<PAGE> 1
As filed with the Securities and Exchange Commission on August 12, 1998
Registration No. 333-60511
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN CHAMPION ENTERTAINMENT, INC.
(Name of Small Business Issuer in its Charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
7812
(Primary Standard Industrial
Classification Code Number)
94-3261987
(I.R.S. Employer
Identification Number)
1694 THE ALAMEDA, SUITE 100
SAN JOSE, CALIFORNIA 95126-2219
(408) 288-8199
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ANTHONY K. CHAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1694 THE ALAMEDA, SUITE 100
SAN JOSE, CALIFORNIA 95126-2219
(408) 288-8199
(Name and address and telephone number of agent for service)
------------------------
COPIES TO:
LAWRENCE B. LOW, ESQ.
JAMES Y.M. WU, ESQ.
PRESTON GATES & ELLIS LLP
ONE MARITIME PLAZA, SUITE 2400
SAN FRANCISCO, CALIFORNIA 94111
(415) 788-8822
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement. If the
only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. __
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ("Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. _X_
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. __
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. __
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. __
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
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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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 order 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.
SUBJECT TO COMPLETION, DATED __________, 1998
PROSPECTUS
AMERICAN CHAMPION ENTERTAINMENT, INC.
1,187,774 Shares of Common Stock
This Prospectus relates to the sale of up to approximately 1,187,774 shares of
common stock, par value $.0001 per share (the common stock are generally
referred to hereafter as the "Common Stock"), of American Champion
Entertainment, Inc. (the "Company") offered for the account of certain
stockholders of the Company (the "Selling Stockholders"). These 1,187,774
shares of Common Stock (the "Shares") include (i) shares of Common Stock that
have been issued or are reserved for issuance upon the conversion of 7%
Convertible Debentures Due July 1, 2000 issued and to be issued by the Company
(the "Debentures"), based on the trading prices of the Common Stock prior to
July 31, 1998; (ii) 49,500 shares of Common Stock that have been issued or are
reserved for issuance on the exercise of Common Stock Purchase Warrants issued
in connection with the Debentures (the "Debenture Warrants"); (iii) 255,000
shares of Common Stock pursuant to registration rights held by existing
stockholders; and (iv) 75,000 shares of Common Stock that have been issued or
are reserved for issuance on the exercise of Common Stock Purchase Warrants
issued to JW Charles Securities, Inc. in connection with the Debentures (the
"JW Warrants"). The actual number of shares of Common Stock issued or
issuable upon conversion of the Debentures is subject to adjustment and could
be materially less or more than the above estimated amount, depending upon
factors that cannot be predicted by the Company at this time, including, among
others, the future market price of the Common Stock. See "Risk
Factors-Potential Volatility of Stock Price."
The Shares may be offered by the Selling Stockholders from time to time in
transactions (which may include block transactions) on the Nasdaq SmallCap
Market, in negotiated transactions, through a combination of such methods of
sale, or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. The Selling
Stockholders may effect such transactions by selling the Shares to or through
broker-dealers, who may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agents or to whom they
may sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Company will
not receive any of the proceeds from the sale of the Shares by the Selling
Stockholders. The Company has agreed to bear all expenses of registration of
the Shares, but all selling and other expenses incurred by the Selling
Stockholders will be borne by the Selling Stockholders.
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any commissions paid or any discounts or
concessions allowed to any such persons, and any profits received on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Selling Stockholders"
and "Plan of Distribution."
On July 31, 1997, the Common Stock and the Company's redeemable Common Stock
purchase warrants (the "Warrants") began trading on the Nasdaq SmallCap Market
("NASDAQ") under the symbols "ACEI" and "ACEIW," respectively. On July 31,
1998 the closing sale price of the Common Stock and the Warrants on NASDAQ was
$6.2500 and $1.3125, respectively. See "Certain Market Information."
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.
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.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY, THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT OT THAT DATE HEREOF.
The date of this Prospectus is _______________, 1998.
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THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS, AS DEFINED
IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "PSLRA"),
THAT INVOLVE KNOWN AND UNKNOWN RISKS, INCLUDING, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES,"
"ESTIMATES," EXPECTS," "MAY" AND WORDS OF SIMILAR IMPORT FOR
STATEMENTS OF MANAGEMENT'S OPINION. SEE "RISK FACTORS-FORWARD
LOOKING STATEMENTS AND ASSOCIATED RISKS" CONTAINED HEREIN.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MADE HEREBY MAY
ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE
PRICE OF THE COMMON STOCK, INCLUDING PURCHASES OF THE COMMON STOCK TO
STABILIZE ITS MARKET PRICE, PURCHASES OF THE COMMON STOCK TO COVER SOME
OR ALL OF A SHORT POSITION IN THE COMMON STOCK MAINTAINED BY SUCH
PERSONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
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TABLE OF CONTENTS
Page
Incorporation of Certain Documents by Reference 5
Available Information 5
Company 6
Risk Factors 10
Use of Proceeds 13
Certain Market Information 13
Dividend Policy 13
Selling Stockholders 14
Plan of Distribution 15
Legal Matters 15
Experts 15
Additional Information 16
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Securities and Exchange
Commission (the "Commission") are incorporated herein by reference:
1. The Company's Registration Statement on Form SB-2 for its
initial public offering that became effective on July 30,
1997;
2. The description of the Company's Common Stock contained in
the Company's Form SB-2;
3. Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form SB-2, as filed with the Commission on
July 2, 1998 and declared effective on July 17, 1998; and
4. The Company's Proxy Statement for the 1998 Annual Meeting of
Stockholders;
5. The Company's Annual Report on Form 10-KSB for its fiscal
year ended December 31, 1997; and
6. The Company's Quarterly Report on Form 10-QSB for the
quarter period ended March 31, 1998.
