AMERICAN CHAMPION ENTERTAINMENT INC, SB-2/A, 1997-07-23

AMERICAN CHAMPION ENTERTAINMENT INC
SB-2/A, 1997-07-23
MOTION PICTURE & VIDEO TAPE PRODUCTION

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1997

REGISTRATION NO. 333-18967
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 5 TO
FORM SB-2

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

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AMERICAN CHAMPION ENTERTAINMENT, INC.

(Name of Small Business Issuer in its Charter)

<TABLE>
<S> <C> <C>
DELAWARE 7812 94-3261987
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>

26203 PRODUCTION AVENUE, SUITE 5
HAYWARD, CALIFORNIA 94545
(510) 782-8168

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

ANTHONY K. CHAN
CHIEF EXECUTIVE OFFICER
26203 PRODUCTION AVENUE, SUITE 5
HAYWARD, CALIFORNIA 94545
(510) 782-8168

(Name and address and telephone number of agent for service)

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COPIES TO:

JON W. NEWBY, ESQUIRE GREGORY SICHENZIA, ESQUIRE
STAN SZE, ESQUIRE SINGER ZAMANSKY LLP
SHEPPARD, MULLIN, RICHTER & HAMPTON 40 EXCHANGE PLACE, 20TH FLOOR
LLP
333 SOUTH HOPE STREET, 48TH FLOOR NEW YORK, NEW YORK 10005
LOS ANGELES, CALIFORNIA 90071 (212) 809-8550
(213) 620-1780

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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AMERICAN CHAMPION ENTERTAINMENT, INC.

CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM SB-2

<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION PROSPECTUS CAPTION
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<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus................................ Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page of Prospectus; Outside Back
Cover Page of Prospectus; Additional Information
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Prospectus Summary; Use of Proceeds; Rescission Offer
5. Determination of Offering Price...................... Outside Front Cover Page of Prospectus; Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Underwriting
9. Legal Proceedings.................................... Business
10. Directors, Executive Officers, Promoters and Control
Persons............................................ Management
11. Security Ownership of Certain Beneficial Owners and
Management......................................... Principal Stockholders
12. Description of Securities............................ Prospectus Summary; Dividend Policy; Capitalization;
Description of Securities
13. Interest of Named Experts and Counsel................ Not Applicable
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Management; Underwriting
15. Organization Within Last Five Years.................. Certain Transactions
16. Description of Business.............................. Prospectus Summary; Risk Factors; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business
17. Management's Discussion and Analysis or Plan of
Operation.......................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property.............................. Business
19. Certain Relationship and Related Transactions........ Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................ Outside Front Cover Page of Prospectus; Dividend
Policy; Capitalization; Description of Securities;
Principal Stockholders; Shares Eligible for Future
Sale
21. Executive Compensation............................... Management
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure................ Not Applicable
</TABLE>

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EXPLANATORY NOTE

This Registration Statement contains two forms of Prospectus: one (the
"Public Offering Prospectus") to be used in connection with an offering of
shares of Common Stock and Warrants through a group of underwriters represented
by Dalton Kent Securities Group, Inc. and one (the "Rescission Offer
Prospectus") to be used in connection with the rescission offer being effected.
The Public Offering Prospectus and the Rescission Offer Prospectus will be
identical in all respects except for the pages of the Rescission Offer
Prospectus which are each labeled "Alternate Page for Rescission Offer
Prospectus" and which appear immediately following the Public Offering
Prospectus and before Part II of this Registration Statement.

ii
<PAGE>

SUBJECT TO COMPLETION, DATED JULY 23, 1997

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
1,300,000 SHARES OF COMMON STOCK

1,300,000 REDEEMABLE COMMON STOCK

[LOGO]
PURCHASE WARRANTS

AMERICAN CHAMPION
ENTERTAINMENT, INC.

This Prospectus relates to an offering (the "Offering") by American Champion
Entertainment, Inc. (the "Company") of 1,300,000 shares of common stock, $.0001
par value (the "Common Stock"), and 1,300,000 redeemable Common Stock purchase
warrants (the "Warrants") through a group of underwriters (the "Underwriters")
represented by Dalton Kent Securities Group, Inc. (the "Managing Underwriter").
The Common Stock and the Warrants may be purchased separately, will not be sold
in units and will be transferable separately after issuance. The Common Stock is
being offered at $5.00 per share and the Warrants are being offered at $.10 per
Warrant.

Each Warrant entitles the registered holder thereof to purchase one share of
Common Stock at an exercise price of $6.50 per share, subject to adjustment in
certain events, at any time during the period commencing from the date hereof
and expiring on the fifth anniversary of the date hereof. The Warrants are
subject to redemption by the Company at $.10 per Warrant at any time commencing
12 months after the date hereof upon certain terms and conditions. See
"Description of Securities--Warrants."

Prior to the Offering, there has been no public market for the Common Stock
or the Warrants, and there can be no assurance that any such market for the
Common Stock or the Warrants will develop after the closing of the Offering or
that, if developed, it will be sustained. The offering price of the Common Stock
and the Warrants and the initial exercise price and other terms of the Warrants
were established by negotiation between the Company and the Managing Underwriter
and do not necessarily bear any direct relationship to the Company's assets,
earnings, book value per share or other generally accepted criteria of value.
See "Underwriting." The Company has applied for quotation of the Common Stock
and the Warrants on The Nasdaq SmallCap Market ("NASDAQ") under the trading
symbols "ACEI" and "ACEIW," respectively.

THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SUBSTANTIAL DILUTION. ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF
THEIR ENTIRE INVESTMENT SHOULD INVEST. SEE "RISK FACTORS" BEGINNING ON PAGE 9
AND "DILUTION" ON PAGE 18.

THE REPORT OF THE COMPANY'S INDEPENDENT AUDITORS INDICATES THAT THE COMPANY
HAS INCURRED RECURRING OPERATING LOSSES, HAS A WORKING CAPITAL DEFICIENCY AND,
AS A RESULT OF THESE CONDITIONS, EXPRESSES DOUBT ABOUT THE COMPANY'S ABILITY TO
CONTINUE AS A GOING CONCERN. SEE "FINANCIAL STATEMENTS."

THE COMPANY MAY ALSO HAVE FAILED TO COMPLY WITH CERTAIN FEDERAL AND/OR STATE
SECURITIES LAWS WITH RESPECT TO CERTAIN PRIOR SALES OF THE COMPANY'S SECURITIES.
THE COMPANY INTENDS TO MAKE A RESCISSION OFFER TO THE PURCHASERS OF SUCH
SECURITIES AFTER THE CLOSING OF THIS OFFERING. SEE "RESCISSION OFFER."
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................................ $5.00 $.50 $4.50
Per Warrant.............................................. $.10 $.01 $.09
Total (3)................................................ $6,630,000 $663,000 $5,967,000
</TABLE>

(1) Does not include additional compensation to the Underwriters consisting of
(i) a non-accountable expense allowance equal to 3% of the gross proceeds of
the Offering (excluding any proceeds from the exercise of any Warrants or
Underwriters' Warrants (as defined below)), of which approximately $20,000
has been paid by the Company to date and (ii) warrants (the "Underwriters'
Warrants") entitling the Underwriters to purchase up to 130,000 shares of
Common Stock and 130,000 Warrants, at a price of $6.50 per share of Common
Stock and $0.13 per Warrant. The Company has agreed to indemnify the
Underwriters against certain liabilities, including those arising under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."

(2) Before deducting expenses of the Offering, other than the Underwriters'
discounts and commissions, payable by the Company, estimated to be
approximately $700,000. See "Underwriting."

(3) The Company has granted the Underwriters an option, exercisable for 45 days
from the closing of the Offering, to purchase up to an additional 195,000
shares of Common Stock and/or 195,000 Warrants, upon the same terms and
conditions solely for the purpose of covering over-allotments, if any (the
"Underwriters' Over-allotment Option"). If the Underwriters' Over-allotment
Option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $7,624,500,
$762,450 and $6,862,050, respectively. See "Underwriting."

The Common Stock and Warrants are being severally offered by the
Underwriters named herein, subject to prior sale, when, as and if delivered to
and accepted by the Underwriters under certain other conditions. It is expected
that certificates representing the shares of Common Stock and Warrants offered
hereby will be made available for delivery in New York, New York on or about
, 1997.
------------------------------------
----------------------

[DALTON KENT]

[SHARPE CAPITAL]
SECURITIES GROUP, INC.

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THE DATE OF THIS PROSPECTUS IS , 1997.
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[Pictures]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND THE WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.

As a result of this Offering, the Company will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and in accordance therewith will file periodic
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). The Company intends to furnish to its
stockholders annual reports containing financial statements audited by an
independent public accounting firm and quarterly reports containing unaudited
financial statements for the first three quarters of each fiscal year.

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES
IN THIS PROSPECTUS TO THE COMPANY ARE REFERENCES TO THE COMPANY AND ITS
SUBSIDIARIES, AMERICAN CHAMPION MEDIA, INC. ("AC MEDIA") AND AMERICA'S BEST
KARATE. EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THE PROSPECTUS ASSUMES NO
EXERCISE OF THE WARRANTS, THE UNDERWRITERS' OVER-ALLOTMENT OPTION, THE
UNDERWRITERS' WARRANTS OR OUTSTANDING OPTIONS OR WARRANTS TO PURCHASE SHARES OF
THE COMPANY'S COMMON STOCK.

The Company is in the development stage with respect to various media
projects, including (i) the development, production and marketing of "ADVENTURES
WITH KANGA RODDY," a television program aimed at pre-school and primary school
children (the "Kanga Roddy Series"), (ii) the licensing of merchandising rights
related to the Kanga Roddy Series, and (iii) the development, production and
marketing of various video tapes, audio tapes and workbooks that specialize in
fitness information.

The Company also operates a chain of karate schools with eight locations in
the San Francisco Bay area and two locations in Las Vegas. The co-founders of
the Company, George Chung and Anthony Chan, are both members of the Karate Black
Belt Hall of Fame. The experiences of Messrs. Chung and Chan with the martial
arts, and the values and disciplines they promote, were the inspiration for the
Company's decision to pursue its media projects, all of which are based on such
martial arts values and disciplines.

"ADVENTURES WITH KANGA RODDY"

The Company is developing and producing "ADVENTURES WITH KANGA RODDY," a
television program aimed at pre-school and primary school children. The Kanga
Roddy Series will use martial arts values such as humility, discipline and
respect, with the added elements of song, contemporary music, dance, vibrant
colors and exciting movements to attempt to capture the young audience's
attention. The Kanga Roddy Series features a six-foot tall kangaroo character
named Kanga Roddy who is a martial arts expert. Unlike other television shows
which feature violence, Kanga Roddy never fights because he understands that
conflict can always be resolved with knowledge, compassion, humility, respect
and an open mind.

Each episode of the Kanga Roddy Series will open with the Kanga Roddy theme
song which is anticipated to be easily memorized by young children much in the
same way as the popular theme song from the "BARNEY" television show. After the
theme song, each show will focus on a group of children at a community center
and their teachers (played by Jennifer Montana and Karen Lott, wives of former
San Francisco 49ers football players Joe Montana and Ronnie Lott) who will be
working on activities such as reading, physical fitness and arts and crafts.
During these activities, the children will encounter an ethical or social
problem which causes uneasiness or unhappiness amongst some of the children.
Their teachers will sense the problem and suggest that the children seek help
from their friend, Uncle Pat, the proprietor of a rare book bookstore played by
Pat Morita of THE KARATE KID fame. Uncle Pat, with the assistance of his pet
bookworm Shakespeare, magically transport the children to the land of Hi-Yah
where Kanga Roddy lives.

Once in the land of Hi-Yah, Kanga Roddy and his friend Bantu, a female
African snake, help the children solve their problem by giving examples
presented through songs. Kanga Roddy gets inspiration for the proper solution to
the problem through flashbacks to lessons learned from his martial arts teacher
Zatochi, a wise old snow monkey. The children also learn one physical activity
each time they visit Kanga Roddy such as balance, jumping, or kicking. Kanga
Roddy is particularly capable of teaching such activities since the actor inside
the Kanga Roddy costume is a black belt karate instructor at one of the
Company's karate studios. When the children return to the community center, they
review what they have learned with their teachers.

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episodes. Thirteen episodes of a television series is the standard number of
episodes for a television season.

The Company is vigorously pursuing broadcasting the Kanga Roddy Series
through public television. In May 1997, the Company and KTEH, the public
broadcasting system ("PBS") station serving the San Jose, California area,
entered into a distribution agreement (the "Distribution Agreement") to purchase
the exclusive right to distribute the Kanga Roddy Series throughout the United
States for a two-year period. Under the terms of the Distribution Agreement,
KTEH is entitled to 15% of monies collected by KTEH from its exploitation of the
rights granted to it in the Distribution Agreement with the balance to be paid
to the Company. KTEH has also agreed to pay the Company $430,000 as an advance
in four equal installments with each installment payment date tied to the
Company's delivery of certain number of episodes of the Kanga Roddy Series. The
first payment will be made on delivery of episodes 1-4, the second payment on
delivery of episodes 5-7, the third payment on delivery of episodes 8-10, and
the fourth and final payment on delivery of episodes 11-13. The $430,000
installment payments are advances against and will be deducted from all
royalties payable to the Company by KTEH. Under the Distribution Agreement, the
Company has also committed to sharing with KTEH (i) 8% of all revenues from the
sale and licensing of products such as video tapes, books and music tapes and
(ii) 5% of gross profits of the Company from the sale and licensing of toys and
clothing. The Company has also granted KTEH a right of first refusal with
respect to rights to the Kanga Roddy Series not granted to KTEH in the
Distribution Agreement. KTEH has informed the Company that it believes it can
convince other PBS stations covering at least 40% of the U.S. broadcast market
to also air the program. See "Business--Adventures with Kanga Roddy."

The Company's strategy with respect to the Kanga Roddy Series also includes
pursuing licensing and merchandising opportunities. Characters developed in a
popular series, and often the series itself, achieve a high level of recognition
and popularity, making them valuable assets for the licensing and merchandising
market. In June 1997, the Company and Sega of America, Inc. ("SEGA") entered
into a letter agreement appointing SEGA as the Company's non-exclusive agent for
purposes of licensing and merchandising the "Kanga Roddy" trademark, brandname
and logo at a licensing show in New York. In such letter agreement, SEGA agreed
to introduce the Company to prospective sublicensees who may be interested in
acquiring merchandising licenses and/or home video distribution rights in
connection with "Kanga Roddy" in consideration of an amount equal to 30% of all
monies or other consideration payable to the Company under any agreement entered
into during the two year period following the execution of the letter agreement
by the Company with any person or entity introduced to the Company by SEGA.
Pursuant to such letter agreement, SEGA is not subject to any minimum sales
requirement. If the Kanga Roddy Series does not attain and maintain widespread
distribution on television, or widespread popularity, it is unlikely that any
significant licensing or merchandising opportunities or revenue will arise or be
maintained. See "Business--Adventures with Kanga Roddy."

The Company also hopes to realize revenues through the distribution of the
Kanga Roddy Series in the home video market, although there is no assurance that
the Company will be able to do so.

"FITNESS PRODUCTS"

The Company is also in the business of developing, producing and marketing
various video tapes, audio tapes and workbooks that specialize in fitness
information and education ("Fitness Products"). The Company's first Fitness
Product, entitled "STRONG MIND FIT BODY," consists of video tapes, audio tapes
and a workbook, and teaches motivational techniques to start and stay with an
exercise program in order to lose weight. "STRONG MIND FIT BODY" targets the
large number of overweight individuals in the United States between the ages of
25 to 55 who are 15 to 100 pounds over their ideal weight, and utilizes
celebrity testimonials from former superstar football players Ronnie Lott and
Dwight Clark to endorse the product.

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companies, and the exclusive right for five years to sell such product to, or
together with products sold by, Health Rider, Nordic Trak and ICON (major
fitness equipment manufacturers). The Company's "STRONG MIND FIT BODY" product
was recently included in the SKY MALL catalog found in the seat-backs of many
airlines. Notwithstanding the above contract and the inclusion of such product
in the Sky Mall catalog, the Company has not recognized any significant revenues
from the "STRONG MIND FIT BODY" product and there can be no assurance that any
significant revenues will be generated from such product in the future.

The Company's second Fitness Product, entitled the "MONTANA EXERCISE VIDEO,"
is a cardio kick-boxing video starring former superstar quarterback Joe Montana
and his wife Jennifer, both of whom have been training in the Company's karate
schools for approximately three years. This 50-minute video exercise program
enables viewers to exercise without the need to buy expensive machinery. The
Company hopes to enter into an exclusive distribution agreement with, or sell
the rights to such video program to, a third party although there is no
assurance that the Company will be able to do so. See "Business--Fitness
Products."

KARATE STUDIOS

The Company also manages and operates a chain of karate "studios" with eight
locations in the San Francisco Bay area and two locations in Las Vegas. All of
the Company's karate studios operate under the name "America's Best Karate."
George Chung, the Company's Chairman of the Board, and Anthony Chan, the
Company's President and Chief Executive Officer, are both members of the Karate
Black Belt Hall of Fame.

The Company has a close relationship with the five-time Superbowl Champion
San Francisco 49ers. During the football season, as many as 30 players from the
team take instruction from Mr. Chung. Mr. Chung also serves as a fitness
consultant to the San Francisco 49ers football team, and assists the team with
the mental and physical preparation of certain players before games.

Each of the Company's instructors, all of whom are black belts, has
undergone a rigorous training program conducted by Messrs. Chung and Chan and/or
other instructors of America's Best Karate. Generally speaking, instructors are
prior students of America's Best Karate who have "graduated" to become
instructors. Each karate studio conducts approximately 40 classes per week, each
for a 45 minute period. Each class is generally comprised of 10 to 15 students
and taught by one to three instructors. Generally, students are initially
enrolled in a black belt course requiring approximately thirty-six months of
study; however, many students eventually convert to the more intensive and
longer (48 months) second degree black belt program. Classes are organized by
skill level and age group. Students may take as many classes as are available
each week without additional charge. Fees, if paid in advance, are generally
$1,800 and $2,400 for the black belt and second degree black belt programs,
respectively. An installment payment plan is available at higher rates. At each
karate studio, the Company also sells martial arts related products, such as
uniforms, other clothing and safety equipment. See "Business--Karate Studios."

The Company's strategy with respect to its karate studios is to provide an
environment where students can study martial arts disciplines in a clean and
attractive setting and have fun. Unlike many traditional studios, the Company
utilizes music to enhance the enjoyment level of its martial arts instruction.
See "Business--Karate Studios."

During the next three to four years, the Company intends to close five of
its karate studios that have not been profitable to date. The Company is also
evaluating the possibility of consolidating certain of its California karate
studios and selling its two Las Vegas studios. See "Business--Karate Studios."

The Company was incorporated in Delaware in February 1997 to serve as a
holding company for AC Media, a Delaware corporation formed in February 1997,
and America's Best Karate, a California corporation formed in June 1991. This
Prospectus assumes that the reorganization transaction giving effect to this
holding company structure will be completed prior to the closing of the
Offering, and that each share of the currently outstanding shares of common
stock of America's Best Karate will be converted into 28.1 shares of Common
Stock of the Company. The Company's executive offices are located at 26203
Production Avenue, Suite 5, Hayward, California 94545, and its telephone number
is (510) 782-8168.

5
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THE OFFERING

<TABLE>
<S> <C>
Securities Offered........................... 1,300,000 shares of Common Stock and
1,300,000 Warrants. Each Warrant entitles the
registered holder thereof to purchase one
share of Common Stock at an exercise price of
$6.50 per share, subject to adjustment, at
any time through the fifth anniversary of the
date hereof. The shares of Common Stock and
the Warrants may be purchased separately,
will not be sold in units and are separately
tradeable and transferable immediately upon
issuance. See "Description of Securities" and
"Underwriting."

Offering Price............................... $5.00 per share of Common Stock and $.10 per
Warrant.

Common Stock Outstanding:

Prior to the Offering (1).................. 2,515,700 shares of Common Stock

After the Offering (2)(3).................. 3,848,345 shares of Common Stock

Warrants Outstanding:

Prior to the Offering...................... None

After the Offering (4)..................... 1,300,000 Warrants

Exercise Period of Warrants Offered Hereby... The five year period commencing from the date
hereof.

Exercise Price of Warrants Offered Hereby.... $6.50 per share, subject to adjustments if
the Company pays a dividend or makes a
distribution in shares of Common Stock or if
the Company subdivides or combines the
outstanding Common Stock.

Redemption of Warrants....................... Redeemable by the Company at any time
commencing 12 months after the date hereof,
at a price of $.10 per Warrant, upon not less
than 30 days' prior written notice to the
holders of the Warrants, provided the average
closing bid quotation of the Common Stock as
reported on NASDAQ or the OTC Bulletin Board,
if traded thereon, or if not traded thereon,
the average closing sale price of the Common
Stock if listed on a national securities
exchange (or other reporting system that
provides last sale prices), has been at least
120% of the then current exercise price of
the Warrants (initially, $7.80 per share),
for a period of 20 consecutive trading days
ending on the third day prior to the date on
which the Company gives notice of redemption.
The Warrants will be exercisable until the
close of business on the day immediately
preceding the date fixed for redemption. See
"Description of Securities-- Warrants."
</TABLE>

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<TABLE>
<S> <C>
Use of Proceeds.............................. The net proceeds from the Offering,
aggregating approximately $5,267,000, will be
used approximately as follows: (i) $2,200,000
to complete production of the next 12
episodes of the Kanga Roddy Series, (ii)
$445,500 to repay debt, (iii) $50,000 to pay
Joe and Jennifer Montana for services
relating to the "Montana Exercise Video," and
(iv) the remainder to be used for working
capital purposes, including the funding of
the Company's rescission offer (which, if
every holder to whom the Rescission Offer is
made accepts such Rescission Offer would cost
the Company approximately $1,175,520,
excluding interest), the hiring of additional
management personnel, relocation of the
Company's headquarters and other general
corporate purposes. See "Use of Proceeds" and
"Rescission Offer."

Risk Factors................................. The securities offered hereby involve a high
degree of risk. Only investors who can bear
the risk of loss of their entire investment
should invest. See "Risk Factors."

Proposed NASDAQ Symbols:
Common Stock............................... ACEI
Warrants................................... ACEIW
</TABLE>

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(1) Excludes (i) 32,645 shares which the Company intends to issue to employees
or consultants of the Company, or which the Company is contractually
obligated to issue, upon completion of this Offering, and (ii) 4,055 shares
issuable upon conversion of certain convertible notes and 250,000 shares
subject to options which the Company intends to grant under the Company's
stock options plans upon completion of this Offering. See "Management--Stock
Plans."

(2) Excludes, subject to adjustment, if any, a maximum of (i) 1,300,000 shares
of Common Stock issuable upon exercise of the Warrants offered hereby, (ii)
260,000 shares of Common Stock issuable upon exercise of the Underwriters'
Warrants (including shares issuable upon exercise of the 130,000 Warrants
constituting part of the Underwriters' Warrants), and (iii) 390,000 shares
of Common Stock issuable upon exercise of the Underwriters' Over-allotment
Option (including shares of Common Stock issuable upon exercise of the
195,000 Warrants constituting part of the Underwriters' Over-allotment
Option.) See "Description of Securities" and "Underwriting."

(3) Includes 32,645 shares which the Company intends to issue to employees or
consultants of the Company, or which the Company is contractually obligated
to issue, upon completion of this Offering.

(4) Excludes 195,000 Warrants issuable upon the exercise of the Underwriters'
Over-allotment Option and 130,000 Warrants issuable upon exercise of the
Underwriters' Warrants. See "Description of Securities" and "Underwriting."

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<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The following summary financial data for the years ended December 31, 1996
and 1995 are derived from the audited financial statements of America's Best
Karate. The data for the three months ended March 31, 1997 and 1996, and as of
March 31, 1997, are unaudited but, in the opinion of management, reflect all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the results of operations and financial position for such
periods.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ ------------------------
1996 1995 1997 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA (1):
Net revenues........................... $ 1,051 $ 1,119 $ 278 $ 256
(Loss) from operations................. (642) (462) (160) (143)
Net income (loss)...................... (642) 64 (160) (143)
Pro-forma net income(2)................ 48 -- --
Pro-forma earnings per share(3)........ $ .02 -- --
Net loss per share(3).................. $ (.26) $ (0.06) $ (0.06)
Shares outstanding..................... 2,515,700 2,515,700 2,515,700 2,515,700
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
AS ADJUSTED
ACTUAL (4)(5)(6)
--------- -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA (1):
Cash................................................................... $ 16 $ 4,787
Current assets......................................................... 143 4,914
Current liabilities.................................................... 1,424 1,013
Working capital (deficiency)........................................... (1,281) 3,901
Total assets........................................................... 1,147 5,918
Total liabilities...................................................... 1,909 1,413
Common stock subject to rescission..................................... 1,176 1,176
Stockholders' equity (deficiency)...................................... $ (1,938) $ 3,329
</TABLE>

- ------------------------------

(1) Assumes that the reorganization transaction whereby the Company will become
the parent holding company of America's Best Karate and AC Media will be
completed prior to the closing of the Offering and that each share of the
currently outstanding shares of common stock of America's Best Karate will
be converted into 28.1 shares of Common Stock of the Company.

(2) Pro-forma net income gives effect to the charge in lieu of income taxes
necessary due to America's Best Karate's "S" corporation status.

(3) Pro-forma earnings per share and net loss per share are based on 2,515,700
shares outstanding for all periods presented. Shares or equivalents issued
within a one year period prior to the filing of this Registration Statement
are treated as outstanding for all reported periods.

(4) Gives effect to the receipt by the Company of the net proceeds from the sale
of the 1,300,000 shares of Common Stock and 1,300,000 Warrants offered
hereby and the use of a portion of the proceeds to repay certain debt. See
"Use of Proceeds" and "Capitalization."

(5) Assumes that no security holders accept the Rescission Offer (hereinafter
defined) which the Company intends to make to certain of its security
holders after the closing of this Offering. See "Rescission Offer."

(6) Net proceeds from the Offering in the amount of approximately $445,500 will
be used to retire debt. Had that retirement taken place at the beginning of
the three months ended March 31, 1997, interest expense of approximately
$4,400 would not have been incurred. Assuming the 89,100 shares sold to
generate net proceeds sufficient to retire such debt were outstanding since
the beginning of the period, net (loss) per share would have been $(0.06)
for the three months then ended. Had a retirement taken place at the
beginning of the year ended December 31, 1996, interest expense of
approximately $27,000 would not have been incurred. Assuming the 89,100
shares sold to generate net proceeds sufficient to retire such debt were
outstanding since the beginning of the year, net (loss) per share would have
been $(.24) for the year then ended.

8
<PAGE>
RISK FACTORS

An investment in the securities being offered hereby involves a high degree
of risk. In addition to the other information in this Prospectus, the following
risk factors should be considered in evaluating the Company and its business
before purchasing securities offered hereby.

