SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 1O-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, For the transition period from
___________ to ____________
Commission File Number 333-18967
AMERICAN CHAMPION ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 94-3261987
(State or Other Jurisdiction or (IRS Employer
Incorporation or Organization) Identification Number)
1694 The Alameda, Suite 100, San Jose, California 95126-2219
(408) 288-8199
(Registrant's Address of Principal Executive Offices and Telephone Number)
26203 Production Avenue, Suite 5, Hayward, California 94545
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes ..X.. No .....
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15 (d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes ..... No .....
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at June 30, 1998
----------------------- ---------------------------
Common Stock, $.0001 par value 3,832,345 shares
Transitional Small Business Disclosure Format (check one) Yes ..... No ..X..
Exhibit Index on Page 23
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
Form 10-QSB
June 30, 1998
TABLE OF CONTENTS
Page
-----
PART I - Financial Information
Item 1. Financial Statements 3
Consolidated Balance Sheet as of June 30, 1998 3
Consolidated Statements of Operations for
the three month periods and the six month periods
ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for
the three month periods and the six month periods
ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and analysis of
Financial Condition and Results of Operations 20
PART II - Other Information
Item 1. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
Exhibit Index 24
Exhibits 26
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1- Financial Statements - (unaudited)
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets (unaudited)
Current assets:
Cash....................................... $144,247 $1,795,657
Account receivable......................... 50,817 220,817
Loans receivable, related parties.......... 115,137 114,773
Current portion of note receivable 6,401 0
Current portion of film costs.............. 1,200,000 655,500
Prepaid expenses and other................. 79,984 96,556
------------ ------------
Total current assets....................... 1,596,586 2,883,303
Property and equipment, net.................. 247,032 255,423
Other Assets
Film costs, net.............................. 2,623,106 1,789,917
Note receivable 46,458 0
Other assets................................. 31,552 35,152
------------ ------------
$4,544,734 $4,963,795
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses...... $348,215 $199,344
Deferred revenues, current portion......... 222,491 282,056
Loans payable, related parties............. 36,477 37,255
Long-term debt, current portion............ 6,307 5,856
Obligations under capital leases,
current portion.......................... 10,945 10,157
Other...................................... 4,216 4,216
------------ ------------
Total current liabilities.................. 628,651 538,884
------------ ------------
Long-term liabilities:
Deferred revenues.......................... 104,305 261,464
Long-term Debt............................. 51,785 58,343
Obligations under capital leases........... 849 6,565
Other...................................... 2,108 4,216
------------ ------------
Total long-term liabilities................ 159,047 330,588
------------ ------------
Stockholders' Equity:
Common stock, $.0001 par value, 3,832,345 o.t. 5,529,419 5,529,419
Common stock warrants...................... 149,500 149,500
Accumulated deficit........................ (1,921,883) (1,584,596)
------------ ------------
Total stockholders' equity ................ 3,757,036 4,094,323
------------ ------------
$4,544,734 $4,963,795
============ ============
</TABLE>
See accompanying notes.
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Tuition and related fees......... $192,027 $171,462 $318,932 $427,412
Accessories and video sales...... 9,475 17,512 22,876 39,750
Film income...................... 31,667 -- 246,667 0
Interest income.................. 2,406 -- 29,098 0
---------- ---------- ---------- ----------
Total revenue.................... 235,575 188,974 617,573 467,162
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales.................... 5,281 11,404 13,992 25,976
Amortization of film costs....... 11,688 -- 85,020 0
Salaries and payroll taxes....... 182,952 188,110 398,586 381,138
Rent............................. 73,081 109,567 157,697 233,866
Selling, general and
administrative................. 153,809 69,134 389,926 125,012
Interest......................... 8,761 45,445 17,662 95,830
Write off of film costs.......... 0 -- 0 0
Write off of loan fees........... 0 -- 0 0
Facilities closure costs......... 0 -- 0 0
---------- ---------- ---------- ----------
Total costs and expenses......... 435,572 423,660 1,062,883 861,822
---------- ---------- ---------- ----------
Net Loss From Operations............($199,997) ($234,686) ($445,310) ($394,660)
Gain On Sale Of Studio 0 0 115,473 0
Net Loss Before Income Tax (199,997) (234,686) (329,837) (394,660)
Income Tax 2,400 0 7,450 0
Net Loss (202,397) (234,686) (337,287) (394,660)
Accumulated Deficit (1,921,883) (1,177,840) (1,921,883) (1,177,840)
Weighted average number of shares
outstanding...................... 3,832,345 2,515,700 3,832,345 2,515,700
========== ========== ========== ==========
Basic loss per share.............. ($0.05) ($0.09) ($0.09) ($0.16)
========== ========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ ($202,397) ($234,686) ($337,287) ($394,660)
Adjustments to reconcile net loss to
net cash used for operating activities:
Gain on sale of studio...................... $0 $0 ($115,473) $0
Depreciation and amortization............... 29,283 12,229 118,088 25,011
Write off of film costs..................... 0 0 0 --
Interest amortization, debt issue costs..... 0 23,016 0 44,014
Rent concession amortization................ 0 (1,054) (2,108) (2,108)
Loss on property and equipment.............. 0 440 0 440
Common stock issued related to salary....... 0 0 0 --
Common stock issued related to loan fees.... 0 0 0 --
Decrease in:
Accounts receivable........................... 170,000 0 170,000 --
Prepaid expenses and other.................... (279) (10,636) 19,808 (6,583)
Increase in: 0 0 0 0
Accounts payable and accrued expenses......... (32,832) 8,135 148,871 (4,626)
Deferred revenues............................. (81,331) (21,035) (154,110) (86,393)
Other liabilities............................. 0 0 0 --
----------- ----------- ----------- -----------
Net cash used for operating activities..... (117,556) (223,591) (152,211) (424,905)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............. (11,450) (1,618) (24,676) (1,618)
Payments for film costs......................... (275,221) (23,124) (1,462,710) (56,313)
Advances to stockholders........................ 0 0 0 (21,278)
Deposits........................................ 0 9,172 0 13,866
----------- ----------- ----------- -----------
Net cash used for investing activities..... (286,671) (15,570) (1,487,386) (65,343)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stocks......... 0 0 0 248,020
Proceeds from issuance of warrants.............. 0 0 0 --
Deferred Offering costs......................... 0 (20,444) 0 (111,862)
Rescission of common stock...................... 0 0 0 --
Proceeds of short-term debts.................... 0 95,640 0 91,210
Proceeds (payments) of loans from related
parties....................................... 974 195,877 (778) 299,019
Payments on long-term debt...................... (4,169) (27,565) (6,107) (39,486)
Principal payments on capital leases............ (2,500) (5,311) (4,928) (10,805)
----------- ----------- ----------- -----------
Net cash provided by financing activities.. (5,695) 238,197 (11,813) 476,096
----------- ----------- ----------- -----------
NET INCREASE IN CASH............................ (409,922) (964) (1,651,410) (14,152)
CASH, beginning of period....................... 554,169 15,575 1,795,657 28,763
----------- ----------- ----------- -----------
CASH, end of period............................. $144,247 $14,611 $144,247 $14,611
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................... $17,662 $55,068
State income taxes.......................... $5,050 $1,600
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Common stock issued for short-term debt...... $0 $27,000
Debt converted to equity...................... $0 $133,500
Options and common stock issued $0 $0
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations and Consolidation - The consolidated
financial statements include the accounts of American Champion
Entertainment, Inc. (the "Company") and its wholly owned
subsidiary, America's Best Karate ("ABK") which owns 100% of
American Champion Media, Inc. ("AC Media"). The Company and AC
Media were formed during 1997. Pursuant to an Agreement and Plan
of Merger, dated as of July 14, 1997, the Company entered into a
reorganization transaction pursuant to which the Company acquired
all of the issued and outstanding shares of ABK (the
"Reorganization"). The financial statements included herein give
effect to the Reorganization in which the Company became the
successor to ABK. All significant intercompany accounts and
transactions have been eliminated in consolidation.
