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 Septebmer 30, 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
Incorporation or Organization) Identification Number)
1694 The Alameda, Suite 100, San Jose, California 95126
(408) 288-8199
(Registrant's Address of Principal Executive Offices and Telephone Number)
(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 October 15, 1999
------------------------- --------------------------
Common Stock, $.0001 par value 10,463,585 shares
Transitional Small Business Disclosure Format (check one) Yes.... No ..X..
Exhibit Index on Page 16
AMERICAN CHAMPION ENTERTAINMENT, INC.
Form 10-QSB
Sepember 30, 1999
TABLE OF CONTENTS
Page
------
PART I - Financial Information
Item 1. Financial Statements 3
Consolidated Balance Sheet for the nine month
periods ending September 30, 1999 and 1998 3
Consolidated Statements of Operations for
the three month periods and the nine month periods
ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for
the three month period and the nine month period
ended September 30, 1999 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and analysis of
Financial Condition and Results of Operations 12
PART II - Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
Exhibit Index 16
Exhibits 20
PART I - FINANCIAL INFORMATION
ITEM 1- Financial Statements - (unaudited)
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, June 30, September 30
1999 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Assets (unaudited)
Cash...................................... ($9,750) $342,049 230,656
Account receivable........................ 225,938 684,788 975,354
Loans receivable, related parties......... 114,937 114,937 114,937
Prepaid expenses.......................... 48,019 41,448 36,192
Property and equipment,................... 379,981 351,975 328,780
Film costs, net........................... 6,119,222 6,484,746 7,019,133
Note receivable........................... 80,424 80,424 80,424
Deferred consulting fees.................. 0 0 531,270
Other assets.............................. 11,360 16,860 16,860
------------ ------------ ------------
Total assets....................... 6,970,131 8,117,227 9,333,606
Liabilities
Accounts payable and accrued expenses..... 954,775 987,549 1,044,597
Notes payable, related parties............ 129,069 71,400 61,400
Other..................................... 0 0 0
Deferred revenues..................... 36,336 25,841 20,820
Notes payable............................. 175,806 60,393 59,461
Long-term debt............................ 174,172 1,804,172 2,119,562
Obligations under capital leases.......... 6,565 6,565 6,565
------------ ------------ ------------
Total liabilities................ 1,476,723 2,955,920 3,312,405
Stockholders' Equity:
Preferred stock........................... 0 0 0
Common stock, paid in capital............. 9,227,888 10,396,941 12,835,857
Common stock warrants..................... 352,026 618,050 100,958
Accumulated deficit....................... (4,086,506) (5,853,684) (6,915,614)
------------ ------------ ------------
Total stockholders' equity ............... 5,493,408 5,161,307 6,021,201
Total liabilities and stockholders equity 6,970,131 8,117,227 9,333,606
============ ============ ============
</TABLE>
See accompanying notes.
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept 30, Sept 30,
------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Tuition and related fees......... $13,806 $53,048 $94,416 $371,980
Accessories and video sales...... 0 13,191 0 36,067
Film income...................... 43,958 47,499 483,801 294,166
Interest income.................. 0 625 0 29,723
------------ ------------ ------------ ------------
Total revenue.................... 57,764 114,363 578,217 731,936
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales.................... 5,338 1,878 7,060 15,870
Amortization of film costs....... 270,615 21,973 640,436 106,993
Salaries and payroll taxes....... 8,123 237,627 28,795 636,213
Rent............................. 74,718 90,893 189,296 248,590
Selling, general and
administrative................. 393,850 225,707 1,041,094 615,633
Financing Expense*............... 0 0 741,210 0
Interest......................... 367,051 463,196 1,333,548 480,858
------------ ------------ ------------ ------------
Total costs and expenses......... 1,119,695 1,041,274 3,981,439 2,104,157
------------ ------------ ------------ ------------
Net Loss From Operations............($1,061,931) ($926,911) ($3,403,222) ($1,372,221)
Gain On Sale Of Studio 0 61,503 0 176,976
Net Loss Before Income Tax (1,061,930) (865,408) (3,403,222) (1,195,245)
Income Tax 0 0 4,281 7,450
Net Loss (1,061,930) (865,408) (3,407,503) (1,202,695)
Accumulated Deficit (6,915,614) (2,787,291) (6,915,614) (2,787,291)
Weighted average number of shares
outstanding...................... 9,352,110 3,834,529 9,352,110 3,833,073
============ ============ ============ ============
Net loss per share................. ($0.11) ($0.23) ($0.36) ($0.31)
============ ============ ============ ============
</TABLE>
See accompanying notes.
<PAGE>
* Financing expense of $741,210 consists of $114,500 in cash and a
non-cash portion of $626,710 in valuation of common stock and warrants
granted pursuant to the redemption of debt.