1. HISTORY OF LOSSES AND DEFICITS; GOING CONCERN QUALIFICATION. The
Company sustained operating losses of $462,404, $641,583 and $159,974 in 1995,
1996 and the three months ended March 31, 1997, respectively. As of March 31,
1997, the Company had a working capital deficit of $1,280,999 and stockholders'
deficiency of $(1,937,972). The Company's Financial Statements included herein
were prepared on the assumption that the Company will continue as a going
concern. The report of the Company's independent auditors expresses doubt about
the Company's ability to do so. The Company's ability to continue as a going
concern is dependent on its receipt of the net proceeds of this Offering and,
thereafter, on attaining profitability. See "Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

2. UNCERTAINTY OF ATTAINING PROFITABILITY. The Company expects to incur
significant additional operating losses for the foreseeable future as it
continues to develop, produce and market its media projects, including the Kanga
Roddy Series. There can be no assurance that the Company will ever achieve
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

3. LIQUIDITY AND FINANCING REQUIREMENTS; DEPENDENCE ON OFFERING
PROCEEDS. The Company's venture into media projects, including the development
and production of the Kanga Roddy Series, requires substantial amounts of
capital. Although the Company was able to finance the production of the pilot
episode of the Kanga Roddy Series with its own funds, the Company is dependent
on the proceeds of this Offering to produce the next 12 episodes of the Kanga
Roddy Series. The Company believes that the net proceeds of this Offering
allocated to the development and production of the Kanga Roddy Series, together
with funds generated from operations, if any, will be sufficient to produce
these next 12 episodes. In the event that production costs are higher than
expected, or the Company is forced to use funds earmarked for production for
other purposes, the Company could be required to modify its operations or to
seek additional financing sooner than currently anticipated. The Company has no
current arrangements with respect to such additional financing and there can be
no assurance that such additional financing will be available at all or on terms
acceptable to the Company. See "Use of Proceeds."

4. DEPENDENCE ON THE SUCCESS OF THE KANGA RODDY SERIES. The Company is
dependent on the success of the Kanga Roddy Series, which in turn is dependent
upon unpredictable and volatile factors beyond the Company's control, such as
children's preferences, competing programming and the availability of other
entertainment activities for children. The failure of the Company to attract a
significant television audience for the Kanga Roddy Series over a long period of
time would have a material adverse effect on the Company's financial condition
and results of operations, and in all likelihood on the market price of the
Company's securities. There is no assurance that the Kanga Roddy Series will be
successful or that, if successful initially, that television viewership of the
Kanga Roddy Series will be maintained.

5. LICENSING AND MERCHANDISING. The Company's strategy in producing the
Kanga Roddy Series includes the licensing of its characters to others for the
merchandising of a variety of products ranging from toys to apparel. The ability
of the Company to successfully exploit the merchandising opportunities afforded
by the Kanga Roddy Series is dependent on the popularity of the Kanga Roddy
Series and the ability of the Company's characters to provide attractive
merchandising features to its customers. If the Company is unable to attract a
significant television audience for the Kanga Roddy Series, it is doubtful that
any significant licensing or merchandising opportunities will arise. Even if the
Kanga Roddy Series is popular with television audiences, there is no assurance
that licensing opportunities will materialize as the Company must compete with
hundreds of owners of creative content who seek to license their characters and
properties to a limited number of manufacturers and distributors. See
"Business--Licensing and Merchandising."

9
<PAGE>
6. ABSENCE OF SIGNIFICANT EXPERIENCE WITH TELEVISION PROGRAMMING OR
LICENSING AND MERCHANDISING. Prior to its involvement with the Kanga Roddy
Series, the Company has had no significant experience with the development and
production of television programming or with the licensing and merchandising of
products. As a result, the Company could enter into contracts or make other
agreements that are on less than optimal terms. The television and licensing and
merchandising businesses are complicated and the absence of experience in such
businesses could materially and adversely affect the financial condition and
results of operations of the Company.

7. DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the efforts
and abilities of Anthony Chan and George Chung, the Company's founders and
principal executive officers, and Don Berryessa, Vice President and Jan D.
Hutchins, President of AC Media. The Company has entered into employment
agreements, effective as of the closing of this Offering, with each of such
individuals. None of such employment agreements contains non-competition
provisions. See "Management--Employment Agreements." The loss of the services of
any of the above individuals, or of other key personnel, could have a material
adverse effect on the business of the Company. The Company has obtained
"key-man" life insurance with $1,000,000 coverage for each of Messrs. Chung and
Chan.

8. DEPENDENCE ON ASSOCIATION WITH JOE MONTANA, RONNIE LOTT AND THE SAN
FRANCISCO 49ERS. The success of the Kanga Roddy Series depends in part on the
Company's continued association with former 49ers Joe Montana and Ronnie Lott,
and their wives, and the San Francisco 49ers. The failure of Joe Montana, Ronnie
Lott, or their wives, or the San Francisco 49ers, to continue to actively
support the Kanga Roddy Series could have a material adverse impact on the
ability to market the Kanga Roddy Series. None of Joe Montana, Ronnie Lott, or
their wives, or the San Francisco 49ers are obligated to engage in any business
transactions or jointly participate in any opportunities with the Company, and
the possibility exists that the current relationships between the parties could
materially change in the future.

9. COMPETITION. Each of the industries in which the Company competes is
highly competitive and most of the companies with which the Company competes
have greater financial and other resources than the Company. With respect to the
Company's television production activities, the Company competes on the basis of
relationships and pricing for access to a limited supply of facilities and
talented creative personnel to produce its programs. If the Company is
successful at getting the Kanga Roddy Series aired on television, the Company
will compete for time slots, ratings and related advertising revenues and for
the licensing and merchandising of products related to the Kanga Roddy Series.
The Company's Fitness Products compete with many other products aimed at the
fitness and weight loss markets, including other video tapes, audio tapes and
workbooks, and various types of exercise machinery. Many of these competing
products are sponsored or endorsed by celebrities and sports figures, and are
marketed by companies having significantly greater resources than the Company.
The martial arts industry is also highly competitive. The Company's competitors
include a variety of small to medium sized martial arts instructional centers,
many of which may be better established and better financed than the Company.
See "Business-- Competition."

10. RIGHT OF RESCISSION. Commencing after the closing of this Offering and
subject to compliance with Federal and state securities laws, the Company
intends to offer to certain stockholders of the Company who previously purchased
common stock of America's Best Karate, the right to rescind their previous
purchases and receive the return of the purchase price paid for such securities
together with interest at a rate to be determined by the state of residence of
the subject holder ("Rescission Offer"). The Company has registered the shares
of Common Stock subject to the Rescission Offer in the Registration Statement to
which the Prospectus is a part of and anticipates $20,000 in costs relating to
such registration. The Company is making the Rescission Offer, because, among
other things, certain sales of its securities may have failed to qualify for an
exemption under the registration requirements of Federal and/or state securities
laws.

The holders of securities who will be offered rescission include 47
shareholders who were issued a total of 684,619 shares of common stock of
America's Best Karate (as adjusted for the 28.1 for 1 exchange ratio in the
proposed reorganization transaction) during the period November 7, 1995 to March
20, 1997 at

10
<PAGE>
prices ranging from $.80 to $2.13. If every holder to whom the Rescission Offer
is made elects to rescind his or her original purchase of securities, the
Company would be required to pay approximately $1,175,520 (excluding interest).
The Company's obligation to purchase such securities, if any, will be paid out
of the net proceeds of this Offering which the Company would otherwise utilize
in furtherance of its business objectives. If a material portion of the net
proceeds of the Offering were used by the Company to purchase securities in the
Rescission Offer, the Rescission Offer would have a material adverse effect on
the Company and on its ability to pursue its business objectives. If, during the
time that the Rescission Offer is kept open (at least 30 days) the trading price
of the Company's Common Stock declines below the price available in the
Rescission Offer, stockholders may be more likely to accept the Rescission
Offer. See "Use of Proceeds" and "Rescission Offer."

Notwithstanding the Rescission Offer, under applicable Federal and state
securities laws, shareholders may continue to have a right to rescind and
recover the purchase price of their securities from the Company and may not be
banned from asserting potential claims against the Company for alleged
violations of securities laws. In addition, the Company may be subject to
enforcement actions by the Securities and Exchange Commission and/or state
securities authorities.

11. LIMITED EXPERIENCE OF MANAGING UNDERWRITER. The Managing Underwriter
has had limited experience in acting as an underwriter in public offerings of
securities which may adversely affect the proposed public offering of the Shares
offered hereby and the subsequent development of a trading market, if any, for
the Company's Common Stock and Warrants.

12. GOVERNMENT REGULATION AND POTENTIAL RETURN OF MEMBERSHIP FEES. In the
event that the Company elects to close a given karate studio, state or local
laws may require that the Company return the "unearned" portion of membership
fees to karate studio members. Some states require that health and other fitness
clubs register with an appropriate regulatory authority and post a bond in order
to secure payment of such "unearned" membership fees. The Company is not aware
of any existing or pending legislation in the states in which it operates which
would require the Company to post a bond. Conceivably, in the event such laws
are in effect, or are enacted in states where the Company operates karate
studios, the cost associated with posting such bonds or returning "unearned"
membership fees could in the aggregate be substantial and may adversely affect
the Company's financial condition and its future prospects. Pursuant to the
terms of its standard contract with its students, America's Best Karate is
required to refund (i) all funds received if a student cancels within three (3)
days of signing a membership contract and (ii) all "unearned" funds received in
the event the student dies, becomes permanently disabled, moves more than
twenty-five (25) miles away from America's Best Karate or America's Best Karate
closes for more than thirty (30) consecutive days. The Company does not
currently maintain nor does it anticipate maintaining a reserve account for
return of membership fees. As a consequence, the Company may be unable to refund
membership fees which could have a material adverse effect on the Company's
business and its prospects.

13. CONTROL BY MESSRS. CHAN AND CHUNG; ANTI-TAKEOVER EFFECTS OF DELAWARE
LAW. Anthony Chan and George Chung, the Company's founders and principal
executive officers, collectively beneficially own 1,176,376 shares of the
Company's outstanding Common Stock, representing approximately 46.76% of the
outstanding shares prior to this Offering and approximately 30.57% of the
outstanding shares of Common Stock after this Offering. Since holders of Common
Stock do not have any cumulative voting rights and directors are elected by a
majority vote, Messrs. Chan and Chung are in a position to strongly influence
the election of directors as well as the affairs of the Company. See
"Management" and "Principal Stockholders." In addition, Section 203 of the
General Corporation Law of Delaware prohibits the Company from engaging in
certain business combinations with interested stockholders, as defined by
statute. These provisions may have the effect of delaying or preventing a change
of control of the Company without action by the stockholders, and therefore
could adversely affect the price of the Company's Common Stock. See "Description
of Securities."

11
<PAGE>
14. BROAD DISCRETION IN APPLICATION OF PROCEEDS; PORTION OF PROCEEDS TO
REPAY DEBT AND TO PAY MONTANAS. The management of the Company has broad
discretion to adjust the application and allocation of the net proceeds of this
Offering, including funds received upon exercise of the Warrants, in order to
address changed circumstances and opportunities. As a result of the foregoing,
the success of the Company will be substantially dependent upon the discretion
and judgment of the management of the Company with respect to the application
and allocation of the net proceeds hereof. Approximately, $445,500 of the net
proceeds of this Offering will be used to repay certain debts of the Company and
$50,000 will be used to pay the Montanas for services relating to the "Montana
Exercise Video." In addition, approximately $2,571,500 or 48.8% of the net
proceeds of the Offering has been allocated as working capital and for general
corporate purposes. Pending use of such proceeds, the net proceeds of this
Offering will be invested by the Company in short-term, interest bearing
obligations. See "Use of Proceeds."

15. DILUTION. The net tangible book value of the Company as of March 31,
1997 was $(2,162,729), or $(0.86) per share. Purchasers of shares of Common
Stock in this Offering will suffer an immediate dilution of $4.19 per share of
Common Stock or approximately 84% in the net tangible book value of the Common
Stock from the initial public offering price. The Company's present stockholders
purchased their shares at a price substantially less than the initial public
offering price of the Common Stock. Therefore, the investors pursuant to this
Offering will bear a substantial portion of the risk of loss. See "Dilution."

16. LIABILITY INSURANCE. The Company has purchased liability insurance for
each of its karate studios in the amount of $1,000,000 per occurrence and
$2,000,000 in the aggregate which the Company believes is sufficient for its
current level of business operations. There is no assurance, however, that the
present coverage will continue to be available in the future or that the Company
will be able to retain such coverage at a reasonable cost. Further, there can be
no assurance that such insurance will be sufficient to cover potential claims,
including without limitation, claims brought by students or instructors injured
during karate classes, or that adequate, affordable insurance coverage will be
available to the Company in the future as the Company expands its operations. A
successful claim against the Company in excess of the liability limits or
relating to an injury excluded under the policy could have a material adverse
effect on the Company.

17. NO INTENTION TO PAY DIVIDENDS. The Company has no present intention to
declare or pay cash dividends. Any earnings which the Company may realize in the
foreseeable future will be retained to finance the growth of the Company.

18. ARBITRARY DETERMINATION OF OFFERING PRICE AND WARRANT EXERCISE
PRICE. Prior to the Offering, there has been no public market for the Common
Stock or the Warrants. The initial public offering price of the Common Stock and
the Warrants as well as the exercise price and terms of the Warrants have been
determined by negotiations between the Company and the Managing Underwriter and
do not necessarily bear any relationship to the Company's assets, book value,
net worth or results of operations of the Company or any other established
criteria of value. See "Description of Securities" and "Underwriting."

19. NO ASSURANCE OF PUBLIC MARKET OR LISTING ON THE NASDAQ SMALLCAP
MARKET. The Company has applied for quotation of the Common Stock and the
Warrants on NASDAQ. There can be no assurance that such listing will be
obtained, will be maintained, that an adequate trading market for the Common
Stock or the Warrants will develop after this Offering or, if any such market
develops, that it will be maintained. There can be no assurance that, in
subsequent trading, the Company's securities will not trade at a level below the
price being offered hereby.

20. POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ SMALLCAP
MARKET. While the Company's Common Stock and Warrants meet the current NASDAQ
listing requirements and are expected to be initially included on NASDAQ, there
can be no assurance that the Company will meet the proposed criteria for
continued listing. Under the proposed criteria, continued inclusion on NASDAQ
generally requires that (i) the Company maintain at least $2,000,000 in net
tangible assets (net tangible assets equals total assets less total liabilities
and goodwill), $35,000,000 in market capitalization or $500,000 in net income
for two of the last three years (ii) the minimum bid price of the Common Stock
be $1.00 per share, (iii) there be at

12
<PAGE>
least 500,000 shares in the public float valued at $1,000,000 or more, (iv) the
Common Stock have at least two active market makers, (v) the Common Stock be
held by at least 300 holders and (vi) the Company comply with certain corporate
governance requirements. NASDAQ has submitted the proposed criteria to the SEC
for approval. If adopted, the Company will have to meet and maintain such new
requirements. If the Company is unable to satisfy NASDAQ's maintenance
requirements, its securities may be delisted from NASDAQ. In such event,
trading, if any, in the Common Stock and Warrants would thereafter be conducted
in the over-the-counter market in the so-called "pink sheets" or the NASD's
"Electronic Bulletin Board." Consequently, the liquidity of the Company's
securities could be impaired, not only in the number of securities which could
be bought and sold, but also through delays in the timing of transactions,
reduction in security analysts' coverage of the Company and lower prices for the
Company's securities than might otherwise be attained.

21. RISKS OF LOW-PRICED STOCK. If the Company's securities were delisted
from NASDAQ, they could become subject to Rule 15g-9 under the Exchange Act,
which imposes additional sales practice requirements on broker-dealers which
sell such securities to persons other than established customers and "accredited
investors" (generally, individuals with net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such rule may
adversely affect the ability of broker-dealers to sell the Company's securities
and may adversely affect the ability of purchasers in this Offering to sell in
the secondary market any of the securities acquired hereby. Commission
regulations define a "penny stock" to be any non-NASDAQ equity security that has
a market price (as therein defined) of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the Commission relating to the penny stock market. Disclosure is
also required to be made about commissions payable to both the broker-dealer and
the registered representative and current quotations for the securities.
Finally, monthly statements are required to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. The foregoing required penny stock restrictions
will not apply to the Company's securities if such securities are listed on
NASDAQ and have certain price and volume information provided on a current and
continuing basis or meet certain minimum net tangible assets or average revenue
criteria. There can be no assurance that the Company's securities will qualify
for exemption from these restrictions. In any event, even if the Company's
securities were exempt from such restrictions, it would remain subject to
Section 15(b)(6) of the Exchange Act, which gives the Commission the authority
to prohibit any person that is engaged in unlawful conduct while participating
in a distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of penny stock, if the Commission finds that
such a restriction would be in the public interest. If the Company's securities
were subject to the rules related to penny stocks, the market liquidity for the
Company's securities could be severely adversely affected. In such event, the
regulations on penny stocks could limit the ability of broker-dealers to sell
the Company's securities and thus the ability of purchasers of the Company's
securities to sell their securities in the secondary market.

22. SHARES AVAILABLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sale of
substantial amounts of shares in the public market or the prospect of such sales
could adversely affect the market price of the Common Stock or the Warrants. The
Company has agreed to file a registration statement under the Securities Act
with respect to the resale of 305,000 shares of Common Stock of the Company by
certain stockholders upon demand by a majority of such stockholders. Upon the
effectiveness of such registration statement, such stockholders would be free to
sell their shares in the public market without volume restriction unless such
shares were held by an affiliate or are subject to a lock-up agreement described
above. See "Shares Eligible for Future Sale."

23. CURRENT PROSPECTUS AND POSSIBLE INABILITY OF PURCHASERS TO EXERCISE
WARRANTS PURSUANT TO STATE REGISTRATION REQUIREMENTS. Purchasers of the
Warrants will be able to exercise the Warrants only if a current prospectus
relating to the securities underlying the Warrants is then in effect and only if
such

13
<PAGE>
securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various holders of the
Warrants reside. The Company intends to qualify the sale of the securities in
California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois,
Louisiana, Maryland, Missouri, Nevada, New Jersey, New York, Oregon,
Pennsylvania, Utah, Washington and Wisconsin. Although the Warrants will not
knowingly be sold to purchasers in jurisdictions in which they are not
registered or otherwise qualified for sale, purchasers may buy Common Stock or
Warrants in the aftermarket or may move to jurisdictions in which the shares of
Common Stock issuable upon exercise of the Warrants are not so registered or
qualified during the period that the Warrants are exercisable. The Company will
be unable to issue the Common Stock to those persons desiring to exercise their
Warrants if a current prospectus covering the securities issuable upon the
exercise of the Warrants is not kept effective or if such securities are not
qualified or exempt from qualification in the states in which the holders of the
Warrants reside. In addition, the Warrants may not be called for redemption
unless a current prospectus relating to the underlying securities is then in
effect. Although the Company will use its best efforts to maintain a current
prospectus covering the securities underlying the Warrants, there can be no
assurance that the Company will be able to do so.

24. POSSIBLE RESTRICTIONS ON MARKET-MAKING ACTIVITIES IN COMPANY'S
SECURITIES. The Underwriters may act as market makers and otherwise effect
transactions in the Common Stock or Warrants in the over-the-counter market
where each will trade. Unless granted an exemption by the Commission from Rule
103 of Regulation M under the Exchange Act, Regulation M may prohibit the
Underwriters and any soliciting broker-dealer from engaging in market making
activities with regard to the Company's securities for up to five business days
prior to any solicitation by the Underwriters or any soliciting broker-dealer of
the exercise of the Warrants until the later of the termination of such
solicitation activity or the termination (by waiver or otherwise) of any right
that the Underwriters or any soliciting broker-dealer may have to receive a fee
for the exercise of the Warrants following such solicitation. As a result, the
Underwriters and soliciting broker-dealers may be unable to continue to provide
a market for the Company's securities during certain periods while the Warrants
are exercisable. The prices and liquidity of the Company's securities may be
materially and adversely affected by the cessation of the Underwriters' market
making activities. In addition, there is no assurance that the Underwriters will
continue to be market makers in the Common Stock or Warrants. The prices and
liquidity of the Common Stock and Warrants may be affected significantly by the
degree, if any, of the Underwriters' participation in the market. The
Underwriters may voluntarily discontinue such participation at any time.
Further, the market for, and liquidity of, the Common Stock and Warrants may be
adversely affected by the fact that a significant amount of the Common Stock and
Warrants may be sold to customers of the Underwriters. See "Underwriting."

25. UNDERWRITERS WARRANTS. The Company has agreed to sell to the
Underwriters, for nominal consideration, the right to purchase up to an
aggregate of 130,000 shares of Common Stock and 130,000 Warrants (the
"Underwriters' Warrants"). The Underwriters' Warrants will be exercisable for a
four-year period commencing one year after the date of the Prospectus, at
exercise prices equal to 130% of the initial public offering prices of the
Common Stock and the Warrants. For the life of the Underwriters' Warrants, the
holders thereof are given the opportunity to profit from a rise in the market
price of the Common Stock or the Warrants, which may result in a dilution of the
interests of the other stockholders. As a result, the Company may find it more
difficult to raise additional equity capital if it should be needed for its
business while such Underwriters' Warrants are outstanding. See "Underwriting."

26. POSSIBLE ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants are
redeemable by the Company, at a redemption price of $.10 per Warrant, upon at
least 30 days' prior written notice, at any time after twelve months from the
date hereof (or earlier with the prior written consent of the Managing
Underwriter), if the last sales price of the Common Stock as reported on NASDAQ
or the OTC Bulletin Board (or the last sale prices if listed on a national
securities exchange) exceeds 120% of the then exercise price of the Warrants
(initially $7.80) for 20 consecutive trading days ending on the third day prior
to the date on which notice of redemption is given, and provided that a current
prospectus relating to the underlying securities is then in effect. If the
Warrants are redeemed, Warrant holders will lose their right to exercise the
Warrants except during such 30 day redemption period, after which they will be
forced to

14
<PAGE>
accept the redemption price. Redemption of the Warrants could force the holders
to exercise the Warrants at a time when it may be disadvantageous for the
holders to do so or to sell the Warrants at the then market value of the
Warrants at the time of redemption. See "Description of Securities--Warrants."

27. UNDERWRITERS' INFLUENCE ON THE MARKET. A significant amount of the
Common Stock and Warrants offered hereby may be sold to customers of the
Underwriters. Such customers subsequently may engage in transactions for the
sale or purchase of such Common Stock and Warrants and may otherwise effect
transactions in such securities. If they participate in the market, the
Underwriters may exert substantial influence on the market, if one develops, for
the Common Stock and Warrants. Such market making activity may be discontinued
at any time. The price and liquidity of the Common Stock and Warrants may be
significantly affected by the degree, if any, of the Underwriters' participation
in such market. See "Underwriting."

28. POTENTIAL VOLATILITY OF STOCK PRICE; RISK OF SECURITIES CLASS ACTION
LITIGATION. The market price of the Common Stock following this Offering may be
highly volatile. Factors affecting the market price include variations in the
Company's revenue, earnings and cash flow, and announcements of developments
with respect to the Company's business. In addition, the securities markets have
recently experienced significant price and volume fluctuations that have
resulted in changes in the market prices of the stocks of many companies that
have not been directly related to the operating performance of those companies.
Such broad market fluctuations may adversely affect the market price of the
Common Stock following this Offering. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has sometimes been instituted against such company. There can
be no assurance that such litigation will not occur in the future with respect
to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on the Company's business, financial condition and results in
operations. Any adverse determination in such litigation could also subject the
Company to substantial liabilities.

FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS

This Prospectus contains certain forward-looking statements, including among
others (i) anticipated trends in the Company's financial condition and results
of operations and (ii) the Company's business strategy for developing,
producing, distributing, licensing and merchandising the Kanga Roddy Series and
its Fitness Products. These forward-looking statements are based largely on the
Company's current expectations and are subject to a number of risks and
uncertainties. Actual results could differ materially from these forward-looking
statements. In addition to the other risks described elsewhere in this "Risk
Factors" discussion, important factors to consider in evaluating such
forward-looking statements include (i) changes in external competitive market
factors or in the Company's internal budgeting process which might impact trends
in the Company's results of operations; (ii) unanticipated working capital or
other cash requirements; (iii) changes in the Company's business strategy or an
inability to execute its strategy due to unanticipated change in the industries
in which it operates; and (iv) various competitive factors that may prevent the
Company from competing successfully in the marketplace. In light of these risks
and uncertainties, many of which are described in greater detail elsewhere in
this "Risk Factors" discussion, there can be no assurance that the events
predicted in forward-looking statements contained in this Prospectus will in
fact transpire.

15
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,300,000 shares of
Common Stock and the 1,300,000 Warrants offered hereby, after deduction of
underwriting discounts and commissions and other estimated Offering expenses
will be approximately $5,267,000 ($6,162,050 if the Underwriters' Over-allotment
Option is exercised in full). The Company anticipates that the net proceeds from
the Offering will be used approximately as follows: (i) $2,200,000 to complete
production of the next 12 episodes of the Kanga Roddy Series, (ii) $445,500 to
repay debt, (iii) $50,000 to pay Joe and Jennifer Montana for services relating
to the "MONTANA EXERCISE VIDEO," and (iv) the remainder to be used for working
capital purposes, including the funding of the Rescission Offer (which, if every
holder to whom the Rescission Offer is made accepts such Rescission Offer would
cost the Company approximately $1,175,520, excluding interest), the hiring of
additional management personnel, relocation of the Company's headquarters and
other general corporate purposes. See "Capitalization," "Business," "Certain
Transactions" and "Rescission Offer." The $445,500 of debt to be repaid consists
of (i) $345,000 owed to 8 stockholders of the Company which bears interest at
15% per annum and is due and payable on the earlier of three days after the
Company receives the net proceeds of the Offering or July 1, 1997, (ii)
approximately $48,000 owed to the Michael Triantos M.D. Inc. Money Purchase and
Profit Sharing Plans Trust which bears interest at 12% per annum and is due and
payable on the earlier of consummation of the Offering or December 15, 1999 and
(iii) approximately $52,500 to be paid to George Chung for Mr. Chung's use of
personal funds to repay the Company's two bank loans from Silicon Valley Bank
and Bank of Canton in the aggregate principal amount outstanding of $52,500.
Other than the $52,500 to be repaid to Mr. Chung as described in (iii) above, no
portion of the $445,000 of debt to be repaid is to an affiliate of the Company.
However, approximately $48,000 of debt bearing interest at 12% per annum to be
repaid to a third party is personally guaranteed by Anthony Chan and George
Chung.

The following table summarizes the anticipated application of the estimated
net proceeds of this Offering assuming no exercise of the Over-allotment Option:

<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF
ANTICIPATED USE OF NET PROCEEDS AMOUNT NET PROCEEDS
- ------------------------------------------------------------------ ------------ -------------
<S> <C> <C>
To complete production of the next 12 episodes of the Kanga Roddy
Series.......................................................... $ 2,200,000 41.8%
To repay debt..................................................... 445,500 8.5%
To pay the Montanas for services relating to the "MONTANA EXERCISE
VIDEO".......................................................... 50,000 0.9%
To be used as working capital and for general corporate purposes
as described above.............................................. 2,571,500 48.8%
------------ ------
TOTAL..................................................... $ 5,267,000 100%
------------ ------
------------ ------
</TABLE>

The foregoing allocations are estimates only and are subject to revision
from time to time to meet the Company's requirements. Furthermore, allocations
may be changed in response to unanticipated developments in the Company's
business. The Company may re-allocate such amounts from time to time among the
categories shown above or to new categories if it believes such to be in its
best interest. In the event that the Underwriters' Over-allotment Option is
exercised or to the extent that the Warrants or the Underwriters' Warrants are
exercised, the Company will realize additional net proceeds, which will be added
to working capital. Pending full utilization of the net proceeds of this
Offering, the Company intends to invest such net proceeds in short-term interest
bearing accounts. The Company believes that the net proceeds from this Offering,
plus working capital from operations and other sources of funds will be adequate
to sustain operations for at least the next 12 months.