AC Media focuses on operating and managing all media-related
programs for the Company. These programs consist of fitness
information video tapes, books and audio tapes and production of
educational television programs for children which emphasize
martial arts values and fun. ABK focuses solely on operating and
managing the Company's karate studios which are located in the
San Francisco Bay Area.
Revenue Recognition - AC Media - Revenue from films is recognized
on the accrual method. Film costs are amortized using the
individual-film-forecast-computation method which amortizes costs
in the ratio that current gross revenues bear to anticipated
total gross revenues from all sources. The management of AC Media
periodically reviews its estimates of future revenues for each
master and if necessary a revision is made to amortization rates
and a write down to net realizable value may occur.
ABK - Substantially all ABK's 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.
<PAGE>
Note 1 - Nature of Operations and Summary of Significant Accounting
Policies (continued)
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 the 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 the Company to concentrations of credit risk
are cash and accounts receivable arising from its normal business
activities. The Company 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. To reduce credit risk, the Company requires advanced
payments from students and thus, no student fees receivable is
recorded.
Cash and Cash Equivalents - The Company considers certain highly
liquid instruments purchased with original maturities of six
months or less to be cash equivalents. The Company had cash
equivalents of $20,940 at June 30, 1998.
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.
Film Costs - Film costs consist of the capitalized costs related
to the production of original film masters for videos and
television programs. The net film costs are presented on the
balance sheet at the net realizable value for each master.
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.
<PAGE>
Note 1 - Nature of Operations and Summary of Significant Accounting
Policies (continued)
Net Loss Per Share - Statement of Financial Accounting Standards
(SFAS) No. 128 was adopted by the Company during the year ended
December 31, 1997. Net loss per share is based on the weighted
average outstanding shares issued. Because the Company has a net
loss, the common stock equivalents would have an anti-dilutive
effect on earnings per share. Accordingly, basic earnings per
share and diluted earnings per share are the same.
Income Taxes - Deferred tax assets and liabilities are recognized
for the expected tax consequences of temporary differences
between the tax bases of assets and liabilities and their
reported amounts. The Company and its Subsidiaries file a
consolidated tax return.
Note 2 - Uses 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.
Significant estimates used in these financial statements include
the recovery of film costs which has a direct relationship to the
net realizable value of the related asset. It is at least
reasonably possible that management's estimate of revenue from
films could change in the near term which could have a material
adverse effect on the Company's financial condition.
Note 3 - Property and Equipment
Furniture and fixtures $ 88,910
Equipment 60,355
Leasehold improvements 3,228
Leased assets 119,899
Production equipment 234,350
--------
506,742
Less accumulated depreciation and amortization 259,710
--------
$ 247,032
========
<PAGE>
Note 3 - Property and Equipment (continued)
Depreciation expense was $33,067 for the six months ended
June 30, 1998. The accumulated depreciation related to the leased
assets at June 30, 1998 was $119,899.
Note 4 - Film Costs
Film costs consist of the capitalized costs related to the
production of videos and program for television as follows:
Television program
Adventures With Kanga Roddy $3,804,830
Videos
Montana Exercise Video 148,253
Strong Mind Fit Body 18,042
--------
3,971,125
--------
Less accumulated depreciation 148,019
--------
3,823,106
Less current portion of film costs 1,200,000
--------
Long-term portion of film costs $2,623,106
==========
Production of the first seven episodes of The Adventures of Kanga
Roddy was completed during 1997. Six additional episodes were
completed during the six months ended June 30, 1998. Both videos
were completed in 1996, but only the Strong Mind Fit Body video
has been released.
Note 5 - Notes Payable, Related Parties
The note payable to related party bears interest at 12% and is
unsecured. The note has been classified as current, as the non-
current portion is not material.
<PAGE>
Note 6 - Long-Term Debt
Long-term debt consists of a credit line with a bank pursuant to
which the Company has a balance of $31,217 outstanding at
March 31, 1998, repayment of which is made at the monthly rate of
2% of the outstanding balance of the borrowing. Other than the
bank loan and an immaterial amount owed to another bank, the
Company does not presently maintain any other borrowing facility
or have any indebtedness to financial institutions.
The Company also has loans from three individuals and a bank
totaling $26,875, with interest at rates ranging from 13% to 14%,
maturing through June 2000.
Note 7 - Income Taxes
Reconciliation of the Federal statutory tax rate of 34% and state
tax rate of 9.3% to the recorded amounts are as follows:
Federal tax benefit at statutory rates $ (132,000)
State tax benefit at statutory rates (20,000)
Other 30,550
Increase in valuation allowance 114,000
---------
$ (7,450)
=========
The Company has net operating loss (NOL) carryforwards for
federal income tax purposes of approximately $1,350,000 and for
state income tax purposes of approximately $675,000, the benefits
of which expire in 2011 through 2013. The NOLs created by the
Company's subsidiaries prior to the reorganization and the NOLs
created as a consolidated group subsequent to the reorganization
described in Note 1, may have limitations related to the amount
of usage by each subsidiary or the consolidated group as
described in the Internal Revenue Code.
<PAGE>
Note 7 - Income Taxes (continued)
Significant components of the Company's deferred tax assets and
liabilities are as follows:
DEFERRED TAX ASSETS
NOL carryforward $ 555,000
Deferred revenue 131,000
Other -
Valuation allowance (614,000)
---------
72,000
---------
DEFERRED TAX LIABILITIES
Accounts receivable 52,000
Depreciation 20,000
---------
72,000
---------
-
$
=========
SFAS No. 109 requires the Company to record a valuation allowance
when it is "more likely than not that some portion of the
deferred tax asset will not be realized." Management believes
that some of the excess NOL carryforwards over temporary
differences may be utilized in future periods. However, due to
the uncertainty of future taxable income, a valuation allowance
for the net amount of the deferred tax assets and liabilities has
been recorded at June 30, 1998.
Note 8 - Lease Commitments
The Company 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.
<PAGE>
Note 8 - Lease Commitments (continued)
Future minimum lease payments under these leases are:
Capital Operating
1998 $ 11,615 $ 64,134
1999 1,049 90,648
2000 - 15,553
------- -------
Total minimum lease payments 12,665 $ 170,335
=======
Less amount representing interest 871
-------
Present value of net minimum capital lease payments 11,794
Less current portion of obligations under capital lease 10,945
-------
Non-current portion of obligations under capital lease $ 849
=======
Management of the Company has developed a plan to close certain
studios related to its karate studio segment. As of June 30,
1998, the Company has accrued $57,000 to account for the
estimated costs to be incurred in future periods related to
studios which have been closed. The accrual is included in
accounts payable and accrued expenses in the accompanying balance
sheet.