All documents subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), prior to the termination of this
offering shall be deemed incorporated herein by reference.
Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a
copy of this Prospectus has been delivered, on the written or oral
request of such person, a copy of any or all of the foregoing documents
incorporated by reference in this Prospectus. Written or oral requests
for such copies should be directed to Anthony K. Chan, American Champion
Entertainment, Inc., 1694 The Alameda, Suite 100, San Jose, California
95126-2219 (telephone: (408) 288-8199).
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration
Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the
securities offered by this Prospectus. This Prospectus, filed as part
of such Registration Statement, does not contain all of the information
set forth in, or annexed as exhibits to, the Registration Statement,
certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with
respect to the Company and this offering, reference is made to the
Registration Statement including the exhibits filed therewith. The
Registration Statement may be inspected and copies may be obtained from
the Public Reference Section at the Commission's principal office, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the
New York Regional Office, 7 World Trade Center, New York, New York
10048, upon payment of the fees prescribed by the Commission.
Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and where the
contract or other document has been filed as an exhibit to the
Registration Statement, each such statement is qualified in all
respects by such reference to the applicable document filed with the
Commission.
The Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith is required to file reports, proxy statements
and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the
public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549; at its New York Regional Office, 7 World
Trade Center, New York, New York 10048; and at its Pacific Regional
Office, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California
90036-3648, and copies of such material can be obtained from the
Commission's Public Reference Section at the prescribed rates. The
Commission maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information
regarding registrants that file electronically. The Company furnishes
its stockholders with annual reports containing audited financial
statements and such other periodic reports as the Company deems
appropriate or as may be required by law.
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COMPANY
The following discussion 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. and America's Best Karate. Except as otherwise noted, all
information in the Prospectus assumes no exercise of outstanding
options to purchase shares of the Company's Common Stock or the
Warrants.
General
American Champion Entertainment, Inc. (the "Company") is a
Delaware corporation headquartered in San Jose, California and
incorporated on February 5, 1997. The Company was formed as a holding
company for its wholly-owned subsidiary, America's Best Karate, a
California corporation ("ABK"), formed in June 1991, and ABK's wholly-
owned subsidiary, American Champion Media, Inc., a Delaware corporation
("AC Media"), formed in February 1997.
ABK owns, manages and operates a chain of karate schools with
four locations in the San Francisco Bay Area. ABK's schools provide
karate instruction to students of all ages and skill levels. AC Media
is a media production and marketing company. Through AC Media, the
Company is involved in (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.
The Kanga Roddy Series
The Company has developed and produced thirteen half-hour
episodes of the Kanga Roddy Series. The Kanga Roddy Series uses
martial arts values such as humility, discipline and respect, with the
added elements of song, contemporary music, dance, vibrant colors and
exciting movements designed to capture its targeted pre-school and
primary school children 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 martial arts programs 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 focuses 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) working on activities such as
reading, physical fitness and arts and crafts. During these
activities, the children encounter an ethical or social problem which
causes uneasiness or unhappiness among some of the children. The
teachers sense the problem and suggest that the children seek help from
their friend, Uncle Pat, the proprietor of a rare bookstore played by
Pat Morita. Uncle Pat, with the assistance of his pet bookworm,
Shakespeare, magically transports 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 a physical activity each time they visit Kanga
Roddy such as balance, jumping or kicking. When the children return to
the community center, they review what they have learned with their
teachers.
In May 1997, the Company and KTEH, the public broadcasting
station serving the San Jose, California area, entered into a
Distribution Agreement (the "Distribution Agreement") which grants
KTEH the exclusive right to distribute, advertise, market or otherwise
exploit the Kanga Roddy Series on public broadcast affiliated stations
throughout the United States for a two-year period. KTEH has cleared
the broadcast of the Kanga Roddy Series with 47 other public broadcast
stations which the Company believes broadcast to approximately 56% of
the households in the United States (approximately 47 million
households). Under the terms of the Distribution Agreement, KTEH is
entitled to 15% of monies collected by KTEH (plus distribution
expenses) from its exploitation of the distribution rights granted to
it with the balance to be paid to the Company. KTEH has paid the
Company an advance of $430,000. The $430,000 advance 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 revenues from the sale (less fees and commissions) and
licensing of non-broadcast ancillary rights of educational products
such as video tapes, books and music tapes and (ii) 5% of gross profits
(less fees and commissions) 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 broadcast rights to the Kanga Roddy
Series not granted to KTEH in the Distribution Agreement.