DIVIDEND POLICY

The Company intends to retain future earnings, if any, that may be generated
from the Company's operations to help finance the operations and expansion of
the Company and, accordingly, does not plan, for the reasonably foreseeable
future, to pay dividends to holders of the Common Stock. Any decision as to the
future payment of dividends will depend on the results of operations and
financial position of the Company and such other factors as the Company's Board
of Directors, in its discretion, deems relevant.

16
<PAGE>
CAPITALIZATION

The following table sets forth (i) the actual capitalization of the Company
as of March 31, 1997 (See Footnote (1)), and (ii) the pro forma capitalization
adjusted to reflect the sale by the Company of the 1,300,000 shares of Common
Stock and 1,300,000 Warrants offered hereby at an assumed initial public
offering price of $5.00 per share of Common Stock and $.10 per Warrant and the
application of the net proceeds to repay certain short-term debt.

<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------
AS
ACTUAL(1) ADJUSTED(1)(2)
------------- -------------
<S> <C> <C>
Short-term debt:
Short-term loans........................................................ $ 520,538 $ 159,661
Current portion of long term obligations................................ 61,785 11,952
Current obligations under a capital leases.............................. 25,904 25,904
------------- -------------
Total short-term debt................................................. $ 608,227 $ 197,517
Long-term debt:
Long-term obligations, less current portion............................. $ 50,111 $ 15,321
Long-term obligations under capital leases.............................. 15,702 15,702
------------- -------------
Total long-term debt.................................................. $ 65,813 $ 31,023
Common stock subject to rescission........................................ $ 1,175,520 $ 1,175,520
Stockholders' equity:
Common Stock, $.0001 par value, 10,000,000 shares authorized; 2,515,700
shares outstanding, actual; 3,848,345 shares outstanding, as adjusted
(3)(4)................................................................ $ 220,074 $ 385
Paid-in capital (deficit)............................................... (1,214,892) 4,271,797
Accumulated deficit..................................................... (943,154) (943,154)
Total stockholders' equity (deficit).................................. (1,937,972) 3,329,028
Total capitalization and short-term debt.............................. $ (88,412) $ 4,733,088
</TABLE>

- ------------------------

(2) Assumes that no holders of the Company's equity or debt securities accept
the Rescission Offer. If every holder to whom the Rescission Offer is made
accepts such Rescission Offer, the Company would be required to pay
approximately $1,175,520, excluding interest. See "Rescission Offer."

(3) The 3,848,345 shares outstanding includes 32,645 shares which the Company
intends to issue to employees of the Company, or which the Company is
contractually obligated to issue, upon completion of this Offering, but
excludes 4,055 shares issuable upon conversion of certain convertible notes
and 250,000 shares subject to options granted under the Company's stock
option plans which the Company intends to grant upon completion of this
Offering. See "Management--Stock Plans."

(4) Excludes subject to adjustment, if any, a maximum of (i) 1,300,000 shares of
Common Stock issuable upon exercise of the Warrants offered hereby, (ii)
260,000 shares of Common Stock issuable upon exercise of the Underwriters'
Warrants (including shares issuable upon exercise of the 130,000 Warrants
constituting part of the Underwriters' Warrants), and (iii) 390,000 shares
of Common Stock issuable upon exercise of the Underwriters' Over-allotment
Option (including shares of Common Stock issuable upon exercise of the
195,000 Warrants constituting part of the Underwriters' Over-allotment
Option). See "Description of Securities" and "Underwriting."

17
<PAGE>
DILUTION

The net tangible book value of the Company at March 31, 1997 was
$(2,162,729) or $(.86) per share of Common Stock, determined by dividing the net
tangible book value of the Company (total tangible assets less total
liabilities) by the number of outstanding shares of Common Stock at that date.
The pro forma as adjusted net tangible book value at March 31, 1997, giving
effect to the sale by the Company of 1,300,000 shares of Common Stock and
1,300,000 Warrants offered hereby (at the initial public offering price of $5.00
per share of Common Stock and $.10 per Warrant, and after deduction of
underwriting discounts and commissions and estimated Offering expenses) and the
issuance of 32,645 shares which the Company intends to issue to employees or
consultants of the Company, or which the Company is contractually obligated to
issue, upon completion of this Offering, would have been approximately
$3,104,271, or $.81 per share of Common Stock. This represents an immediate
increase in net tangible book value per share of $1.67 to the Company's existing
stockholders and an immediate dilution of $4.19 per share (or approximately 84%)
to the purchasers of the shares of Common Stock in the Offering. The following
table illustrates this dilution on a per share basis:

<TABLE>
<S> <C> <C>
Assumed public offering price per share of Common Stock............ $ 5.00
Net tangible book value per share of Common Stock before
Offering.......................................................... $ (.86)
Increase in net tangible book value per share of Common Stock
attributable to the Offering................................... 1.67
---------
Pro forma net tangible book value per share of Common Stock after
Offering.......................................................... 0.81
---------
Dilution per share of Common Stock to new purchasers of Common
Stock (1)......................................................... $ 4.19
---------
---------
</TABLE>

- ------------------------

(1) The computations set forth in this table assume that none of the
Underwriters' Over-allotment Option, the Underwriters' Warrants or the
Warrants issued in this Offering are exercised, and that no security holder
accept the Rescission Offer. This table also assumes that the reorganization
transaction whereby the Company will become the parent holding company of
America's Best Karate and AC Media will be completed prior to the closing of
the Offering and that each share of the currently outstanding shares of
common stock of America's Best Karate will be converted into 28.1 shares of
Common Stock of the Company.

The following table compares the number of shares of Common Stock acquired
from the Company from inception through the date of this Prospectus by all of
the Company's holders of Common Stock, the total consideration and the average
price per share in connection with such acquisitions to the price to be paid by
purchasers of Common Stock in the Offering:

<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE PRICE
OUTSTANDING PERCENTAGE OF PER SHARE
SHARES OF SHARES OF TOTAL TOTAL OF
COMMON STOCK COMMON STOCK CONSIDERATION CONSIDERATION COMMON STOCK
-------------- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Holders (1)(2)............ 2,515,700 65.93% $ 1,309,020 16.76% $ 0.52
New Investors (2).................. 1,300,000 34.07% $ 6,500,000 83.24% $ 5.00
-------------- -------------- ------------- ------------- -----
3,815,700 100.00% $ 7,809,020 100% $ 2.05
-------------- -------------- ------------- ------------- -----
-------------- -------------- ------------- ------------- -----
</TABLE>

- ------------------------

(1) Excludes $37,938 in property contributed by Anthony Chan and George Chung
upon the formation of America's Best Karate in June 1991 and the value of
services provided by 11 stockholders. In addition, certain individuals who
provided loans to the Company received shares for no additional cash
consideration. The total consideration and average price per share of Common
Stock paid by officers, directors, promoters and affiliated persons are
$37,938 and $0.03 respectively. Don Berrysessa's shares were issued for
services.

(2) Does not include the issuance of 32,645 shares which the Company intends to
issue to employees or consultants of the Company, or which the Company is
contractually obligated to issue, upon completion of this Offering.

18
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

The following selected financial data for the years ended December 31, 1996
and 1995 are derived from the audited financial statements of America's Best
Karate. The data for the three months ended March 31, 1997 and 1996, and as of
March 31, 1997, are unaudited but, in the opinion of management, reflect all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the results of operations and financial position for such
periods. The data should be read in conjunction with the financial statements,
related notes, and other financial information included or incorporated by
reference herein.

STATEMENTS OF OPERATIONS DATA (1):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER THREE MONTHS
31, ENDED MARCH 31,
---------------------- ----------------------
1996 1995 1997 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues............................................ $ 1,051 $ 1,119 $ 278 $ 256
(Loss) from operations.................................. (642) (462) (160) (143)
Net income (loss)....................................... (642) 64 (160) (143)
Pro-forma net income (2)................................ -- 48 -- --
Pro-forma earnings per share (3)........................ -- $ .02 -- --
Net loss per share...................................... $ (.26) -- $ (0.06) $ (0.06)
Shares outstanding...................................... 2,515,700 2,515,700 2,515,700 2,515,700
</TABLE>

BALANCE SHEET DATA (1):

<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------
AS
ACTUAL ADJUSTED(4)(5)(6)
--------- -------------------
(UNAUDITED)
<S> <C> <C>
Cash..................................................................... $ 16 $ 4,787
Current assets........................................................... 143 4,914
Current liabilities...................................................... 1,424 1,013
Working capital (deficiency)............................................. (1,281) 3,901
Total assets............................................................. 1,147 5,918
Total liabilities........................................................ 1,909 1,413
Common stock subject to rescission....................................... 1,176 1,176
Stockholders' equity (deficiency)........................................ $ (1,938) $ 3,329
</TABLE>

- --------------------------

(2) Pro-forma net income gives effect to the charge in lieu of income taxes
necessary due to America's Best Karate's "S" corporation status.

(3) Pro-forma earnings per share are based on 2,515,700 shares outstanding for
all periods presented. Shares or equivalents issued within a one year period
prior to the filing of this Registration Statement are treated as
outstanding for all reported periods.

(4) Net proceeds from the Offering in the amount of approximately $445,000 will
be used to retire debt. Had that retirement taken place at the beginning of
the three months ended March 31, 1997, interest expense of approximately
$4,400 would not have been incurred. Assuming the 89,100 shares sold to
generate net proceeds sufficient to retire such debt were outstanding since
the beginning of the period, net (loss) per share would have been $(0.06)
for the three months then ended. Had a retirement taken place at the
beginning of the year ended December 31, 1996, interest expense of
approximately $27,000 would not have been incurred. Assuming the 89,100
shares sold to generate net proceeds sufficient to retire such debt were
outstanding since the beginning of the year, net (loss) per share would have
been $(.24) for the year then ended.

(5) Gives effect to the receipt by the Company of the net proceeds from the sale
of the 1,300,000 shares of Common Stock and 1,300,000 Warrants offered
hereby and the use of a portion of the proceeds to repay certain debt. See
"Use of Proceeds" and "Capitalization."

(6) Assumes that no security holders accept the Rescission Offer (hereinafter
defined) which the Company intends to make to certain of its security
holders after the closing of this Offering. See "Rescission Offer."

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this Prospectus.

The Company was incorporated in Delaware in February 1997, to serve as a
holding company for America's Best Karate and AC Media. Prior to such time, the
Company's operations were conducted exclusively by its America's Best Karate
subsidiary.

RESULTS OF OPERATIONS

The following table sets forth, for the three month periods and fiscal years
indicated, the percentages which items in the Statements of Operations included
in the Financial Statements of the Company bear to revenues of the fiscal years
indicated. The results described below were achieved by the Company's two
industry segments, namely its karate studio segment and its videos and
television segment.

<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NET REVENUES NET REVENUES
FOR THE THREE MONTHS FOR THE YEAR
ENDED DECEMBER 31,
ENDED MARCH 31,
-------------------- --------------------
1997 1996 1996 1995
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................................................................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales............................................................. 5.2% 5.9% 8.5% 7.2%
Salaries and payroll taxes................................................ 69.4% 69.7% 67.8% 55.9%
Rent...................................................................... 44.7% 48% 47.2% 36.1%
Selling, general and administrative....................................... 20.1% 26.3% 30.9% 37.2%
Interest.................................................................. 18.1% 5.9% 6.6% 4.9%
Total costs and expenses................................................ 157.5% 155.8% 161.1% 141.3%
(Loss) from operations...................................................... (57.5%) (55.8%) (61.1%) (41.3%)
Other income................................................................ -- -- -- 47.1%
Net income (loss)........................................................... (57.5%) (55.8%) (61.1%) 5.7%
Pro-forma net income........................................................ -- -- -- 4.3%
</TABLE>

THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996

KARATE STUDIO SEGMENT

The Company's revenues in its karate studio segment for the three months
ended March 31, 1997 (the "1997 Period") were $275,641, an increase of 7.6% from
revenues for the three months ended March 31, 1996 (the "1996 Period") of
$256,185. The increase in sales in the 1997 Period is principally attributable
to the increased student enrollment in certain locations such as Pleasanton and
Los Gatos due to the closing of some of the competitors' schools in the areas.

Salaries and payroll taxes in the Company's karate studio segment increased
from $169,494 in the 1996 Period to $193,028 in the 1997 Period, an increase of
13.9%. This increase was primarily due to an increase in the salaries of some
key personnel in the 1997 Period. Interest expenses in the Company's karate
studio segment increased from $7,578 in the 1996 Period to $25,193 in the 1997
Period, an increase of 232.4%. This was primarily due to interest paid on
additional short term loans obtained in fourth quarter of 1996 and first quarter
of 1997. Total costs and expenses in the Company's karate studio segment
increased from $375,303 in the 1996 Period to $412,217 in the 1997 Period, an
increase of 9.8%, primarily due to the above described changes in salaries and
payroll tax, and interest expenses. Loss from operations in the Company's karate
studio segment increased from ($119,118) in the 1996 Period to ($136,576) in the

20
<PAGE>
1997 Period, an increase of 14.7%, primarily due to the aforementioned increase
in total costs and expenses.

Net loss in the Company's karate studio segment increased from ($119,118) in
the 1996 Period to ($136,576) in the 1997 Period. Such increase was primarily
the result of the aforementioned factors related to the increase in operating
loss.

VIDEO AND TELEVISION SEGMENT

The Company's revenues in its video and television segment for the 1997
Period was $2,547. There was no revenue in the 1996 Period since video sales did
not start until late 1996.

Salaries, selling, general and administrative expenses decreased from
$16,338 in the 1996 Period to $0 in the 1997 Period, a decrease of 100%. The
decrease in these expenses is due to no television or video production activity
for video and television segment in the 1997 Period. Interest expenses increased
from $7,579 in the 1996 Period to $25,193 in the 1997 Period, an increase of
232.4%, primarily due to interest paid on additional short-term loans obtained
in the fourth quarter of 1996 and first quarter of 1997. Total costs and
expenses increased from $23,917 in the 1996 Period to $25,946 in the 1997
Period, an increase of 8.5% All of these increases were due to the
aforementioned increase in interest expenses.

Net loss from the Company's video and television segment decreased from
($23,917) in the 1996 Period to ($23,399), a decrease of 2.2%, primarily due to
the aforementioned factors.

YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995

KARATE STUDIO SEGMENT

The Company's revenues in its karate studio segment for the year ended
December 31, 1996 were $1,031,407, a decrease of 7.8% from revenues in 1995 of
$1,118,892. The 1996 decrease in sales is principally attributable to increased
competition in 1996 resulting in lower attendance and a decrease in the fees
charged to certain students.

Salaries and payroll taxes in the Company's karate studio segment increased
from $582,295 in 1995 to $628,222 in 1996, an increase of 7.9%. This increase
was primarily due to an increase in the number of staff as a result of an
increase in the number of karate studios. Rent in the Company's karate studio
segment increased from $404,326 in 1995 to $496,212 in 1996, an increase of
22.7%. This increase was primarily the result of, in 1995, the opening of two
karate schools in Las Vegas. Selling, general and administrative expenses in the
Company's karate studio segment decreased from $391,264 in 1995 to $266,700 in
1996, a decrease of 31.8%. This decrease was primarily attributable to higher
promotional expenses in 1995 related to various karate exhibitions and lower
advertising costs in 1996 as a result of the Company's decision to significantly
reduce the level of print advertising. Total costs and expenses in the Company's
karate studio segment increased from $1,486,372 in 1995 to $1,506,846 in 1996,
an increase of 1.4%, primarily due to the above described changes in salaries
and payroll tax, rent and selling, general and administrative expenses.

Loss from operations in the Company's karate studio segment increased from
($367,480) in 1995 to ($475,439) in 1996, an increase of 29.4%, primarily due to
the aforementioned decrease in revenues and increase in total costs and
expenses.

Net income (loss) in the Company's karate studio segment decreased from
$159,145 in 1995 to ($475,439) in 1996. Such decrease was primarily the result
of the aforementioned factors related to the increase in operating loss and the
receipt in 1995 of $526,625 of fees for fitness consulting to certain
organizations and individuals. There was no such income earned in 1996, and
management of America's Best Karate does not expect to receive this type of
income in the future. This income was primarily responsible for the historical
net income reflected in the statement of operations for the year ended December
31, 1995. Pro forma net income, as reflected in that statement and as referred
to in the table, is different than historical net income because it reflects a
charge in lieu of income taxes. This charge is necessary due to America's Best
Karate's "S" corporation status for that year.

21
<PAGE>
VIDEO AND TELEVISION SEGMENT

The Company's revenues in its video and television segment for the year
ended December 31, 1996 were $19,146. There was no revenue in 1995 since video
sales did not start until 1996.

Salaries and payroll taxes increased from $43,104 in 1995 to $84,352 in
1996, an increase of 95.7%. Selling, general and administrative expenses
increased from $24,449 in 1995 to $58,325 in 1996, an increase of 138.5%. Total
costs and expenses increased from $94,924 in 1995 to $185,290 in 1996, an
increase of 95.2%. All of these increases were due to an increase in activity
for the video and television segment in 1996 over 1995.

Net loss from the Company's video and television segment increased from
($94,924) in 1995 to ($166,144) in 1996, an increase of 75%, primarily due to
the aforementioned factors.

LIQUIDITY AND CAPITAL RESOURCES

Cash decreased for the three months ended March 31, 1997 and 1996 and for
the years ended December 31, 1996 and 1995 by $(13,188), $(45,379), $(37,480)
and $(10,163), respectively. Cash utilized for operations for the three months
ended March 31, 1997 and 1996 and the year ended December 31, 1996 was
$(201,314), $(105,514) and $(546,922), and cash provided by operations for the
year ended December 31, 1995 was $103,812, which resulted primarily from fitness
consulting fees of $526,625 earned in 1995 only. Net cash utilized for investing
activities for the three months ended March 31, 1997 and 1996 and the years
ended December 31, 1996 and 1995 was $(49,773), $(21,507), $(447,378) and
$(153,682), respectively. These resulted primarily from payments for film costs
of $(33,189), $(350,364) and $(114,482) in the three months ended March 31, 1997
and the years ended December 31, 1996 and 1995, respectively. Net cash provided
by financing activities for the three months ended March 31, 1997 and 1996 and
the years ended December 31, 1996 and 1995 was $237,899, $81,642, $956,820 and
$39,707, respectively. Financing in the three months ended March 31, 1997
resulted primarily from the sales of common stock of $248,020. Financing in 1996
resulted primarily from the sales of common stock of $728,000 and net loan
proceeds of $336,116. Financing in 1995 resulted primarily from the sales of
common stock of $199,500, net loan proceeds of $102,889, and distributions to
shareholders of $(236,009).

The Company has historically financed its operating and capital outlays
primarily through sales of common stock, loans from stockholders and other third
parties and bank financing.

At various times during 1996 and 1997, America's Best Karate entered into
business loan agreements with individual third parties for $455,000 in aggregate
short-term loans at an interest rate of 15% per annum. In entering into such
business loan agreements, America's Best Karate issued various amounts of its
common stock to such lenders as an incentive to enter into the business loan
agreements. All loans under such business loan agreements are due the earlier of
July 1, 1997 or three days following the consummation of this Offering. As of
March 31, 1997, seven of such individual third parties agreed to convert an
aggregate of $133,500 into 1,900.356 shares of America's Best Karate at the
price of $70.25 per share (equivalent to $2.50 per share of the Company). In the
event this Offering is not consummated and America's Best Karate is incapable of
completely paying back the indebtedness to the lenders by July 1, 1997, then the
business loan agreements provide that interest shall continue to accrue and that
payments of accrued interest and principal shall be made in an amortized
schedule over the next thirty-six months.

In June 1997, George Chung, the Chairman of the Board, loaned at no interest
approximately $17,673 to the Company in order to allow the Company to repay its
loan with the Bank of Canton. The Company intends to repay Mr. Chung the
outstanding principal balance of this loan with the net proceeds of the
Offering.

On July 2, 1997, Mr. Chung also loaned at no interest approximately $35,400
to the Company in order to allow the Company to repay its loan from Silicon
Valley Bank. The Company intends to repay the outstanding principal balance of
this loan with the net proceeds of the Offering.

Messrs. Chung and Chan are the direct obligors on a loan in the original
principal amount of $100,000 from the Michael Triantos M.D. Inc. Money Purchase
and Profit Sharing Pension Plans Trust which is

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<PAGE>
being treated as a debt of the Company. This loan bears interest at the rate of
12% per annum and is due on the earlier of the completion of this Offering or
December 15, 1999. In addition to the provisions discussed above, the promissory
note also stipulates that in the event America's Best Karate is sold or goes
public, then the note becomes immediately due and payable and the holder of the
note will be given 1% of the shares of the underwriting at that time. As of
March 31, 1997, Mr. Triantos converted $10,000 of the loan into 142.349 shares
of America's Best Karate common stock (equivalent to $2.50 per share of the
Company's Common Stock).

America's Best Karate entered into a Convertible Loan Agreement with David
Y. Lei, an unaffiliated third party, as of May 5, 1995 for a loan in the
original principal amount of $27,000. As of March 31, 1997, Mr Lei converted
$13,500 of such loan into 192.171 shares of America's Best Karate common stock
(equivalent to $2.50 per share of the Company's Common Stock). Interest on such
loan accrues at the rate of 13% per annum until the accrued interest equals the
amount of the loan at which time interest accrues at 0.624% of the net profit
before taxes of America's Best Karate. Upon the consummation of this Offering,
Mr. Lei has the option to convert the principal amount of the loan into 0.312%
of the number of shares offered hereby (not including any shares offered
pursuant to any over-allotment option).

America's Best Karate also entered into a Convertible Loan Agreement with
Thomas Y. Fu, an unaffiliated third party, as of December 8, 1994 for a loan in
the principal amount of $54,000. Interest on such loan accrues at the rate of
13% per annum until the accrued interest equals the amount of the loan at which
time interest accrues at 1.248% of the net profit before taxes of America's Best
Karate. Upon the consummation of this Offering, Mr. Fu has the option to convert
the principal amount of the loan into 1.248% of the number of shares offered
hereby (not including any shares offered pursuant to any over-allotment option).
Mr. Fu has indicated to the Company that he does not intend to exercise his
option to convert.

The Company had a working capital deficiency of $1,280,999 at March 31,
1997. The Company's ability to continue as a going concern is dependent on its
receipt of the net proceeds of this Offering and, thereafter, on attaining
profitability.

The Company believes that the net proceeds of this Offering, plus working
capital from operations and other sources of funds will be adequate to sustain
operations for at least the next 12 months. To the extent that such funds are
insufficient to finance the Company's working capital requirements, the Company
will be required to raise additional funds through public or private equity or
debt financings. There can be no assurance that such additional financings will
be available, or, if available, will be on terms satisfactory to the Company.

IMPACT OF INFLATION

The Company does not believe that inflation has had a material adverse
effect on sales or income during the past several years.

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<PAGE>
BUSINESS

GENERAL

The Company is in the development stage with respect to various media
projects, including (i) the development, production and marketing of "ADVENTURES
WITH KANGA RODDY," a television program aimed at pre-school and primary school
children (the "Kanga Roddy Series"), (ii) the licensing of merchandising rights
related to the Kanga Roddy Series, and (iii) the development, production and
marketing of various audio tapes, video tapes and workbooks that specialize in
fitness information.

"ADVENTURES WITH KANGA RODDY"

The Company is developing and producing the Kanga Roddy Series. The Kanga
Roddy Series will use martial arts values such as humility, discipline and
respect, with the added elements of song, contemporary music, dance, vibrant
colors and exciting movements to attempt to capture the young audience's
attention. The Kanga Roddy Series features a six-foot tall kangaroo character
named Kanga Roddy who is a martial arts expert. Unlike other television shows
which feature violence, Kanga Roddy never fights because he understands that
conflict can always be resolved with knowledge, compassion, humility, respect
and an open mind.

Each episode of the Kanga Roddy Series will open with the Kanga Roddy theme
song which is anticipated to be easily memorized by young children much in the
same way as the popular theme song from the "BARNEY" television show. After the
theme song, each show will focus on a group of children at a community center
and their teachers (played by Jennifer Montana and Karen Lott, wives of former
San Francisco 49ers football players Joe Montana and Ronnie Lott) who will be
working on activities such as reading, physical fitness and arts and crafts.
During these activities, the children will encounter an ethical or social
problem which causes uneasiness or unhappiness amongst some of the children. The
teachers will sense the problem and suggest that the children seek help from
their friend, Uncle Pat, the proprietor of a rare book bookstore played by Pat
Morita of THE KARATE KID fame. Uncle Pat, with the assistance of his pet
bookworm Shakespeare, magically transport the children to the land of Hi-Yah
where Kanga Roddy lives.

The Company completed the pilot episode of the Kanga Roddy Series in January
1997 and intends to use approximately $2,200,000 of the proceeds from the
Offering to finance the production of the next 12 episodes. Thirteen episodes of
a television series is the standard number of episodes for a television season.

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<PAGE>
paid to the Company. KTEH has also agreed to pay the Company $430,000 as an
advance in four equal installments with each installment payment date tied to
the Company's delivery of certain number of episodes of the Kanga Roddy Series.
The first payment will be made on delivery of episodes 1-4, the second payment
on delivery of episodes 5-7, the third payment on delivery of episodes 8-10, and
the fourth and final payment on delivery of episodes 11-13. The $430,000
installment payments are advances against and will be deducted from all
royalties payable to the Company by KTEH. Under the Distribution Agreement, the
Company has also committed to sharing with KTEH (i) 8% of all revenues from the
sale and licensing of products such as video tapes, books and music tapes and
(ii) 5% of gross profits of the Company from the sale and licensing of toys and
clothing. The Company has also granted KTEH a right of first refusal with
respect to rights to the Kanga Roddy Series not granted to KTEH in the
Distribution Agreement. KTEH has informed the Company that it believes it can
convince other PBS stations covering at least 40% of the U.S. broadcast market
to also air the program.

The Company's strategy with respect to the Kanga Roddy Series also includes
pursuing licensing and merchandising opportunities. Characters developed in a
popular series, and often the series itself, achieve a high level of recognition
and popularity, making them valuable assets for the licensing and merchandising
market. In June 1997, the Company and SEGA entered into a letter agreement
appointing SEGA as the Company's non-exclusive agent for purposes of licensing
and merchandising the "Kanga Roddy" trademark, brandname and logo at a licensing
show in New York. In such letter agreement, SEGA agreed to introduce the Company
to prospective sublicensees who may be interested in acquiring merchandising
licenses and/or home video distribution rights in connection with "Kanga Roddy"
in consideration of an amount equal to 30% of all monies or other consideration
payable to the Company under any agreement entered into during the two year
period following execution of the letter agreement by the Company with any
person or entity introduced to the Company by SEGA. Pursuant to such letter
agreement, SEGA is not subject to any minimum sales requirement. If the Kanga
Roddy Series does not attain and maintain widespread distribution on television,
or widespread popularity, it is unlikely that any significant licensing or
merchandising opportunities or revenue will arise or be maintained.