Note 9 - Commitments and Contingencies
In September 1996, the Company entered into an agreement with the
director of The 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
the first 13 episodes of that program.
<PAGE>
Note 9 - Commitments and Contingencies (continued)
The Company has entered into a distribution agreement with KTEH,
the public broadcasting system ("PBS") station serving the San
Jose, California area, for 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, the
Company will receive $430,000 which is based on delivery of 13
episodes to KTEH. For the period ended June 30, 1998, the Company
had recognized revenue of $215,000 which was based on delivery of
the remaining six episodes. In addition, the Company is entitled
to 85% of any distribution fees collected by KTEH in excess of
$505,000. 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.
In April 1998, KTEH agreed to purchase an additional 26 episodes
for approximately $900,000. No revenue has been recognized from
this transaction as of June 30, 1998.
In June and July 1997, the Company and SEGA entered into two
agreements appointing SEGA as the Company's non-exclusive agent
for purposes of licensing and merchandising the "Kanga Roddy"
trademark, brand name and logo. In such agreements, SEGA agreed
to introduce the Company to prospective sub-licensees in
consideration of an amount equal to 30% of all revenues earned by
the Company under any agreement entered into during the three-
year period following execution of the agreement by the Company
with any person or entity introduced to the Company by SEGA.
Pursuant to such agreement, SEGA is not subject to any minimum
sales requirement.
The Company has entered into an agreement with the two
participants of the Montana Exercise Video in which a royalty fee
of $1 will be paid for each tape sold.
Note 10 - Related Party Transactions
Advances to stockholders were $115,137 at June 30, 1998.
In November 1996, the Company 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, which is included in accounts payable at June 30, 1998,
will be paid 30 days prior to the release date. These two
participants are stockholders of the Company.
<PAGE>
Note 11 - New Authoritative Pronouncements
In June 1997 the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 130
and SFAS No. 131 and in February 1998 issued SFAS No. 132. SFAS
No. 130 establishes standards for reporting and display of
comprehensive income and its components. SFAS No. 131 establishes
standards for reporting operating segments, products, and
services, geographic areas, and major customers. SFAS No. 132
revises employers' disclosures about pension and other post-
retirement benefit plans. The standards become effective for
fiscal years beginning after December 15, 1997. Management plans
to adopt these standards in the year ending December 31, 1998.
Management believes the provisions of SFAS Nos. 130, 131 and 132
will not have a material effect on the financial condition or
reported results of operations.
Note 12 - Industry Segments
The Company is involved in the development of educational
television programs and fitness videos and operates a chain of
karate studios which are segmented into two categories for
reporting purposes. Television and videos reflect the activities
related to the development and production of educational
television programs and fitness videos. Tuition and related fees
includes activities related to operations of karate studios.
The relative contributions to net sales, income from operations
and identifiable assets of the Company's two industry segments
for the six months ended June 30, 1998 are as follows:
<PAGE>
Note 12 - Industry Segments (continued)
Net Sales [1]:
Tuition and Related Fees $ 341,808
Videos and Television 246,667
Corporate 29,098
----------
NET SALES $ 617,573
==========
Depreciation and Amortization:
Tuition and Related Fees $ 5,139
Videos and Television 112,949
DEPRECIATION AND AMORTIZATION $ 118,088
==========
Capital Expenditures
Tuition and Related Fees $ 5,938
Videos and Television 1,481,448
----------
CAPITAL EXPENDITURES $1,487,386
Income [Loss] From Operations:
Tuition and Related Fees $ (226,379)
Videos and Television 79,264
Corporate (190,172)
-----------
NET LOSS $ (337,287)
Identifiable Assets [2]:
Tuition and Related Fees $ 334,655
Videos and Television 4,124,886
-----------
Totals 4,459,541
Add: Corporate 85,193
-----------
$4,544,734
===========
[1] There were no sales between industry segments.
[2] Corporate and other assets are principally cash and prepaid
expenses.
Note 13 - Employment Agreements
During 1997, the Company entered into employment agreements with
each of Mr. Chung, Mr. Chan, Mr. Berryessa, and Mr. Hutchins.
Each agreement has a term of five years except Mr. Hutchins which
is two years. Pursuant to the agreements, the Company will pay to
these individuals a base salary of $100,000, $100,000, $65,000
and $39,600 per year, respectively. Each agreement also provides
for the following bonuses: (i) options to purchase 87,500,
87,500, 25,000 and 20,000 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
($6 per share) and (ii) $200,000, $200,000, $100,000 and
$100,000, respectively, if all of the Warrants issued to the
public in the Offering are exercised by the holders thereof
within the five-year (two years for Mr. Hutchins) exercise period
of such Warrants. In addition, the executives are also entitled
to certain fringe benefits. If any of these individuals 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.
The Company has executed, with approval by an by unanimous written
consent of the Compensation Committe, effective on July 1, 1998, amendments to
employment agreements with certain key employees to adjust their compensation
in both salary and stock option grants. Such stock option grants are
exercisable at $6.5625 per share, which is the closing price of the Company's
common stock on July 1, 1998 as traded on Nasdaq.
Stock Option
Annual Grants each 12
Name Position Salary month period
George Chung Chairman of the Board & Director $150,000 20,000 shares
Anthony K. Chan President, Chief Executive Officer $150,000 20,000 shares
& Director
Don Berryessa Senior Vice President, Chief $105,000 15,000 shares
Operations Officer & Director
Jan D. Hutchins President of American Champion $75,000 10,000 shares
Media & Director
Mae Lyn Woo Vice President & Chief Financial $70,000 15,000 shares
Officer
Kristen Simpson Vice President of Marketing and $93,900 10,000 shares*
Development
* Stock option grants to Kristen Simpson can be up to 20,000 shares for each
12 month period based on certain performance levels, which details are
contained in Exhibit 10.34.
<PAGE>
Note 14 - Stock Plans
The Stock Plan was adopted by the Board of Directors and
stockholders of the Company during 1997. The total number of
shares of Common Stock subject to issuance under the Stock Plan
is 400,000, subject to adjustments as provided in the Plan. The
Plan provides for the grant of stock options, stock appreciation
rights ("SARs") and other stock awards to employees of the
Company or any consultant or advisor engaged by the Company who
renders bona fide services to the Company; provided, that such
services are not in connection with the offer or sale of
securities in a capital raising transaction. The Plan is
administered by the Compensation Committee of the Board of
Directors (the "Committee"). Stock options may be granted by the
Committee on such terms, including vesting and payment forms, as
it deems appropriate in its discretion; 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.
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
Plan continues until December 2007. The 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.
Note 15 - Common Stock
During the year ended December 31, 1997, the Company sold
1,300,000 shares of its common stock at $5 per share and
1,495,000 warrants to purchase the Company's common stock at $.10
per warrant, in a public offering. Each warrant entitles the
registered holder to purchase one share of common stock at $6.50
per share at any time through August 2002. In addition, $250K
warrants were issued to the underwriters for nominal
consideration.