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Sept 30, Sept 30,
-------------------------
1999 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ ($1,061,930) ($3,407,503)
Adjustments to reconcile net loss to
net cash used for operating activities:
Non-cash charge related to beneficial
conversion feature of debentures.......... 333,860 1,233,684
Depreciation and amortization............... 300,727 730,479
Costs on debenture redemption............... 0 629,281
Stock warrants issued to consultants........ 0 150,000
Amortization of original issue discount
on long-term debt......................... 17,505 31,422
Amortization of deferred consulting expenses 62,897 62,897
Decrease in:
Accounts receivable........................... (40,566) (690,679)
Prepaid expenses and other.................... 5,256 12,402
Increase in:
Accounts payable and accrued expenses......... 60,300 (78,999)
Deferred revenues............................. (5,021) (57,200)
------------ ------------
Net cash used for operating activities..... (326,972) (1,384,216)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............. 446 (1,369)
Payments for film costs......................... (812,365) (2,300,363)
Advances to stockholders........................ 0 (183,550)
------------ ------------
Net cash used for investing activities..... (811,919) (2,485,282)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debentures............ 750,000 2,792,790
Proceeds from issuance of warrants.............. 287,500 895,562
Offering costs.................................. 0 (8,139)
Proceeds from issuance of common stock.......... 0 85,969
Payments on loans from related parties.......... (10,000) (17,968)
Proceeds on notes payable....................... 0 2,327,053
Payments on notes payable....................... 0 (832,874)
Payments on debenture redemption................ 0 (1,145,000)
------------ ------------
Net cash provided by financing activities.. 1,027,500 4,097,393
------------ ------------
NET INCREASE IN CASH............................ (111,391) 227,895
CASH, beginning of period....................... 342,049 2,763
------------ ------------
CASH, end of period............................. $230,658 $230,658
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................... $33,191 $99,864
State income taxes.......................... $0 $40
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Long-term debt converted to equity........... $468,274 $1,990,132
Common stock warrants issued with debt....... $109,280 $349,680
Common stock warrants issued for redeemed
debentures................................. $0 $121,187
Original issue discount on redeemed debt..... $31,436 $188,650
Exercise of warrants $391,361 $493,861
Non-cash charge related to beneficial
conversion feature of debentures............ $333,860 $1,233,684
Stock Warrants issued to consultants......... $603,360 $738,360
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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. See Note 6
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- at December 31, 1998 and $1,496,000 at December 31, 1997.
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.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Note 1 - Nature of Operations and Summary of Significant Accounting
Policies (continued)
Basic 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.
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
June 30, 1999 and the results of its operations and its cash flows
for the three months periods ended June 30, 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.
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 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 and results of
operations.
Note 4 - Film Costs
Film costs consist of the capitalized costs related to the
production of videos and program for television as follows:
September 30 December 31
1999 1998
----------- ----------
Television Program $7,734,004 $5,455,764
The Adventures with Kanga Roddy
Videos
Montana Exercise Video 148,253 148,253
Strong Mind Fit Body 18,042 18,042
---------- ----------
7,900,299 5,622,059
Less accumulated amortization 881,166 240,730
---------- ----------
$7,019,133 $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 at December 31, 1998 and
$114,773 at December 31, 1997.
In November 1996, the Company agreed to pay to two participants of
the Monatna 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,
repectively, to two sharholders for story lines and scripts for
the production of the television series The Adventures with Kanga
Roddy.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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 - 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 8 -Beneficial Conversion Feature of Debentures
The Company accounts 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 $333,860 for the
quarter and $1,233,684 for the nine months ended September 30, 1999 with a
corresponding increase to additional paid in capital. These amounts are
included in interest expense.
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 television viewers 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, 1999. 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 September 30, 1999, the Company's
total revenue decreased to $57,764, a decrease of $56,599 or 49.5% as
compared to $114,363 for the comparable period in 1998. This decrease is due to
the reduction in the Company's karate studio operation.
Costs and Expenses. The Company's revenues were offset by
amortization of film costs of $270,615, calculated based upon the
proportion to the revenue generated by the television show in this
third quarter compared to total expected revenues from the television
show.
The Company's expenses for salaries and payroll taxes decreased to
$8,123, a decrease of $229,504 or 96.6% for the three months ended September
30, 1999 from $237,627 for the comparable period in 1998. The decrease
was the combined result of a decrease in karate studio personnel and the
capitalizing of a portion of personnel cost into film costs.
Rent expense decreased to $74,718 for the three months ended September
30, 1999, a decrease of $16,175 or 17.8% from $90,893 for the comparable period
in 1998. The decrease in rents is due to the closure of karate studios.
Total selling, general and administrative expenses increased to
$393,850, an increase of $168,143 or 74.5% for the three months ended
September 30, 1999 from $225,707 for the comparable period in 1998. 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 to $367,051, a decrease of $96,145 or 20.8%
for the three months ended September 30, 1999 from $463,196 for the comparable
period in 1998. Included in interest expense for the quarter ended September
30, 1999 is a non-cash charge of $333,860 compared with $416,621 for the
comparable period in 1998 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 the interest accrued on convertible debentures and
certain private loans of the Company.