The Company plans to retain worldwide rights to its brands, and license
their use to manufacturers for specific products in exchange for royalties,
possibly accompanied by cash advances. Among the most popular licensed items are
toys, clothing, food, dinnerware/lunch boxes, watches and soft vinyl goods such
as boots, backpacks and raincoats. There is no assurance, however, that the
Company will be able to successfully license its properties.

The Company also hopes to realize revenues through the distribution of the
Kanga Roddy Series in the home video market, although there is no assurance that
the Company will be able to do so.

"FITNESS PRODUCTS"

The Company is also in the business of developing, producing and marketing
various video tapes, audio tapes and workbooks that specialize in fitness
information and education ("Fitness Products"). The Company's first Fitness
Product, entitled "STRONG MIND FIT BODY," consists of video tapes, audio tapes
and a workbook, and teaches motivational techniques to start and stay with an
exercise program in order to lose weight. "STRONG MIND FIT BODY" targets the
large number of overweight individuals in the United States between the ages of
25 to 55 who are 15 to 100 pounds over their ideal weight and utilizes celebrity
testimonials from former superstar football players Ronnie Lott and Dwight Clark
to endorse the product.

In June 1996, the Company entered into an exclusive distribution agreement
with respect to "STRONG MIND FIT BODY" with InteliQuest, a Utah general
partnership ("InteliQuest"). InteliQuest has the exclusive right for one year
(ending June 1997) to sell such product to health, fitness, exercise and
nutrition related companies, and the exclusive right for five years to sell such
product to, or together with products sold by, Health Rider, Nordic Trak and
ICON (major fitness equipment manufacturers). The Company's "STRONG MIND FIT
BODY" product was recently included in the SKY MALL catalog found in the
seat-backs of many airlines. Notwithstanding the above contract and the
inclusion of such product in THE SKY MALL catalog, the

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<PAGE>
Company has not recognized any significant revenues from the "STRONG MIND FIT
BODY" product and there can be no assurance that any significant revenues will
be generated from such product in the future.

KARATE STUDIOS

The Company also manages and operates a chain of company owned karate
studios with eight locations in the San Francisco Bay Area and two locations in
Las Vegas. All of the Company's karate studios operate under the name "America's
Best Karate." George Chung, the Company's Chairman of the Board and Anthony
Chan, the Company's president and Chief Executive Officer, are both members of
the Karate Black Belt Hall of Fame.

The Company has a close relationship with the five-time Superbowl Champion
San Francisco 49ers. During the football season, as many as 30 players from the
team take instruction from with Mr. Chung. Mr. Chung also serves as a fitness
consultant to the San Francisco 49ers football team, and assists the team with
the mental and physical preparation of certain players before games.

Each of the Company's instructors, all of whom are black belts, has
undergone a rigorous training program conducted by Messrs. Chung and Chan and/or
other instructors of America's Best Karate. Generally speaking, instructors are
prior students of America's Best Karate who have "graduated" to become
instructors. Each karate studio conducts approximately 40 classes each week,
each for a 45 minute period. Each class is generally comprised of 10 to 15
students and taught by one to three instructors. Generally, students are
initially enrolled in a black belt course requiring approximately thirty-six
months of study; however, many students eventually convert to the more intensive
and longer second degree black belt program. Classes are organized by skill
level and age group. Students may take as many classes as are available each
week without additional charge. Fees, if paid in advance, are generally $1,800
and $2,400 for the black belt and second degree black belt programs,
respectively. An installment payment plan is available at higher rates. At each
karate studio, the Company also sells martial arts related products, such as
uniforms, other clothing and safety equipment.

The Company's strategy with respect to its karate studios is to provide an
environment where students can study a unique combination of martial arts
disciplines in a clean and attractive setting and have fun. Unlike many
traditional studios, the Company utilizes music to enhance the enjoyment level
of its martial arts instruction.

As of December 31, 1996, there were approximately 2,000 students enrolled at
the ten karate studios. The Company believes that the average age of the
Company's students is approximately 12 years old. At these enrollment levels the
Company estimates that it is currently operating at approximately 80 percent of
its total capacity. There is currently no backlog or waiting list to enroll in
any of the courses at any of the karate studios.

To attract new students, the Company offers two introductory classes at a
price of $9.95 for both classes and also occasionally hosts pizza birthday
parties for its students at its karate studios in order to acquaint potential
students with the benefits of the Company's martial arts programs. These
introductory programs and other promotions, including print, radio and direct
mail advertising, are coordinated by Don Berryessa, the Company's Vice President
and General Manager. The Company periodically places advertisements in
newspapers and sends out direct mail flyers in the markets in which the Company
operates karate studios. The Company also advertises its courses in the Yellow
Pages.

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<PAGE>
The Company sells a variety of martial arts products and clothing at each of
the karate studios. The Company obtains most of such products from Pioneer
Interstate and Golden Glove, both unaffiliated distributors of martial arts
products.

During the next three to four years, the Company intends to close five of
its karate studios that have not been profitable to date. The Company currently
plans to close such studios as the leases expire or soon thereafter. The five
studios are scheduled to close around January 1998, August 1998, September 1998
and two in the year 2000. The Company is also evaluating the possibility of
consolidating certain of its California karate studios and selling its Las Vegas
studios.

COMPETITION

Each of the industries in which the Company competes is highly competitive
and most of the companies with which the Company competes have greater financial
and other resources than the Company. With respect to the Company's television
activities, the Company competes on the basis of relationships and pricing for
access to a limited supply of facilities and talented creative personnel to
produce its programs. If the Company is successful at getting the Kanga Roddy
Series aired on television, the Company will compete for time slots, ratings and
related advertising revenues.

The Company's Fitness Products compete with many other products aimed at the
fitness and weight loss markets, including other video tapes, audio tapes and
workbooks, and various types of exercise machinery. Many of these competing
products are sponsored or endorsed by celebrities and sports figures, and many
are marketed by companies having significantly greater resources than the
Company.

The martial arts industry is also highly competitive. The Company's
competitors include a variety of small to medium sized martial arts
instructional centers, many of which may be better established and better
financed than the Company. Some of the Company's karate studio competitors have
significantly greater financial and other resources and longer operating history
and there can be no assurance that the Company will be able to compete
successfully in the marketplace or achieve a significant market share. The
Company does not perceive its karate studios to be in competition with health or
fitness clubs, gyms, YMCA's or YWCA's. Although such facilities may offer some
martial arts classes, they do not generally offer intensive martial arts
programs emphasizing discipline and the development of self-confidence.

EMPLOYEES

At March 31, 1997, the Company employed a total of 15 employees on a
full-time basis and 23 employees on a part time basis. No employees are
represented by a collective bargaining unit. Management considers its
relationship with its employees to be good. See "Management" and "Executive
Compensation."

PROPERTIES

On January 1, 1995, the Company entered into a lease with Commerce Park for
its headquarters facility located in Hayward, California. The lease is for a
term of 3 years with a fixed rent of $1,558 per month with a predetermined
annual increase. The Company also leases space as needed for its ten karate
studios in the San Francisco Bay Area and in Las Vegas, Nevada. Such leases are
for premises ranging from 1,800 sq. ft. to 3,200 sq. ft. The Company believes
that its facilities are adequate for its present purposes, but the Company
intends to relocate its headquarters at the expiration of its current lease
term.

LEGAL PROCEEDINGS

No lawsuits or proceedings are pending against the Company.

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<PAGE>
MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The current directors, nominated directors, executive officers and key
employees of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- -------------------------- --- --------------------------------------------
<S> <C> <C>
George Chung.............. 35 Chairman of the Board and Director

Anthony Chan.............. 42 President, Chief Executive Officer, Chief
Financial Officer and Director

Don Berryessa............. 26 Vice President and Director

Jan Hutchins.............. 48 President of AC Media and Nominated Director

William Duffy............. 41 Nominated Director

Alan Elkes................ 51 Nominated Director

Ronnie Lott............... 37 Nominated Director
</TABLE>

Mr. Chung has served as Chairman of the Board and a Director of the Company
since February 1997, and as President of America's Best Karate since 1991. From
1981 to 1991, Mr. Chung owned and operated a karate studio in Los Gatos,
California. Mr. Chung was inducted into the Black Belt Hall of Fame in 1983. He
is regarded in the martial arts industry as a pioneer in the modernization of
what is known as contemporary martial arts training, which includes the use of
music in both training and performance. He has been featured in magazines,
books, television and motion pictures. He is a published author and wrote
"Defend Yourself", a worldwide published self-defense system for Sybervision
Systems. In 1995 he was awarded a "Superbowl Ring" from the San Francisco 49ers
in recognition for his outstanding martial arts work with their championship
football team.

Mr. Chan has served as President, Chief Executive Officer, Chief Financial
Officer and a Director of the Company since February 1997, and as Chief
Executive Officer and Chief Financial Officer of America's Best Karate since
1991. From 1985 to 1990, Mr. Chan served as the Director of Chinese Affairs for
the Eisenberg Company, a diversified business enterprise. Mr. Chan's principal
duty was to negotiate contracts in the People's Republic of China. Prior to
1985, Mr. Chan worked at Bank of America as an economic forecaster. Mr. Chan
received his MBA from the University of California at Berkeley. Mr. Chan's
martial arts training began in 1968 as a youth in Hong Kong. He was the first
American allowed to train as a professional in the People's Republic of China.
He is a published author and has been featured in newspapers, magazine covers,
television and motion pictures. He was inducted into the Black Belt Hall of Fame
in 1981.

Mr. Berryessa has served as Vice President and Director of the Company since
February 1997, and as Vice President and General Manager of ABK since July 1993.
Mr. Berryessa received his Bachelor's of Science degree in marketing and
economics from San Jose State University in 1992 while working as America's Best
Karate's District Manager. As America's Best Karate's District Manager, Mr.
Berryessa played an instrumental role in the expansion of America's Best Karate
from one location to 10, where he was in charge of marketing and sales. Prior to
working with America's Best Karate he served as a member of the United States
Army & Army Reserve as a combat military policeman.

Mr. Hutchins has served as President of AC Media since February 1997. From
July 1994 to November 1995, Mr. Hutchins was one of a four person management
team for GolfPro International, an emerging company designing and marketing a
terrain-based, personal service robot. From 1993 to June 1994, Mr. Hutchins was
community services director for the San Francisco Giants professional baseball
team. From 1991 to 1993, Mr. Hutchins developed, produced and hosted the HOOKED
ON GOLF radio program for KNBR 68 in San Francisco. From 1972 to 1991, Mr.
Hutchins served in various capacities in the television field, including news
anchor, sports director, sports anchor/reporter and television host.

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<PAGE>
Mr. Duffy has agreed to serve as a director of the Company following
completion of the Offering. Mr. Duffy has served as Vice-President of Business
Operations and Chief Financial Officer for the San Francisco 49ers since June of
1996. He is responsible for all non-football related business and provides
financial guidance and support for all the team's football related activities.
Mr. Duffy's previous experience has included serving as Director of Compliance
for The National Football League from October 1993 to May 1996, Treasurer of
Robbie Stadium Corporation from June 1990 to September 1993 and Director of
Finance of the Miami Dolphins from March 1988 to May 1990. Mr. Duffy, a CPA, is
a graduate of Princeton University and received his Masters of Accounting from
New York University.

Mr. Elkes has agreed to serve as a director of the Company following
completion of the Offering. Mr. Elkes has served as Chief Executive Officer of
Dalton Kent Securities Group, Inc., an investment banking and brokerage firm,
since June 1996. From September 1994 to June 1996, Mr. Elkes served as Financial
and Operations Manager at a branch office of Corporate Securities Group Inc., an
investment banking and brokerage company. From February 1991 to September 1994,
Mr. Elkes owned and operated Minuteman Press, a printing company. Mr. Elkes
began his career in the stock brokerage industry in 1968. He has an MBA in
accounting from St. Johns University in New York and is also a licensed CPA in
the State of New York.

Mr. Lott has agreed to serve as a director of the Company following
completion of the Offering. Mr. Lott spent 15 seasons in the National Football
League, playing for the San Francisco 49ers (1981-1990), Los Angeles Raiders
(1991-1992), New York Jets (1993-1994) and the Kansas City Chiefs (1995). Mr.
Lott was selected to play in the Pro Bowl 10 times and won four Superbowl
Championships with the San Francisco 49ers. In 1996, Mr. Lott joined FOX Sports
as a studio analyst and, along with James Brown, Howie Long and Terry Bradshaw,
won an Emmy for their pregame show (FOX NFL Sunday). Mr. Lott is also very
active in civic and community activities. He founded "All-Stars Helping Kids," a
non-profit charity to raise funds for youth organizations, is involved with the
national "Stay in School" program and hosts a number of events such as golf
tournaments and benefits to raise funds for worthwhile causes. Mr. Lott is also
the owner of Ronnie Lott's Club Fitness in San Jose and Dream Sports, a sports
marketing company.

DIRECTORS' COMPENSATION

The Company's directors do not currently receive any cash compensation for
service on the Board of Directors or any committee thereof, but directors may be
reimbursed for certain expenses incurred following completion of the Offering in
connection with attendance at Board of Directors and committee meetings.
Directors may also receive stock options under the Company's stock option plans.
See "Management--Stock Plans."

Pursuant to Section 145 of the Delaware General Corporation Law, the
Company's Certificate of Incorporation provides that the Company shall, to the
fullest extent permitted by law, indemnify all directors, officers,
incorporators, employees and agents of the Company against liability for certain
of their acts, and the Company intends to enter into seperate indemnification
agreements with each of its directors and officers to effectuate these
provisions. The Company's Certificate of Incorporation also provides that, with
certain exceptions, no director of the Company will be liable to the Company for
monetary damages as a result of certain breaches of fiduciary duties as a
director. Exceptions to this include a breach of the director's duty of loyalty,
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, improper declaration of dividends and transactions
from which the director derived an improper personal benefit.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to any arrangement, provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

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<PAGE>
EXECUTIVE COMPENSATION

During the fiscal year ended December 31, 1996, no officer of the Company
was paid more than $100,000. The following table sets forth the amount of
compensation paid to the Company's Chairman of the Board and the Company's
President and Chief Executive Officer in 1996.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------
FISCAL ALL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------------------------------------- ----------- --------- --------- ----------------
<S> <C> <C> <C> <C>
George Chung
Chairman of the Board................................ 1996 $ 57,600 -- --
Anthony Chan
President and Chief Executive Officer................ 1996 $ 57,600 -- --
</TABLE>

EMPLOYMENT AGREEMENTS

In March 1997, the Company entered into employment agreements, effective as
of the closing date of this Offering, with each of Mr. Chung, Mr. Chan and Mr.
Berryessa pursuant to which Mr. Chung will continue to serve as the Company's
Chairman of the Board, Mr. Chan will continue to serve as the Company's
President, Chief Executive Officer and Chief Financial Officer and Mr. Berryessa
will continue to serve as the Company's Vice-President. Each agreement has a
term of five years. Pursuant to the agreements, the Company will pay to Messrs.
Chung, Chan and Berryessa a base salary of $100,000, $100,000 and $65,000 per
year, respectively. Each agreement also provides for the following bonuses: (i)
options to purchase 87,500, 87,500 and 25,000 shares of Common Stock of the
Company, respectively, exercisable at 120% of the public offering price of the
Common Stock of the Company upon consummation of this Offering and (ii)
$200,000, $200,000 and $100,000, respectively, if all of the Warrants issued to
the public in this Offering are exercised by the holders thereof within the
five-year exercise period of such Warrants. In addition, the executives are also
entitled to certain fringe benefits. If any of Messrs. Chung, Chan or Berryessa
is terminated other than for cause, death or disability, the Company is
obligated to pay such executive an amount equal to his base salary then in
effect for the remaining term of the agreement.

In March 1997, the Company and AC Media entered into a two-year employment
agreement with Jan D. Hutchins effective as of the closing date of this
Offering, pursuant to which Mr. Hutchins will serve as President of AC Media and
be responsible for supervising the production and marketing of the Company's
media projects. This agreement provides that Mr. Hutchins will receive an annual
base salary of $39,600. The employment agreement also provides for the following
bonuses: (i) 4,000 shares of Common Stock of the Company upon consummation of
this Offering, subject to compliance with applicable laws (these shares will be
issued at no cost to Mr. Hutchins and will be expensed at their fair market
value considering any restrictions at the time of issuance); (ii) options to
purchase 20,000 shares of Common Stock of the Company, exercisable at 120% of
the public offering price of the Common Stock of the Company upon the
consummation of this Offering, subject to compliance with applicable laws; and
(iii) $100,000 in cash if all of the Warrants issued to the public in this
Offering are exercised by the holders thereof within two years of the
consummation of this Offering. The employment agreement also provides for
certain fringe benefits. If Mr. Hutchins is terminated other than for cause,
death or disability, the Company is obligated to pay Mr. Hutchins an amount
equal to his base salary then in effect for the remaining term of the agreement.
None of the above-referenced employment agreements contain non-competition
provisions.

STOCK PLANS

1997 STOCK PLAN. The 1997 Stock Plan was adopted by the Board of Directors
and stockholders of the Company in March 1997 and becomes effective upon the
closing of this Offering. The total number of shares of Common Stock subject to
issuance under the 1997 Stock Plan is 350,000, subject to adjustments as
provided in the 1997 Stock Plan. The 1997 Stock Plan provides for the grant of
stock options (including incentive stock options as defined in Section 422 of
the Code and non-qualified stock options), stock

30
<PAGE>
appreciation rights ("SARs") and other stock awards (including restricted stock
awards and stock bonuses) to employees of the Company or its affiliates or any
consultant or advisor engaged by the Company who renders bona fide services to
the Company or the Company's affiliates in connection with its business;
provided, that such services are not in connection with the offer or sale of
securities in a capital raising transaction. Prior to the date when securities
are first registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the 1997 Stock Plan will be administered
by the Company's Board of Directors. Upon registration, the 1995 Stock Plan will
be administered by the Compensation Committee of the Board of Directors (the
"Committee") which will be comprised of "disinterested persons" within the
meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended. Stock
options may be granted by the Committee on such terms, including vesting and
payment forms, as it deems appropriate in its direction; provided, that no
option may be exercised later than ten years after its grant, and the purchase
price for incentive stock options and non-qualified stock options shall not be
less than 100% and 85% of the fair market value of the Common Stock at the time
of grant, respectively. SARs may be granted by the Committee on such terms,
including payment forms, as the Committee deems appropriate, provided that a SAR
granted in connection with a stock option shall become exercisable and lapse
according to the same vesting schedule and lapse rules established for the stock
option (which shall not exceed ten years from the date of grant). A SAR shall
not be exercisable during the first six months of its term and only when the
fair market value of the underlying Common Stock exceeds the SAR's exercise
price and is exercisable subject to any other conditions on exercise imposed by
the Committee. In the event of a change in control of the Company, the Committee
retains the discretion to accelerate the vesting of stock options and SARs and
to remove restrictions on transfer of restricted stock awards. Unless terminated
by the Board of Directors, the 1997 Stock Plan continues until December 2007.
Upon the occurrence of an event constituting a Change of Control, in the sole
discretion of the Committee, all options and SARs will become immediately
exercisable in full for the remainder of their terms and restrictions on stock
granted pursuant to a Restricted Stock Award will lapse. The Board of Directors
has authorized the grant of options to certain officers and key employees to
purchase an aggregate of 250,000 shares of Common Stock under the 1997 Stock
Plan at 120% of the initial public offering price upon consummation of the
Offering.

The following table presents certain information concerning the number of
shares of Common Stock subject to options that will be granted to certain
executive officers and key employees pursuant to the 1997 Stock Plan upon
consummation of the Offering:

<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF INDIVIDUAL UNDERLYING OPTIONS
- ---------------------------------------------------------------- -------------------
<S> <C>
George Chung.................................................... 87,500
Anthony Chan.................................................... 87,500
Don Berryessa................................................... 25,000
Jan Hutchins.................................................... 20,000
</TABLE>

1997 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN. The Company's 1997
Non-Employee Directors Stock Option Plan (the "Directors Plan") was adopted by
the Board of Directors and stockholders of the Company in March 1997 and becomes
effective upon the closing of this Offering. A total of 50,000 shares are
available for grant under the Directors Plan. The Directors Plan provides for
the automatic grant to each of the Company's non-employee directors of (i) an
option to purchase 5,000 shares of Common Stock on the date of such director's
initial election or appointment to the Board of Directors (the "Initial Grant")
and (ii) an option to purchase 2,000 shares of Common Stock on each anniversary
thereof on which the director remains on the Board of Directors (the "Annual
Grant"). The options will have an exercise price of 100% of the fair market
value of the Common Stock on the date of grant and have a 10-year term. Initial
Grants become exercisable in two equal annual installments commencing on the
first anniversary of date of grant thereof and Annual Grants become fully
exercisable beginning on the first anniversary of the date of grant. Both
Initial and Annual Grants are subject to acceleration in the event of certain
corporate transactions. Any options which are vested at the time the optionee
ceases to be a director shall be exercisable for one year thereafter. Options
which are not vested automatically terminate

31
<PAGE>
in the event the optionee ceases to be a director of the Company. Options which
are vested on the date the optionee ceased to be a director due to death or
disability generally remain exercisable for five years thereafter. If the
Company is a party to a transaction involving a sale of substantially all its
assets, a merger or consolidation, all then outstanding options under the
Directors Plan may be canceled. However, during the 30 day period preceding the
effective date of such transaction, all partly or wholly unexercised options
will be exercisable, including those not yet exercisable pursuant to the vesting
schedule. As of the date of this Prospectus, no options have been granted under
the Directors Plan.

CERTAIN TRANSACTIONS

Messrs. Chung and Chan are the guarantors of two loans from Karen T.I. Shen
and Thomas Jung Woo originally totaling $27,000 and bearing interest at 14% per
annum which are due and payable in 1999 and 2000, and are the direct obligors on
a loan in the original principal amount of $100,000 from the Michael Triantos
M.D. Inc. Money Purchase and Profit Sharing Pension Plans Trust which is being
treated as a debt of the Company which loan bears interest at the rate of 12%
per annum and is due on the earlier of the completion of this Offering or
December 15, 1999. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." Messrs.
Chung and Chan are also the guarantors of a bank credit line of the Company with
a credit limit of $50,000 (outstanding balance as of March 31, 1997 of
approximately $36,000), and of one property lease of the Company and are the
direct obligors on two property leases which are being treated as leases of the
Company. See "Notes to Financial Statements."

In a letter dated October 29, 1996, the Company agreed to pay Joe and
Jennifer Montana, significant stockholders of the Company, $50,000 in cash,
payable 30 days prior to the release of the Company's second Fitness Product,
entitled "MONTANA EXERCISE VIDEO." In such letter, the Company also agreed to
pay Joe and Jennifer Montana an additional $50,000 from the proceeds of this
Offering and a royalty payment of $1 per video tape sold. See "Business-Fitness
Products." Joe and Jennifer Montana have both been training in the Company's
karate schools for approximately three years. The "MONTANA EXERCISE VIDEO" stars
the former superstar quarterback and his wife Jennifer in a kick-boxing video.
Jennifer Montana also co-hosts the Kanga Roddy Series.

Mr. Alan Elkes, a director nominee of the Company, is Chief Executive
Officer of the Managing Underwriter. For a description of the arrangements
between the Company and the Managing Underwriter, see "Underwriting."

In June 1997, Mr. George Chung, the Chairman of the Board, loaned at no
interest approximately $17,673 to the Company in order to allow the Company to
repay its loan with the Bank of Canton. The Company intends to repay Mr. Chung
the outstanding principal balance of this loan with the net proceeds of the
Offering. On July 2, 1997, Mr. Chung also loaned at no interest approximately
$35,400 to the Company in order to allow the Company to repay its loan from
Silicon Valley Bank. The Company intends to repay the outstanding principal
balance of this loan with the net proceeds of the Offering.

None of the transactions with officers or shareholders of the Company and
their affiliates were made on terms less favorable to the Company than those
available from unaffiliated parties. In future transactions of this nature, the
Company will ensure that more favorable terms are not available to it from
unaffiliated third parties before engaging officers or shareholders of the
Company or their affiliates.

32
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of May 31, 1997, and as
adjusted to reflect the sale of the Common Stock and Warrants being offered
hereby, by (i) each person (or group of affiliated persons) who is known by the
Company to own beneficially more than 5% of the Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers and (iv) all
directors and executive officers of the Company as a group. Except as otherwise
noted, the persons or entities in this table have sole voting and investment
power with respect to all the shares of Common Stock owned by them.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING OWNED AFTER OFFERING
----------------------- -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
George Chung(1)..................................... 592,588(2) 23.56% 592,588(2) 15.40%
Anthony Chan(1)..................................... 588,188 23.38% 588,188 15.28%
Don Berryessa(1).................................... 168,600(3) 6.70% 168,600(3) 4.38%
Montana Family Trust................................ 158,455 6.30% 158,455 4.12%
c/o Raimondo, Pettit & Glassman
21515 Hawthorne Blvd., #1250
Hawthorne, CA90503
Peter Kwong......................................... 129,962(4) 5.17% 129,962(4) 3.38%
32754 Downieville Street
Union City, CA94587
</TABLE>

- ------------------------

(1) The addresses for the directors and executive officers are the same as that
of the Company.

(2) Includes 4,400 shares owned by Mr. Chung's wife.

(3) Includes 28,100 shares owned by Mr. Berryessa's wife.

(4) Includes 3,512 shares owned by Mr. Kwong's wife.

RESCISSION OFFER

Commencing after the closing of this Offering and subject to compliance with
Federal and state securities laws, the Company anticipates offering to certain
stockholders of the Company who previously purchased common stock of America's
Best Karate, the right to rescind their previous purchases and receive the
return of the purchase price paid for such securities together with interest at
a rate to be determined by the state of residence of the subject holder. The
Company has registered the shares of Common Stock subject to the Rescission
Offer in the Registration Statement to which this Prospectus is a part of and
anticipates $20,000 in costs relating to such registration. The Company is
making this offer because, among other things, certain sales of its securities
may not have qualified for an exemption under the registration requirements of
the Federal and/or state securities laws. The Company's obligation to purchase
such shares will be paid out of the net proceeds of this Offering. See "Use of
Proceeds."

The holders of securities who will be offered rescission will include 47
stockholders who were issued a total of 684,619 (as adjusted for the 28.1 for 1
exchange ratio in the proposed reorganization transaction) shares of common
stock of America's Best Karate during the period November 1995 to March 1997 at
prices ranging from $.80 to $2.13 (as adjusted for the 28.1 for 1 exchange ratio
in the proposed reorganization transaction).