On April 20, 1998, the Company entered into a Continuing
Distribution Agreement with KTEH for the distribution of 26 more half-
hour Kanga Roddy shows and two one-hour specials. Under the Continuing
Distribution Agreement, KTEH receives the exclusive domestic broadcast
rights to the new episodes for two years and agrees to pay the Company
$30,000 for each half-hour program and $60,000 for each of the two one-
hour shows.
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On April 29, 1998, the Company executed a sponsorship agreement
with Sara Lee Corporation, the parent company of Hanes, which provides
for Hanes' corporate sponsorship of the Adventures With Kanga Roddy
show. Basketball legend Michael Jordon stars in the Hanes campaigns.
The Company's strategy includes pursuing licensing and
merchandising opportunities related to the Kanga Roddy Series.
Characters developed in a popular series, and often the series itself,
achieve a high level of recognition and popularity, making them
valuable licensing and merchandising assets. Among the most popular
licensed items are toys, clothing, food, dinnerware/lunch boxes,
watches and soft vinyl goods such as boots, backpacks and raincoats.
The Company plans to retain worldwide rights to the characters and
images developed in the Kanga Roddy Series, to protect its rights to
such characters and images through appropriate registration, and to
license their use to manufacturers for specific products. There is no
assurance, however, that the Company will be able to successfully
retain or protect its rights through registration, or to 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.
If the Kanga Roddy Series does not attain and maintain widespread
television distribution, or widespread popularity, it is unlikely that
any significant licensing or merchandising opportunities or revenue
will arise or be maintained.
In July 1997, the Company and SEGA of America, Inc. ("SEGA")
entered into a Licensing Agent Agreement appointing SEGA as the
Company's non-exclusive agent for purposes of licensing and
merchandising the "Kanga Roddy" trademark brand name characters and
logo and home video distribution of the Kanga Roddy Series (the "SEGA
Agreement"). Pursuant to the SEGA Agreement, SEGA has agreed to
solicit and negotiate licensing and merchandising agreements on behalf
of the Company, and monitor and oversee the licensing, promotion and
marketing programs in consideration for 30% of all monies or other
consideration payable to the Company under any agreement entered into
during the three year period following execution of the SEGA Agreement
by the Company which was secured or serviced by SEGA. Upon the
expiration or termination of the SEGA Agreement, SEGA will continue to
be entitled to receive such consideration with respect to any License
Agreement for the greater of (i) the actual term of each such License
Agreement; or (ii) five years from the date of commencement of each
such License Agreement. In addition, in the event SEGA enters into any
master toy, home video or master apparel license, SEGA will immediately
become the exclusive agent for the Company for purposes of licensing
and merchandising the "Kanga Roddy" name to third parties for use on
or in connection with merchandise products throughout the world. The
SEGA Agreement is not conditioned on the Company's receiving any
minimum amount from the persons or entities introduced by SEGA.
Fitness Products
The Company develops, produces and markets 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, intended to teach motivational techniques to start and
stay with an exercise program in order to lose weight. In June 1996,
the Company entered into a Distribution Agreement with InteliQuest, a
Utah general partnership. In 1997, the Company's revenue were offset
by a write off of film cost of $105,000 resulting from the Company's
determination that it is unlikely that it will generate significant
revenue from sales of "STRONG MIND FIT BODY" program.
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 trained at the Company's karate schools. The Company has not
commenced distribution of this Fitness Product.
Karate Studios
The Company manages and operates a chain of company owned karate
studios with four locations in the San Francisco Bay Area under the
name "ABK." Each of the Company's instructors, all of whom are black
belts, have undergone a rigorous training program conducted by
Messrs. Chung and Chan (both members of the Karate Black Belt Hall of
Fame) and/or other instructors of ABK. Each karate studio conducts
approximately 40 forty-five minute classes each week. The classes are
generally comprised of 10 to 15 students and taught by one to three
instructors. The Company's black belt course requires approximately 36
months of study and its second degree black belt program requires
approximately 48 months of study. 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. At each karate studio, the Company also
sells martial arts related products, such as uniforms, other clothing
and safety equipment.
<PAGE> 8
During 1997, the Company closed five studios, which were not
operating profitably and on March 31, 1998, the Company sold a karate
studio to its general manager. The Company was able to retain
approximately 65% of the students who attended the closed studios by
combining them with other nearby ABK studios. As of December 31, 1997,
there were approximately 1,350 students enrolled at the Company's five
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 75% of its total capacity. See "Management's Discussion
and Analysis or Plan of Operation - Results of Operations" of the
Company's Post-Effective Amendment No. 1 to its Form SB-2 Registration
Statement.