As a result of the foregoing factors, the Company's net loss increased
to $1,061,931 during the three months ended September 30, 1999 from $865,408
for the comparable period in 1998. Net loss per share decreased to $0.11 for
the three months ended September 30, 1999 from $0.23 for the comparable period
in 1998. Weighted average number of shares outstanding increased to 9,352,110
the three months ended September 30, 1999 from 3,834,529 for the comparable
period in 1998 primarily due to the conversion of debentures into the
Company's common stock.
Liquidity And Capital Resources
Cash decreased for the three months ended September 30, 1999 by
$111,391 of which $812,365 was used for investing activities related to
the production of the Adventures With Kanga Roddy show. Net operating
cash loss was $326,972 and financing activities resulted in an inflow of
$1,027,500.
Deferred consulting fees of $531,270 relate to common stock and
warrants issued to consultants and are being amortized over the term of the
consulting agreements which range from 12 to 24 months.
As of September 30, 1999, total long-term debt was $2,119,562 and loans
payable to related parties was $71,400. In addition, deferred revenues were
$20,820 at September 30, 1999. Deferred revenues are pre-paid tuition for the
karate studios and booked revenue from sponsorship activities which cannot be
immediately recognized.
Recent Developments
On July 16, 1999, the Company formed "American Champion Marketing
Group, Inc. ("ACMG") as a Delaware Corporation and a wholly owned subsidiary
of American Champion Media, Inc. ACMG is formed for the purpose of licensing,
marketing and commercial exploitation of the Company's property "Adventures
With Kanga Roddy" and also other properties to be acquired. Joy Tashjian, a
former consultant of the Company, is employed by the Company as the President
and CEO of ACMG, and also a Director of the Company.
On September 15, 1999, American Champion Marketing Group, Inc. signed a
consulting agreement with Consor, Inc. in which American Champion Marketing
Group is the consultant to provide Consor with licensing services, sales staff
training, marketing and consumer product development, international agent
management and sales, and publicity.
On September 30, 1999, American Champion Media, Inc. signed a Licensing
Agreement with Brighter Child Interactive, LLC. in which the Company granted
Brigter Child Interactive worldwide exclusive rights to manufacture and
distribute an interactive CD-Rom featuring the Company's television show
"Adventures With Kanga Roddy" and its associated characters.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There is no on-going legal proceedings during the three months
ended September 30, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
There is no submission of matters to a vote of security holders during
the three months ended September 30, 1999.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See the Exhibit Index beginning on page 16.
(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: November 17, 1999 By: /s/ Anthony K. Chan
------------------------------
Anthony K. Chan, Chief Executive Officer
By: /s/ Mae Lyn Woo
------------------------------
Mae Lyn Woo, Vice President,
Chief Financial Officer &
Chief Operations Officer
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
4.471(9) Securities Purchase Agreement dated June 17, 1999
4.472(9) Form of Debenture dated June 17, 1999
4.473(9) Joint Escrow Instructions dated June 17, 1999
4.474(9) Registration Rights Agreement dated June 17, 1999
4.475(9) Form of Warrants dated June 17, 1999
4.481(10) Securities Purchase Agreement dated September 24, 1999
4.482(10) Form of Debenture dated September 24, 1999
4.483(10) Joint Escrow Instructions dated September 24, 1999
4.484(10) Registration Rights Agreement dated September 24, 1999
4.485(10) Form of Warrants dated September 24, 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
10.43(11) Termination of Kreative Video Products, Inc.
10.44(11) Video Products distribution agreement between Fast Forward
Marketing, Inc. and American Champion Entertainment. Inc.
10.45(11) Consultant Agreement between Chris Scoggin, LTD. And American
Champion Entertainment, Inc.
10.46 Consulting Services Agreement between Consor, Inc., and American
Champion Marketing Group, Inc.
10.47 Licensing Agreement between Brighter Child Interactive, LLC and
American Champion Media, Inc.
21.1(1) Subsidiaries of the Registrant
23.1(8) Consent of Moss Adams, LLP
27.1 Financial Data Schedule (shown on EDGAR format only)
(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.
(9) Filed as an exhibit with the registrant's Form S-3 filed with
the SEC on July 16, 1999 and incorporated by reference herein.
(10) Filed as an exhibit with the registrant's Form S-3 filed with
the SEC on November 5, 1999 and incorporated by reference herein.
(11) Filed as an exhibit with the registrant's Form 10-QSB filed with the
SEC on August 16, 1999 and incorporated by reference herein.
EXHIBIT 10.46
Mr. Weston Anson
Ms. Susan Bailey
Consor, Inc.
7342 Girard Avenue
La Jolla, CA 92037
CONTRACT FOR EXECUTIVE AND MARKETING
CONSULTING SERVICES
This contract is made as of September 1, 1999 between TLA/Consor Inc.
mailing address is 7342 Girard Avenue, La Jolla, California 92037
hereinafter referred to as "Client", and "American Champion Marketing
Group", mailing address 1694 The Alameda Suite 100, San Jose, California
95126 hereinafter referred to as "Consultant".
1. DESCRIPTION OF WORK
Consultant agrees to provide Executive Licensing Services, Sales staff
training and management, Marketing and Consumer Product Development,
International Agent Management and Sales (where applicable) and
Publicity.