The original purchase price of all of the securities which are the subject
of the Rescission Offer is approximately $1,175,520, excluding interest (which
will vary). All of the holders of Common Stock eligible for the Rescission Offer
paid less than $5.00 per share, the public offering price of the shares of
Common Stock offered hereby. The Company does not believe that any or many
stockholders will tender securities pursuant to the Rescission Offer because the
price per share in this Offering is higher than the amount recoverable through
rescission and because substantially all such securities were sold to personal
or business acquaintances of the Company and its management. However, the
Rescission Offer will be kept open for at least 30 days and there can be no
assurance that the price of the shares in the trading market during such period
will not be less than the prices paid by the stockholders who are being offered
rescission in the Rescission Offer or that a significant number of such
stockholders will not accept the Rescission Offer. To the extent that the
Company is required to use proceeds from this Offering to meet its

33
<PAGE>
obligations under the Rescission Offer, such funds will not be available to be
utilized by the Company in furtherance of its business objectives. Payment of
the purchase price and interest to individuals who elect to rescind will be made
as soon as practicable after receipt by the Company of the notice of rescission
and the appropriate certificates.

DESCRIPTION OF SECURITIES

SECURITIES OFFERED

The 1,300,000 shares of Common Stock and 1,300,000 Warrants offered hereby
are offered separately from one another and will be traded separately upon the
consummation of this Offering.

GENERAL

The Company has an authorized capital of 10,000,000 shares of Common Stock,
$.0001 par value, of which 2,515,700 shares are currently outstanding. The
issued and outstanding shares of Common Stock are fully paid and non-assessable,
and all the shares of Common Stock underlying the Warrants included in the
Offering, when issued, will be fully paid and non-assessable.

Holders of the Shares are entitled to one vote per share on all matters
submitted to a vote of the stockholders and do not have cumulative voting rights
in the election of directors.

Holders of the Common Stock are entitled to share pro rata in such dividends
as may be declared by the board of directors out of funds legally available. See
"Dividend Policy." On any dissolution, liquidation or winding-up of the Company,
the holders of Common Stock will be entitled to share pro rata in all
distributions made after payment of or provision for the payment of all debts
and prior claims. There are no preemptive rights or conversion privileges
applicable to the Common Stock.

During January through March of 1997, the Company sold 305,000 shares of its
common stock to certain investors at a price per share of $.80 (as adjusted for
the proposed reorganization). Holders of these shares have orally agreed to
return such number of these shares to the Company as is necessary to increase
the price per share paid by these investors to $2.50 (which is a price greater
than the price of $2.14 per share at which the Company sold common stock prior
to this private placement). These holders have also orally agreed to an
unconditional lock-up of twelve months regarding the resale of these securities.
Messrs. Chan and Chung may offer these holders the opportunity to purchase an
amount of shares owned personally by them for nominal consideration at a later
date.

WARRANTS

Warrants will be issued pursuant to a Warrant Agreement between the Company
and Continental Stock Transfer & Trust Company (the "Transfer and Warrant
Agent") and will be in registered form. The Company has authorized the issuance
of Warrants to purchase an aggregate of 1,300,000 shares of Common Stock
(exclusive of 195,000 Warrants issuable upon exercise of the Underwriters'
Over-Allotment Option and 130,000 Warrants underlying the Underwriters'
Warrants). Each Warrant entitles its holder to purchase, at any time from the
date of this Prospectus through the fifth anniversary date of this Prospectus,
one share of Common Stock at an exercise price of $6.50 per share, subject to
adjustment in accordance with the anti-dilution and other provisions referred to
below.

The Warrants may be redeemed by the Company at any time commencing one year
from the date of this Prospectus (or earlier with the prior written consent of
the Managing Underwriter) and prior to their expiration, at a redemption price
of $.10 per Warrant, on not less than 30 days' prior written notice to the
holders of such Warrants, provided that the last sales price of the Common Stock
on NASDAQ is at least 120% ($7.80 per share, subject to adjustment) of the
exercise price of the Warrants for a period of 20 consecutive trading days
ending on the third day prior to the date the notice of redemption is given.
Holders of Warrants shall have exercise rights until the close of the business
day preceding the date fixed

34
<PAGE>
for redemption. The exercise price of the Warrants should in no event be
regarded as an indication of any future market price of the securities offered
hereby.

The exercise price and the number of shares of Common Stock purchasable upon
the exercise of the Warrants are subject to adjustment upon the occurrence of
certain events, including stock dividends, stock splits, combinations or
reclassification of the Common Stock. The Warrants do not confer upon holders
any voting or any other rights as stockholders of the Company.

Subject to the rules and regulations of the NASD, the Underwriters shall be
entitled to act as the warrant solicitation agent for the solicitation of the
Warrants for a period of five years after the date hereof, commencing one year
after the date hereof and receive a warrant solicitation fee of five percent
(5%) of the exercise price for each Warrant exercised during the period
commencing one year after the date hereof.

The Company is required to have a current Registration Statement on file
with the Commission and to effect appropriate qualifications under the laws and
regulations of the states in which the holders of Warrants reside in order to
comply with applicable laws in connection with the exercise of Warrants and the
sale of the Common Stock issued upon such exercise. The Company, therefore, will
be required to file post-effective amendments to its Registration Statement when
subsequent events require such amendments in order to continue the registration
of the Common Stock underlying the Warrants and to take appropriate action under
state securities laws. There can be no assurance that the Company will be able
to keep its Registration Statement current or to effect appropriate action under
applicable state securities laws. Its failure to do so may restrict the ability
of the Warrant holders to exercise the Warrants and resell or otherwise dispose
of the underlying Common Stock, whether pursuant to redemption of the Warrants
or otherwise.

LIMITATION OF DIRECTORS' LIABILITIES

The Company's Certificate of Incorporation eliminates, to the fullest extent
permitted by law, the liability of its directors to the Company and its
stockholders for monetary damages for breach of the directors' fiduciary duty.
This provision is intended to afford the Company's directors the benefit of the
Delaware General Corporation Law, which provides that directors of Delaware
corporations may be relieved of monetary liability for breach of their fiduciary
duty of care, except under certain circumstances involving breach of a
director's duty of loyalty, acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law or any transaction from
which the director derived an improper personal benefit.

CERTAIN ANTI-TAKEOVER DEVICES

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which restricts certain transactions and business
combinations between a corporation and an "Interested Stockholder" owning 15% or
more of the corporation's outstanding voting stock for a period of three years
from the date the stockholder becomes an Interested Stockholder. Subject to
certain exceptions, unless the transaction is approved by the Board of Directors
and the holders of at least 66-2/3% of the outstanding voting stock of the
corporation (excluding shares held by the Interested Stockholder), Section 203
prohibits significant business transactions such as a merger with, disposition
of assets to, or receipt of disproportionate financial benefits by the
Interested Stockholder, or any other transaction that would increase the
Interested Stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an Interested Stockholder, the
Interested Stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain stock plans).

TRANSFER AGENT AND REGISTRAR

Continental Stock Transfer & Trust Company has been appointed as the
transfer agent and registrar for the Company's Common Stock. Its telephone
number is (212) 509-4000.

35
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have 3,848,345 shares of
Common Stock outstanding. All of the 1,300,000 shares of Common Stock sold in
this Offering will be freely transferable by persons other than "affiliates" of
the Company (as that term is defined under the Securities Act).

The remaining 2,548,345 outstanding shares of Common Stock will be
"restricted securities" within the meaning of Rule 144 under the Securities Act
and may not be sold in the absence of a registration under the Securities Act
unless an exemption from registration is available, including the exemption
contained in Rule 144. Prior to the effective date of the Offering, each of the
Company's stockholders owning an aggregate of 2,515,700 shares of Common Stock
will enter into lock-up agreements whereby they will agree not to offer or sell
any shares of Common Stock or other equity securities of the Company or any
securities convertible into or exchangeable for, or warrants to purchase or
acquire, Common Stock, owned as of the date of this Prospectus or hereafter
acquired, except as follows: 125,000 shares of Common Stock commencing six
months after the date hereof, provided however, that the Common Stock has traded
at least 15,000 shares per day at a bid price of at least $7.50 per share (150%
above the initial public offering price) for any fifteen consecutive trading
days during such period; an additional 312,500 shares of Common Stock commencing
twelve months after the date hereof; and an additional 500,000 shares of Common
Stock commencing eighteen months after the date hereof. The Managing Underwriter
may, in its discretion and without notice to the public, waive the lock-up and
permit the holders of these shares to resell all or a portion of their shares at
any time prior to the time periods described above. Assuming that this
prospectus was effective as of March 31, 1997, and without giving effect to the
above described lock-up agreements, no shares of Common Stock which are
currently outstanding would be immediately eligible for sale in the public
market without restrictions, 1,984,422 shares of Common Stock would be eligible
for sale, subject to the restrictions of Rule 144, on the 91st day after such
date and an additional 531,278 shares of Common Stock would be eligible for
sale, subject to the restrictions of Rule 144, one year after such date.

In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted securities for a period of at least one year,
including an "affiliate" as that term is defined in Rule 144, is entitled to
sell, within any three-month period commencing 90 days after the date of this
Prospectus, a number of "restricted" shares that does not exceed the greater of
1% of the then outstanding shares of Common Stock (approximately 38,483 shares
immediately after the Offering) or the average weekly trading volume during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
to certain manner of sale limitations, notice requirements and the availability
of current public information about the Company. Rule 144(k) provides that a
person who is not deemed an "affiliate" and who has beneficially owned shares
for at least two years is entitled to sell such shares at any time under Rule
144 without regard to the limitation described above.

REGISTRATION RIGHTS

The Company has agreed to file a registration statement under the Securities
Act with respect to the resale of 305,000 shares of Common Stock of the Company
by certain stockholders upon demand by a majority of such stockholders. Upon the
effectiveness of such registration statement, such stockholders would be free to
sell their shares in the public market without volume restriction unless such
shares were held by an affiliate or are subject to a lock-up agreement described
above.

36
<PAGE>
UNDERWRITING

The Company has agreed to sell, and the Underwriters have agreed to purchase
from the Company, 1,300,000 shares of Common Stock and 1,300,000 Warrants. The
underwriting agreement between the Company and the Underwriters (the
"Underwriting Agreement") provides that the obligations of the Underwriters are
subject to certain customary conditions precedent including but not limited to
the continuing accuracy in all material respects of the representations and
warranties of the Company in the Underwriting Agreement and the continued
effectiveness of the Registration Statement. The Underwriters are committed to
purchase all of the securities offered hereby if any are purchased as set forth
below.

<TABLE>
<CAPTION>
NUMBER OF
COMMON
UNDERWRITER STOCK WARRANTS
- ---------------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Dalton Kent Securities Group, Inc.......................................................
Sharpe Capital, Inc.....................................................................
---------- ----------
Total............................................................................... 1,300,000 1,300,000
</TABLE>

The Underwriters are committing to purchase the securities severally and not
jointly. Therefore, each Underwriter will only be responsible to the Company for
the number of securities they commit to underwrite. Sharpe Capital, Inc. is not
assuming any other obligations, other than securities it has underwritten, in
respect of this Offering.

The Managing Underwriter has advised that it proposes initially to offer the
1,300,000 shares of Common Stock and 1,300,000 Warrants to the public at the
initial public offering prices set forth on the cover page of this Prospectus
and that it may allow to selected dealers who are members of the NASD
concessions not in excess of $.20 per share of Common Stock and $.00 per
Warrant, of which not more than $.10 per share of Common Stock and $.00 per
Warrant may be re-allowed to certain other dealers.

The Underwriting Agreement provides further that the Underwriters will
receive a non-accountable expense allowance of 3% of the gross proceeds of the
Offering (excluding for purposes of this calculation, proceeds from any exercise
of Warrants or the Underwriters' Over-allotment Option), of which approximately
$20,000 has been paid by the Company to date. The Company has also agreed to pay
all expenses in connection with qualifying the shares of Common Stock and the
Warrants offered hereby for sale under the laws of such states as the
Underwriters may designate, including expenses of counsel retained for such
purpose by the Underwriters.

Pursuant to the Underwriters' Over-allotment Option, which is exercisable
for a period of 45 days after the closing of the Offering, the Underwriters may
purchase up to 15% of the total number of shares of Common Stock and Warrants
offered hereby, solely to cover over-allotments.

The Company has agreed to sell to the Underwriters, for nominal
consideration, the Underwriters' Warrants to purchase 130,000 shares of Common
Stock and 130,000 Warrants. The Underwriters' Warrants will be non-exercisable
for one year after the date of this Prospectus. Thereafter, for a period of four
years, the Underwriters' Warrants will be exercisable at $6.50 per share of
Common Stock and $0.13 per Warrant. The Warrants contained in the Underwriters'
Warrants are exercisable for common stock at $6.50 share. The Underwriter's
Warrants are restricted from sale, transfer, assignment or hypothecation for a
period of one year after the date of this Prospectus, except to officers and
partners of the Underwriters and members of the selling group or their officers
and partners. The Company has also granted certain demand and "piggyback"
registration rights to the holders of the Underwriters' Warrants.

For the life of the Underwriters' Warrants, the holders thereof are given,
at nominal cost, the opportunity to profit from a rise in the market price of
the Common Stock with a resulting dilution in the interest of other
stockholders. Further, such holders may be expected to exercise the
Underwriters' Warrants at a time when the Company would in all likelihood be
able to obtain equity capital on terms more favorable than those provided in the
Underwriters' Warrants.

37
<PAGE>
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against liabilities in connection with the
Offering, including liabilities under the Securities Act.

The Company has agreed that upon closing of the Offering it will, for a
period of not less than three years, engage a designee of the Managing
Underwriter as advisor to the Board of Directors of the Company. In addition and
in lieu of the Managing Underwriter's right to designate an advisor, the Company
has agreed, if requested by the Managing Underwriter during such three year
period, to nominate and use its best efforts to cause the election of a designee
of the Managing Underwriter as a director of the Company. The Managing
Underwriter has designated Alan Elkes, Chief Executive Officer of the Managing
Underwriter, for election to the Company's board of directors following
completion of the Offering.

The Managing Underwriter intends to act as a market maker for the Common
Stock and the Warrants after the closing of the Offering.

Commencing one year after the date of this Prospectus and for a period of
five years after the date hereof, the Company will pay the Managing Underwriter
a fee of 5% of the exercise price of each Warrant exercised, provided (i) the
exercise price of the Warrant was solicited by a member of the NASD, (ii) the
Warrant was not held in a discretionary account, (iii) the disclosure of
compensation arrangements was made both at the time of the Offering and at the
time of exercise of the Warrant, (iv) the solicitation of the exercise of the
Warrant was not a violation of Regulation M under the Exchange Act and (v) the
Managing Underwriter is designated in writing as the soliciting NASD member.
Unless granted an exemption from Rule 103 of Regulation M under the Exchange Act
by the Commission, Regulation M may prohibit the Underwriters and any soliciting
broker-dealer from engaging in market making activities with regard to the
Company's securities for up to five business days prior to any solicitation by
the Underwriters or any soliciting broker-dealer of the exercise of the Warrants
until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that the Underwriters or any
soliciting broker-dealer may have to receive a fee for the exercise of the
Warrants following such solicitation. As a result, the Underwriters and
soliciting broker-dealers may be unable to continue to provide a market for the
Company's securities during certain periods while the Warrants are exercisable.

The initial public offering price of the shares of Common Stock and the
Warrants offered hereby and the initial exercise price and the other terms of
the Warrants have been determined by negotiation between the Company and the
Managing Underwriter and do not necessarily bear any direct relationship to the
Company's assets, earnings, book value per share or other generally accepted
criteria of value. Factors considered in determining the offering price of the
shares of Common Stock and Warrants and the exercise price of the Warrants
included the business in which the Company is engaged, the Company's financial
condition, an assessment of the Company's management, the general condition of
the securities markets and the demand for similar securities for comparable
companies.

Prior to the Effective Date, the Company will cause each of the Company's
stockholders, officers and directors to enter into a written agreement with the
Managing Underwriter that he or she will not publicly or privately sell any
shares of the Company's Common Stock or preferred stock owned directly or
indirectly by him or her or beneficially by him or her (as defined by the
Exchange Act) on the Effective Date without the consent of the Managing
Underwriter except as follows: 125,000 shares of Common Stock commencing six
months after the Effective Date, provided however, that the Common Stock has
traded at least 15,000 shares per day at a bid price of at least $7.50 per share
for any fifteen consecutive trading days; an additional 312,500 shares of Common
Stock commencing twelve months after the Effective Date; and an additional
500,000 share of Common Stock commencing eighteen months after the Effective
Date.

If the Company's securities were delisted from NASDAQ, they could become
subject to Rule 15g-9 under the Exchange Act, which imposes additional sales
practice requirements on broker-dealers which sell such securities to persons
other than established customers and "accredited investors" (generally,
individuals with net worth in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000

38
<PAGE>
together with their spouses). For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, such rule may adversely affect the ability of broker-dealers
to sell the Company's securities and may adversely affect the ability of
purchasers in this Offering to sell in the secondary market any of the
securities acquired hereby. Commission regulations define a "penny stock" to be
any non-NASDAQ equity security that has a market price (as therein defined) of
less than $5.00 per share or with an exercise price of less than $5.00 per
share, subject to certain exceptions. For any transaction involving a penny
stock, unless exempt, the rules require delivery, prior to any transaction in a
penny stock, of a disclosure schedule prepared by the Commission relating to the
penny stock market. Disclosure is also required to be made about commissions
payable to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. The foregoing required
penny stock restrictions will not apply to the Company's securities if such
securities are listed on NASDAQ and have certain price and volume information
provided on a current and continuing basis or meet certain minimum net tangible
assets or average revenue criteria. There can be no assurance that the Company's
securities will qualify for exemption from these restrictions. In any event,
even if the Company's securities were exempt from such restrictions, it would
remain subject to Section 15(b)(6) of the Exchange Act, which gives the
Commission the authority to prohibit any person that is engaged in unlawful
conduct while participating in a distribution of a penny stock from associating
with a broker-dealer or participating in a distribution of penny stock, if the
Commission finds that such a restriction would be in the public interest. If the
Company's securities were subject to the rules related to penny stocks, the
market liquidity for the Company's securities could be severely adversely
affected. In such event, the regulations on penny stocks could limit the ability
of broker-dealers to sell the Company's securities and thus the ability of
purchasers of the Company's securities to sell their securities in the secondary
market.

The Underwriters do not intend to sell any of the Company's securities to
accounts for which they exercise discretionary authority.

LEGAL MATTERS

The legality of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Sheppard, Mullin, Richter & Hampton LLP,
Los Angeles, California. Singer Zamansky LLP, New York, New York, is acting as
counsel for the Underwriters in connection with this Offering.

EXPERTS

The financial statements of America's Best Karate as of December 31, 1996,
and for the two years then ended and the balance sheet of American Champion
Entertainment, Inc. as of February 5, 1997 have been included herein and in the
registration statement in reliance upon the reports of Moore Stephens, P.C.,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of such firm as experts in accounting and auditing.

39
<PAGE>
ADDITIONAL INFORMATION

This Prospectus does not contain all information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Securities and Exchange Commission. Statements
contained herein concerning the provisions of any documents are not necessarily
complete and in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in its entirety by such reference. A copy of the Registration
Statement may be inspected by anyone without charge at the Securities and
Exchange Commission's principal office located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, the Pacific Regional Office located at 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, California 90036-3648, the New York Regional
Office located at 7 World Trade Center, 13th Floor, New York, New York 10048,
and the Chicago Regional Office located at Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661-2511, and copies of all or any part
thereof may be obtained from the Public Reference Branch of the Commission upon
the payment of certain fees prescribed by the Securities and Exchange
Commission. The Commission maintains an Internet Web Site that contains reports,
proxy and information statements and other information statements and other
information regarding registrants that file electronically with the Commission,
including the Company, and that address is http://www.sec.gov.

40
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
AMERICAN CHAMPION ENTERTAINMENT, INC.:

Report of Independent Auditors............................................... F-1

Balance Sheet as of February 5, 1997 [Date of Incorporation]................. F-2

Notes to Balance Sheet....................................................... F-3--F-5

AMERICA'S BEST KARATE:

Report of Independent Auditors............................................... F-6

Balance Sheet................................................................ F-7

Statements of Operations..................................................... F-8

Statements of Stockholders' Equity [Deficit]................................. F-9

Statements of Cash Flows..................................................... F-10

Notes to Financial Statements................................................ F-11--F-23
</TABLE>

41
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
American Champion Entertainment, Inc.
Hayward, California

We have audited the accompanying balance sheet of American Champion
Entertainment, Inc. as of February 5, 1997 [date of incorporation]. This balance
sheet is the responsibility of the Company's management. Our responsibility is
to express an opinion on this balance sheet based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

As discussed in Note 1, the Company was inactive on February 5, 1997.

In our opinion, the balance sheet referred to above, presents fairly, in all
material respects, the financial position of American Champion Entertainment,
Inc. as of February 5, 1997, in conformity with generally accepted accounting
principles.

/s/ Moore Stephens, P.C.

MOORE STEPHENS, P.C.
Certified Public Accountants.

Cranford, New Jersey
February 5, 1997

F-1
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
BALANCE SHEET AS OF FEBRUARY 5, 1997 [DATE OF INCORPORATION]

<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Organization Costs..................................................................................... $ 2,500
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Due to Related Party................................................................................... $ 2,500
COMMITMENTS AND CONTINGENCIES............................................................................ --
STOCKHOLDERS' EQUITY:
Common Stock, 10,000,000 Authorized, $.0001 Par Value, None Outstanding................................ --
TOTAL STOCKHOLDERS' EQUITY............................................................................... --
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $ 2,500
---------
---------
</TABLE>

See Notes to Balance Sheet.

F-2
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.

NOTES TO BALANCE SHEET

[1] ORGANIZATION AND NATURE OF OPERATIONS

American Champion Entertainment, Inc. [the "Company" or "ACE"] was
incorporated on February 5, 1997 under the laws of the State of Delaware for the
purpose of consummating the transactions described in Note 4 below. At the date
of incorporation, there was no issuance of or subscriptions for its capital
stock.

[2] ORGANIZATION COSTS

Organization costs are costs incurred that pertain to the incorporation of
the Company. The costs are being amortized over 60 months using the
straight-line method.

[3] DESCRIPTION OF SECURITIES

The authorized capital stock of the Company consists of 10,000,000 shares of
voting common stock, par value $.0001 per share.

[4] SUBSEQUENT EVENTS [UNAUDITED] SUBSEQUENT TO THE DATE OF THE REPORT OF THE
INDEPENDENT AUDITORS

[A] PROPOSED MERGER--Subsequent to February 5, 1997 [date of incorporation],
the Company will merge with America's Best Karate ["ABK"] which (a) operates
karate studios; (b) has begun producing fitness information video tapes, books,
and audio tapes, and (c) has begun producing educational television programs for
children which emphasize martial arts values and fun. Pursuant to the merger,
ABK will become a wholly-owned subsidiary of American Champion Entertainment,
Inc. References to the Company for periods subsequent to February 5, 1997 refer
to the consolidated entity. Consolidated financial statements to be presented
will include the accounts of both companies. Intercompany transactions and
balances will be eliminated in consolidation.

ACE will own 100% of the shares of ABK at the time of the merger. See the
historical financial statements and notes thereto of ABK elsewhere in this
prospectus. American Champion Media ["AC Media"], a wholly-owned subsidiary of
ABK, will operate and manage all media related programs.

[B] PROPOSED PUBLIC OFFERING--On December 5, 1996, ACE [a company in
formation at that date] entered into a letter of intent with an Underwriter to
offer common stock through a public offering. Pursuant to the letter of intent,
the Underwriter will purchase on a "firm commitment" basis, 1,300,000 shares of
common stock at a public offering price of $5 per share and 1,300,000 warrants
at a public offering price of $0.10 per warrant. The Company agreed to pay
underwriting discounts and commissions, and a non-accountable expense allowance
totaling 13% of the gross proceeds.

[C] EMPLOYMENT AGREEMENTS--In March 1997, the Company entered into
employment agreements, effective as of the closing date of the proposed public
offering (the "Offering"), with each of Mr. Chung, Mr. Chan and Mr. Berryessa
pursuant to which Mr. Chung will continue to serve as the Company's Chairman of
the Board, Mr. Chan will continue to serve as the Company's President, Chief
Executive Officer and Chief Financial Officer and Mr. Berryessa will continue to
serve as the Company's Vice-President. Each agreement has a term of five years.
Pursuant to the agreements, the Company will pay to Messrs. Chung, Chan and
Berryessa a base salary of $100,000, $100,000 and $65,000 per year,
respectively. Each agreement also provides for the following bonuses: (i)
options to purchase 87,500, 87,500 and 25,000 shares of Common Stock of the
Company, respectively, exercisable at 120% of the public Offering price of the
Common Stock of the Company upon consummation of the Offering and (ii) $200,000,
$200,000 and $100,000, respectively, if all of the Warrants issued to the public
in the Offering are exercised by the

F-3
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.

NOTES TO BALANCE SHEET (CONTINUED)

[4] SUBSEQUENT EVENTS [UNAUDITED] SUBSEQUENT TO THE DATE OF THE REPORT OF THE
INDEPENDENT AUDITORS (CONTINUED)
holders thereof within the five-year exercise period of such Warrants. In
addition, the executives are also entitled to certain fringe benefits. If any of
Messrs. Chung, Chan or Berryessa is terminated other than for cause, death or
disability, the Company is obligated to pay such executive an amount equal to
his base salary then in effect for the remaining term of the agreement.

In March 1997, the Company and AC Media entered into a two year employment
agreement with Jan D. Hutchins effective as of the closing date of the Offering.
This agreement provides that Mr. Hutchins will receive an annual base salary of
$39,600. The employment agreement also provides for the following bonuses: (i)
four thousand [4,000] shares of Common Stock of the Company upon consummation of
the proposed public Offering, subject to compliance with applicable laws (these
shares will be issued at no cost to Mr. Hutchins and will be expensed at their
fair market value considering any restrictions at the time of issuance); (ii)
options to purchase twenty thousand [20,000] shares of Common Stock of the
Company, exercisable at 120% of the public Offering price of the Common Stock of
the Company upon the consummation of the proposed public Offering, subject to
compliance with applicable laws; and (iii) $100,000 in cash if all of the
Warrants are issued to public in this Offering exercised by the holders thereof
within two years of the consummation of the proposed public Offering. The
employment agreement also provides for certain fringe benefits. If Mr. Hutchins
is terminated other than for cause, death or disability, the Company is
obligated to pay Mr. Hutchins an amount equal to his base salary then in effect
for the remaining term of the agreement.

[D] 1997 STOCK PLAN--The 1997 Stock Plan was adopted by the Board of
Directors and stockholders of the Company in March 1997 and becomes effective
upon the closing of this Offering. The total number of shares of Common Stock
subject to issuance under the 1997 Stock Plan is 350,000, subject to adjustments
as provided in the 1997 Stock Plan. The 1997 Stock Plan provides for the grant
of stock options (including incentive stock options as defined in Section 422 of
the Code and non-qualified stock options), stock appreciation rights ("SARs")
and other stock awards (including restricted stock awards and stock bonuses) to
employees of the Company or its affiliates or any consultant or advisor engaged
by the Company who renders bona fide services to the Company or the Company's
affiliates in connection with its business; provided, that such services are not
in connection with the offer or sale of securities in a capital raising
transaction. Prior to the date when securities are first registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the 1997 Stock Plan will be administered by the Company's Board of
Directors. Upon registration, the 1995 Stock Plan will be administered by the
Compensation Committee of the Board of Directors (the "Committee") which will be
comprised of "disinterested persons" within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended. Stock options may be granted by the
Committee on such terms, including vesting and payment forms, as it deems
appropriate in its direction; provided, that no option may be exercised later
than ten years after its grant, and the purchase price for incentive stock
options and non-qualified stock options shall not be less than 100% and 85% of
the fair market value of the Common Stock at the time of grant, respectively.
SARs may be granted by the Committee on such terms, including payment forms, as
the Committee deems appropriate, provided that a SAR granted in connection with
a stock option shall become exercisable and lapse according to the same vesting
schedule and lapse rules established for the stock option (which shall not
exceed ten years from the date of grant). A SAR shall not be exercisable during
the first six months of its term and only when the fair market value of the
underlying Common Stock exceeds the SAR's exercise price and is exercisable
subject to any other conditions on exercise imposed by the Committee. In the
event of a change in control of the Company, the Committee retains the
discretion to accelerate the vesting of stock options and SARs and to remove
restrictions on transfer of restricted stock awards. Unless terminated by the
Board of Directors, the 1997 Stock Plan continues until

F-4
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.