In connection with the sale of a studio on March 31, 1998, the
Company received a note receivable of $52,859 due in 70 monthly
payments of $1,000 including interest imputed at 10%. The Company has
guaranteed payments of the studio lease which are $4,673 per month
through March 2000. The Company retained all advance payments of
enrollment fees which were $156,536 at March 31, 1998; however, the
Company is liable for any future refunds to students enrolled prior to
March 31, 1998. As of March 31, 1998, the Company reduced the
liability for advance payments of enrollment fees to $19,000 which is
included in deferred revenue. Management will evaluate this liability
quarterly in light of cancellations to date and expected future
cancellations.
The Company's executive offices are located at 1694 the Alameda,
Suite 100, San Jose, California 95126-2219, and its telephone number is
(408) 288-8199.
Recent Developments
On July 2, 1998, the Company entered into the Securities Purchase Agreement for
the sale of the Debentures and Debenture Warrants (the "Agreement"). Pursuant
to the Agreement, the Endeavour Capital Fund S.A. and Amro International S.A.
(the "Investors") agreed under certain terms and conditions to invest up to
$1.8 million into the Company in the Debentures, and the Company agreed, among
other things, to issue to the Investors the Debenture Warrants. Pursuant to
the Agreement, the Company issued to the Investors on July 6, 1998 $1.0 million
in Debentures (the "Initial Debentures") and warrants to purchase 27,500
shares of the Company's Common Stock.
Subject to certain conditions, the Investors will purchase from the Company an
additional $800,000 in Debentures in two tranches of $500,000 (the "First
Tranche") and $300,000 (the "Second Tranche"), respectively. The First
Tranche will be made 30 days after the effectiveness of the registration
statement, of which the Prospectus is a part and the Second Tranche will be
completed 30 days after the completion of the first Tranche.
The terms and conditions pursuant to which the Debentures and Debenture
Warrants were issued are summarized as follows:
* The interest rate on the Debentures is 7% per annum, payable in cash or in
shares of the Company's Common Stock.
* Date of maturity is July 1, 2000.
* The Debentures are convertible into the number of shares of the Company's
Common Stock equal to the principal amount and accrued and unpaid interest
outstanding under the Debentures on the conversion date divided by the greater
of: (I) the lower of: (a) 75% of the Market Price(1) on the conversion date
or (b) 117.5% of the Market Price on the date the Debenture is issued (for the
Initial Debentures, this amount was $7.725625 per share); or (II) 50% of the
Market Price of the Company's stock on the date the Debenture is issued,
subject to adjustments (the "Floor Price") (for the Initial Debentures the
Floor Price was $3.2875 per share).
* If at any time after November 3, 1998 (for the Initial Debentures), the
Company's Common Stock is trading at a Market Price, for ten consecutive
trading days, at a level such that 75% of such Market Price is less than the
Floor Price, then the Company is required to pay to the Investors an amount
equal to 2.5% of the outstanding principal of the Debentures for every 30-day
period that the Market Price of the Company's Common Stock is at such level
(the "Low Market Amount"). The Low Market Amount is calculated on a pro rata
basis (i.e. approximately 0.083% per day) for the first 30-day period only that
75% of the Market Price is less than the Floor Price. Thereafter, the Company
must pay the full Low Market Amount (2.5% of the outstanding principal amount)
for each subsequent 30-day part thereof.
* If the Company does not timely pay the Low Market Amount, then the Investors
have the right to convert the Debentures, until the Low Market Amount is paid
in full, except that the conversion rate discussed above is determined as if
there is no Floor Price.
* In no event (subject to certain exceptions, including a Company default under
any Debenture or the Agreement) shall an Investor be entitled to convert any
Debenture to the extent that, after such conversion, the sum of (1) the number
of shares of Common Stock beneficially owned by the Investor and it's
affiliates, and (2) the number of shares of Common Stock issuable upon the
conversion of the Debenture would result in beneficial ownership by the
Investor and its affiliates of more than 9.99% of the outstanding shares of
Common Stock.
(1) Market Price is defined in the Agreement as (x) the average closing bid
price of the Common Stock as reported by Bloomberg, LP or the average closing
bid price on the over-the-counter market, (i) if a period of time is specified
in the relevant provision of the Debenture, for such period, and (ii) if no
period of time is specified in the relevant provision of the Debenture, then
for the 5 days ending on the trading day immediately preceding the relevant
date, or (y) if the Common Stock is listed on a stock exchange, the lowest
trade price on such exchange on the date indicated in the Debenture as
reported in the Wall Street Journal.
<PAGE> 9
* At its option, the Company may redeem the Debentures at any
time prior to conversion for an amount equal to the accrued
and unpaid interest under the Debentures plus 122.5% of the
outstanding principal under the Debentures.
The Debentures may not be converted after the Company gives notice of its
intent to redeem pursuant to the Agreement.
* Debenture Warrants to purchase 2,750 shares of the Company's Common Stock were
and will be granted to the Investors for each $100,000 in Debentures issued.
The Debenture Warrants expire on July 6, 2003 and provide for an exercise price
of $7.56125 per share.