2. COMPENSATION TO CONSULTANT
Client shall pay Consultant as consideration for aforementioned services
the sum of $5500.00 per month for the term of one year through August
31, 2000.
Any expenses related to travel, client entertainment, telephone, faxing,
in accordance with services being performed in this agreement, shall be
discussed with Client in advance, and payable by Client upon receipt of
invoice.
3. COMMISSION
Client agrees to compensate Consultant with ten percent (10%) gross
commission for all agreements executed in the Licensing Agency Division
of TLA/Consor Inc. This percentage shall be paid to the Consultant
throughout the term and any extensions of these licensee agreements.
Payment is due to consultant fifteen days after TLA/Consor's receipt of
the quarterly royalty reports from licensee and agents.
Payments for consultation services are due upon receipt of the monthly
billing at the beginning of each calander month. If the Client fails to
pay Consultant according to the payment schedule set forth above,
Consultant may, upon five days written notice to Client, suspend
performance of services under this contract. Unless Consultant recieves
payment in full within ten days of the date of the notice, Consultant
may stop all further services without further notice. In such,
Consultant shall not be liable for any cancelled agreements or damages
caused to Client. Unpaid balances to Consultant shall accrue interest
at 18% per year.
4. ARBITRATION
Any controversy or claim arising out of, or relating to, this contract
or the making, performance, or interpretation of this Contract, the
amount of which exceeds the jurisdictional limits for claim action under
California law, shall be settled by arbitration.
5. MISCELLANEOUS PROVISIONS
(A) This document represents the entire and integrated agreement
between Client and Consultant and supersedes all prior
negotiations, representations or agreements, either in writing or
oral. This contract may be amended only through written agreement
b both parties.
(B) This Contract shall be governed by the laws of the State of
California. This shall lie for any litigation arising outfox the
Contract.
(C) This Contract is binding on Client and Consultant as well as their
partners, successors, and assigns. However, this contract may not
be assigned by either party without prior written consent of the
other party.
(D) Consultant is not responsible for any actions taken by associates,
agents or manufacturers Consultant may introduce to Client and
Client may engage agreements with.
(E) In the event the services of this agreement are terminated prior
to completion of the project, Client shall compensate Consultant
for services preformed through the term of this agreement.
(F) All documents provided to client and Consultant are confidential
and legally privileged only for the use of the individual or
entity named on the document. Any dissemination, distribution or
copying of these documents is strictly prohibited.
(G) If any lawsuit or arbitration is brought to enforce or interpret
the provisions of this agreement, the prevailing party will be
entitled to reasonable attorney's fees, in addition to any other
relief to which that party may be entitled.
(H) "Key Representative" It is hereby acknowledged that TLA/Consor
Inc.is a client from Trademark Management and at such time Ms.
Tashjian may no longer be with ACMG, TLA/Consor would remain
obligated to compensate ACMG for all ongoing commissions in
accordance with Paragraph 3 of this document.
Dated: 24/8/99 Client:
/s/ Weston Anson
Weston Anson/Chairman
TLA/Consor Inc.
Dated: 15/9/99 Client:
/s/ Joy Tashjian
Joy Tashjian/ President & CEO
American Champion Marketing Group
LICENSING AGREEMENT
This Licensing Agreement (this "Agreement") is made and entered
into as of this 30 day of September, 1999 by and between American
Champion Media Inc., a corporation duly organized and existing under the
laws of the State of California, located at 1694 The Alameda, San Jose,
CA 95126 ("Licensor") and Brighter Child Interactive, LLC, a limited
liability company duly organized and existing under the laws of the
State of Ohio, located at 4079 Executive Parkway, Suite 303,
Westerville, Ohio 43081 ("Licensee").
The Licensor is the exclusive worldwide owner of and/or has the
exclusive worldwide right to license the Kanga Roddy character and all
related characters included in the television program entitled
"Adventures with Kanga Roddy" or any other related theatrical production
or film production (collectively the "Characters") and all the names,
symbols, likenesses, designs and other indicia comprised in or
associated with the Characters, and all copyrights, including all
derivative works, and trademarks which exist in the Characters and the
names and likeness of the characters ("Properties"); and
The Licensor desires to grant and the Licensee desires to obtain a
license to manufacture and sell certain Products using or based upon the
Properties;
In consideration of the mutual covenants contained herein the
parties agree as follows.
1. License To Use Properties.
(a) Grant of License. Licensor grants to Licensee a non-
transferable, worldwide exclusive license to use the Properties in
connection with the development, manufacture, marketing, distribution
and sale of the Products in the Territory and to manufacture (in all
languages) the Products using all present and future Characters and
Properties, and the exclusive right during the Term to distribute and
sell such Products through the Distribution Channels throughout the
Territory. Except for the specific rights, which are granted to Licensee
under this Agreement, all rights in and to the Properties are retained
by Licensor. Except to the extent set forth in paragraph 10(a) below,
Licensee shall not have the right to sublicense any of the rights
granted to it under this Agreement. For the purposes of this Agreement,
the term Products shall mean any device environment in which an
interactive software program can be used. A Platform may be defined by
hardware only, software only, or a combination of hardware and software,
including Platforms such as Macintosh, MPC, CD-I, and Microsoft Windows,
but excluding Sony Playstation, Nintendo and Sega platforms.