NOTES TO BALANCE SHEET (CONTINUED)

[4] SUBSEQUENT EVENTS [UNAUDITED] SUBSEQUENT TO THE DATE OF THE REPORT OF THE
INDEPENDENT AUDITORS (CONTINUED)
December 2007. Upon the occurrence of an event constituting a Change of Control,
in the sole discretion of the Committee, all options and SARs will become
immediately exercisable in full for the remainder of their terms and
restrictions on stock granted pursuant to a Restricted Stock Award will lapse.
The Board of Directors has authorized the grant of options to certain officers
and key employees to purchase an aggregate of 250,000 shares of Common Stock
under the 1997 Stock Plan at 120% of the initial public offering price upon
consummation of the Offering.

[E] 1997 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN--The Company's 1997
Non-Employee Directors Stock Option Plan (the "Directors Plan") was adopted by
the Board of Directors and stockholders of the Company in March 1997 and becomes
effective upon the closing of the Offering. A total of 50,000 shares are
available for grant under the Directors Plan. The Directors Plan provides for
the automatic grant to each of the Company's non-employee directors of (i) an
option to purchase 5,000 shares of Common Stock on the date of such director's
initial election or appointment to the Board of Directors (the "Initial Grant")
and (ii) an option to purchase 2,000 shares of Common Stock on each anniversary
thereof on which the director remains on the Board of Directors (the "Annual
Grant"). The options will have an exercise price of 100% of the fair market
value of the Common Stock on the date of grant and have a 10-year term. Initial
Grants become exercisable in two equal annual installments commencing on the
first anniversary of date of grant thereof and Annual Grants become fully
exercisable beginning on the first anniversary of the date of grant. Both
Initial and Annual Grants are subject to acceleration in the event of certain
corporate transactions. Any options which are vested at the time the optionee
ceases to be a director shall be exercisable for one year thereafter. Options
which are not vested automatically terminate in the event the optionee ceases to
be a director of the Company. Options which are vested on the date the optionee
ceased to be a director due to death or disability generally remain exercisable
for five years thereafter. If the Company is a party to a transaction involving
a sale of substantially all its assets, a merger or consolidation, all then
outstanding options under the Directors Plan may be canceled. However, during
the 30 day period preceding the effective date of such transaction, all partly
or wholly unexercised options will be exercisable, including those not yet
exercisable pursuant to the vesting schedule.

F-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
America's Best Karate
Hayward, California

We have audited the accompanying balance sheet of America's Best Karate [a
California corporation] as of December 31, 1996, and the related statements of
operations, stockholders' equity [deficit], and cash flows for each of the years
in the two-year period ended December 31, 1996. These financial statements are
the responsibility of America's Best Karate's management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly,
in all material respects, the financial position of America's Best Karate as of
December 31, 1996, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that
America's Best Karate will continue as a going concern. As discussed in Note 3
to the financial statements, America's Best Karate had a working capital deficit
of $(1,275,626) and a deficiency in stockholders' equity of $(1,938,498).
Additionally, America's Best Karate has experienced continuing losses from
operations. These factors raise substantial doubt about America's Best Karate's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/ Moore Stephens, P.C.
MOORE STEPHENS, P.C.
Certified Public Accountants.

Cranford, New Jersey

January 31, 1997

F-6
<PAGE>
AMERICA'S BEST KARATE
BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, 1996
MARCH 31, 1997 -----------------
---------------
(UNAUDITED)
<S> <C> <C>
Assets
Current Assets:
Cash........................................................................... $ 15,575 $ 28,763
Account Receivable............................................................. 5,817 5,817
Loans Receivable--Related Parties.............................................. 113,361 92,083
Prepaid Expenses and Other..................................................... 8,409 12,462
--------------- -----------------
Total Current Assets........................................................... 143,162 139,125
--------------- -----------------
Property and Equipment--Net of Accumulated Depreciation and
Amortization of $261,733 at March 31, 1997 and $249,263 at
December 31, 1996.............................................................. 38,390 50,860
--------------- -----------------
Other Assets:
Film Costs--Net of Accumulated Amortization of $4,998 at March 31, 1997 and
$4,685 at December 31, 1996.................................................. 692,880 660,004
Deferred Offering Costs........................................................ 224,757 66,544
Other Assets................................................................... 47,988 52,957
--------------- -----------------
Total Other Assets............................................................. 965,625 779,505
--------------- -----------------
Total Assets................................................................... $ 1,147,177 $ 969,490
--------------- -----------------
--------------- -----------------

Liabilities and Stockholders' Equity [Deficit]
Current Liabilities:
Accounts Payable and Accrued Expenses.......................................... $ 370,677 $ 316,644
Deferred Revenues--Current Portion............................................. 441,041 453,404
Short-Term Debt................................................................ 97,683 179,113
Loans Payable--Related Parties................................................. 422,855 352,175
Long-Term Debt--Current Portion................................................ 61,785 82,740
Obligations Under Capital Leases............................................... 25,904 26,459
Other.......................................................................... 4,216 4,216
--------------- -----------------
Total Current Liabilities...................................................... 1,424,161 1,414,751
--------------- -----------------
Long-Term Liabilities:
Deferred Revenues.............................................................. 412,277 465,272
Long-Term Debts................................................................ 50,111 71,392
Obligations Under Capital Leases............................................... 15,702 20,641
Other.......................................................................... 7,378 8,432
--------------- -----------------
Total Long-Term Liabilities.................................................... 485,468 565,737
--------------- -----------------
Total Liabilities.............................................................. 1,909,629 1,980,488
--------------- -----------------
Common Stock Subject to Rescission............................................. 1,175,520 927,500
--------------- -----------------
Commitments and Contingencies.................................................... -- --
--------------- -----------------
Stockholders' Equity [Deficit]:
Common Stock, No Par Value, 100,000 Shares Authorized, 89,527 and
92,030 Shares Issued and Outstanding at March 31, 1997 and
December 31, 1996, respectively.............................................. 220,074 59,574
Paid-in Capital [Deficit]...................................................... (1,214,892) (1,214,892)
Accumulated Deficit............................................................ (943,154) (783,180)
--------------- -----------------
Total Stockholders' Equity [Deficit]........................................... (1,937,972) (1,938,498)
--------------- -----------------
Total Liabilities and Stockholders' Equity [Deficit]........................... $ 1,147,177 $ 969,490
--------------- -----------------
--------------- -----------------
</TABLE>

See Accompanying Notes to Financial Statements.

F-7
<PAGE>
AMERICA'S BEST KARATE
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
MARCH 31, MARCH 31, YEARS ENDED DECEMBER 31,
1997 1996 1996 1995
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Tuition and Related Fees.............................. $ 255,950 $ 226,958 $ 931,231 $ 1,008,832
Accessories and Video Sales........................... 22,238 29,227 119,322 110,060
------------- ------------- ------------- -------------
TOTAL REVENUE....................................... 278,188 256,185 1,050,553 1,118,892
------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Cost of Sales....................................... 14,572 15,002 88,942 81,116
Salaries and Payroll Taxes.......................... 193,028 178,648 712,574 625,399
Rent................................................ 124,299 123,011 496,212 404,326
Selling, General and Administrative................. 55,878 67,402 325,025 415,713
Interest............................................ 50,385 15,157 69,383 54,742
------------- ------------- ------------- -------------
TOTAL COSTS AND EXPENSES............................ 438,162 399,220 1,692,136 1,581,296
------------- ------------- ------------- -------------
[LOSS] FROM OPERATIONS.............................. (159,974) (143,035) (641,583) (462,404)
OTHER INCOME:
Fitness Consulting.................................. -- -- -- 526,625
------------- ------------- ------------- -------------
[LOSS] INCOME BEFORE INCOME TAXES................... (159,974) (143,035) (641,583) 64,221
PROVISION FOR INCOME TAXES............................ -- -- -- --
------------- ------------- ------------- -------------
NET [LOSS] INCOME--HISTORICAL......................... $ (159,974) $ (143,035) $ (641,583) $ 64,221
------------- ------------- -------------
-------------
CHARGE IN LIEU OF INCOME TAXES........................ -- -- -- (16,055)
-------------
PRO FORMA NET INCOME................................ -- -- -- $ 48,166
-------------
-------------
PRO FORMA EARNINGS PER SHARE.......................... -- -- -- $ .02
-------------
-------------
NET [LOSS] PER SHARE.................................. $ (0.06) $ (0.06) $ (.26) --
------------- ------------- -------------
------------- ------------- -------------
Number of Shares.................................... 2,515,700 2,515,700 2,515,700 2,515,700
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>

See Accompanying Notes to Financial Statements.

F-8
<PAGE>
AMERICA'S BEST KARATE
STATEMENTS OF STOCKHOLDERS' EQUITY [DEFICIT]

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ PAID-IN STOCKHOLDERS'
NUMBER OF CAPITAL ACCUMULATED EQUITY
SHARES AMOUNT [DEFICIT] DEFICIT [DEFICIT]
----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE--JANUARY 1, 1995................... 50,000 $ 37,938 $ -- $ (1,172,183) $ (1,134,245)
Issuance of Common Stock................... 26,251 237,266 -- -- 237,266
Receivable from Stockholders............... -- (37,766) -- -- (37,766)
S Corp. Distributions...................... -- -- -- (236,009) (236,009)
Common Stock Subject to Rescission......... -- (220,000) -- -- (220,000)
Net Income................................. -- -- -- 64,221 64,221
----------- ----------- ------------- ------------- -------------
BALANCE--DECEMBER 31, 1995................. 76,251 17,438 -- (1,343,971) (1,326,533)
Capitalization of Accumulated
Deficit on S Corp. Termination........... -- -- (1,214,892) 1,214,892 --
Issuance of Common Stock................... 15,324 707,500 -- -- 707,500
Common Stock Issued for
Short-Term Loans......................... 455 21,636 -- -- 21,636
Reduction of Receivable from
Stockholders............................. -- 20,500 -- -- 20,500
S Corp. Distributions...................... -- -- -- (12,518) (12,518)
Common Stock Subject to Rescission......... -- (707,500) -- -- (707,500)
Net [Loss]................................. -- -- -- (641,583) (641,583)
----------- ----------- ------------- ------------- -------------
BALANCE--DECEMBER 31, 1996................. 92,030 59,574 (1,214,892) (783,180) (1,938,498)
Issuance of Common Stock................... 3,540 248,020 -- -- 248,020
Debt Converted to Equity................... 1,900 133,500 -- -- 133,500
Common Stock Issued for Short-Term Loans... 193 27,000 -- -- 27,000
Cancellation of Founders' Shares........... (8,136) -- -- -- --
Common Stock Subject to Rescission......... -- (248,020) -- -- (248,020)
Net (Loss)(Unaudited)...................... -- -- -- (159,974) (159,974)
----------- ----------- ------------- ------------- -------------
BALANCE--MARCH 31, 1997 (UNAUDITED)........ 89,527 $ 220,074 $ (1,214,892) $ (943,154) $ (1,937,972)
----------- ----------- ------------- ------------- -------------
----------- ----------- ------------- ------------- -------------
</TABLE>

See Accompanying Notes to Financial Statements.

F-9
<PAGE>
AMERICA'S BEST KARATE
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
---------------------- DECEMBER 31,
MARCH 31, MARCH 31, ----------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net [Loss] Income.............................................. $ (159,974) $ (143,035) $ (641,583) $ 64,221
Adjustments to Reconcile Net [Loss] Income to Net Cash [Used
for] Provided by Operating Activities:
Depreciation and Amortization................................ 12,782 16,102 64,409 64,914
Interest Amortization--Debt Issue Costs...................... 20,998 275 6,272 1,100
Loss on Property and Equipment............................... -- -- 2,430 --
Rent Concession Amortization................................. (1,054) (1,054) (4,216) (4,216)
[Increase] Decrease in:
Accounts Receivable.......................................... -- -- (5,817) --
Prepaid Expenses and Other................................... 4,053 7,438 3,567 80,206
Increase [Decrease] in:
Accounts Payable and Accrued Expenses........................ (12,761) 12,817 77,335 (3,285)
Deferred Revenues............................................ (65,358) (1,057) (55,319) (114,208)
Other Liabilities............................................ -- 3,000 6,000 15,080
---------- ---------- ---------- ----------
NET CASH--OPERATING ACTIVITIES................................. (201,314) (105,514) (546,922) 103,812
---------- ---------- ---------- ----------
INVESTING ACTIVITIES:
Purchase of Property and Equipment............................. -- (1,485) (7,014) (22,384)
Payments for Film Costs........................................ (33,189) (16,284) (350,364) (114,482)
Advances to Stockholders....................................... (21,278) (2,639) (92,083) --
Deposits....................................................... 4,694 (1,099) 2,083 (16,816)
---------- ---------- ---------- ----------
NET CASH--INVESTING ACTIVITIES................................. (49,773) (21,507) (447,378) (153,682)
---------- ---------- ---------- ----------
FINANCING ACTIVITIES:
S Corp. Distributions.......................................... -- (12,518) (12,518) (236,009)
Proceeds from Issuance of Common Stocks........................ 248,020 108,500 728,000 199,500
Proceeds [Payments] from/on Short-Term Debt.................... (4,430) 1,005 49,344 73,596
Proceeds from Loans from Related Parties....................... 103,142 -- 338,850 1,050
Proceeds [Payments] from/on Long-Term Debt..................... (11,921) (9,990) (52,078) 28,243
Principal Payments on Capital Leases........................... (5,494) (5,355) (28,234) (26,673)
Deferred Offering Costs........................................ (91,418) -- (66,544) --
---------- ---------- ---------- ----------
NET CASH--FINANCING ACTIVITIES................................. 237,899 81,642 956,820 39,707
---------- ---------- ---------- ----------
NET [DECREASE] IN CASH......................................... (13,188) (45,379) (37,480) (10,163)
CASH--BEGINNING OF PERIODS....................................... 28,763 66,243 66,243 76,406
---------- ---------- ---------- ----------
CASH--END OF PERIODS............................................. $ 15,575 $ 20,864 $ 28,763 $ 66,243
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest..................................................... $ 25,552 $ 13,282 $ 57,663 $ 53,642
State Income Taxes........................................... $ 800 $ -- $ -- $ 3,164
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Capital Lease Obligations Incurred for Use of Equipment........ $ -- $ -- $ -- $ 53,209
Common Stock Issued for Short-Term Debt........................ $ 27,000 $ -- $ 21,636 $ --
Debt converted to equity....................................... $ 133,500

</TABLE>

Statements.

F-10
<PAGE>
AMERICA'S BEST KARATE

NOTES TO FINANCIAL STATEMENTS

(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS

ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)

[1] ORGANIZATION AND NATURE OF OPERATIONS

America's Best Karate ["ABK"] was incorporated in the State of California in
June 1991. It owns and operates karate studios in the San Francisco Bay Area and
in Las Vegas, Nevada. During 1995, ABK began producing fitness information video
tapes, books, and audio tapes. During 1996, it also began producing educational
television programs for children which emphasize martial arts values and fun.

During 1996 and 1995, ABK's revenue resulted primarily from martial arts
instruction services.

An organizational restructuring is expected to be completed in 1997. While
ABK will focus solely on operating and managing the karate studios, AMERICAN
CHAMPION MEDIA, INC. ["AC Media"], a 100%-owned subsidiary of ABK, will be
formed to operate and manage all media-related programs. ABK will in turn be a
100%-owned subsidiary of a newly formed parent holding company, AMERICAN
CHAMPION ENTERTAINMENT, INC. ["ACE"], which will be owned by the then existing
stockholders of ABK.

[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION--Substantially all students are required to sign a
student enrollment agreement [the "Enrollment Agreement"] covering a period from
36 to 48 months to complete a black belt course or a 2nd degree black belt
course, respectively. The students have the option to (a) make an initial fee
payment equal to 2-5 months of instruction with the remaining amount payable
monthly over the remaining term of the agreement, [starting with the month
following enrollment], or (b) make one or more lump sum payments for the entire
course at a significant discount. Revenues are recognized over the term of the
Enrollment Agreement.

A student may cancel an Enrollment Agreement at any time. A refund, if any,
is made if the student's advanced payments exceed the elapsed portion of the
course, prorated at $75 per month [additional family members, prorated at $45
per person per month]. The elapsed portion of the course is the number of months
between the course starting date and the cancellation date.

Fee payments subject to refund are shown in ABK's financial statements as
deferred revenue which will be recognized as revenue in the future years if
there is no cancellation by the student.

CONCENTRATION OF CREDIT RISK--Financial instruments which potentially
subject ABK to concentrations of credit risk are cash and accounts receivable
arising from its normal business activities. ABK places its cash with high
credit quality financial institutions. The amount on deposit in any one
institution that exceeds federally insured limits is subject to credit risk. ABK
did not have any cash accounts subject to such risk at December 31, 1996. To
reduce credit risk, ABK requires advanced payments from students and thus, no
student fees receivable is recorded.

CASH AND CASH EQUIVALENTS--ABK considers certain highly liquid instruments
purchased with original maturities of three months or less to be cash
equivalents. ABK did not have any cash equivalents at December 31, 1996.

PROPERTY AND EQUIPMENT--Property and equipment is stated at cost.
Depreciation for furniture and fixtures and certain equipment is computed using
the straight-line method over an estimated useful life of five years. Leasehold
improvements are amortized using the straight-line method over the term of the
respective leases. Leased assets under capital lease agreements are amortized
using the straight-line method over the shorter of the estimated useful lives or
the length of the lease terms, ranging from two to five years.

F-11
<PAGE>
AMERICA'S BEST KARATE

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS

ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)

[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FILM COSTS--Film costs consist of the capitalized costs related to the
production of original film masters for videos and television programs. The
total film cost for the production of the master for the STRONG MIND FIT BODY
video is amortized using the individual-film-forecast-computation method which
amortizes costs in the ratio that current gross revenues bear to anticipated
total gross revenues over a period of up to four years. The management of ABK
periodically reviews its estimates of future revenues for each master and if
necessary a revision is made to amortization rates and a writedown to net
realizable value may occur. The net film costs are presented on the balance
sheet at the net realizable value for each master.

Amortization expense for 1996 was $4,685, and there was no film cost
amortization in 1995.

FAIR VALUES OF FINANCIAL INSTRUMENTS--The carrying value of cash,
receivables, accounts payable, and short-term borrowings approximates fair value
due to the short maturity of these instruments. The carrying value of long-term
obligations approximates fair value since the interest rates either fluctuate
with the lending banks' prime rates or approximate market rate. None of the
financial instruments are held for trading purposes.

LOAN INTEREST AMORTIZATION--The value of the stock given to lenders as
additional compensation are being amortized over the term of the loans [See
Notes 8 and 13].

NET [LOSS] PER SHARE--Net [loss] per share are based on the 2,515,700 shares
issued for all periods presented. Shares or equivalents issued within a one year
period prior to the initial filing of the initial public offering of the
registration statement [see Note 15] are treated as outstanding for all reported
periods.

Management anticipates that net proceeds from the proposed public offering
in the amount of $445,500 will be used to retire debt. Had the retirement taken
place at the beginning of the three months ended March 31, 1997, interest
expense of approximately $4,400 would not have been incurred. Assuming the
89,100 shares sold to generate net proceeds sufficient to retire such debt were
outstanding since the beginning of the period, net (loss) per share would have
been $(0.06) (unaudited) for the three months then ended. Had a retirement taken
place at the beginning of the year ended December 31, 1996, interest expense of
approximately $27,000 would not have been incurred. Assuming the 89,100 shares
sold to generate net proceeds sufficient to retire such debt were outstanding
since the beginning of the year, net (loss) per share would have been $(.24) for
the year then ended.

PRO FORMA EARNINGS PER SHARE--Pro Forma earnings per share gives effect to
the charge in lieu of income taxes, necessary due to America's Best Karate's "S"
corporation status in 1995.

INCOME TAXES--Starting 1993, ABK elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Service Code. Under those provisions, ABK
did not pay federal corporate income taxes on its taxable income. Instead, the
stockholders were liable for individual federal income taxes on their respective
shares of the corporate income. Accordingly, no provision has been made for
federal income tax for the year ended December 31, 1995, and the period from
January to February 1996, when the S Corp. status was terminated. In addition,
ABK was taxed as an S Corp. in the state of California. Under state provisions
in California there is a minimal income tax rate for S corporations. Pro forma
earnings per share are presented as if ABK was a C corporation in 1995.

Starting March 1996, income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes currently
due plus deferred taxes. Deferred taxes are recognized for differences between
the basis of assets and liabilities for financial statement and income tax
purposes.

F-12
<PAGE>
AMERICA'S BEST KARATE

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS

ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)

[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The differences relate primarily to depreciable assets [use of different
depreciation methods and lives for financial statement and income tax purposes],
deferred revenue related to tuition fees, and the receivables and payables
recorded for financial statement purposes. The deferred tax assets and
liabilities represent the future tax consequences of those differences, which
will either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred taxes are also recognized for operating losses
that are available to offset future taxable income.

DEFERRED OFFERING COSTS--Deferred offering costs consist of costs incurred
in relation to an anticipated public offering. If the offering is not
consummated, such costs will be expensed and not recorded as a reduction of the
net proceeds of the offering.

[3] GOING CONCERN

At December 31, 1996, ABK had a working capital deficit of $(1,275,626) and
a deficiency in stockholders' equity of $(1,938,498). At March 31, 1997, these
unaudited amounts were $(1,280,999) and $(1,937,972), respectively.
Additionally, ABK has experienced continuing losses from operations. These
factors cause substantial doubt about ABK's ability to continue as a going
concern.

ACE is contemplating an initial public offering to provide for net proceeds
of approximately $5,267,000 to ABK and AC Media [See Note 15]. ABK believes that
the net proceeds from this offering will be sufficient for it to conduct its
operations for the twelve month period following the offering. However, the
success of the offering cannot be assured.

The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. The continuation
of ABK as a going concern is dependent upon the success of the public offering,
and, thereafter, on attaining profitability. There can be no assurances that
management will be successful in the implementation of its plans. The financial
statements do not include any adjustments in the event ABK is unable to continue
as a going concern.

[4] USE OF ESTIMATES, RISKS AND UNCERTAINTIES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Additionally, there are risks and uncertainties which could impact the
future of ABK. See discussion of Risk Factors in the accompanying registration
statement of which these financial statements and Notes are a part.

F-13
<PAGE>
AMERICA'S BEST KARATE

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS

ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)

[5] PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Furniture and Fixtures..................................................... $ 95,322
Equipment.................................................................. 34,367
Leasehold Improvements..................................................... 50,535
Leased Assets.............................................................. 119,899
-----------------
Total...................................................................... 300,123
Less: Accumulated Depreciation and Amortization............................ (249,263)
-----------------
PROPERTY AND EQUIPMENT--NET............................................ $ 50,860
-----------------
-----------------
</TABLE>

Depreciation expense was $64,409 and $64,914 for the years ended December
31, 1996 and 1995, respectively.

The accumulated depreciation related to the leased assets at December 31,
1996 was $105,641. Depreciation on leased assets is included in depreciation
expense.

[6] FILM COSTS

Film costs consist of the capitalized costs related to the production of
videos and program for television as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Videos:
Strong Mind Fit Body..................................................... $ 123,042
Montana Exercise Video................................................... 140,753
Television Program:
The Adventures with Kanga Roddy--In Process.............................. 400,894
--------
Total...................................................................... 664,689
Less: Accumulated Amortization............................................. (4,685)
--------
FILM COSTS--NET........................................................ $ 660,004
--------
--------
</TABLE>

Both videos were completed in 1996, but only the STRONG MIND FIT BODY video
has been partially released in 1996. The production of the first pilot episode
of THE ADVENTURES WITH KANGA RODDY was completed in January 1997.

F-14
<PAGE>
AMERICA'S BEST KARATE

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS

ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)

[7] SHORT-TERM DEBTS

Short-term debts consist of:

<TABLE>
<CAPTION>
DECEMBER 31,
1996
MARCH 31, ------------
1997
-----------
(UNAUDITED)
<S> <C> <C>
Unsecured loan of $50,000 from an individual, requiring monthly
interest-only payments at the rate of 15%, due July 1997. This
individual will receive 71.174 shares of ABK (See Note 18). In
the event the initial public offering (See Note 15) is
unsuccessful, interest and principal payments shall be made on an
amortized schedule over the next 36 months. This loan was
reclassified as a loan payable to related parties (Note 8) when
ABK's shares were issued in January, 1997........................ $ -- $ 50,000

Drawings from a $35,000 bank business credit card line with
interest at the bank's prime plus 6.75%.......................... 34,683 34,113

Unsecured loans ranging from $27,000 to $54,000 from various
individuals with interest at 13% payable on a monthly basis
adjustable to 0.624%--1.248% of net profit before taxes when the
sum of the interest payments equals the loan amount. Lenders have
the option to convert the loans into 0.624%--1.248% of the number
of common shares issued in the proposed initial public offering
(See Note 15). One of the lenders converted $13,500 of a $27,000
loan into 192.171 shares of ABK in March 1997 and the remaining
balance of $13,500 from the individual at March 31, 1997 was
reclassified as loan payable to related parties (See Note 8)..... 54,000 81,000

Unsecured non-interest bearing loan from an individual in the
original amount of $20,000, due on demand........................ 9,000 14,000
----------- ------------

TOTAL SHORT-TERM LOANS........................................ $ 97,683 $ 179,113
----------- ------------
----------- ------------
</TABLE>

The weighted average interest rate of short-term borrowings as of March 31,
1997 and December 31, 1996 were approximately 14%.