The Agreement also has the following additional term:
* The Company is required to file with the Commission this registration
statement to register the Common Stock issuable upon conversion of the
Debentures and upon exercise of the Debenture Warrants to allow
the Investors to resell such Common Stock to the public.
The terms and conditions pursuant to which the JW Warrants were issued are
summarized as follows:
* JW Charles Securities, Inc. received a warrant to purchase 75,000 shares of
the Company's Common Stock, subject to certain anti-dilution adjustments. The
exercise price for the JW Warrants is $7.56125, and the JW Warrant expires on
July 1, 2001.
<PAGE> 10
RISK FACTORS
The securities offered hereby are highly speculative and should
be purchased only by persons who can afford to lose their entire
investment in the Company. Each prospective investor should carefully
consider the following risk factors, as well as all other information
set forth elsewhere in this Prospectus.
History of Losses and Deficits; Uncertainty of Attaining Profitability.
The Company sustained operating losses of $641,583, $801,416 and
$337,287 in 1996, 1997 and the six months ended June 30, 1998,
respectively. 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.
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 and the
first 13 episodes of the Kanga Roddy Series with its own funds and the
proceeds of the IPO, the Company is dependent upon the proceeds of additional
financing to produce the remainder of the 28 episodes of the Kanga Roddy
Series it is obligated to deliver pursuant to the Continuing Distribution
Agreement between KTEH and the Company. On July 2, 1998, the Company entered
into the Agreement for the sale of $1,800,000 of 7% Convertible Debentures due
July 1, 2000 (the "Debentures"), the Debenture Warrants and the JW Warrants.
On such date, the Company sold Debentures in the principal amount of
$1,000,000 and Common Stock Purchase Warrants to purchase 27,500 shares of
Common Stock. The sale of the Debentures in the principal amount of $800,000
and, Debenture Warrants to purchase 22,000 shares of Common Stock is, subject
to certain conditions, expected to occur within sixty (60) days of the date of
this Prospectus. The Company believes that the net proceeds of the sale of
the Debentures, together with funds generated from operations, if any, will be
sufficient to produce the next 7 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. The Company's failure
to obtain such additional financing will materially adversely affect its
ability to produce further episodes of the Kanga Roddy Series.
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.
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.
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.
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 August 5, 1997, with each of
such individuals. None of such employment agreements contains non-
competition provisions. See "Management--Employment Agreements" of
the Company's Post-Effective Amendment No. 1 to its Form SB-2
Registration Statement. 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.
<PAGE> 11
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.
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. The Company's Kanga Roddy Series competes 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.
Potential Return of Membership Fees. Pursuant to the terms of its
standard contract with its students, ABK 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 ABK or ABK 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 other than in connection with its sale of a studio on
March 31, 1998. 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.
Control by Messrs. Chan and Chung. As of the date of this Prospectus,
Anthony Chan and George Chung, the Company's founders and principal
executive officers, collectively beneficially own 1,016,276 shares of
the Company's outstanding Common Stock, representing approximately
26.5% of the outstanding shares prior to this Offering and
approximately 18.2% of the outstanding shares of Common Stock after
this offering (assuming no exercise of any outstanding options or
Warrants). 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.
Anti-takeover Effects of Delaware Law. 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" of the
Company's Post-Effective Amendment No. 1 to its Form SB-2 Registration
Statement.
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.
No Intention to Pay Dividends. The Company has not and 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.
Nasdaq Maintenance Requirements; Possible Delisting of Securities from
Nasdaq Market; Risks of Low priced Stocks. The Company's Common Stock
are listed on NASDAQ. The Commission has approved rules imposing
criteria for listing of securities on NASDAQ, including standards for
maintenance of such listing. For continued listing, a company, among
other things, must have $2,000,000 in net tangible assets, $1,000,000
in market value of securities in the public float and a minimum bid
price of $1.00 per share. If the Company is unable to satisfy NASDAQ's
maintenance criteria in the future, its securities may be delisted from
NASDAQ. In such event, trading, if any, in the Company's securities
would thereafter be conducted in the over counter market in the so
called "pink sheets" or the NASD's "Electronic Bulletin Board." As a
consequence of such delisting, an investor would likely find it more
difficult to dispose of, or to obtain quotations as to, the price of
the Company's securities.
<PAGE> 12
Penny Stock Regulation. In the event that the Company is unable to
satisfy the maintenance requirements for NASDAQ and its Common Stock
falls below the minimum bid price of $1.00 per share for the continued
quotation, trading would be conducted on the "pink sheets" or the
NASD's Electronic Bulletin Board. In the absence of the Common Stock
being quoted on NASDAQ, or the Company's having $2,000,000 in
stockholders' equity, trading in the Common Stock would be covered by
Rule-15g 9 promulgated under the Exchange Act, for non NASDAQ and non
exchange listed securities. Under such rule, broker dealers who
recommend such securities to persons other than established customers
and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from
this rule if the market price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny
stock to be any equity security that has a market price of less than
$5.00 per share, subject to certain exceptions. Such exceptions
include an equity security listed on NASDAQ, and an equity security
issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three
years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years, or
(iii) average revenue of at least $6,000,000 for the preceding three
years. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a
disclosure schedule explaining the penny stock market and the risks
associated therewith.
