SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 1O-QSB/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999
[ ] 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 Identification Number)
Incorporation or Organization)
1694 The Alameda, Suite 100, San Jose, California 95126-2219
(408) 288-8199
(Registrant's Address of Principal Executive Offices and Telephone Number)
(No Change)
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 March 31, 1999
- ------------------------------ -----------------------------
Common Stock, $.0001 par value 7,269,050 shares
---------------------------------------
The Registrant hereby amends and restates in their entirety the following
items, financial statements, exhibits or other portions of its Quarterly Report
on Form 10-QSB for the quarter ended March 31, 1999 as set forth in the pages
attached hereto:
Part I, Item 1 and 2
Exhibit 27.1
----------------------------------------
American Champion Entertainment, Inc. (the "Company"), by this Form 10-QSB/A,
Amendment No. 1 to Form 10-QSB, hereby: (1) amends and restates in its entirety
Item 1 of Part I of the March 31, 1999 Quarterly Report; (2) amends and
restates in its entirety Item 2 of Part I of the March 31, 1999 Quarterly
Report; and (3) amends and restates in its entirety Exhibit 27.1. Each such
amended Item of, and Exhibit to, the March 31, 1999 Quarterly Report is
attached to this Amendment No. 1.
EXPLANATORY NOTE TO AMENDMENT NO.1 TO MARCH 31, 1999 QUARTERLY REPORT ON FORM
10-QSB
This Form 10-QSB/A, Amendment No.1 to Form 10-QSB (the "Amendment"), which
amends the March 31, 1999 Quarterly Report, includes the following changes: (i)
Item 1, "Financial Statements", of Part I has been restated to reflect the
non-cash charge to interest expense and corresponding increase to paid in
capital to account for the beneficial conversion feature of the convertible
debentures, (ii) Item 2, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of Part I has been amended with respect to
the analysis of interest expense and results of operations to discuss the
effects of the non-cash charge to interest expense and corresponding increase to
paid in capital related to the beneficial conversion feature of the convertible
debentures, and (iii) a new Exhibit 27.1, "Financial Data Schedule".
Transitional Small Business Disclosure Format (check one)
Yes ..... No ..X..
Exhibit Index on Page
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
Form 10-QSB
March 31, 1999
TABLE OF CONTENTS
PART I - Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31, 1999
Consolidated Statements of Operations for
the three month periods ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows for
the three month periods ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and analysis of
Financial Condition and Results of Operations
PART II - Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
Exhibits
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1- Financial Statements - (unaudited)
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Assets
Cash...................................... ($9,748) $2,763
Account receivable........................ 225,937 37,675
Loans receivable, related parties......... 114,937 114,937
Prepaid expenses ......................... 48,019 56,267
Property and equipment,................... 379,981 395,330
Film costs, net........................... 6,119,221 5,381,329
Note receivable........................... 80,424 80,424
Other assets.............................. 11,360 11,673
------------ ------------
$6,970,131 $6,080,398
============ ============
Liabilities
Accounts payable and accrued expenses..... 954,775 $1,122,307
Note payable, related parties............. 129,069 137,037
Other..................................... -- --
Deferred revenues......................... 36,336 78,020
Notes payable............................. 349,978 831,266
Obligations under capital leases.......... 6,565 6,565
------------ ------------
Total long-term liabilities............... 1,476,723 2,175,195
------------ ------------
Stockholders' Equity
Preferred stock, $.0001 per share,
3,000,000 shares authorized, none
issued or outstanding..................... -- --
Common stock, $.0001 par value;
20,000,000 shares authorized;
paid in capital........................... 9,227,888 7,122,414
Common stock warrants...................... 352,026 290,901
Accumulated deficit........................ (4,086,506) (3,508,112)
------------ ------------
Total stockholders' equity ................ 5,493,408 3,905,203
$6,970,131 $6,080,398
============ ============
</TABLE>
See accompanying notes.