F-15
<PAGE>
AMERICA'S BEST KARATE

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS

ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)

[8] LOANS PAYABLE TO RELATED PARTIES

Loans payable to related parties consist of:

<TABLE>
<CAPTION>
DECEMBER 31,
1996
MARCH 31, ------------
1997
-----------
(UNAUDITED)
<S> <C> <C>

Unsecured loans from various individuals ranging from $10,000 to
$150,000, requiring monthly interest-only payments at the rate of
15%, due July 1997. Six hundred and forty eight shares of common
stock with an assigned value of $48,636 at March 31, 1997 were
given to certain individuals as additional compensation for these
unsecured loans. Management determined the assigned value of
these shares with reference to the selling prices of similar
shares during the time period in which such shares were issued.
The loans are presented net of this unamortized charge at March
31, 1997 and December 31, 1996. The common stocks will be
converted at the rate of 1 existing share to 28.1 ACE shares. One
of the individuals (see Note 13C) will receive 14.235 shares of
ABK (See Note 18). In the event the proposed initial public
offering (See Note 15) is unsuccessful, interest and principal
payments shall be made on an amortized schedule over the next 36
months. A total of $110,000 unsecured loans were converted into
1,565.837 shares of ABK at the price of $70.25 per share
(equivalent to $2.50 per share of ACE) on March 31, 1997......... $ 339,201 $ 322,336

Unsecured loan of $27,000 from an individual with interest at 13%
payable on a monthly basis adjustable to 0.624% of net profit
before taxes when the sum of the interest payments equals the
loan amount. Lender has the option to convert the loan into
0.624% of the number of common shares issued in the proposed
initial public offering (See Note 15). $13,500 of the loan was
converted into 192.171 shares of ABK at the price of $70.25 per
share (equivalent to $2.50 per share of ACE) at March 31, 1997.
This loan was originally classified as short term debt at
December 31, 1996 (See Note 7)................................... 13,500 --

Unsecured non-interest bearing loan from an individual............ 20,000 --

Loans totalling $30,000 from various individuals, with interest of
3-month CD (appoximately 5%) plus 3.5%, due on demand............ 29,839 29,839
</TABLE>

F-16
<PAGE>
AMERICA'S BEST KARATE

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS

ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)

[8] LOANS PAYABLE TO RELATED PARTIES (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C> <C>
Loan from an individual in the amount of $100,000 with interest at
12%, payable in 60 monthly principal and interest payments,
maturing in December 1999. The loan reflects two stockholders as
direct obligors and in the event ABK is sold or goes public, this
loan becomes due immediately and the note holder will be given 1%
of the shares of the underwriting at that time. $10,000 of the
loan was converted into 142.349 shares of ABK at the price of
$70.25 per share (equivalent to $2.50 per share of ACE) at March
31, 1997. This loan was originally classified as long-term debt
at December 31, 1996 (See Note 9) and the long-term portion of
$32,122 was included as long term debt at March 31, 1997......... 52,437 --

Less: Long-Term Portion........................................... (32,122) --
----------- ------------

TOTAL LOANS PAYABLE TO RELATED PARTIES........................ $ 422,855 $ 352,175
----------- ------------
----------- ------------
</TABLE>

[9] LONG-TERM DEBT

Long-term debt consist of:

<TABLE>
<S> <C> <C>
Loans from three banks in the amounts ranging from
$9,000 to $80,000, with interest rates spanning from
the bank's reference rate (approximately 8.5% at
December 31, 1996) plus 2.25% to 4%, maturing from May
1998 to April 1999. Two of the bank loans are
guaranteed by two stockholders......................... $ 61,387 $ 67,586

Loans from various individuals in the amounts ranging
from $13,500 to $100,000, with interest spanning from
12% to 14%, payable in 60 monthly principal and
interest payments, maturing from December 1998 to June
2000. One individual loan reflects two stockholders as
direct obligors and in the event ABK is sold or goes
public, this loan becomes due immediately and the note
holder will be given 1% of the shares of the
underwriting at that time. On March 31, 1997, the
individual converted $10,000 of the loan into 142.349
shares of ABK. The $20,315 current portion of the loan
was reclassified as loan payable to related parties at
March 31, 1997 (See Note 8) and only $32,122 was
included as long-term debt at March 31, 1997. Two of
the individual loans are guaranteed by two
stockholders........................................... 50,509 86,546
</TABLE>

F-17
<PAGE>
AMERICA'S BEST KARATE

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS

ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)

[9] LONG-TERM DEBT (CONTINUED)
<TABLE>
<S> <C> <C>
Less: Current Portion................................... (61,785) (82,740)
--------- ---------

LONG-TERM PORTION................................... $ 50,111 $ 71,392
--------- ---------
--------- ---------
</TABLE>

ABK agreed to maintain certain financial ratios and other covenants for one
of the bank loans. As of March 31, 1997 and December 31, 1996, ABK did not meet
the financial ratios as required by the bank. Therefore, bank debts in the
amount of $18,056 and $22,222 at March 31, 1997 and December 31, 1996
respectively have been classified as current.

Aggregate maturities required on long-term debt is as follows:

<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------

<S> <C> <C>
1997...................................................... $ -- $ 82,740
1998...................................................... 61,785 37,783
1999...................................................... 36,784 31,799
2000...................................................... 12,405 1,810
2001...................................................... 922 --
-------------- --------
TOTAL................................................. $ 111,896 $ 154,132
-------------- --------
-------------- --------
</TABLE>

[10] LEASE COMMITMENTS

ABK leases facilities under operating leases and gym equipment under capital
leases that range from two to six years and expire at various dates through
2000. Some leases have options to renew for additional terms and some require
additional increases as defined. There are two operating leases which reflect
officers of ABK as lessees and another operating lease is personally guaranteed
by two officers of ABK.

The future minimum lease payments under these leases are:

<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------- --------- ----------
<S> <C> <C>
1997................................................................. $ 33,828 $ 354,901
1998................................................................. 17,624 191,781
1999................................................................. 5,890 130,295
2000................................................................. -- 39,142
--------- ----------
TOTAL MINIMUM LEASE PAYMENTS 57,342 $ 716,119
----------
----------
Less: Amount Representing Interest..................................... 10,242
---------
Present Value of Net Minimum Capital Lease Payments.................. 47,100
Less: Current Portion of Obligations Under Capital Leases.............. 26,459
---------
NON-CURRENT PORTION OF OBLIGATIONS UNDER CAPITAL LEASES............ $ 20,641
---------
---------
</TABLE>

Total rent expense was $496,212 and $404,326 for the years ended December
31, 1996 and 1995, respectively. Rent concessions in the amount of $21,080 have
been granted related to the lease of one of the Company's facilities. Such
amount is being amortized on a straight line basis over the five-year term of
the lease beginning January 1995.

F-18
<PAGE>
AMERICA'S BEST KARATE

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS

ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)

[11] INCOME TAXES

Generally accepted accounting principles require the establishment of
deferred tax asset for all deductible temporary differences and operating loss
carryforwards. At December 31, 1996, ABK had a deferred tax asset of
approximately $246,000 resulting from the temporary difference between the basis
of assets and liabilities for financial statements and income tax purposes. In
addition, ABK has available at December 31, 1996, approximately $353,000 of
unused operating loss carryforwards that may be applied against future taxable
income and that expire in 2011. Realization of the tax asset is dependent upon
future events affecting utilization of the carryforwards. Because of the
uncertainty that ABK will generate income in the future sufficient to fully or
partially utilize these carryforwards, a valuation allowance has been
established for the full amount of the tax asset.

[12] FITNESS CONSULTING

In 1995, ABK earned $526,625 as fees for fitness consulting to certain
organizations and individuals. There was no such income earned in 1996, and the
management of ABK does not expect to receive this type of income in the future.

[13] RELATED PARTY TRANSACTIONS

[A] During 1996, ABK borrowed $333,800 from six of its stockholders. From
January to March 1997, additional loans of $89,227 were borrowed from five other
shareholders. Additionally, a total of $110,000 unsecured loans were converted
into 1,565.837 shares of ABK common stock at the price of $70.25 per share
(equivalent to $2.50 per share of ACE common stock) on March 31, 1997. The loans
bear interest rate at 15% and mature in July 1997. As additional compensation to
these stockholders, a total of 192.2 and 455.5 shares with values of $27,000 and
$21,636 were issued to them as of March 31, 1997 and December 31, 1996,
respectively. Management determined the assigned value with reference to the
selling prices of similar shares during the time period in which such shares
were issued. For the three months ended March 31, 1997 and for the year ended
December 31, 1996, $20,723 and $5,172, respectively, of these amounts have been
expensed in the statement of operations. The loans are presented net of these
unamortized charges of $22,741 and $16,464 at March 31, 1997 and December 31,
1996 respectively.

[B] From January to March 1997, ABK obtained from a shareholder a $119,300
non-interest bearing loan which was reduced to $20,000 at March 31, 1997.

[C] In 1996, ABK borrowed $10,000 from an individual related to another
individual who is an officer, director and stockholder. The loan bears interest
at the rate of 15% and initially matured in July 1997. The loan was converted to
142.4 shares of ABK common stock in March 1997.

[D] ABK also borrowed $30,000 from a bank credit card line under the name of
an individual who is an officer, director and stockholder, together with two
other individuals related to him. ABK pays interest at the bank's rate of
3-month CD [approximately 5%] plus 3.5%.

[E] ABK paid consulting fees to two of its stockholders in the total amount
of $6,000 for the year ended December 31, 1995.

[F] During 1995, ABK leased certain equipment costing $53,209, which was
originally purchased by the leasing companies from a trading corporation
partially owned by an individual who is an officer, director and stockholder.

F-19
<PAGE>
AMERICA'S BEST KARATE

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS

ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)

[13] RELATED PARTY TRANSACTIONS (CONTINUED)
[G] During 1995 and 1996, ABK issued S corporation distributions of $236,009
and $12,518, respectively, to three stockholders.

[H] In November 1996, ABK agreed to pay to two participants of the MONTANA
EXERCISE VIDEO the sum of $50,000 from the proceeds of the intended initial
public offering and another $50,000 will be paid 30 days prior to the release
date. Accordingly, $100,000 is accrued in these financial statements for this
liability. These two participants are stockholders of ABK.

[I] During 1996, ABK made a total of $92,083 in advances to three
officers/stockholders. The advances were still outstanding at December 31, 1996.

[14] COMMITMENTS AND CONTINGENCIES

[A] In August 1995, ABK entered into a consulting agreement with a
corporation for the development of the STRONG MIND FIT BODY video. ABK has
agreed to pay to that corporation a royalty fee of 2.5% on the gross profit of
each program sold.

[B] In October 1995, ABK signed a deal memo with the producer and writer of
the audio tapes and workbook for the STRONG MIND FIT BODY whereby ABK agreed to
pay to him a royalty fee of 1% of the gross income of the project with a maximum
of $15,000.

[C] In June 1996, ABK entered into an agreement with a consultant for
ADVENTURES WITH KANGA RODDY, with monthly payments of $2,144 beginning June 1996
until the arrangement is terminated.

[D] In September 1996, ABK signed a deal memo with the director of
ADVENTURES WITH KANGA RODDY television program, whereby the director would
receive 2% in the distribution of net profits from the TV broadcasting,
syndication, and video sales of that program.

[E] A royalty fee of $1 will be paid to the two participants of the MONTANA
EXERCISE VIDEO [see Note 13H] for each tape sold.

[F] During 1995 and 1996, the Company issued 41,575 shares of its Common
Stock to various investors for an aggregate of $944,766. During 1996, the
Company issued 455 shares of its Common Stock to 5 debtholders with an aggregate
principal amount in value of $21,636.

[G] Right of Rescission--Commencing after the closing of the proposed public
offering [See Note 15] and subject to compliance with federal and state
securities laws, ACE intends to offer to certain stockholders who previously
purchased equity or debt securities of ABK, the right to rescind their previous
purchases and receive the return of the purchase price paid for such securities
together with interest at a rate to be determined by the state of residence of
the subject holder ["Rescission Offer"]. ACE is making the Rescission Offer,
because, among other things, certain sales of its securities may have failed to
qualify for an exemption under the registration requirements of federal and
state securities laws.

[15] PROPOSED PUBLIC OFFERING

On December 5, 1996, ACE [a company in formation at that date,] entered into
a letter of intent with an Underwriter to offer common stock through a public
offering. Pursuant to the letter of intent, the Underwriter will purchase on a
"firm commitment" basis, 1,300,000 shares of common stock at a public offering
price of $5 per share and 1,300,000 warrants at a public offering price of $0.10
per warrant. ACE

F-20
<PAGE>
AMERICA'S BEST KARATE

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS

ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)

[15] PROPOSED PUBLIC OFFERING (CONTINUED)
agreed to pay underwriting discounts and commissions, and a non-accountable
expense allowance totaling 13% of the gross proceeds.

[16] NEW AUTHORITATIVE PRONOUNCEMENTS

The Financial Accounting Standards Board ["FASB"] has issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments issued to employees
as contrasted to the intrinsic valued based method of accounting prescribed by
Accounting Principles Board ["APB"] Opinion No. 25, "Accounting for Stock Issued
to Employees." The recognition requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995.
ABK will continue to apply Opinion No. 25 in recognizing its stock based
employee arrangements. The disclosure requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995. ABK
adopted the disclosure requirements on January 1, 1996. SFAS No. 123 also
applies to transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. Those transactions must be
accounted for based on the fair value of the consideration received or the fair
value of the equity instrument issued, whichever is more reliably measurable.
This requirement is effective for transactions entered into after December 15,
1995.

The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities." SFAS No. 125 is effective
for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996. Earlier application is not
allowed. The provisions of SFAS No. 125 must be applied prospectively;
retroactive application is prohibited. Adoption on January 1, 1997 is not
expected to have a material impact on the Company. The FASB deferred some
provisions of SFAS No. 125, which are not expected to be relevant to the
Company.

The FASB has issued SFAS No. 128, "Earnings per Share," and SFAS No. 129,
"Disclosure of Information about Capital Structure," in February 1997.

SFAS No. 128 simplifies the earnings per share ["EPS"] calculations required
by APB Opinion No. 15, and related interpretations, by replacing the
presentation of primary EPS with a presentation of basic EPS. SFAS No. 128
requires dual presentation of basic and diluted EPS by entities with complex
capital structures. Basic EPS includes no dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
of securities that could share in the earnings of an entity, similar to the
fully diluted EPS of APB Opinion No. 15. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. When adopted, SFAS No. 128 will
require restatement of all prior-period EPS data presented; however, the Company
has not sufficiently analyzed SFAS No. 128 to determine what effect SFAS No. 128
will have on its historically reported EPS amounts.

SFAS No. 129 does not change any previous disclosure requirements, but
rather consolidates existing disclosure requirements for ease of retrieval.

[17] INDUSTRY SEGMENTS

ABK operates a chain of karate studios and is involved in the development of
fitness videos and educational television programs which are segmented into two
categories for reporting purposes. Tuition

F-21
<PAGE>
AMERICA'S BEST KARATE

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS

ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)

[17] INDUSTRY SEGMENTS (CONTINUED)
and related fees includes ABK's activities related to its operations of karate
studios. Videos and television reflect the activities related to the development
and production of fitness videos and educational television programs.

The relative contributions to net sales, income from operations and
identifiable assets of ABK's two industry segments for the two-year period ended
December 31, 1996 are as follows:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net Sales [1]:
Tuition and Related Fees.............................................................. $ 1,031,407 $ 1,118,892
Videos and Television................................................................. 19,146 --
------------ ------------
NET SALES......................................................................... $ 1,050,553 $ 1,118,892
------------ ------------
------------ ------------
Depreciation and Amortization:
Tuition and Related Fees............................................................ $ 59,724 $ 64,914
Videos and Television............................................................... 4,685 --
------------ ------------
DEPRECIATION AND AMORTIZATION..................................................... $ 64,409 $ 64,914
------------ ------------
------------ ------------
Capital Expenditures:
Tuition and Related Fees............................................................ $ 7,014 $ 22,384
Videos and Television............................................................... 350,364 114,482
------------ ------------
CAPITAL EXPENDITURES.............................................................. $ 357,378 $ 136,866
------------ ------------
------------ ------------
[Loss] From Operations:
Tuition and Related Fees............................................................ $ (475,439) $ (367,480)
Videos and Television............................................................... (166,144) (94,924)
------------ ------------
Totals.............................................................................. (641,583) (462,404)
Less Other [2]...................................................................... -- 526,625
------------ ------------
NET [LOSS] INCOME................................................................. $ (641,583) $ 64,221
------------ ------------
------------ ------------
Identifiable Assets [3]:
Tuition and Related Fees............................................................ $ 100,517 $ 162,257
Videos and Television............................................................... 729,848 118,882
------------ ------------
Totals.............................................................................. 830,365 281,139
Add: Corporate and Other............................................................ 139,125 82,272
------------ ------------
ASSETS............................................................................ $ 969,490 $ 363,411
------------ ------------
------------ ------------
</TABLE>

- ------------------------

[1] There were no sales between industry segments.

[2] Other includes fees earned for fitness consulting.

[3] Corporate and other assets are principally cash, receivables, and prepaid
expenses.

F-22
<PAGE>
AMERICA'S BEST KARATE

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS

ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)

[18] SUBSEQUENT EVENTS

[A] BRIDGE LOANS. In January 1997, ABK received bridge loans from various
individuals totaling $75,000 with interest at 15% payable in monthly
installments. The principal amount is due on the earlier of July 1, 1997 or the
closing of the proposed initial public offering. A total of 106.76 shares of ABK
will be issued to the lenders as additional compensation.

[B] SHARE ISSUANCE. Subsequent to December 31, 1996, 85.405 shares of ABK
were issued to the two individuals described in Notes 7 and 8.

[19] SUBSEQUENT EVENTS [UNAUDITED] SUBSEQUENT TO THE DATE OF THE REPORT OF
INDEPENDENT AUDITORS

[A] Between January 31, 1997 and March 20, 1997, ABK entered into a
private placement in which they obtained $244,000 of financing in exchange
for 3,473.31 shares of ABK.

[B] In June 1997, ACM entered into a two-year non-exclusive arrangement
with Sega of America, Inc. ("Sega"), whereby Sega is appointed as the
non-exclusive agent for puproses of licensing and merchandising the "Kanga
Roddy" name. In addition, Sega will introduce ACM to prospective
sublicensees who may be interested in acquiring merchandising licenses or
home video distribution rights in connection with "Kanga Roddy." In the
event that ACM enters into an agreement with such sublicensees, ACM shall
pay Sega an amount equal to 30% of all monies or other consideration
payable to ACM.

[C] In March, 1997, the founding stockholders cancelled an aggregate of
8,136 shares of common stock held by them, thereby reducing the total of
all common stock then outstanding by the same amount. This cancellation was
done in order to facilitate the proposed public offering

[D] In June 1997, George Chung, the Chairman of the Board, loaned at no
interest approximately $17,673 to the Company in order to allow the Company
to repay its loan with the Bank of Canton. The Company intends to repay Mr.
Chung the outstanding principal balance of this loan with the net proceeds
of the Offering. On July 2, 1997, Mr. Chung also loaned at no interest
approximately $35,400 to the Company in order to allow the Company to repay
its loan from Silicon Valley Bank. The Company intends to repay the
outstanding principal balance of this loan with the net proceeds of the
Offering.

[20] UNAUDITED INTERIM STATEMENTS

The financial statements for the three months ended March 31, 1997 and 1996
are unaudited; however, in the opinion of management all adjustments which are
necessary in order to make the interim financial statements not misleading have
been made. The results for interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year.

F-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.

--------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Selected Financial Data................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 20
Business.................................................................. 24
Management................................................................ 28
Certain Transactions...................................................... 32
Principal Stockholders.................................................... 33
Rescission Offer.......................................................... 33
Description of Securities................................................. 34
Shares Eligible for Future Sale........................................... 36
Underwriting.............................................................. 37
Legal Matters............................................................. 39
Experts................................................................... 39
Additional Information.................................................... 39
Index to Financial Statements............................................. 41
</TABLE>

------------------------

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

1,300,000 SHARES OF COMMON STOCK
1,300,000 REDEEMABLE COMMON STOCK
PURCHASE WARRANTS

[LOGO]

AMERICAN CHAMPION
ENTERTAINMENT, INC.

---------------------

PROSPECTUS

---------------------

[DALTON KENT]
SECURITIES GROUP, INC.

[SHARPE CAPITAL]

, 1997

(ALTERNATE PAGE FOR RESCISSION OFFER PROSPECTUS)
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS

AMERICAN CHAMPION ENTERTAINMENT, INC.

RESCISSION OFFER
684,619 SHARES OF COMMON STOCK

American Champion Entertainment, Inc., a Delaware corporation (the
"Company"), hereby offers (the "Rescission Offer") to forty-seven persons who
previously purchased shares of America's Best Karate's common stock (the
"Rescission Shares") during the period from November 1995 to March 1997, the
right to rescind their previous purchases of the Rescission Shares and receive
the return of the purchase price paid together with interest as described below.

If every shareholder to whom this Rescission Offer is made (the "Rescission
Offerees") elects to rescind the original purchase, the Company would be
required to acquire 684,619 shares of common stock, at an aggregate cost,
excluding interest at various rates of approximately $1,175,520. The Rescission
Shares were not registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any states (collectively, with the
Securities Act, the "Securities Laws"). These sales may not have qualified for
exemption from the registration requirements, or otherwise met the requirements,
of the Securities Laws. Therefore, the Rescission Offerees may have the right
under the Securities Laws, among other things, to rescind their purchases of the
Rescission Shares. In an effort to rectify these possible defects, if any, in
the sale of the Rescission Shares, the Company is offering the Rescission
Offerees the right to rescind under the terms of the Rescission Offer set forth
in this prospectus (the "Prospectus").

The Company will pay to any Rescission Offeree who accepts the Rescission
Offer an amount equal to the consideration paid to America's Best Karate by the
Rescission Offeree for the Rescission Shares together with interest thereon at
the annualized legal rate mandated by applicable Securities Laws (the
"Rescission Price") from the date the Rescission Offeree paid full consideration
for the Rescission Shares to the date of repayment. The Rescission Offer will
commence after the completion of the Company's offering to the public (the
"Public Offering") of certain shares of its common stock, $.0001 par value
("Common Stock") and redeemable Common Stock purchase warrants (the "Warrants")
described in the Prospectus attached hereto as Exhibit A (the "Public Offering
Prospectus") and will remain open for at least thirty days from the date hereof
(the "Rescission Expiration Date"). The Company's obligation to purchase the
Rescission Shares will be paid out of the net proceeds of the Public Offering.
See "Rescission Offer."

The Company will use its best efforts to register or qualify the Rescission
Offer under the Securities Laws. Rescission Offerees who reside in states where
the Rescission Offer cannot be registered or qualified may not be able to
participate in the Rescission Offer. See the Public Offering Prospectus attached
hereto as Exhibit A and incorporated herein by reference for details regarding
the Public Offering, as well as important information about the Company, which
should be considered in evaluating the Rescission Offer.

THE COMMON STOCK SUBJECT TO THIS RESCISSION OFFER INVOLVES A HIGH DEGREE OF
RISK. PURCHASERS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER "RISK
FACTORS" IN THIS PROSPECTUS AND IN THE PUBLIC OFFERING PROSPECTUS BEGINNING ON
PAGE 9.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Upon the terms and subject to the conditions of the Rescission Offer,
payment of the purchase price and interest to Rescission Offerees who elect to
rescind will be made as soon as practicable after receipt by the Company of the
rescission notice (the "Notice of Rescission") attached hereto as Exhibit B and
the appropriate stock certificates or other evidence of the Rescission Shares.

The date of the Prospectus is , 1997.
<PAGE>
(ALTERNATE PAGE FOR RESCISSION OFFER PROSPECTUS)

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THE PUBLIC OFFERING PROSPECTUS ATTACHED HERETO AS EXHIBIT A. UNLESS
THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS AND THE PUBLIC
OFFERING PROSPECTUS TO THE COMPANY ARE REFERENCES TO THE COMPANY AND ITS
SUBSIDIARIES, AMERICAN CHAMPION MEDIA, INC. ("AC MEDIA") AND AMERICA'S BEST
KARATE. EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS AND THE
PUBLIC OFFERING PROSPECTUS ASSUMES NO EXERCISE OF THE WARRANTS, THE
UNDERWRITERS' OVER-ALLOTMENT OPTION, THE UNDERWRITERS' WARRANTS OR OUTSTANDING
OPTIONS OR WARRANTS TO PURCHASE SHARES OF THE COMPANY'S COMMON STOCK.

RESCISSION OFFERING

Commencing after the completion of the Company's Public Offering and subject
to compliance with Federal and state securities laws, the Company is undertaking
the Rescission Offer. If every Rescission Offeree elects to rescind his or her
purchase, the Company would be required to purchase Rescission Shares at an
aggregate cost of approximately $1,175,520 excluding interest (which will vary).
The Company's obligation to purchase the Rescission Shares will be paid out of
the net proceeds of the Public Offering.

PUBLIC OFFERING

The Company is offering to the public 1,300,000 shares of Common Stock and
1,300,000 Warrants through a group of underwriters (the "Underwriters")
represented by Dalton Kent Securities Group Inc. (the "Managing Underwriter").
The Common Stock is being offered at $5.00 per share and the Warrants are being
offered at $.10 per Warrant. See the Public Offering Prospectus attached hereto
for details regarding the Public Offering, as well as important information
about the Company, which should be considered in evaluating this Rescission
Offer. The attached Public Offering Prospectus is an integral part of this
document and is incorporated herein by this reference in its entirety.

The Company was incorporated in Delaware in February 1997 to serve as a
holding company for AC Media, a Delaware corporation formed in February 1997,
and America's Best Karate, a California corporation formed in June 1991. This
Prospectus assumes that the reorganization transaction giving effect to this
holding company structure will be completed prior to the closing of the Public
Offering, and that each share of the currently outstanding shares of common
stock of America's Best Karate will be converted into 28.1 shares of Common
Stock of the Company. The Company's executive offices are located at 26203
Production Avenue, Suite 5, Hayward, California 94545, and its telephone number
is (510) 782-8168.

1
<PAGE>
(ALTERNATE PAGE FOR RESCISSION OFFER PROSPECTUS)

OFFER TO RESCIND

America's Best Karate has previously offered for sale shares of its common
stock in a series of private transactions. America's Best Karate sold 684,619
shares of its common stock to certain private investors for an aggregate price
of approximately $1,175,520. These securities were not registered under the
Securities Act of 1933, as amended (the "Securities Act"), or the securities
acts of other states (collectively, with the Securities Act, the "Securities
Laws"). These offerings might not have been to purchasers who qualified as
accredited investors (as that term is defined in Regulation D promulgated under
the Securities Act) or, for other reasons, may not have qualified for exemption
from the registration requirements, or otherwise met the requirements, of
Federal or state securities laws. An aggregate of 47 persons acquired those
securities. The proceeds of the previous offerings were used for the Company's
developmental working capital during the Company's development stage. The
Rescission Offerees may have the right under the Securities Act and applicable
state securities laws to rescind their purchases. In effort to rectify these
possible defects, if any, in the sale of the Rescission Shares, the Company is
offering the Rescission Offerees the right to rescind under the terms of the
Rescission Offer in this Prospectus.

The Company will pay to any Rescission Offeree who accepts the Rescission
Offer an amount equal to the consideration paid to the Company by the Rescission
Offeree for the Rescission Shares together with interest thereon at the
annualized legal rate mandated by applicable blue sky laws (the "Rescission
Price") from the date of payment of the Rescission Shares by the purchaser to
the date of repayment. The Rescission Offer will commence after the completion
of the Company's offering to the public of 1,300,000 shares of its Common Stock
described in the attached Public Offering Prospectus and will remain open for at
least thirty days from the date hereof (the "Rescission Expiration Date"). The
Company's obligation to purchase the Rescission Shares will be paid out of the
net proceeds of the Public Offering.