If the Company's securities were to become subject to the
regulations applicable to penny stocks, the market liquidity for the
securities would be severely affected, limiting the ability of broker
dealers to sell the securities and the ability of purchasers of the
securities offered hereby to sell their securities in the secondary
market. There is no assurance that trading in the Company's securities
will not be subject to these or other regulations that would adversely
affect the market for such securities.
Potential Volatility of Stock Price. The trading price of the Common
stock is subject to wide fluctuations in response to variations in
operating results of the Company and other companies that operate in
the Company's markets, general economic conditions in the industries in
which the Company competes and the strength of the domestic and
international economy, to name a few. The Company's stock traded from
a high of $9.625 in the first quarter of 1998 to a low of $4.125 in the
third quarter of 1997. Some fluctuations, particularly those affecting
the market prices for many small companies, have often been unrelated
to the operating performance of the specific companies.
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. 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.
<PAGE> 13
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of
the Shares offered hereunder by the Selling Shareholders. The offering
is made to fulfill the Company's contractual obligations to the Selling
Shareholders to register the Shares held by the Selling Shareholders.
CERTAIN MARKET INFORMATION
The Company's Common Stock commenced trading on the NASDAQ
SmallCap Market under the symbol "ACEI" on August 1, 1997. The range
of high and low reported closing sales prices for the Common Stock as
reported by NASDAQ since the commencement of trading were as follows:
ACEI High Low
1997
Third Quarter $5.50 $4.125
Fourth Quarter $8.00 $4.813
1998
First Quarter $9.625 $7.75
Second Quarter $9.563 $6.563
Third Quarter (through July 31, 1998) $7.00 $6.25
The prices set forth above reflect inter dealer prices, without
retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
On July 27, 1998, as reported by the Company's transfer agent,
shares of Common Stock were held by approximately 700 shareholders of
record.
DIVIDEND POLICY
The Company intends to retain future earnings, if any, that may
be generated from the Company's operations to 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.
<PAGE> 14
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of July 31, 1998 by each of the Selling
Stockholders assuming the conversion of the Debentures of $1,800,000 principal
amount and a conversion rate of $4.790625 per share, based on application of
the formula for computing the conversion rate as provided in the Debenture (see
"Recent Developments"), the exercise of the Debenture Warrants to purchase
49,500 shares of Common Stock and the exercise of the JW Warrants to purchase
75,000 shares of Common Stock. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to the shares of Common Stock, except to the
extent authority is shared by spouses under applicable law.
The information included below is based upon information provided
by the Selling Stockholders. Because the Selling Stockholders may
offer all, some or none of their Shares, no definitive estimate as to
the number of Shares that will be held by the Selling Stockholders
after such offering can be provided and the following table has been
prepared on the assumption that all Shares offered under this
Prospectus will be sold.
<TABLE>
<CAPTION>
Common Stock to be
Beneficially Owned
Common Stock Beneficially if All Shares Offered
Owned on July 31,1998(1) Hereunder Are Sold(1)
-------------------------------- -------------------------------
Shares That
May be Offered
Name Shares Percent Hereunder Shares Percent
- ------------------ -------------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
David Braver 4,000 * 4,000 -- --
Sarine Chaki 20,000 * 20,000 -- --
Susan Cohen 5,000 * 5,000 -- --
William Edwin Gay, Jr. 6,000 * 6,000 -- --
Scott Gerard 60,000 1.26 60,000 -- --
Albert Levine 31,000 * 31,000 -- --
Keith E. Loisell 19,000 * 19,000 -- --
Peter Marsh 60,000 1.26 60,000 -- --
Rory Nichols 25,000 * 25,000 -- --
Brian Schuster 25,000 * 25,000 -- --
The Endeavour Capital Fund S.A. 428,887 9.00 428,887 -- --
Amro International S.A. 428,887 9.00 428,887 -- --
JW Charles Securities, Inc. 75,000 1.57 75,000 -- --
-------- -------- --------- ---------- ---------
1,187,774 24.93% 1,187,774 -- --
- -----------------------
* Less than one percent (1%)
</TABLE>
(1) As required by regulations of the Commission, the number of Shares
shown as beneficially owned include Shares which can be purchased within 60
days after July 31, 1998. The actual number of shares of Common Stock
beneficially owned is subject to adjustment and could be materially more or
less than the estimated amount indicated depending upon factors which cannot
be predicated by the Company at this time, including, among others, the
market price of the Common Stock.