(b) Use of Licensed Properties. The Licensee will: (i) use the
Properties only on Products and Advertising Materials, as defined below;
(ii) package and sell Products only in packaging approved by Licensor,
said approval not to be unreasonably refused; (iii) refrain from use of
the Properties except under the terms of this Agreement; (iv) notify
Licensor in writing of any conflicting uses, applications for
registration or registrations of the properties or marks similar thereto
of which it has knowledge; (v) execute any documentation as may be
reasonably requested by Licensor relating to the Properties; (vi)
indicate on the Products and/or their labeling or packaging that the
Products are manufactured by Licensee, or a manufacturer as described in
paragraph 10(a), and that such manufacture is pursuant to license from
Licensor; and (vii) comply with all of Licensor's reasonable
instructions relating to the use and display of the properties.
(c) Restriction on Use of Properties. The Properties, either in
whole or in part, will not be shown endorsing the Licensee or products
(including the Products) or services of Licensee or others, without the
prior written approval of Licensor. None of the Properties shall be
combined in any Products or Advertising materials with any other
characters or persons.
(d) Method of Sale. Licensee agrees that the products will be
sold at a competitive price that does not exceed the price customarily
charged the trade by Licensee. License agrees to offer a warranty to
purchasers of the Products substantially similar to that offered for
products competitive with Products, and in no event shorter or less
comprehensive than the warranty offered by Licensee for other similar
items produced by it.
2. Product Quality.
(a) Quality Standards. Licensee therefore agrees that prior to the
release of any Product, it will submit (3) samples of the Product to
Licensor for approval, as provided in Section 3. Once Licensor's
approval has been obtained, Licensee agrees that it will not deviate in
a material manner from the approved samples. Failure by Licensee to
materially conform its Products to the approved samples will be
considered a breach of this Agreement and upon notice of such, Licensee
agrees that it will immediately stop the manufacture, distribution and
sale of the nonconforming Products.
(b) Provision of Samples. Licensee will furnish free of charge
to Licensor twenty-four (24) samples of each Product. Upon written
request, Licensor may annually request an additional twelve (12) samples
of each Product.
(c) Inspections. Upon reasonable notice from Licensor but no more
often than once a year , Licensee shall permit representatives of
Licensor to enter Licensee's premises and plant(s) during normal
business hours for the purpose of inspecting Licensee's plant(s),
equipment, records, operation and supplies which relate to the
manufacture, distribution and sale of the Products.
(d) Product Warranty. Licensee represents and warrants that the
Products will be of good quality in design, material and workmanship and
will be suitable for their intended purpose; that no injuries,
deleterious, or toxic substances will be used in or on the Products;
that the Products will not cause harm when used in a foreseeable manner;
and that Licensee will, at its own expense, comply with all laws and
regulations, including those relating to the operation of Licensee's
plants, the manufacture, sale and distribution of the Products,
including the labeling thereof and including safety standards and
testing of the Products, as may be required by applicable law.
3. Approval Procedures.
(a) Approval of Products. Prior to producing Product for sale,
Licensee will submit to Agent for its review and written approval, three
(3) identical production samples of the Product, and the address of the
production facilities where the Product will be produced.
(b) Approval of Advertising Materials. With respect to all
advertising and promotional materials and all packaging wrapping, and
labeling materials for the Products (including, but not limited to,
catalogs, sales shoots, package inserts, hang tags, and displays) which
make any use of or reference to the Properties ("Advertising
Materials"), Licensee will submit three (3) prior to the final printed
samples of the Advertising Materials where feasible (as for example, in
the case of labels, hang tags, printed brochures, catalogs, and the
like) to Licensor for its review and written approval.
(c) Approval Standards. Licensor shall have the right, acting
reasonably, to approve or disapprove any Products or Advertising
Materials.
(d) Time for Approval. Licensor agrees to inform Licensee of its
approval or refusal of each Product, Advertising Material or other item
within five (5) days of receipt of same. Any refusal must be
accompanied by clear and specific written explanations as to the
corrective measures that Licensor reasonably requires for Licensor to
subsequently approve the relevant item. In the event that Licensor does
not inform Licensee of its refusal or does not provide such written
explanations within such five (5) day period, Licensor shall be deemed
to have approved that particular item. However, after such five (5) day
period, Licensee will implement corrective measures requested by
Licensor provided that Licensee is able to effect such corrective
measures without delaying development of any of the items and provided
that any additional costs and expenses involved in such corrective
measures are paid for by Licensor.
(e) Artwork for Properties. If Licensee requests Licensor to
furnish it with any artwork or copies of material relating to the
Properties, Licensee agrees to reimburse Licensor for its costs of
supplying such materials to Licensee, to the extent Licensor is able to
furnish such materials.
(f) Translations. All translations of written material used on or
in connection with the Products or Advertising Materials shall be
accurate.