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
REVENUE:
Tuition and related fees......... $61,353 $126,905
Accessories and video sales...... 0 13,401
Film income...................... 225,637 215,000
Interest income.................. 0 26,692
---------- ----------
Total revenue.................... 286,990 381,998
---------- ----------
COSTS AND EXPENSES:
Cost of sales.................... 0 8,711
Amortization of film costs....... 138,252 73,332
Salaries and payroll taxes....... 10,019 215,634
Rent............................. 42,328 84,616
Selling, general and
administrative................. 315,831 236,117
Interest......................... 358,914 8,901
---------- ----------
Total costs and expenses......... 865,344 627,311
---------- ----------
Net Loss From Operations............($578,354) ($245,313)
Gain On Sale Of Studio 0 115,473
Net Loss Before Income Tax (578,354) (129,840)
Income Tax 40 5,050
Net Loss (578,394) (134,890)
Accumulated Deficit (4,086,506) (1,719,486)
Weighted average number of shares
outstanding...................... 6,097,269 3,832,345
========== ==========
Net loss per share................. ($0.09) ($0.04)
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ ($578,394) ($134,890)
Adjustments to reconcile net loss to
net cash used for operating activities:
Non-cash charge related to beneficial
conversion feature of debentures 316,198 --
Gain on sale of studio...................... $0 ($115,473)
Depreciation and amortization............... 168,132 88,805
Amortization of original issue discounts
on long-term debt......................... 5,432 0
Rent concession amortization................ 0 (2,108)
Stock warrants issued to consultants 150,000 0
Decrease (Increase) in:
Accounts receivable........................... (188,262) --
Prepaid expenses and other.................... 8,561 20,087
Increase (Decrease) in:
Accounts payable and accrued expenses......... (172,071) 181,703
Deferred revenues............................. (41,684) (72,779)
Other liabilities............................. 0 --
----------- -----------
Net cash used for operating activities..... (332,090) (34,655)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............. (7,133) (13,226)
Payments for film costs......................... (883,542) (1,187,489)
----------- -----------
Net cash used for investing activities..... (890,675) (1,200,715)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of warrants.............. 540,000 0
Proceeds (payments) of loans from related
parties....................................... (7,968) (1,752)
Proceeds on long-term debt...................... 914,096 0
Payments on long-term debt...................... (235,874) (1,938)
Principal payments on capital leases............ 0 (2,428)
----------- -----------
Net cash provided by financing activities.. 1,210,254 (6,118)
----------- -----------
NET INCREASE IN CASH............................ (12,511) (1,241,488)
CASH, beginning of period....................... 2,763 1,795,657
----------- -----------
CASH, end of period............................. ($9,748) $554,169
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................... $42,718 $8,901
State income taxes.......................... $40 $5,050
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCIAL ACTIVITIES:
Warrants isssued in connection with debt 61,125 0
Long-term debt converted to equity 1,103,818 0
Non-cash charge related to beneficial
conversion feature of debentures 316,198 --
</TABLE>
See accompanying notes.
<PAGE>
PART I - FINANCIAL INFORMATION
Notes to Consolidated Financial Statements
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.
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. See Note 18 related to sales of studios.
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 year or less to be cash
equivalents. The Company had cash equivalents of $ -0- and $1,496,000 at
December 31, 1998 and 1997, respectively.
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 approximate fair value
due to the short maturity of these instruments. The carrying value of
long-term obligations approximate 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.
Basic Loss Per Share - Statement of Financial Accounting Standards (SFAS) No.
128 was adopted by the Company during the year ended December 31, 1997. Basic
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.
Presentation - Because of the Company's reduced activity in its karate
instruction segment, management believes utilizing a classified balance sheet
presentation is no longer appropriate, as the operating cycle of the
media-related segment of the Company is expected exceed 12 months.
Accordingly, an unclassified presentation is utilized for the accompanying
balance sheet, which is an acceptable method under SFAS No. 53, "Financial
Reporting by Producers and Distributors of Motion Picture Films".
Reclassifications - Certain reclassifications have been made to the 1997
amounts to conform to the current presentation.