<PAGE> 15
PLAN OF DISTRIBUTION
Sales of the Shares may be effected by or for the account of the
Selling Stockholders from time to time in transactions (which may
include block transactions) on the Nasdaq SmallCap Market, in
negotiated transactions, through a combination of such methods of sale,
or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale or at negotiated prices. The Selling
Stockholders may effect such transactions by selling the Shares
directly to purchasers, through broker-dealers acting as agents of the
Selling Stockholders, or to broker-dealers acting as agents for the
Selling Stockholders, or to broker-dealers who may purchase Shares as
principals and thereafter sell the Shares from time to time in
transactions (which may include block transactions) on the Nasdaq
SmallCap Market, in negotiated transactions, through a combination of
such methods of sale, or otherwise. In effecting sales, broker-dealers
engaged by a Selling Stockholder may arrange for other broker-dealers
to participate. Such broker-dealers, if any, may receive compensation
in the form of discounts, concessions or commissions from the Selling
Stockholders and/or the purchasers of the Shares for whom such broker-
dealers may act as agents or to whom they may sell as principals, or
both (which compensation as to a particular broker-dealer might be in
excess of customary commissions).
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in the distribution of the
Shares may be deemed to be "underwriters" within the meaning of the
Securities Act. Any commissions paid or any discounts or concessions
allowed to any such persons, and any profits received on the resale of
the Shares purchased by them may be deemed to be underwriting
commission or discounts under the Securities Act.
The Company has agreed to bear all expenses of registration of
the Shares other than legal fees and expenses, if any, of counsel or
other advisors of the Selling Stockholders. Any commissions,
discounts, concessions or other fees, if any, payable to broker-dealers
in connection with any sale of the Shares will be borne by the Selling
Stockholders selling such Shares.
The Company has agreed to indemnify the Selling Stockholders, or
their transferees or assignees, against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments the
Selling Stockholders or their respective pledgees, donees, transferees
or other successors in interest, may be required to make in respect
thereof.
LEGAL MATTERS
The valid issuance of the shares of Common Stock offered hereby
has been passed upon for the Company by Preston Gates & Ellis LLP, San
Francisco, California.
EXPERTS
The financial statements of ABK as of December 31, 1996, and for
the year then ended 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.
The financial statements of the Company as of December 31, 1997,
and for the year then ended have been included herein and in the
registration statement in reliance upon the reports of Moss Adams LLP,
independent certified public accountants, appearing elsewhere herein,
and upon the authority of such firm as experts in accounting and
auditing.
Effective October 8, 1997, the Board of Directors (the "Board"
of American Champion Entertainment, Inc. (the "Registrant"), dismissed
Moore Stephens, P.C. ("Moore Stephens"), and such firm will non longer
be acting as the Registrant's principal accountant. Moore Stephens'
report on the Registrant's financial statements dated February 5, 1997,
the date of the Registrant's incorporation, did not contain an adverse
opinion or a disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles. Moore Stephens'
report on the financial statements for the past two years relating to
America's Best Karate, predecessor to the Registrant ("ABK"), dated
January 31, 1997, did not contain an adverse opinion or a disclaimer of
opinion and was not qualified or modified as to audit scope or
accounting principles; however, such report did include a modification
of the auditor's standard report, noting that certain factors raised
substantial doubt about ABK's ability to continue as a going concern.
During Registrant's and its predecessor's two most recent fiscal years
and the interim period through October 8, 1997, there were no
disagreements between Registrant or its predecessor and Moore Stephens
on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which, if not
resolved to the satisfaction of Moore Stephens, would have caused it to
make reference to the subject matter of the disagreements in connection
with its report.
Effective October 8, 1997, Registrant engaged Moss Adams LLP as
its principal accountant. Such engagement was approved by the
Registrant's Board of Directors. During Registrant's two most recent
fiscal years and any subsequent interim period through October 8, 1997,
Registrant did not consult Moss Adams LLP regarding the application of
accounting principals to a specified transaction, the type of audit
opinion that might be rendered on Registrant's financial statements or
any matter that was the subject of disagreement or a reportable event.
<PAGE> 16
ADDITIONAL INFORMATION
This Prospectus does not contain all information set forth in this
registration statement, certain parts of which are omitted in
accordance with the rules and regulations of the 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 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
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.
<PAGE> 17
No dealer, salesperson or other person is authorized to give any
information or to make any representations 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. This Prospectus does not constitute an offer to buy any
security other than the securities offered by this Prospectus, or an
offer to sell or a solicitation of an offer to buy any securities by
any person in any jurisdiction where such offer or solicitation is not
authorized or is unlawful. Neither delivery of this Prospectus nor any
sale hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the
date hereof.
TABLE OF CONTENTS
Page
Incorporation of Certain Documents by Reference 5
Available Information 5
Company 6
Risk Factors 10
Use of Proceeds 13
Certain Market Information 13
Dividend Policy 13
Selling Stockholders 14
Plan of Distribution 15
Legal Matters 15
Experts 15
Additional Information 16
AMERICAN CHAMPION ENTERTAINMENT, INC.