Note 16 - Stock Options
At December 31, 1997, there were 400,000 options authorized and
393,000 options outstanding under the Company's Stock Plan.
During 1998, the Plan was amended to increase the authorized
options to 800,000. No options were exercised or canceled during
the six months ended June 30, 1998.
<PAGE>
Note 16 - Stock Options (continued)
Stock options granted to non-employees for services provided to
the Company are accounted for under by Statement of Financial
Accounting No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." At December 31, 1997, the Company accounted for
100,000 options which were issued in connection with the
production of The Adventures With Kanga Roddy under this method.
These options were valued at $200,000 and are included in film
costs and additional paid in capital in the accompanying balance
sheet.
The Company applies the intrinsic value based method prescribed
by Accounting Principals Board Opinion No. 25 "Accounting for
Stock Issued to Employees," in accounting for employee stock
options. Accordingly, compensation expense is recognized only
when options are granted with a discounted exercise price. Any
such compensation expense is recognized ratably over the
associated service period, which is generally the vesting term.
No options were granted during the six months ended June 30,
1998.
Pro forma net earnings and earnings per share information, as
required by SFAS 123, has been determined as if the Company had
accounted for employee stock options under SFAS 123's fair value
method. The fair value of these options was estimated at grant
date using a Black-Scholes option pricing model with the
following weighted average assumptions for fiscal 1997: risk free
interest rate of 6.25 percent; dividend yield of 0 percent;
expected option life of 7 years; and volatility of 42 percent.
For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the two-year average
vesting period of the options. The Company's pro forma net loss
for the six months ended June 30, 1998 was $(320,000) and pro
forma net loss per share was $(.08).
Shares of Common Stock
------------------------------------------------
Available For
Exercise of Options Warrants
Option/Award Under Plan
------------------------------------------------
Balance, December 31, 1997 7,000 393,000 1,755,000
Authorized 400,000 - -
Granted - - -
--------- --------- ---------
Balance, June 30, 1998 407,000 393,000 1,755,000
========= ========= =========
No options were exercised or lapsed during the six months ended June 30, 1998.
<PAGE>
Note 16 - Stock Options (continued)
Options and Warrants Outstanding Options and Warrants Exercisable
---------------------------------- ----------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Outstanding Life Price Exercisable Price
Options 393,000 7.3 $ 5.61 368,000 $ 5.61
Warrants 1,755,000 4.3 $ 6.50 1,495,000 $ 6.50
Note 17 - Year 2000
In the opinion of management, no material adverse effect on
either results of operations or financial position is anticipated
due to the modifications or replacement of existing information
systems in order to accommodate year 2000 implications.
Note 18 - Sale of Karate Studio
During the six months ended June 30, 1998, the Company sold a
karate studio to the location's general manager. 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 June 30, 1998; however, the
Company is liable for any future refunds to students enrolled prior
to June 30, 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.
Note 19 - Subsequent Events
Financing - In July 1998, the Company issued approximately
$1,800,000 of convertible debt securities, the proceeds from
which will be used for production expenses.
Leases - The Company entered into a new lease agreement for its
corporate headquarters subsequent to June 30, 1998. The new lease
stipulates monthly payments in the amount of $10,000.00, and
expires on July 31, 2000.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
Forward Looking Information
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" from liability for forward-looking statements. Certain
information included in this Form 10-QSB and other materials filed or
to be filed by the Company with the Securities and Exchange Commission
(as well as information included in oral statements or other written
statements made or to be made by or on behalf of the Company) are
forward-looking, such as statements relating to operational and
financing plans, capital uses and resources, competition, and demands
for the Company's products and services. Such forward-looking
statements involve important risks and uncertainties, many of which
will be beyond the control of the Company. These risks and
uncertainties could significantly affect anticipated results in the
future, both short-term and long-term, and accordingly, such results
may differ from those expressed in forward-looking statements made by
or on behalf of the Company. These risks and uncertainties include, but
are not limited to, the acceptance by the television viewer and public
television stations of the television series - ADVENTURES WITH KANGA
RODDY, production delays and/or cost overruns with respect to such
series, 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, unanticipated working capital or other
cash requirements, 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 various competitive factors that
may prevent the Company from competing successfully in the marketplace.
The following section discusses the significant operating changes,
business trends, financial condition, earnings and liquidity that have
occurred in the three-month period ended June 30, 1998. This discussion
should be read in conjunction with the Company's consolidated financial
statements and notes appearing elsewhere in this report.
Results of Operations
Revenues. For the three months ended June 30, 1998, the Company's
total revenue increased to $235,575, an increase of $46,601 or 25% as compared
to total revenue for the three months ended June 30, 1997 of $188,974. This
increase is mainly due to the recognition of deferred revenues from the
Company's karate studio operation and film income derived from sponsorship
revenue for the television show "Adventures With Kanga Roddy" as detailed below.
The Company's revenues from the operation of its karate studios for
the three months ended June 30, 1998 was $192,027, an increase of 12% from
revenues of $171,462, for the three months ended June 30, 1997. The increase
is attributable to deferred revenues claimed this quarter from the Company's
karate studio that was sold on March 31, 1998. The studio was sold to a former
employee of the Company for $52,859 which was paid in the form of a promissory
note which provides for 70 monthly payments of $1,000 including interest.
For the three months ended June 30, 1998, the Company recognized
$31,667 in film income. Film income was derived from the proration of
sponsorship revenue for the television show "Adventures With Kanga
Roddy". 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. The sponsorship amount is $95,000 and the sponsorship
period is from May 1998 through October 1998.
<PAGE>
Costs and Expenses. The Company's revenue from its karate
studios and film business were offset by amortization of film costs of
$11,688, calculated in proportion to the revenue generated by the
television show in this second quarter to total expected revenues from
the television show.
The Company's expenses for salaries and payroll taxes decreased
by $5,158 or 3% for the three months ended June 30, 1998 from $188,110
for the comparable period in 1997. The slight decrease was the
combined result of a decrease in karate studio personnel offset by a
comparable increase in administrative, film production and marketing
personnel.
Rent expense decreased by $36,486 or 33% for the three months ended
June 30, 1998 from $109,567 for the comparable period in 1997. The decrease
is due to the closure of five (including two in Las Vegas) of the Company's
karate studios in 1997 and one studio sold at the end of the first quarter
1998. The Company is currently operating a total of four studios in California.
Total selling, general and administrative expenses increased by
$84,675 or 122% for the three months ended June 30, 1998 from $69,134
for the comparable period in 1997. This increase is primarily due to
promotional expenses related to the television show, depreciation of
production equipment and legal and accounting fees.
Interest expense decreased $36,684 or 81% for the three months
ended June 30, 1998 from $45,445 for the comparable period in 1997.
This decrease in expense is attributable to the payoff of loans in 1997
with proceeds from the Company's IPO.
As a result of the foregoing factors, the Company's net loss
decreased by $34,689 or 15% from $234,686 for the three months ended
June 30, 1997 to $199,997 for the three months ended June 30, 1998.
Net loss per share decreased from $0.09 for the three months ended
June 30, 1997 to $0.05 for the comparable period in 1998. Weighted
average number of shares outstanding increased from 2,515,700 for the
three months ended June 30, 1997 to 3,832,345 for the comparable period
in 1998 due to the Company's initial public offering on July 30, 1997.