Note 2 - Basis of Reporting
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do
not include all of the information and disclosures required by generally
accepted accounting principles for completed financial statements. In the
opinion of management, such statements include all adjustments (consisting
only of normal recurring items) which are considered necessary for a fair
presentation of the financial position of the Company at March 31, 1999
and the results of its operations and its cash flows for the three months
periods ended March 31, 1999 and 1998. The accompanying unaudited
financial statements should be read in conjunction with the financial
statements and notes for the year ended December 31, 1998 included in the
Company's Form 10-KSB as filed with the SEC on March 31, 1999.
<PAGE>
Note 3 - 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 amounts reported in the financial statements and accompanying
notes. 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 and results of operations.
Note 4 - Film Costs
Film costs consist of the capitalized costs related to the
production of videos and programs for television as follows:
March 31, December 31,
1999 1998
----------- -----------
Television program
The Adventures of Kanga Roddy............... $6,331,909 $5,455,764
Videos
Montana Exercise Video...................... 148,253 148,253
Strong Mind Fit Body........................ 18,042 18,042
----------- -----------
6,498,204 5,622,059
Less accumulated amortization............... 378,984 240,730
----------- -----------
6,119,220 5,381,329
=========== ===========
Production of the first seven episodes of The Adventures of Kanga Roddy was
completed during 1997. Thirteen additional episodes were completed during the
year ended December 31, 1998. Seven additional episodes were completed during
the quarter ended March 31, 1999. Both videos were completed in 1996, but
only the Strong Mind Fit Body video has been released. During 1997, management
wrote down the capitalized costs for this video by $105,000.
Note 5 - Related Party Transactions
Loans to stockholders were $114,937 and $114,773 at December 31, 1998 and
1997, respectively.
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 initial public
offering and another $50,000, which is included in accounts payable at
December 31, 1998, will be paid 30 days prior to the release date. These two
participants are stockholders of the Company.
During 1998 and 1997, the Company paid $67,500 and $60,000, respectively, to
two shareholders for story lines and scripts for the production of the
television series "The Adventures with Kanga Roddy".
<PAGE>
Note 6 - Sale of Karate Studios
During the year ended December 31, 1998, the Company sold four karate studios
to the locations' general managers. The Company received notes receivable
totaling $86,500 due in monthly payments of $333 to $1,000 including interest
imputed at 10%. The Company has guaranteed payments of a studio lease, which
are $4,673 per month through March 2000. The Company retained all advance
payments of enrollment fees, which were approximately $310,000 as of the
closing dates; however, the Company is liable for any future refunds to
students enrolled prior to the closing dates. The Company reduced the
liability for advance payments of enrollment fees related to these studios to
$35,000, which is included in deferred revenue. Management will evaluate this
liability quarterly in light of cancellations to date and expected future
cancellations.
Note 7 - Financing through the sale of convertible debentures
During the quarter ended March 31, 1999, the Company sold $950,000 in
convertible debentures to four investors. The terms of this transaction were
filed by the Company on Form S-3 with the SEC on February 12, 1999. The
proceeds from which will be used for production expenses. As of March 31, 1999
the outstanding principle amount of the debentures was $220,000; while $730,000
of debentures and accrued interests were converted into 871,719 shares of
common stock.
Note 8 - Common Stock Purchase Warrants
During the quarter ended March 31, 1999, the Company issued 600,000 warrants
to purchase the Company's common stock. These warrants were issued to
consultants for services provided to the Company. The Company received no
proceeds upon issuance of the warrants. All holders exercised their rights to
convert the warrants to common stock on March 5, 1999. The Company received
total proceeds of $540,000 and issued one share of common stock for each
warrant exercised.
Note 9 - Subsequent Events
Financing - Subsequent to quarter ended March 31, 1999, the Company issued
convertible debentures totaling $1,250,000. The interest rate on the Debentures
is 7% per annum, payable in cash or in shares of the Company's Common Stock.
The Debentures mature May 1, 2002 and may be converted to shares of Common
Stock. The Company also issued 125,000 warrants in connection with these
debentures. The Company received no proceeds from these warrants.
Note 10 - Year 2000
In the opinion of management, no material adverse effect on either results of
operations, cash flows or financial position is anticipated due to the
modifications or replacement of existing information systems in order to
accommodate year 2000 implications.