The Company requests that all Rescission Offerees complete the Notice of
Rescission accompanying the Prospectus and return it to the Company as soon as
possible but in no event later than the Rescission Expiration Date. Rescission
Offerees who wish to accept the Rescission Offer must enclose with the Notice of
Rescission their certificates representing all (and not less than all) of the
Rescission Shares purchased by the Rescission Offeree, properly endorsed for
transfer. In the event any Rescission Offeree contacts the Company for
information about the Rescission Offer prior to making a decision he or she will
be given publicly-available information.

Any Rescission Offeree who has not submitted a Notice of Rescission to the
Company by the Rescission Expiration Date shall be conclusively deemed to have
rejected the Rescission Offer.

The Notice of Rescission and stock certificates may be delivered by hand or
courier service, or by mail. The method of delivery of all documents is at the
election and risk of the Rescission Offeree. If delivery is by mail, registered
mail, return receipt requested, properly insured, is recommended.

All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of the Notice of Rescission will be determined by the
Company, which determination will be final and binding. The Company reserves the
absolute right to reject any or all Notices of Rescission not properly completed
or if their acceptance, in the opinion of the counsel to the Company, is
unlawful. The Company also reserves the right to waive any irregularity in the
Notice of Rescission. The Company's interpretation of the terms and conditions
of the Rescission Offer (including the instructions in the Notice of Rescission)
shall be final and binding. The Company shall not be under any duty to give
notification of defects in connection with Notices of Rescission or incur any
liability for failure to give such information.

2
<PAGE>
(ALTERNATE PAGE FOR RESCISSION OFFER PROSPECTUS)

Upon the terms and subject to the conditions of the Rescission Offer,
payment of the purchase price and interest to Rescission Offerees who elect to
rescind will be made as soon as practicable after receipt by the Company of the
Notice of Rescission and the appropriate certificates. If every stockholder to
whom the Rescission Offer is made elects to rescind the original purchase, the
Company would be obligated to provide for the acquisition of 684,619 shares of
Common Stock and at an aggregate cost, excluding interest which will vary, of
approximately $1,175,520.

All of the Rescission Offerees paid less than $5.00 per share, the public
offering price of the shares of Common Stock offered in the Public Offering. The
Company does not believe that any or many stockholders will tender securities
pursuant to the Rescission Offer because the price per share in the Public
Offering is higher than the amount recoverable through rescission and because
substantially all such securities were sold to personal or business
acquaintances of the Company and its management. However, the Rescission Offer
will be kept open for at least 30 days and there can be no assurance that the
price of the shares in the trading market during such period will not be less
than the prices paid by the stockholders who are being offered rescission in the
Rescission Offer or that a significant number of such stockholders will not
accept the Rescission Offer. To the extent that the Company is required to use
proceeds from the Public Offering to meet its obligations under the Rescission
Offer, such funds will not be available to be utilized by the Company in
furtherance of its business objectives. Payment of the purchase price and
interest to individuals who elect to rescind will be made as soon as practicable
after receipt by the Company of the notice of rescission and the appropriate
certificates.

RISK FACTORS

The Common Stock subject to this Rescission Offer involves a high degree of
risk. The attached Public Offering Prospectus is an integral part of this
document and is incorporated herein by this reference in its entirety.
Rescission Offerees are strongly urges to carefully review the Public Offering
Prospectus, including the information set forth under "Risk Factors" and
"Rescission Offer," for information regarding the Company, its proposed
activities and management, its financial statements and an investment in shares
of Common Stock of the Company.

USE OF PROCEEDS AND DILUTION

The Company is not issuing any securities in this offering. Accordingly, the
Company will not be receiving any proceeds nor will any stockholder's interest
be diluted.

3
<PAGE>
(ALTERNATE PAGE FOR RESCISSION OFFER PROSPECTUS)

CAPITALIZATION

The impact of the Rescission Offer cannot be estimated precisely in advance.
To the extent that the Company purchases Rescission Shares tendered by
Rescission Offerees, proceeds from the Public Offering will not be available to
be utilized by the Company in furtherance of its business objectives and the
Company's current assets will be diminished and its stockholder's equity will be
affected because the number of shares of Common Stock outstanding will be
reduced.

EXPERTS

4
<PAGE>
(ALTERNATE PAGE FOR RESCISSION OFFER PROSPECTUS)

EXHIBIT A

The Public Offering Prospectus

A-1
<PAGE>
(ALTERNATE PAGE FOR RESCISSION OFFER PROSPECTUS)

EXHIBIT B
NOTICE OF RESCISSION
AMERICAN CHAMPION ENTERTAINMENT, INC.
REQUEST FOR RESCISSION
OR
AFFIRMATION OF PRIOR PURCHASES
THE RESCISSION OFFER WILL EXPIRE AT 5:00
P.M.,
, CALIFORNIA TIME, ON ,
1997.

Please complete and sign this document and return it to AMERICAN CHAMPION
ENTERTAINMENT, INC. at the address set forth below, on or before 5:00 p.m.,
California time, on , 1997, the expiration date of the Rescission
Offer. Please indicate your election by INITIALING Box A or Box B, as
appropriate.

American Champion Entertainment, Inc.
26203 Production Avenue, Suite 5
Hayward, California 94545

The undersigned hereby acknowledges having received the rescission offer
(the "Rescission Offer") described in the prospectus dated , 1997,
by American Champion Entertainment, Inc. (the "Company") to repurchase the
shares of Common Stock hereinafter identified which were previously acquired by
the undersigned from the Company (the "Shares").

As indicated below, the undersigned hereby either (i) affirms the
undersigned's prior purchases of all of such Shares and waives any future right
to rescind such purchases or (ii) elects to accept the Rescission Offer and
requests that the Company repurchase the Shares in accordance with the terms of
the Rescission Offer.

[ ] A. AFFIRMATION OF PRIOR PURCHASES

The undersigned hereby affirms the undersigned's prior purchases of all
Shares of the Company, elects not to accept the Company's offer to repurchase
such Shares, and waives any future right to rescind such purchases.

[ ] B. REQUEST FOR RESCISSION

1. The undersigned hereby irrevocably elects to accept the Company's offer
to repurchase all of the Shares and to pay the undersigned an amount equal to
the consideration which the undersigned paid to the Company for the Shares
together with interest from the date of purchase to the date of repayment at the
rate specified by the undersigned's place of residence and/or domicile, as the
case may be.

2. The undersigned hereby encloses the certificates identified below,
representing all of the Shares that the undersigned acquired from the Company,
duly endorsed for transfer or accompanied by an assignment separate from the
applicable stock certificate. The enclosed represents all, and not less than
all, of the Shares that the undersigned acquired from the Company, including any
Shares acquired as a result of any dividend or stock split. The undersigned
hereby represents that the undersigned is conveying all

B-1
<PAGE>
(ALTERNATE PAGE FOR RESCISSION OFFER PROSPECTUS)

interests in the Shares free and clear of all liens and encumbrances of any
kind, and that no such interest has been previously or concurrently transferred
in any manner to any other person or entity.
<TABLE>
<CAPTION>
<S> <C>
NUMBER OF
SHARES, AS
SHOWN ON FACE
CERTIFICATE OF
NUMBER(S) CERTIFICATE(S)

Total Number of Shares
</TABLE>

B-2
<PAGE>
(ALTERNATE PAGE FOR RESCISSION OFFER PROSPECTUS)

THE UNDERSIGNED:

<TABLE>
<S> <C>
----------------------------------------------------
Print name of the undersigned and, (a) if Shares are
held by a partnership, corporation, trust or entity,
the name and capacity of the individual signing on
its behalf, and (b) if Shares are held as joint
tenants or as community property, name(s) of
co-purchaser(s)

Dated: , 1997 ----------------------------------------------------
Signature

----------------------------------------------------
Tax I.D./Soc. Sec. No.

Dated: , 1997 ----------------------------------------------------
Signature

----------------------------------------------------
Second Tax I.D./Soc. Sec. No.

Residence Address:
Street Address: ----------------------------------------------------

City, State and Zip Code: ----------------------------------------------------

Mailing Address
(if different from residence): ----------------------------------------------------

City, State and Zip Code: ----------------------------------------------------
</TABLE>

B-3
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director. The Company's Bylaws
provided that the Company shall indemnify its officers and directors and may
indemnify its employees and other agents to the fullest extent permitted by
Delaware law.

Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent made a party to
an action by reason of that fact that he or she was a director, officer employee
or agent of the corporation or was serving at the request of the corporation
against expenses actually and reasonably incurred by him or her in connection
with such action if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and with respect to any criminal action, had no reasonable cause to
believe his or her conduct was unlawful.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been advised that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses payable by the Company in connection with the
distribution of the securities being registered are as follows:

<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
SEC Registration Fee (1)...................................................... $ 7,368
NASD Filing Fee............................................................... 2,499
NASDAQ Listing Fee............................................................ 9,000
Printing Expenses (1)......................................................... 50,000
Accounting Fees and Expenses.................................................. 95,000
Legal Fees and Expenses (1)................................................... 220,000
Blue-Sky Fees and Expenses (1)................................................ 50,000
Transfer Agent's Fees and Expenses............................................ 2,500
Underwriters' Non-Accountable Expense Allowance............................... 155,140
Miscellaneous Expenses (1).................................................... 108,493
----------
Total................................................................. $ 700,000
----------
----------
</TABLE>

- ------------------------

(1) Includes expenses attributable to the Rescission Offer. See "Rescission
Offer."

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

In July, 1997, in connection with the reorganization transaction whereby the
Company became the parent holding company of America's Best Karate and AC Media,
an aggregate of 2,515,700 shares of Common Stock of the Company were issued to
an aggregate of 68 persons, each of whom was a shareholder of America's Best
Karate. This issuance was effected in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act and/or Regulation D
adopted thereunder on the basis that the transaction did not involve a public
offering.

Set forth below is a listing of issuances of unregistered shares of Common
Stock by the Company's subsidiary, America's Best Karate, during the last three
years prior to the aforementioned reorganization transaction. All of such sales
were intended to be exempt from the registration requirements under the
Securities Act pursuant to Section 4(2). The Company believes that sales to the
first 11 listed shareholders below are exempt from the registration requirements
under the Securities Act pursuant to Section 4(2)

II-1
<PAGE>
based on the fact that all such sales were made to personal or business
acquaintances of America's Best Karate and its management. The Company believes
that several of these shareholders are "sophisticated" within the meaning of the
exemption because they include people such as Carmen Policy, the general manager
of the San Francisco 49ers and accredited investors, such as Joe Montana, with
the means of informing themselves about the Company and its affairs. Because
sales of shares of Common Stock from November 1995 to March 1997 (other than
shares issued as additional consideration for loans and shares issued on March
31, 1997, pursuant to the conversion of $133,500 worth of debt to equity), may
not have qualified for such exemption because of the lack of sophistication of
certain purchasers, the Company intends to make a rescission offer to the
holders of such securities (see * next to shareholders' names). See "Rescission
Offer." The Company also believes that the shares issued on March 31, 1997, to
the seven individuals listed below pursuant to such individuals' agreements to
convert the aggregate principal amount of $133,500 in debt to shares of
America's Best Karate, are exempt from the registration requirements under the
Securities Act pursuant to Section 3(a)(9). In relying on such exemption, the
Company notes that (i) the securities for exchange was offered by the same
entity that issued the outstanding ones; (ii) the security holders were not
asked to part with anything of value besides the outstanding security; (iii) the
exchange was offered exclusively to the Company's existing security holders and
(iv) the Company did not pay any compensation for the solicitation of the
exchange.

<TABLE>
<CAPTION>
NO. OF
DATE SHAREHOLDER SHARES CONSIDERATION
- --------------- -------------------------------- ------------ -------------
<S> <C> <C> <C>
23-May-95 Don Berryessa 5,000.00 Services
01-Jun-95 Peter K. Y. Kwong 4,500.00 Services
01-Jun-95 Sheri Sylvester 1,000.00 Services
01-Jun-95 Don H. Yee 752.00 Services
01-Jun-95 Montana Family Trust 5,639.00 Services
01-Jun-95 Ronnie Lott 752.00 Services
01-Jun-95 Dwight Clark 752.00 Services
01-Jun-95 Carmen Policy 752.00 Services
01-Jun-95 Brent Jones 100.00 Services
01-Jun-95 Mary Ochs 752.00 Services
01-Jun-95 Palestra Corp 752.00 Services
07-Nov-95 Richard & Gloria Yee* 500.00 $ 20,000
07-Nov-95 Steven Tang* 250.00 $ 10,000
10-Nov-95 Ricky Tung* 1,000.00 $ 40,000
14-Nov-95 Albert Tang* 1,000.00 $ 40,000
30-Nov-95 May Roberts* 250.00 $ 10,000
08-Dec-95 John R. Powers, III* 500.00 $ 20,000
08-Dec-95 Laurene Yip* 250.00 $ 10,000
20-Dec-95 Bonnie LeMat* 250.00 $ 10,000
20-Dec-95 Susan Yagai* 250.00 $ 10,000
20-Dec-95 Dale Chung* 1,000.00 $ 40,000
27-Dec-95 Linda Durnell* 250.00 $ 10,000
08-Jan-96 Ricky Tung* 1,000.00 $ 40,000
08-Jan-96 Petro Estakhri* 500.00 $ 20,000
12-Jan-96 Terry L. Gray* 250.00 $ 10,000
31-Jan-96 Amy Chow* 100.00 $ 4,000
23-Feb-96 Michael Booth* 165.00 $ 5,000
26-Feb-96 Billy Y. Prasadi* 250.00 $ 10,000
02-Apr-96 Richard Yee* 1,000.00 $ 40,000
02-Apr-96 Kwong Family Trust* 500.00 $ 20,000
02-Apr-96 Ted & Irene Chin* 500.00 $ 20,000
02-Apr-96 May Roberts* 250.00 $ 10,000
05-Apr-96 Stanley Ching* 500.00 $ 20,000
12-Apr-96 May Roberts* 500.00 $ 20,000
24-May-96 Kwong Family Trust* 500.00 $ 20,000
01-Jun-96 Stanley Ching* 500.00 $ 20,000
29-May-96 William Loh* 500.00 $ 20,000
03-Jun-96 Warren Wong* 2,000.00 $ 80,000
</TABLE>

II-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
03-Jun-96 Ted & Irene Chin* 500.00 $ 20,000
03-Jun-96 Tommy O. Ng* 1,000.00 $ 40,000
19-Aug-96 Clayton Tominaga* 1,500.00 $ 90,000
20-Aug-96 Laurene Yip* 125.00 $ 7,500
20-Aug-96 Peter C. Ho* 125.00 $ 7,500
25-Aug-96 Camilla T. Y. Kwong* 125.00 $ 7,500
25-Aug-96 Tommy O. Ng* 125.00 $ 7,500
14-Oct-96 John R. Powers, III 71.17 For loan
14-Oct-96 May W. Roberts 71.17 For loan
01-Nov-96 John R. Powers, III 71.17 For loan
09-Nov-96 Noreen Yamaoka 142.35 For loan
25-Nov-96 John C. Chan 14.235 For loan
25-Nov-96 Dale Chung 14.235 For loan
01-Dec-96 John R. Powers, III 71.17 For loan
01-Dec-96 Albert & Amy Tang* 125.00 $ 7,500
01-Dec-96 Laurene Yip* 125.00 $ 7,500
01-Dec-96 Stephen Thomas* 125.00 $ 7,500
01-Dec-96 Louisa Kwok* 500.00 $ 30,000
04-Dec-96 Michael Tom* 166.67 $ 10,000
05-Dec-96 Rafael S. Tom* 300.00 $ 18,000
10-Dec-96 Peter Ho* 125.00 $ 7,500
11-Dec-96 Paul P. H. Shen* 150.00 $ 9,000
12-Dec-96 Eric C. & Ellen Ng* 500.00 $ 30,000
27-Dec-96 Van Living Trust* 250.00 $ 15,000
27-Dec-96 Vivian Lee* 125.00 $ 7,500
28-Dec-96 Brian Shing* 150.00 $ 9,000
28-Dec-96 Joseph Chan* 166.67 $ 10,000
30-Dec-96 Julian & Ann Englestad 71.17 For loan
01-Jan-97 Marianne Chung 14.235 For loan
14-Jan-97 Stanley F. Wasowski 35.587 For loan
14-Jan-97 Amy Okegaki 14.235 For loan
16-Jan-97 Rafael Tom 14.235 For loan
19-Jan-97 Stephen Thomas* 67.00 $ 4,020
23-Jan-97 Jack Yuk Lim Tam 42.705 For loan
31-Jan-97** Scott Gerard* 683.274 $ 48,000
11-Mar-97** Susan Cohen* 56.94 $ 4,000
11-Mar-97** Peter Marsh* 683.274 $ 48,000
13-Mar-97** Keith Loiselle* 216.37 $ 15,200
17-Mar-97** Paul G. Leff* 569.395 $ 40,000
18-Mar-97** Rory Nichols* 284.698 $ 20,000
18-Mar-97** Brian Schuster* 284.698 $ 20,000
18-Mar-97** Al Levine* 284.698 $ 20,000
18-Mar-97** William E. Gay, Jr.* 68.327 $ 4,800
18-Mar-97** David Braver* 45.552 $ 3,200
19-Mar-97** Sarine Chaki* 227.758 $ 16,000
20-Mar-97** Al Levine* 68.327 $ 4,800
31-Mar-97 Marianne Chung 142.349 $ 10,000
31-Mar-97 John R. Powers 711.744 $ 50,000
31-Mar-97 Jack Yuk Lim Tam 427.046 $ 30,000
31-Mar-97 Rafael S. Tom 142.349 $ 10,000
31-Mar-97 Stanley F. Wasowski 142.349 $ 10,000
31-Mar-97 David L. Lei 192.171 $ 13,500
31-Mar-97 Michael Triantos 142.349 $ 10,000
</TABLE>

- ------------------------

** Sales made in a private placement in which America's Best Karate obtained
$244,000 of financing in exchange for 3,473.31 shares.

II-3
<PAGE>
Set forth below is a listing of issuances of debt securities by the
Company's subsidiary, America's Best Karate, during the last three years prior
to the aforementioned reorganization transaction. All of such sales were
intended to be exempt from the registration requirements under the Securities
Act pursuant to Section 4(2) based on the fact that substantially all of such
sales were made to personal or business acquaintances of America's Best Karate
and its management.

<TABLE>
<CAPTION>
ORIGINAL
PRINCIPAL
AMOUNT OF
DATE DEBTHOLDER DEBT
- ------------------ ------------------------------ ----------
<S> <C> <C>
8-Dec-94 Thomas Fu $ 27,000
15-Dec-94 Michael Triantos $ 100,000
30-Apr-95 Thomas Fu $ 27,000
5-May-95 David Lei $ 27,000
14-Oct-96 John R. Powers, III $ 50,000
14-Oct-96 May W. Roberts $ 50,000
1-Nov-96 John R. Powers, III $ 50,000
9-Nov-96 Noreen Yamaoka $ 100,000
25-Nov-96 John C. Chan $ 10,000
26-Nov-96 Dale Chung $ 10,000
1-Dec-96 John R. Powers, III $ 50,000
30-Dec-96 Julian and Ann Englestad $ 50,000
31-Dec-96 Marianne Chung $ 10,000
14-Jan-97 Stanley F. Wasowski $ 25,000
14-Jan-97 Amy Okagaki $ 10,000
16-Jan-97 Rafael Tom $ 10,000
23-Jan-97 Jack Yuk Lim $ 30,000
</TABLE>

ITEM 27. EXHIBITS

3.1* Amended and Restated Certificate of Incorporation

3.2* Bylaws

4.1* Specimen stock certificate

4.2* Warrant Agreement with form of Warrant

4.3* Form of Underwriters' Warrant

5* Opinion of Sheppard, Mullin, Richter & Hampton LLP

10.1* 1997 Stock Plan

10.2* Form of Stock Option Agreement for 1997 Stock Plan

10.3* 1997 Non-Employee Directors Stock Option Plan

10.4* Form of Non-Employee Directors Stock Option Agreement

10.5* Form of Business Loan Agreement utilized for $455,000 of short-term loans due the earlier of July 1,
1997 or consummation of the Offering

10.6* Business Loan Agreement between ABK and the Bank of Canton of California dated May 15, 1993, and
related Promissory Note and Security Agreement

10.7* Business Loan Agreement between the Company and Silicon Valley Bank dated April 25, 1995, and related
Promissory Note and Security Agreement
</TABLE>

II-4
<PAGE>

<TABLE>
<S> <C>
10.8* Promissory Note dated December 15, 1994 made payable by Messrs. Chung and Chan and their wives in
favor of Michael Triantos M.D. Inc. Money Purchase and Profit Sharing Pension Plans Trust

10.9* Employment Agreement between the Company and George Chung dated March 4, 1997, effective upon the
closing date of the Offering

10.10* Employment Agreement between the Company and Anthony Chan dated March 4, 1997, effective upon the
closing date of the Offering

10.11* Employment Agreement between the Company and Don Berryessa dated March 4, 1997, effective upon the
closing date of the Offering

10.12* Employment Agreement between the Company, AC Media and Jan Hutchins dated March 4, 1997, effective
upon the closing date of the Offering

10.13* Convertible Loan Agreement dated as of May 5, 1995, between ABK and David Y. Lei

10.14* Convertible Loan Agreement dated as of December 8, 1994, between ABK and
Thomas Y. Fu

10.15* Amended Deal Memo between ABK and Rick Fichter dated February 23, 1997, with respect to payments
related to the Kanga Roddy Series

10.16* Intentionally Omitted

10.17* Form of Indemnification Agreement

10.18* Form of Amendment No. 1 to Business Loan Agreement utilized for $455,000 of short-term loans due the
earlier of July 1, 1997 or consummation of the Offering

10.19* Letter dated October 29, 1996 from the Company to Tim Pettitt regarding certain payments to the
Montanas

10.20* Distribution Agreement dated June 18, 1996 by and between America's Best Karate and InteliQuest

10.21* Distribution Agreement, dated May 6, 1997, by and between KTEH, San Jose Public Television and
American Champion Media, Inc.

10.22* Letter Agreement, dated June 1997, between AC Media, Inc. and Sega of America, Inc.

10.23* Business Loan Agreement between America's Best Karate and Karen Shen

10.24* Business Loan Agreement between America's Best Karate and Thomas J. Woo

21.1* Subsidiaries of the Registrant

23.1* Consent of Sheppard, Mullin, Richter & Hampton LLP (contained in Exhibit 5)

23.2 Consent of Moore Stephens, P.C.

23.3* Consent of William Duffy

23.4* Consent of Alan Elkes

23.5* Consent of Ronnie Lott
</TABLE>

- ------------------------

* Previously filed

ITEM 28. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.

II-5
<PAGE>
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to the provisions described in Item 24, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by the director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(d) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act; (ii) to
reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration
Statement; and (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration Statement;

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.

II-6
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 5
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hayward, State of California, on July
23, 1997.

AMERICAN CHAMPION ENTERTAINMENT, INC.

By: /s/ ANTHONY CHAN
-----------------------------------------
Anthony Chan
CHIEF EXECUTIVE OFFICER

In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 5 to Registration Statement has been signed by the following
persons in the capacities and on the dates stated.

NAME TITLE DATE
- ------------------------------ -------------------------- -------------------

President, Chief Executive
Officer, Chief Financial
/s/ ANTHONY CHAN Officer and Director
- ------------------------------ (principal executive July 23, 1997
Anthony Chan officer and principal
financial officer)

/s/ GEORGE CHUNG
- ------------------------------ Chairman of the Board and July 23, 1997
George Chung Director

/s/ DON BERRYESSA
- ------------------------------ Vice President and July 23, 1997
Don Berryessa Director

II-7
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation
3.2* Bylaws
4.1* Specimen stock certificate
4.2* Warrant Agreement with form of Warrant
4.3* Form of Underwriters' Warrant
5* Opinion of Sheppard, Mullin, Richter & Hampton LLP
10.1* 1997 Stock Plan
10.2* Form of Stock Option Agreement for 1997 Stock Plan
10.3* 1997 Non-Employee Directors Stock Option Plan
10.4* Form of Non-Employee Directors Stock Option Agreement
10.5* Form of Business Loan Agreement utilized for $455,000 of short-term loans due the earlier of July 1,
1997 or consummation of the Offering
10.6* Business Loan Agreement between ABK and the Bank of Canton of California dated May 15, 1993, and
related Promissory Note and Security Agreement
10.7* Business Loan Agreement between the Company and Silicon Valley Bank dated April 25, 1995, and related
Promissory Note and Security Agreement
10.8* Promissory Note dated December 15, 1994 made payable by Messrs. Chung and Chan and their wives in
favor of Michael Triantos M.D. Inc. Money Purchase and Profit Sharing Pension Plans Trust
10.9* Employment Agreement between the Company and George Chung dated March 4, 1997, effective upon the
closing date of the Offering
10.10* Employment Agreement between the Company and Anthony Chan dated March 4, 1997, effective upon the
closing date of the Offering
10.11* Employment Agreement between the Company and Don Berryessa dated March 4, 1997, effective upon the
closing date of the Offering
10.12* Employment Agreement between the Company, AC Media and Jan Hutchins dated March 4, 1997, effective
upon the closing date of the Offering
10.13* Convertible Loan Agreement dated as of May 5, 1995, between ABK and David Y. Lei
10.14* Convertible Loan Agreement dated as of December 8, 1994, between ABK and Thomas Y. Fu
10.15* Amended Deal Memo between ABK and Rick Fichter dated February 23, 1997, with respect to payments
related to the Kanga Roddy Series
10.16* Intentionally Omitted
10.17* Form of Indemnification Agreement
10.18* Form of Amendment No. 1 to Business Loan Agreement utilized for $455,000 of short-term loans due the
earlier of July 1, 1997 or consummation of the Offering
10.19* Letter dated October 29, 1996 from the Company to Tim Pettitt regarding certain payments to the
Montanas
10.20* Distribution Agreement dated June 18, 1996 by and between America's Best Karate and InteliQuest
10.21* Distribution Agreement, dated May 6, 1997, by and between KTEH, San Jose Public Television and
American Champion Media, Inc.
10.22* Letter Agreement, dated June 1997, between AC Media, Inc. and Sega of America, Inc.
10.23* Business Loan Agreement between America's Best Karate and Karen Shen
10.24* Business Loan Agreement between America's Best Karate and Thomas J. Woo
21.1* Subsidiaries of the Registrant
23.1* Consent of Sheppard, Mullin, Richter & Hampton LLP (contained in Exhibit 5)
</TABLE>

<PAGE>
<TABLE>
<S> <C>
23.2 Consent of Moore Stephens, P.C.
23.3* Consent of William Duffy
23.4* Consent of Alan Elkes
23.5* Consent of Ronnie Lott
</TABLE>

- ------------------------

* Previously filed

<PAGE>

EXHIBIT 23.2

CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS

We consent to the use in this Registration Statement of Form SB-2 of our
report dated February 5, 1997, on our audit of the balance sheet of American
Champion Entertainment, Inc. and of our report dated January 31, 1997 on our
audits of the financial statements of America's Best Karate. We also consent
to the reference to our firm under the caption "Experts" in the Prospectus
forming part of such Registration Statement.

/s/ Moore Stephens, P.C.

MOORE STEPHENS, P.C.
Certified Public Accountants.

Cranford, New Jersey
July 22, 1997