Liquidity And Capital Resources
Cash decreased for the six months ended June 30, 1998 by
$1,651,410 of which $1,487,386 was for investing activities related to
the production of the Adventures With Kanga Roddy show. Net operating
cash loss was $152,211 and the balance of $11,813 was used in financing
activities.
As of June 30, 1998, total long-term debt was $51,785 and loans
payable to related parties was $36,477. In addition, deferred revenues
were $222,491 (current portion) and $104,305 (long-term liabilities) at
June 30, 1998. Deferred revenues are pre-paid tuition for the karate
studios and booked revenue from sponsorship activities which cannot be
immediately recognized.
Due to the closure of the Company's two karate studios in Las Vegas,
lease obligations had been restructured with the property owners. For these
two leases, the Company is obligated to pay a total of approximately $4,150
monthly until April 2000, and thereafter $1,500 monthly until November 2002.
Recent Developments
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-
half hour shows.
<PAGE>
In anticipation of its need for additional working capital to
produce more episodes of the Kanga Roddy series, the Company has signed
agreements with two investors for the sale of up to $1.8 million of 7%
convertible debentures. Details of this transaction can be obtained
from the Company's filing of a Form S-3 Registration Statement with the
Securities and Exchange Commission on August 3, 1998.
The Company has executed, with approval by an by unanimous written
consent of the Compensation Committe, effective on July 1, 1998, amendments to
employment agreements with certain key employees to adjust their compensation
in both salary and stock option grants. Such stock option grants are
exercisable at $6.5625 per share, which is the closing price of the Company's
common stock on July 1, 1998 as traded on Nasdaq.
Stock Option
Annual Grants each 12
Name Position Salary month period
George Chung Chairman of the Board & Director $150,000 20,000 shares
Anthony K. Chan President, Chief Executive Officer $150,000 20,000 shares
& Director
Don Berryessa Senior Vice President, Chief $105,000 15,000 shares
Operations Officer & Director
Jan D. Hutchins President of American Champion $75,000 10,000 shares
Media & Director
Mae Lyn Woo Vice President & Chief Financial $70,000 15,000 shares
Officer
Kristen Simpson Vice President of Marketing and $93,900 10,000 shares*
Development
* Stock option grants to Kristen Simpson can be up to 20,000 shares for each
12 month period based on certain performance levels, which details are
contained in Exhibit 10.34.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 24,1998, the Company filed a Complaint for Declaratory
Relief in the U.S. District Court, Northern District of California,
against William Charles Jeffreys, requesting a judicial determination
of the Company's rights in certain intellectual property associated
with the Adventures with Kanga Roddy show, and that Mr. Jeffreys has no
such rights. Mr. Jeffreys filed an answer to the Company's complaint
on June 15, 1998 along with a counterclaim. On July 6 the Company
filed an answer to Mr. Jeffreys counterclaim. The Company disputes all
claims of Mr. Jeffreys to an interest in certain of the Company's
intellectual property and intends to vigorously protect its ownership
and rights to such intellectual property.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See the Exhibit Index beginning on page 24.
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter for which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN CHAMPION ENTERTAINMENT, INC.
(Registrant)
Dated: August 7, 1998 By: /s/ Anthony K. Chan
Anthony K. Chan, Chief Executive Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
1.1(1) Form of Underwriting Agreement
3.1(1) Amended and Restated Certificate of Incorporation dated April 24, 1997
3.11 Amended and Restated Certificate of Incorporation dated June 4, 1998
3.2(1) Bylaws
4.1(1) Specimen stock certificate
4.2(1) Warrant Agreement with form of Warrant
4.3(1) Form of Underwriters' Warrant
4.41(4) Securities Purchase Agreement dated July 2, 1998
4.42(4) Form of Debenture dated July 2, 1998
4.43(4) Joint Escrow Instructions
4.44(4) Registration Rights Agreement dated July 2, 1998
4.45(4) Form of Warrant dated July 2, 1998
5(1) Opinion of Sheppard, Mullin, Richter & Hampton LLP
10.1(1) 1997 Stock Plan
10.2(1) Form of Stock Option Agreement for 1997 Stock Plan
10.3(1) 1997 Non-Employee Directors Stock Option Plan
10.4(1) Form of Non-Employee Directors Stock Option Agreement
10.8(1) 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(1) Employment Agreement between the Company and George Chung dated
March 4, 1997, effective upon the closing date of the Offering
10.10(1) Employment Agreement between the Company and Anthony Chan dated
March 4, 1997, effective upon the closing date of the Offering
10.11(1) Employment Agreement between the Company and Don Berryessa dated
March 4, 1997, effective upon the closing date of the Offering
10.12(1) Employment Agreement between the Company, AC Media and Jan
Hutchins dated March 4, 1997, effective upon the closing date of
the Offering
10.13(1) Convertible Loan Agreement dated as of May 5, 1995, between ABK
and David Y. Lei
10.15(1) Amended Deal Memo between ABK and Rick Fichter dated February
23, 1997, with respect to payments related to the Kanga Roddy
Series
10.17(1) Form of Indemnification Agreement
10.19(1) Letter dated October 29, 1996 from the Company to Tim Pettitt
regarding certain payments to the Montanas
10.20(1) Distribution Agreement dated June 18, 1996 by and between
America's Best Karate and InteliQuest
10.21(1) Distribution Agreement, dated May 6, 1997, by and between KTEH,
San Jose Public Television and American Champion Media, Inc.
10.22(1) Letter Agreement, dated June 1997, between AC Media, Inc. and
Sega of America, Inc.
10.23(1) Business Loan Agreement between America's Best Karate and Karen
Shen
10.24(1) Business Loan Agreement between America's Best Karate and Thomas
J. Woo
10.25(2) Licensing Agent Agreement, dated July 25, 1997, between American
Champion Media, Inc. and Sega of America, Inc.
10.26(3) Continuous Distribution Agreement dated April 20, 1998 between
KTEH, San Jose and American Champion Media, Inc.
10.27(3) Sponsorship Agreement dated April 29, 1998 between Sara Lee
Corporation and American Champion Media, Inc.
10.28(3) Engagement Agreement dated April 24, 1998 between JW Charles
and American Champion Entertainment, Inc.
10.29 Amendment to Employment Agreement with George Chung, dated July 1,
1998
10.30 Amendment to Employment Agreement with Anthony Chan, dated July 1,
1998
10.31 Amendment to Employment Agreement with Don Berryessa, dated July 1,
1998
10.32 Amendment to Employment Agreement with Jan Hutchins, dated July 1,
1998
10.33 Amendment to Employment Agreement with Mae Lyn Woo, dated July 1,
1998
10.29 Amendment to Employment Agreement with Kristen Simpson, dated July 1,
1998
21.1(1) Subsidiaries of the Registrant
23.1(2) Consent of Moss Adams, LLP
27.1 Financial Data Schedule
(1) Filed as an exhibit with the registrant's Form SB-2 filed with the
SEC on March 21, 1997 or Form SB-2/A filed March 3 and June
20, 1997 and incorporated by reference herein.