4. Sale of Products.
(a) Exploitation of Rights. Licensee agrees that during this
Agreement, it will diligently and continuously distribute, ship and sell
all of the Products in the Territory and that it will use its best
efforts to manufacture the Products in sufficient quantities to meet the
reasonably anticipated demand in the Territory.Licensee agrees to use
commercially reasonable efforts to promote and sell the Products..
(b) Sale to Licensor. Licensee agrees to sell to Licensor, on
request, up to one hundred (100) units of each Product at Licensee's
cost for such Product. No royalties will be due on sales to Licensor
and the Licensor shall not be entitled to resell any such Products.
5. Protection of the Properties.
(a) Registrations. Licensor shall have the right, in its sole
discretion, to file trademark, design, patent or other applications in
the Territory, relating to the use or proposed use by Licensee of any of
the Properties and/or to record this Agreement. Such filings will be
made in the name of the Licensor or in the name of any third party
selected by Licensor, provided any dealings with the Properties by
Licensor or third parties does not in any way diminish the rights herein
granted to the Licensee.
(b) Trademark Use For Licensor's Benefit. All uses of the names,
symbols, designs and other works comprised in Properties
("Trademarks") by Licensee shall inure to the benefit of the Licensor,
which shall own all trademarks and trademark rights and all copyrights
created by such uses. To the extent Licensee acquires any rights to any
of the Copyrights and Trademarks, Licensee hereby assigns and transfers
to Licensor and agrees, at the cost and expense of Licensor, to execute
any documentation relating to such assignment.
(c) Other Uses of Trademarks. Licensee shall not use any of the
Trademarks in combination with any other trademark, word, symbol,
letter, or design, or as part of its company name or in connection with
any product other than the Products. Further, Licensee agrees not to
adopt any trademark, trade name, design, logo or symbol which, in
Licensor's opinion, is similar to or likely to be confused with any of
the Trademarks. Licensee shall be entitled to use its trademarks and
shall be entitled to permit its authorized subcontractors' to use their
trademarks on the Products and on their various related packaging,
promotional and advertising materials, subject to reasonable approval of
the Licensor.
(d) Copyright Protection. Licensee recognizes the importance to
Licensor of preserving copyright protection and registrations therefor
on the Properties and all works relating to the Properties, including
new works and derivative works ("Copyrights"), and the importance of
securing copyright protection for the products and Advertising Materials
which constitute "new works" or derivative works" for copyright law
purposes, and for all reproductions of the Properties which appear on
the Products or in the Advertising Materials. Therefore, Licensee's
license to manufacture, distribute and sell products and to display
Advertising Materials is expressly conditioned upon Licensee's agreeing
to place a copyright notice(s) in the name(s) specified by Licensor on
all Products and Advertising Materials. Save and except for the
copyright notices of the Licensee or its third party licensors
pertaining to the software programs and source code included in the
Products, which software programs and source codes shall be owned by the
Licensee or its third party licensors, as the case may be, Licensee
agrees that it will not affix to the Products or the Advertising
Materials any other copyright notice in its name or the name of any
other person, firm, or corporation, except as may be reaosnable approved
by Licensor. Licensee acknowledges that proper copyright notices must
be permanently affixed to all products and Advertising Materials and to
any portions of products or Advertising Materials intended to be used
separately by the ultimate purchaser or user. Such notices will be
sufficient in size, legibility, form, location, and permanency to comply
with both the United States copyright laws and also the copyright notice
requirements of the Universal Copyright Convention.
(e) Assignment by Licensee. Subject to licensee's or its third
parties' ownership of the software programs and source codes included in
the Products, the Licensee hereby sells, assigns, and transfers to
Licensor its entire worldwide right, title, and interest in and to all
"new works", derivative and/or "joint works" heretofore or hereafter
created using all or any portion of the Properties including, but not
limited to the Copyrights and renewal copyrights thereon. If parties
who are not employees of Licensee living in the United States make or
have made any contribution to the creation of a work, so that such
parties might be deemed to be "authors" as that term us used in present
or future United States copyright statutes, Licensee agrees to obtain
from such parties a full assignment of rights so that the foregoing
assignment by Licensee shall vest in Licensor full rights in the work,
free of any claims, interests, or rights of other parties. Licensee
will not permit any of its employees to obtain or reserve any rights as
"authors" of such works and agrees to furnish Licensor with full
information concerning the creation of new works and/or derivative works
and with copies of assignments of rights obtained from other parties,
and to execute, without charge, any documents requested by Licensor for
such purposes.
(f) Notices. The Licensee agrees to affix or to cause its
authorized manufacturing sources to affix to both the Products and
Advertising Materials notices in the format shown on Page 1 or as
otherwise reasonably requested by Licensor in relation to Licensor's
trademark, copyright, patent or other protection. The Licensee agrees
that it will not distribute or sell, not authorize others to distribute
or sell, any Products or Advertising Materials which do not carry
copyright and other notices meeting the requirements of this section.