1,187,774 SHARES OF COMMON STOCK
------------------------
PROSPECTUS
_______________
_________, 1998
<PAGE> 18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows the estimated expenses of the issuance
and distribution of the securities offered hereby (all such expenses will
be borne by the Company):
Registration fee $ 1,724.30
Legal fees and expenses 50,000.00
Accounting fees and expenses 3,000.00
Miscellaneous, including Nasdaq listing fees 146,000.00
-----------
Total $ 200,724.30
ITEM 15. 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.
<PAGE> 19
ITEM 16. EXHIBITS
The exhibits filed as part of this Amendment No.1 to the Registration Statement
are as follows:
Number Description
4.1* Securities Purchase Agreement, dated July 2, 1998, by and
among the Company and the Buyers as defined therein.
4.2* 7% Convertible Debentures due July 1, 2000.
4.3* Joint Escrow Instructions.
4.4* Registration Rights Agreements in connection with the
issuance of the Debentures.
4.5* Common Stock Purchase Warrant.
4.6* Registration Rights Agreements for certain existing
Stockholders regarding 255,000 shares of Common Stock.
5.1 Opinion of Preston Gates & Ellis LLP regarding legality of
securities being registered.
23.1 Consent of Preston Gates & Ellis LLP (included in its
opinion filed as Exhibit 5.1).
23.2* Consent of Moss Adams LLP.
23.3* Consent of Moore Stephens P.C.
(* Previously filed)
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement 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.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to its Certificate of
Incorporation, its Bylaws, or otherwise, the Registrant has been advised
that in the opinion of the Securities Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment of
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant 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 Registrant 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 a
public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
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 to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) 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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
<PAGE> 20
(iii) 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;
provided, however, that paragraph (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is incorporated by reference from periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
<PAGE> 21
SIGNATURES
Pursuant to 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 S-3 and has duly caused this Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Jose, California on the 12th day
of August, 1998.
By /s/ Anthony K. Chan
Anthony K. Chan
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.1
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacities Date
- --------------------------- ------------------------------------ -------------
<S> <C> <C>
/s/ Anthony K. Chan President, Chief Executive Officer, August 12, 1998
- ------------------------- and Director (principal executive
Anthony K. Chan officer)
/s/Anthony K. Chan Chairman of the Board and Director August 12, 1998
- -------------------------
Anthony K. Chan (attorney-in-fact)
George Chung
/s/ Anthony K. Chan Vice President and Director August 12, 1998
- -------------------------
Anthony K. Chan (attorney-in-fact)
Don Berryessa
/s/ Anthony K. Chan Vice President and Chief Financial August 12, 1998
- ------------------------- Officer (principal financial officer)
Anthony K. Chan (attorney-in-fact)
Mae Lyn Woo
/s/ Anthony K. Chan Director August 12, 1998
- -------------------------
Anthony K. Chan (attorney-in-fact)
William T. Duffy
/s/ Anthony K. Chan Director August 12, 1998
- -------------------------
Anthony K. Chan (attorney-in-fact)
Alan Elkes
/s/ Anthony K. Chan Director August 12, 1998
- -------------------------
Anthony K. Chan (attorney-in-fact)
Jan D. Hutchins
/s/ Anthony K. Chan Director August 12, 1998
- -------------------------
Anthony K. Chan (attorney-in-fact)
Ronald M. Lott
</TABLE>
<PAGE> 22
EXHIBIT INDEX
Number Description
4.1* Securities Purchase Agreement, dated July 2, 1998, by and
among the Company and the Buyers as defined therein.
4.2* 7% Convertible Debentures due July 1, 2000.
4.3* Joint Escrow Instructions.
4.4* Registration Rights Agreements in connection with the
issuance of the Debentures.
4.5* Common Stock Purchase Warrant.
4.6* Registration Rights Agreements for certain existing
Stockholders regarding 255,000 shares of Common Stock.
5.1 Opinion of Preston Gates & Ellis LLP regarding legality of
securities being registered.
23.1 Consent of Preston Gates & Ellis LLP (included in its
opinion filed as Exhibit 5.1).
23.2* Consent of Moss Adams LLP.
23.3* Consent of Moore Stephens P.C.
(* Previously filed)
Exhibit 5.1
August 12, 1998
American Champion Entertainment, Inc.
1694 The Alameda, Suite 100
San Jose, CA 95126-2219
Ladies and Gentleman:
At your request we have examined the Registration Statement No.
333-60511 filed by you with the Securities Exchange Commission (the
"Commission") on August 3, 1998 (the "Registration Statement") in
connection with the registration under the Securities Act of 1933, as
amended, of 1,187,774 shares of the Common Stock of American Champion
Entertainment, Inc. (the "Stock")
As your counsel, we have examined the proceedings taken by you in
connection with the issuance and sale of up to 1,187,774 shares of the
Stock.
It is our opinion that up to 1,187,774 shares of the Stock, when
issued and sold in the manner referred to in the Registration
Statement, will be legally issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to all references to us in
the Registration Statement, the Prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
/s/ Preston Gates & Ellis LLP
Preston Gates & Ellis LLP