(2) Filed as an exhibit with the registrant's Form 10-KSB filed with the
SEC on March 30, 1998 and incorporated by reference herein.
(3) Filed as an exhibit with the registrant's Form 10-QSB filed with the
SEC on May 15, 1998 and incorporated by reference herein.
(4) Filed as an exhibit with the registrant's Form S-3 filed with the SEC
on August 3, 1998 and incorporated by reference herein.
<PAGE>
Exhibit 3.11
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
AMERICAN CHAMPION ENTERTAINMENT, INC.
Originally Incorporated on February 5, 1997
First Amended April 24, 1997
1. The name of this corporation is AMERICAN CHAMPION ENTERTAINMENT, INC.
2. The address of this corporation's registered office in the
State of Delaware is located at 1209 Orange Street, City of Wilmington,
County of New Castle, Delaware 19801. The name of its registered agent
at such address is The Corporation Trust Company.
3. The purpose of this corporation is to engage in any lawful
act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
4. A. Classes of Stock. This corporation is authorized to
issue two classes of shares of stock to be designated, respectively,
Common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of shares of Common Stock authorized to be issued
is Twenty Million (20,000,000), par value $0.001 per share, and the
number of shares of Preferred Stock authorized to be issued is Three
Million (3,000,000), par value $0.001 per share; the total number of
shares which the corporation is authorized to issue is Twenty-Three
Million (23,000,000).
B. Rights, Preferences and Restrictions of Preferred
Stock. The Preferred Stock may be issued from time to time in one or
more series, without further stockholder approval. The Board of
Directors is hereby authorized, in the resolution or resolutions
adopted by the Board of Directors providing for the issue of any
wholly unissued series of Preferred Stock, within the limitations and
restrictions stated in this Amended and Restated Certificate of
Incorporation, to fix or alter the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price or prices,
and the liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series
and the designation thereof, or any of them, and to increase or
decrease the number of shares of any series subsequent to the issue of
shares of that series, but not below the number of shares of such
series then outstanding, and any other preferences, privileges and
relative rights of such series as the Board of Directors may deem
advisable. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
5. In furtherance and not in limitation of the powers
conferred by statute, the board of directors is expressly authorized to
adopt, repeal, alter, amend or rescind the bylaws of this corporation.
In addition, the bylaws of this corporation may be adopted, repealed,
altered, amended or rescinded by the affirmative vote of holders of not
less than two-thirds of the outstanding stock of this corporation
entitled to vote thereon.
6. Elections of Directors need not be by written ballot except
and to the extent provided in the bylaws of the corporation.
7. Any or all of the directors of this corporation may be
removed from office at any time, but only by the affirmative vote of
the holders of a majority, if such removal is for cause, and of the
holders of at least two-thirds, if such removal is without cause, of
the outstanding shares of Voting Stock of this corporation, considered
for purposes of this Article 7 as one class. The term " Voting Stock"
shall mean all outstanding shares of capital stock of this corporation
or another corporation entitled to vote generally in the election of
directors and each reference to a proportion of shares of Voting Stock
shall refer to such proportion of the votes entitled to be cast by such
shares.
8. No director of this corporation shall be liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the corporation and its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the General Corporation Law of Delaware or (iv)
for any transaction from which the director derived any improper
personal benefit.
9. Neither the Amendment and nor repeal of Article 8, nor the
adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with Article 8, shall eliminate or reduce
the effect of Article 8 in respect of any matter occurring, or any
cause of action, suit or claim that, but for Article 8, would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
10. The Amended and Restated Certificate of Incorporation of
this corporation may be amended if approved by the board of directors
and by the affirmative vote of not less than a majority of the
outstanding stock of this corporation entitled to vote thereon.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation, having been duly adopted by the directors and
stockholders of AMERICAN CHAMPION ENTERTAINMENT, INC. in accordance
with sections 228, 242, and 245 of the Delaware General Corporation
Law, AMERICAN CHAMPION ENTERTAINMENT, INC. has caused this Amended and
Restated Certificate of Incorporation to be signed by its president and
attested by its secretary this 3rd day of June, 1998.
AMERICAN CHAMPION ENTERTAINMENT,
INC., a Delaware corporation
By: /s/ George Chung
George Chung, Chairman of the Board
ATTEST:
By: /s/ Anthony K. Chan
Anthony K. Chan, Secretary
<PAGE>
EXHIBIT 10.29
AMENDMENT TO EMPLOYMENT AGREEMENT JULY 1, 1998
To: George Chung
109 Newcastle
Belmont CA 94002
Dear George:
This letter serves as an amendment to the Employment Agreement dated
March 4, 1997. The changes below are effective July 1, 1998.
The terms of the March 4, 1997 Employment Agreement are amended as
follows:
3. COMPENSATION
3.1 Base Salary - The annual base salary shall be $150,000 per year.
3.2 Bonus
3.2.3 Options to purchase an additional Twenty Thousand (20,000)
shares of common stock of the Company exercisable at the end
of each 12 month period beginning July 1, 1998, at $6.5625
per share, subject to compliance with applicable laws.
The remaining terms and conditions as outlined in the original
Employment Agreement continue to be in effect.
In Witness Whereof, the Company has caused this Agreement to be executed
by its respective duly authorized officer, and the Executive has
hereunto signed this Agreement as of the date first above written.
Company:
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: /s/ Anthony K. Chan
Anthony K. Chan, President & CEO
Accepted:
By: /s/ George Chung Date: July 1, 1998
George Chung
<PAGE>
EXHIBIT 10.30
AMENDMENT TO EMPLOYMENT AGREEMENT JULY 1, 1998
To: Anthony K. Chan
32429 Seaside Drive
Union City CA 94587
Dear Anthony:
This letter serves as an amendment to the Employment Agreement dated
March 4, 1997. The changes below are effective July 1, 1998.
The terms of the March 4, 1997 Employment Agreement are amended as
follows:
3. COMPENSATION
3.1 Base Salary - The annual base salary shall be $150,000 per
year.
3.2 Bonus
3.2.3 Options to purchase an additional Twenty Thousand (20,000)
shares of common stock of the Company exercisable at the
end of each 12 month period beginning July 1, 1998, at
$6.5625 per share, subject to compliance with applicable
laws.
The remaining terms and conditions as outlined in the original
Employment Agreement continue to be in effect.
In Witness Whereof, the Company has caused this Agreement to be executed
by its respective duly authorized officer, and the Executive has
hereunto signed this Agreement as of the date first above written.
Company:
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: /s/ George Chung
George Chung, Chairman of the Board
Accepted:
By: /s/ Anthony K. Chan Date: July 1, 1998
Anthony K. Chan
<PAGE>
EXHIBIT 10.31
AMENDMENT TO EMPLOYMENT AGREEMENT JULY 1, 1998
To: Don Berryessa
6008 Ashley Court, Pleasanton CA 94588
Dear Don:
This letter serves as an amendment to the Employment Agreement dated
March 4, 1997. The changes below are effective July 1, 1998.
The terms of the March 4, 1997 Employment Agreement are amended as
follows:
1. EMPLOYMENT AS SENIOR VICE PRESIDENT AND CHIEF OPERATIONS
OFFICER. The Company does hereby employ Executive as Senior Vice
President and Chief Operations Officer of the Company.