(g) Acknowledgement of Validity. Subject to the rights granted
to the Licensee pursuant to this Agreement, Licensee shall not,
directly or indirectly, in any way dispute or impugn the validity of the
Trademarks, Copyrights or Properties, or Licensor's sole ownership and
right to use and control the use of the Trademarks, Copyrights and
Properties during the term of this Agreement and thereafter. Licensee
will not do or knowingly permit to be done and action or thing which
will in any way impair Licensor's rights in and to the Trademarks,
Copyrights and Properties.
6. Infringements.
(a) Infringement by Third Parties. When Licensee learns that a
party is making unauthorized use of the rights granted to the Licensee
hereunder, Licensee agrees promptly to give Licensor written notice
containing full information of which it is aware with respect to the
actions of such party. Licensor shall immediately take all actions
which are necessary to defend and assert the rights granted to the
Licensee hereunder. If Licensor fails to take the required actions,
Licensee shall be entitled but not obligated to take such actions and
all costs and expenses involved in same shall be borne by Licensor and
may be set off against payments owed to Licensor. Licensee agrees to
cooperate with Licensor, at Licensor's expense, in connection with any
action taken by Licensor to terminate infringements.
(b) Claims. If a claim is made or suit is brought against Licensor or
Licensee by a party asserting rights in
the Properties, or names or designs similar thereto, or if either party
hereto learns that another party has or claims
rights which would or might conflict with the proposed or actual use of
some or all of the Properties by Licensee, Licensee agrees either to
make responsible modifications in its use of the Properties as
requested by Licensor, or to
discontinue the us eof the allegedly infringing part of the Properties
in the country of the Territory in question on the
particular Products which are involved, if Licensor, in its sole
discretion, considers such action necessary or
desirable to resolve or settle the claim or suit to eliminate or reduce
the threat of a claim or suit by such party. In
no event shall Licensee have the right to acknowledge the validity of
such a claim, to obtain or seek a license from
such party, or to take any other action which might impair the ability
of Licensor to contest the claim. Licensor shall
have the right to participate fully at its own expense in the defense of
any claim or suit instituted against Licensee
with respect to the use of the Properties by Licensee.
7. Indemnifications.
(a) Licensee's Indemnification. Licensee agrees to indemnify and
hold Licensor harmless, from any and all claims, liabilities,
judgements, penalties, losses, costs, damages, and expenses resulting
therefrom excluding lost profits, made, claimed or obtained by third
parties and arising out of (ii) the warranted exercise by Licensor of
its termination rights in Section 10. (b) against third parties
appointed by Licensee to manufacture or distribute the Products; and
(iii) Licensee's material failure to comply with the material terms
hereof. Claims based upon the use of the Properties by Licensee in
manner which had been previously approved by Licensor or which is in
material compliance with the terms of this Agreement are expressly
excluded from Licensee's indemnity of Licensor.
(b) Licensor's Indemnification. Licensor agrees to indemnify and
hold Licensee harmless from any and all claims, liabilities, judgements,
penalties, losses, costs, damages, and expenses resulting therefrom
excluding lost profits, incurred by Licensee or made by third parties
asserting rights in the Properties as used on Products, when use of the
Properties by Licensee has been in strict accordance with the terms of
this Agreement.
(c) Claims Procedures. With respect to the forgoing
indemnifications; (i) each party agrees promptly to notify and keep the
other fully advised with respect to such claims and the progress suits
in which the other party is not participating; (ii) each party shall
have the right to assume, at its sole expense, in any suit instituted
against it and to approve any attorney's selected by the other party to
defend it, which approval shall not be unreasonably withheld or delayed;
and (iv) a party assuming the defense of a claim or suit against the
other party shall not settle such a claim or suit without the prior or
written approval of the other party, which shall not be unreasonably
withheld.
8. Insurance.
(a) Insurance Required. The Licensee agrees during the term
hereof and for as long as Products are sold by Licensee to end users or
to intermediaries for sale to end users, to obtain and maintain at its
own cost from an insurance company acceptable to Licensor, standard
Product Liability Insurance, Contractual Liability and Advertising
Insurance, the form of which must be acceptable to Licensor, naming
Licensor, its subsidiaries and affiliates, and their directors,
officers, agents, employees, assignees, and successors as additional
named insureds.
(b) Products Liability Insurance. Licensee's product and
contractual liability insurance policy shall provide coverage for any
and all losses, expenses, claims, demands, causes of action and
settlements, including attorney's fees, allegedly arising out of any
contractual liability or any defects in the Products or any material
used in connection therewith, their failure to perform, or any use
thereof. The amount of coverage shall be a minimum of $1,000,000
combined single limit with no deductible amount, for each single
occurrence for bodily injury and/or for property damage or contractual
liability.
(c) Certificate of Insurance. Within thirty (30) days after the
execution of this Agreement, Licensee will provide a certificate to
Licensor issued by Licensee's carrier confirming that such policy has
been issued and is in full force and effect and provides coverage as
required by this Section 8., and also confirming that before any
cancellation, modification, or reduction in coverage of such policy, the
insurance company will give Licensor thirty (30) days prior written
notice thereof. The policy (s) will include a provision that it will be
deemed primary insurance and any insurance obtained by Licensor will be
excess insurance. In no event will Licensee manufacture, offer for
sale, sell, advertise, promote, ship and/or distribute Products prior to
the receipt by Licensor of such evidence of insurance.