Note 11 -Beneficial Conversion Feature of Debentures
The Company has restated its financial statements for the quarter ended March
31, 1999 to account for the beneficial conversion feature of its 7%
convertible debentures issued during the quarter in accordance with EITF D-60,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion." The application of EITF D-60 resulted in
the recognition of a non-cash charge to interest expense of $316,196 for the
quarter ended March 31, 1999 with a corresponding increase to additional paid
in capital. There was no effect on the balance sheet except for the
reclassification of the interest expense from additional paid in capital to
retained earnings.
<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 September 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 March 31, 1999, the Company's
total revenue decreased to $286,990, a decrease of $95,008 or 25% as compared
to total revenue for the three months ended March 31, 1998 of $381,998. This
decrease is mainly due to the closure of the Company's karate studios,
which have been reduced to only one studio for the quarter.
The Company's revenues from the operation of its karate studios for the
three months ended March 31, 1999 was $61,353, an decrease of 52% from revenues
of $126,905, for the three months ended March 31, 1998. The decrease is
attributable to closure of the Company's karate studios.
For the three months ended March 31, 1999, film income was $225,637.
Film income was derived from the delivery of seven episodes of the company's
television show "Adventures With Kanga Roddy" to the San Jose Public TV station
KTEH, which was invoiced for $30,000 for each episode for distribution fees,
and also the Company received $5,000 in advanced royalty payment from Timeless
Toys.
<PAGE>
Costs and Expenses. Revenue from the Company's karate
studios and film business was offset by the amortization of film costs of
$138,252, calculated in proportion to the revenue generated by the
television show in this first quarter to total expected revenues from
the television show.
The Company's expenses for salaries and payroll taxes was only $10,019
for the three months ended March 31, 1999, a reduction of 95% from
$215,634 for the comparable period in 1998. The decrease was due to payroll of
the Company's management included in capitalized film costs.
Rent expense decreased by $42,288, or 50%, to $42,328 for the three
months ended March 31, 1999, from $84,616 for the comparable period in 1998.
The decrease is due to the closure of karate studios, but is partially offset
by the increased expense of the Company's new corporate office which the
Company has occupied since the end of July 1998. The Company currently
operates only one studio in California.
Total selling, general and administrative expenses increased by
$79,714, or 34%, to $315,831 for the three months ended March 31, 1999, from
$236,117 for the comparable period in 1998. This increase is primarily due to
increased promotional expenses related to the television show, depreciation of
production equipment and legal and accounting fees.
Interest expense increased by $350,013 to $358,914 for the three months
ended March 31, 1999, from $8,901 for the comparable period in 1998. Included
in interest expense for the quarter ended March 31, 1999 is a non-cash charge of
$316,196 related to the beneficial conversion feature of the convertible
debentures issued within the quarter. The debentures are convertible to common
stock of the Company with the shares to be issued upon conversion based on 75%
of the fair value of the stock at the time of conversion. Since the debt can
be converted at any time, the value of the discount as of the issuance date has
been charged to interest expense with a corresponding increase to additional
paid in capital. The balance of the increase is attributable to accrued
interests on debentures the Company sold during this quarter.
As a result of the foregoing factors, the Company's net loss for the
three months ended March 31, 1999 was $578,394 which represented an increase of
$443,504 from $134,890 for the comparable period in 1998. Net loss per share
increased to $0.09 for the three months ended March 31, 1999 as compared to
$0.04 for the comparable period in 1998. Weighted average number of shares
outstanding increased to 6,097,269 for the three months ended March 31, 1999
from 3,832,345 for the comparable period in 1998, due to shares issued upon the
conversion of convertible debentures sold by the Company during 1998 and also
during this quarter.
Liquidity And Capital Resources
Cash decreased for the three months ended March 31, 1999 by
$12,511 to ($9,748). The decrease in cash is attributable to $890,675 of
investments in the production of Adventures With Kanga Roddy, and $332,090 in
net cash used for operating activities, offset by $1,210,254 which was raised
by the Company through financing activities.
As of March 31, 1999, total long-term debt was $1,476,723 and loans
payable to related parties was $129,069. In addition, deferred revenues were
$36,336 at March 31, 1999. Deferred revenues represent pre-paid tuition for
the karate studios and booked revenue from sponsorship activities and cannot
be immediately recognized.