3. COMPENSATION
3.1 Base Salary - The annual base salary shall be $105,000.00 per
year.
3.2 Bonus
3.2.3 Options to purchase an additional Fifteen Thousand
(15,000) shares of common stock of the Company exercisable at the
end of each 12 month period beginning July 1, 1998, at $6.5625
per share, subject to compliance with applicable laws.
The remaining terms and conditions as outlined in the original
Employment Agreement continue to be in effect.
In Witness Whereof, the Company has caused this Agreement to be executed
by its respective duly authorized officer, and the Executive has
hereunto signed this Agreement as of the date first above written.
Company:
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: /s/ Anthony K. Chan
Anthony K. Chan, President & CEO
Accepted:
By: /s/ Don Berryessa Date: July 1, 1998
Don Berryessa
<PAGE>
EXHIBIT 10.32
AMENDMENT TO EMPLOYMENT AGREEMENT JULY 1, 1998
To: Jan D. Hutchins
212 Bella Vista Avenue
Los Gatos CA 95032
Dear Jan:
This letter serves as an amendment to the Employment Agreement dated
March 4, 1997. The changes below are effective July 1, 1998.
The terms of the March 4, 1997 Employment Agreement are amended as
follows:
3. COMPENSATION
3.1 Base Salary - The annual base salary shall be $75,000.00 per
year.
3.2 Bonus
3.2.3 Options to purchase an additional Ten Thousand (10,000)
shares of common stock of the Company exercisable at the end of
each 12 month period beginning July 1, 1998, at $6.5625 per share,
subject to compliance with applicable laws.
The remaining terms and conditions as outlined in the original
Employment Agreement continue to be in effect.
In Witness Whereof, the Company has caused this Agreement to be executed
by its respective duly authorized officer, and the Executive has
hereunto signed this Agreement as of the date first above written.
Company:
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: /s/ Anthony K. Chan
Anthony K. Chan, President & CEO
Accepted:
By: /s/ Jan D. Hutchins Date: July 1, 1998
Jan D. Hutchins
<PAGE>
EXHIBIT 10.33
November 12, 1997
To: Mae Lyn Woo
3080 Wrangler Road
San Ramon, CA 94583
Dear Mae Lyn:
Here is a summary of our offer to you for the position of Controller of
our company:
1) Term: 2 years
2) Startdate: December 15, 1997
3) Annual salary: $40,000 per year for the first year,
adjustment for the 2nd year to be determined upon review.
During the course of your employment, if the
responsibilities and time involvement deviate significantly
in nature from the originally anticipated capacity of the
"Controller", then the salary shall be re-negotiated in
good faith between the parties.
4) At the end of each 12-month period, options to purchase
10,000 shares of common stock of the company exercisable at
the closing price of today November 12, 1997, subject to
compliance with applicable laws. If termination occurs
prior to the end of a 12-month period, the number of options
granted shall be prorated over the months of employment
within that period.
5) A $300 per month medical insurance allowance through the
company's group plan with Kaiser Permanente or another
carrier of your choice.
I hope the above points are acceptable to you and if that is the case,
please acknowledge so by providing your signature below and the above
points will then become the terms of our agreement.
Best Regards,
/s/ Anthony K. Chan
Anthony K. Chan
President & CEO
Accepted:
By: /s/ Mae Lyn Woo Date: November 12, 1997
Mae Lyn Woo
AMENDMENT TO EMPLOYMENT AGREEMENT JULY 1, 1998
To: Mae Lyn Woo
3080 Wrangler Road
San Ramon CA 94583
Dear Mae Lyn:
This letter serves as an amendment to the Employment Agreement dated
November 12, 1997 effective July 1, 1998.
The terms of the November 12, 1997 Employment Agreement are amended as
follows:
3) Annual Salary: $70,000 per year beginning July 1, 1998. The
position is Vice President and Chief Financial Officer.
4) At the end of each 12 month period beginning July 1, 1998, options to
purchase an additional Five Thousand (5, 000) shares of common stock
of the company exercisable at $6.5625 per share, the closing price of
July 1, 1998, subject to compliance with applicable laws.
The remaining terms and conditions as outlined in the original
Employment Agreement continue to be in effect.
Best Regards,
/s/ Anthony K. Chan
Anthony K. Chan
President & CEO
Accepted:
By: /s/ Mae Lyn Woo Date: July 1, 1998
Mae Lyn Woo
<PAGE>
EXHIBIT 10.34
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), is entered into by and among
Kristen Simpson ("Executive"), and American Champion Entertainment
Inc., a Delaware corporation (the "Company"), effective as of the 25th
day of March, 1998.
In consideration of the mutual agreements set forth below, Executive
and the Company agree as follows:
1. EMPLOYMENT AS VICE PRESIDENT OF MARKETING OF THE COMPANY. The
Company does hereby employ Executive as Vice President of Marketing, of
the Company. Subject to the supervision and control of the President or
an assigned supervising executive of the Company, Executive shall do
and perform all services and acts necessary or advisable to fulfill the
duties and responsibilities of Vice President of Marketing, and shall
render such services on the terms set forth herein. In addition,
Executive shall have such other executive and managerial powers and
duties with respect to the Company and its subsidiaries as may
reasonably be assigned to her by the President or an assigned
supervising executive.
2. TERM OF AGREEMENT. The commencement date of this Agreement shall
be April 1, 1998, and shall continue for a period of one (1) year.
3. COMPENSATION.
3.1 Commission. The Company shall pay Executive a commission
rate of 10% for the total adjusted gross sponsorship dollars
("Adjusted Gross") raised for the television show "Adventures With
Kanga Roddy". Adjusted Gross shall be defined as total sponsorship
dollars raised less any additional costs incurred or agreements of
future costs to incur as a part of the sponsorship deal. (Example: NFL
sponsorship for $615,000.00 with the agreement that Mr. Montana will
provide his services for one TV commercial at the cost of $315,000.00
to be paid by the Company, then the Adjusted Gross would be
$300,000.00)
3.2 Draw. Executive shall be entitled to receive a draw against
future commissions in the amount of $7,825.00 monthly for three months
from the commencement date. In the event no sponsorship dollars are
raised in that time period, the Company shall have the right to 1)
terminate this agreement or 2) extend this agreement on a month to
month basis. In the event that the Adjusted Gross raised by Executive
is less than $500,000.00 by the end of the sixth month from the
commencement date, the Company shall have the right to either 1)
terminate this Agreement or 2) extend this agreement on a month to
month basis.
3.3 Options. In the event Executive raises $1,000,000.00 in
Adjusted Gross within twelve months of the commencement date, Executive
shall be granted at the time that this amount in contract is reached
and secured, the option to purchase five thousand (5,000) shares of
common stock of the Company at 100% of the closing price as of the date
of grant. Such option shall have a vesting period of one year from the
date of grant and is subject to the terms of the Options Plan of the
Company.
3.4 Additional Compensation. Executive shall be entitled
to additional commission compensation for additional revenue generating
items that are originated and completed by her. All additional
compensation categories must first be cleared by the Company due to
possible conflict of interests with other licensing arrangements and
other agreements that may have been already established. Each
compensation category shall have its own agreement with respect to its
individual terms and guidelines. (Example: foreign broadcast or a
motion picture deal.)
