.) since April 2000. From April 1997 to August 1999, Mr. Rothschild was a vice president of Atticus Management (Bermuda) Ltd. Mr. Rothschild is a member of the Belfer Center’s International Council at Harvard’s John F. Kennedy School of Government.

Alan D. Schwartz. Mr. Schwartz has served as a director of our Company or our predecessors since September 1988. Currently, Mr. Schwartz is president, co-chief operating officer, a member of the executive committee and sits on the board of directors of The Bear Stearns Companies, Inc. Mr. Schwartz graduated from Duke University, where he is chairman of Fuqua’s Board of Visitors. Mr. Schwartz also serves on the boards of the American Foundation for AIDS Research, St. Vincent’s Services, Mt. Sinai-NYU Medical Center, the New York Blood Center and The National Mentoring Partnership.

Our board of directors is divided into three classes, each class consisting as nearly as possible to one-third of the total number of directors. Directors hold office for staggered terms of three years or until their successors have been duly elected and qualified. Directors in one of the three classes are elected each year at the annual meeting of stockholders to succeed the directors whose terms are expiring. Class I directors are Timothy R. Barakett, James Goodwin and Charles G. Phillips, and will serve as directors until the 2003 annual meeting. Class II directors are William H. Baumhauer, Michael P. O’Donnell and Nathaniel Rothschild, and will serve as directors until the 2004 annual meeting. Class III directors are Stephen F. Edwards, Ian Hamilton and Alan D. Schwartz, and will serve as directors until the 2005 annual meeting.

Item 11.        Executive Compensation.

The information required by this Item is incorporated by reference to the section captioned “Executive Compensation” in the Proxy Statement.

Item 12.        Security Ownership of Certain Beneficial Owners and Management.

The information required by this Item is incorporated by reference to the section captioned “Security Ownership of Certain Beneficial Owners and Management” contained in the Proxy Statement.

Item 13.        Certain Relationships And Related Transactions.

The information required by this Item is incorporated by reference from the sections captioned “Certain Relationship and Related Transactions” contained in the Proxy Statement.

Item 14.        Controls and Procedures.

            (a)        Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), within 90 days of the filing date of this report. Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective.

            (b)        There have been no significant changes, including corrective actions with regard to significant deficiencies or material weaknesses, in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.

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PART IV

Item 15.        Exhibits, Financial Statement Schedules and Reports on Form 8-K.

The following are being filed as part of this Annual Report on Form 10-K.

A.         Financial Statements:

             Independent Auditors’ Report

             Consolidated Balance Sheets — June 29, 2003 and June 30, 2002

             Consolidated Statements of Operations — Fiscal years ended June 29, 2003, June 30, 2002 and July 1, 2001

             Consolidated Statements of Changes in Stockholders’ Equity – Fiscal years ended June 29, 2003, June 30, 2002 and July 1, 2001

             Consolidated Statements of Cash Flows — Fiscal years ended June 29, 2003, June 30, 2002 and July 1, 2001

             Notes to Consolidated Financial Statements for the fiscal years ended June 29, 2003, June 30, 2002 and July 1, 2001

B.        Financial Statement Schedules:

C.        Exhibits:

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37

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D.        Reports on Form 8-K

During the fourth quarter ended June 30, 2003, we filed the following reports on Form 8-K:

        The Company filed a Form 8-K on April 23, 2003, announcing results for its third quarter of fiscal 2003 ended March 30, 2003.

        The Company filed a Form 8-K on May 28, 2003, announcing an amended and restated employment contract for its chief executive officer, William H. Baumhauer was executed on May 22, 2003 and William H. Baumhauer on May 27, 2003, extended the expiration date of his stock trading plan from June 30, 2003 to September 30, 2003.

In addition, we filed the following reports on Form 8-K subsequent to the close of the fourth quarter of fiscal 2003:

        The Company filed a Form 8-K on August 19, 2003, announcing its results for the fourth quarter and fiscal year ended June 29, 2003.

40

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CHAMPPS ENTERTAINMENT, INC.
(Registrant)

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, and in the capacities and on the date indicated.

* Executed pursuant to a power of attorney

41

Independent Auditors’ Report

The Board of Directors and Shareholders
Champps Entertainment, Inc.:

We have audited the accompanying consolidated balance sheets of Champps Entertainment, Inc. (the “Company”) and subsidiaries as of June 29, 2003 and June 30, 2002, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended June 29, 2003. 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 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 audit 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 financial position of Champps Entertainment, Inc. and subsidiaries as of June 29, 2003 and June 30, 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended June 29, 2003, in conformity with accounting principles generally accepted in the United States of America.

KPMG LLP

Denver, Colorado
August 15, 2003

F-1

CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
As of June 29, 2003 and June 30, 2002
(In thousands, except share data)

See accompanying notes to consolidated financial statements.

F-2

CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended June 29, 2003, June 30, 2002 and July 1, 2001
(In thousands, except per share data)

See accompanying notes to consolidated financial statements.

F-3

CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Fiscal Years Ended June 29, 2003, June 30, 2002 and July 1, 2001
(In thousands, except share data)

See accompanying notes to consolidated financial statements.

F-4

CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended June 29, 2003, June 30, 2002 and July 1, 2001
(In thousands)