<PAGE>
Recent Developments
In May 1999 the Company sold $1,250,000. The interest rate on the
Debentures is 7% per annum, payable in cash or in shares of the Company's
Common Stock. The Debentures mature May 1, 2002 and may be converted to shares
of Common Stock. The Company also issued 125,000 warrants in connection with
these debentures. The Company received no proceeds from these warrants.
Proceeds will be used for the production of Adventures With Kanga Roddy.
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.
The Company disputes all claims of Mr. Jeffreys to an interest in certain of
the Company's intellectual property. In February 1999, Mr. Jeffreys and the
Company have agreed to settle the lawsuit and counterclaim for $36,000 which
the Company will pay Mr. Jeffreys in twelve monthly payments of $3,000 each
beginning in March of 1999.
With exception of the foregoing, no lawsuits or proceedings are
currently pending against the Company.
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.
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: March 17, 1999 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(5) 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
4.461(7) Securities Purchase Agreement dated January 19, 1999
4.462(7) Form of Debenture dated January 19, 1999
4.463(7) Joint Escrow Instructions dated January 19, 1999
4.464(7) Registration Rights Agreement dated January 19, 1999
4.465(7) Form of Warrant dated January 19, 1999
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(5) Amendment to Employment Agreement with George Chung, dated July 1,
1998
10.30(5) Amendment to Employment Agreement with Anthony Chan, dated July 1,
1998
10.31(5) Amendment to Employment Agreement with Don Berryessa, dated July 1,
1998
10.32(5) Amendment to Employment Agreement with Jan Hutchins, dated July 1,
1998
10.33(5) Amendment to Employment Agreement with Mae Lyn Woo, dated July 1,
1998
10.34(5) Amendment to Employment Agreement with Kristen Simpson, dated July 1,
1998
10.35(6) International Distribution Agreement with Portfolio Entertainment
dated August 19, 1998
10.36(6) Video Distribution Agreement for the Kanga Roddy Series with Kreative
Video Products dated August 19, 1998
10.37(6) Video Distribution Agreement for the Montana Exercise Video with
Kreative Video Products dated August 21, 1998
10.38(8) Consultant Agreement between Olympia Partners, LLC, Dalton Kent
Securities Group, Inc. and American Champion Entertainment, Inc.
10.39(8) Merchant Licensing Agreement between Timeless Toys and American
Champion Media, Inc.
10.40(8) Loan Agreement between Olympia Partners and American Champion
Entertainment, Inc.
10.41(8) SEGA Agreement termination letter.
10.42(8) Consultant Agreement between American Champion Entertainment, Inc.
and Trademark Management
21.1(1) Subsidiaries of the Registrant
23.1(8) 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.
(5) Filed as an exhibit with the registrant's Form 10-QSB filed with the
SEC on August 7, 1998 and incorporated by reference herein.
(6) Filed as an exhibit with the registrant's Form 10-QSB filed with the
SEC on November 16, 1998 and incorporated by reference herein.
(7) Filed as an exhibit with the registrant's Form S-3 filed with the SEC
on Feburary 12, 1999 and incorporated by reference herein.
(8) Filed as an exhibit with the registrant's Form 10-KSB filed with the
SEC on March 31, 1999 and incorporated by reference herein.
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> (9,748)
<SECURITIES> 0
<RECEIVABLES> 225,937
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,970,131
<PP&E> 379,981
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,970,131
<CURRENT-LIABILITIES> 1,476,723
<BONDS> 0
0
0
<COMMON> 9,227,888
<OTHER-SE> 352,026
<TOTAL-LIABILITY-AND-EQUITY> 6,970,131
<SALES> 0
<TOTAL-REVENUES> 286,990
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 865,344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 358,914
<INCOME-CONTINUING> (578,354)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<INCOME-PRETAX> (578,354)
<INCOME-TAX> 40
<NET-INCOME> (578,394)
<EPS-BASIC> ($0.09)
<EPS-DILUTED> ($0.09)
</TABLE>