4. TERMINATION OF EXECUTIVE'S EMPLOYMENT.
4.1 Death In the event Executive's employment hereunder is
terminated by reason of Executive's death, the Company shall pay to
Executive's estate any amounts accrued hereunder to the date of death.
4.2 Disability. If, as a result of Executive's incapacity due
to physical or mental illness ("Disability") Executive shall have been
absent from the full-time performance of her duties with the Company
for a period of fifteen (15) days, within Three (3) days after written
notice is provided to her by the Company, she shall not have returned
to the full-time performance of her duties, Executive's employment
under this Agreement may be terminated by the Company for Disability.
During any period prior to such termination during which Executive is
absent from the full-time performance of her duties with the Company
due to Disability, the Company shall pay Executive any and all
commissions due.
4.3 Termination for Cause. The Company may immediately
terminate Executive's employment under this Agreement for "Cause" in
which case the Company shall have no further obligations hereunder,
except for payment of amounts of commission prorated to the date of
termination. "Cause" shall mean willful breach of this Agreement,
habitual neglect to perform or inability to perform in allotted time
Executive's duties hereunder, fraud, misappropriation, embezzlement, or
other criminal conduct.
5. Confidentiality. Executive shall not, except as may be required
to perform his duties hereunder or as required by applicable law,
disclose to others or use, whether directly or indirectly, any
Confidential Information regarding the Company. "Confidential
Information" shall mean information about the Company, its
subsidiaries and affiliates and their respective clients and customers
that was learned by Executive in the course of her employment by the
Company, including (without limitation) any proprietary knowledge,
trade secrets, financial information, client and customer lists and all
papers, and records (including computer records) containing such
Confidential Information. Executive acknowledges that such Confidential
Information is specialized, unique in nature and of great value to the
Company, and that such information gives the Company a competitive
advantage. At the Company's request, upon termination of this
Agreement, Executive agrees to return to the Company, any or all of
such Confidential Information.
6. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by fax or first class
mail, certified or registered with return receipt requested, and shall
be deemed to have been duly given three (3) days after mailing (at the
party's then current address), or twenty-four (24) hours after
transmission of a fax (at the party's then current fax number).
7. DISPUTE RESOLUTION: ATTORNEY'S FEES. The Company and Executive
agree that any dispute arising as to the parties' rights and
obligations hereunder, other than with respect to Section 5, shall be
resolved by binding arbitration before a private judge to be determined
by mutually agreeable means. Each party shall have the right in
addition to any other relief granted by such arbitrator (or by any
court with respect to relief granted with respect to Section 5), to
attorney's fees based on a determination by the arbitrator (or, with
respect to Section 5, the court) of the extent to which each party has
prevailed as to the material issues raised in determination of the
dispute.
8. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates and
supersedes any and all prior agreements and understandings between the
parties with respect to Executive's involvement with the Company and
compensation by the Company, particularly the agreement signed between
the parties on September 30, 1997.
9. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of California.
10. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any
statue or public policy, only the portions of this Agreement that
violate such statute or public policy shall be stricken. All portions
of this Agreement that do not violate any statute or public policy
shall continue in full force and effect. Further, any court order
striking any portion of this Agreement shall modify the stricken terms
as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
11. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its respective duly authorized officer, and the Executive
has hereunto signed this Agreement as of the date first above written.
Company: Executive:
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: /s/ Anthony K. Chan By: /s/ Kristen Simpson
Anthony K. Chan, President and CEO Kristen Simpson
Date: March 30, 1998 Date: March 30, 1998
AMENDMENT TO EMPLOYMENT AGREEMENT JULY 1, 1998
To: Kristen Simpson
818 Palm Avenue
Redwood City CA 94061
Dear Kristen:
This letter serves as an amendment to the Employment Agreement dated
March 30, 1998. The changes below are effective July 1, 1998.
The terms of the March 30, 1998 Employment Agreement are amended as
follows:
2. TERM OF AGREEMENT. The commencement date of this Amendment to the
original Employment Agreement shall be July 1, 1998, and shall continue
for a period of two (2) years.
3. COMPENSATION.
3.1 Commission -
YEAR ONE (July 1, 1998 to June 30, 1999): The Company shall pay a
commission rate of 8% for the total adjusted gross sponsorship dollars
if PBS Coverage is below 70%. If PBS Coverage is 70% and above, the
commission rate will be 5%. The Company shall pay a commission rate of
5% for the net International Distribution Fee received.
YEAR TWO (July 1, 1999 to June 30, 2000): The Company shall pay a
commission rate of 8% for the total adjusted gross sponsorship dollars
raised if PBS Coverage is below 70%. If PBS Coverage is 70% and above,
the commission rate will be 5%. The Company shall pay a commission
rate of 5% for the net International Distribution Fee received.
If Executive ceases employment with the Company, any commission
due Executive subsequent to the date of termination, generated from
contracts during Executive's employment with the Company, will be
reduced to 50% of the above commission schedule for the first six
months after the termination date; and will be further reduced to 25%
of the above commission schedule for the second six months after the
termination date. Commission ceases after twelve months from the
termination date.
3.2 deleted
3.3 deleted
3.4 deleted
3.5 Basic Salary - The annual base salary shall be $93,900.00
per year beginning
July 1, 1998.
3.6 Stock Options - Options to purchase an additional (X)
shares of common stock
of the Company exercisable at the end of each 12 month
period beginning
July 1, 1998 at $6.5625 per share, subject to compliance
with applicable laws.
Sponsorship Revenue
generated during each
12 month period Value of (X)
a) up to $500,000 10,000
b) $501,000 to $1,000,000 15,000
c) above $1,000,000 20,000
The above terms are strictly for the defined periods only. Upon
reaching June 30, 2000, terms of the original Employment Agreement and
this amendment are to be renegotiated between the Company and Kristen
Simpson.
The remaining terms and conditions as outlined in the original
Employment Agreement continue to be in effect.
In Witness Whereof, the Company has caused this Agreement to be
executed by its respective duly authorized officer, and the Executive
has hereunto signed this Agreement as of the date first above written.
Company:
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: /s/ Anthony K. Chan
Anthony K. Chan, President & CEO
Accepted:
By: /s/ Kristen Simpson Date: July 1, 1998
Kristen Simpson
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACT
FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND THE
STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 144,247
<SECURITIES> 0
<RECEIVABLES> 50,817
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,596,586
<PP&E> 247,032
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,544,734
<CURRENT-LIABILITIES> 628,651
<BONDS> 0
0
0
<COMMON> 5,529,419
<OTHER-SE> (1,772,383)
<TOTAL-LIABILITY-AND-EQUITY> 4,544,734
<SALES> 9,475
<TOTAL-REVENUES> 235,575
<CGS> 5,281
<TOTAL-COSTS> (3,480)
<OTHER-EXPENSES> 430,291
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,761
<INCOME-CONTINUING> (199,997)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<INCOME-PRETAX> (199,997)
<INCOME-TAX> 2,400
<NET-INCOME> (202,397)
<EPS-PRIMARY> ($0.05)
<EPS-DILUTED> ($0.05)
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