9. Royalties.
(a) Guaranteed and Advance Royalties. Licensee agrees to pay
Licensor a Guaranteed Royalty (as described in Section 1 of Schedule A
attached hereto), and on execution of this Agreement to pay Licensor the
nonrefundable Advances (as described in Section 2 of Schedule A attached
hereto) which shall be recouped against royalties.No portion of the
Advance or Guaranteed Royalty will be refundable to Licensee on
termination or expiration of this Agreement.
(b) Earned Royalty. Licensee agrees to pay Licensor the Earned
Royalty of eight percent (8%) on Net Revenues of the Products. "Net
Revenues" as used herein shall mean the total revenue actually received
by Licensee from sales of the Product, less (w) any federal, state or
foreign sales, excise, withholding, or other taxes or tariffs (not
including any tax based on Licensee's net income); (x) shipping charges;
(y) price protection; and (z) credits for returns.
. Whenever Products are transferred in whole or in part in
transactions in which some or all of the consideration is non-monetary,
or where the transferee is affiliated with :Licensee, the transferee
shall be deemed to be made at the fair market price for the distribution
channel during the quarter in which the shipments to such persons are
made.
(c) Reports. Licensee shall pay the advances in the amounts and
on the dates and upon the terms and conditions specified in Section 2 of
Schedule A. Licensee shall account to Licensor with regard to royalties
due within thirty (30) days following the conclusion of each calendar
quarter in which the Product is distributed. Licensee may withhold the
Return Reserve Allowance. All undisbursed portions of the Return
Reserve Allowance will be liquidated with the rendition of each of the
statements and payments nine (9) months following the quarter in which
the respective royalties was originally withheld. Each such accounting
("Statement(s)") shall contain the appropriate calculations relating to
the computation of payments payable to Licensor under this Agreement and
such payments shall be remitted and paid to Licensor with the particular
Statement indicating such amount due. All Statements hereunder shall be
deemed rendered when deposited, postage prepaid, in the United States
mail, addressed to Licensor at: American Champion Media, Inc. 1694 The
Alameda, Suite 100, San Jose, CA 95126-2219. Each Statement and all
items contained therein shall be deemed correct and shall be conclusive
and binding upon Licensor upon the expiration of one year (1) year from
the date rendered, unless, within such one (1) year period, Licensor
delivers written notice to Licensee objecting to one or more items of
such Statement and such notice specifies in reasonable detail the items
to which Licensor objects and the nature of and reason for Licensor 's
objection thereto. In such event Licensor may exercise its audit rights
under this Section, provided said audit commences within three (3)
months from the date Licensee receives written notice objecting to the
Statement. Licensee shall keep books of account relating to licensing
and distribution of the Products on the same basis and in the same
manner and for the same periods as such records are customarily kept by
Licensee. Licensor may, upon reasonable notice and at its own expense,
audit the applicable records at Licensee's office, in order to verify
any Statements rendered hereunder. Any such audit shall be conducted
only by a certified public accountant whom is not held on retainer by
Licensor nor working on a contingency fee and shall take place only
during reasonable business. All of the information contained in
Licensee's books and records shall be kept confidential except to the
extent necessary to permit enforcement of Licensor 's rights hereunder,
and Licensor agrees that such information inspected and/or copied on
behalf of Licensor hereunder shall be used only for the purposes of
determining the accuracy of the Statements, and shall be revealed only
to such employees, agents and/or representatives of Licensor as
necessary to verify the accuracy of the Statements except to the extent
necessary to permit enforcement of Licensor 's rights hereunder.
Licensee shall be furnished with a copy of Licensor 's auditor report
within thirty (30) days after the completion of such report. In no
event shall an audit with respect to any Statement rendered hereunder
commence after one year after the date of the relevant Statement nor
shall audits be made hereunder more frequently than one (1) time
annually nor shall the records supporting any such Statements be audited
more than once. In addition, Licensee shall be responsible for all
reasonable documented costs incurred by Licensor to conduct such an
examination should an underpayment of ten (10%) percent or greater be
discovered. All royalties will be due and payable in US dollars, unless
otherwise specified by Licensor.
(d) Taxes. If any taxes imposed by governments other than the
U.S based on funds remitted to Licensor are required to be paid by
Licensee on behalf of Licensor and Licensee in fact pays such taxes,
Licensee may deduct these from the royalties due, provided that Licensee
furnishes Licensor with documentation sufficient to enable Licensor to
receive a credit for such taxes from the U.S government.
(e) Retention of Records. Licensee shall keep books of account
relating to licensing and distribution of the Products on the same basis
and in the same manner and for the same periods as such records are
customarily kept by Licensee. Licensor may, upon reasonable notice and
at its own expense, audit the applicable records at Licensee's office,
in order to verify any Statements rendered hereunder. Any such audit
shall be conducted only by a certified public accountant whom is not
held on retainer by Licensor nor working on a contingency fee and shall
take place only during reasonable business. All of the information
contained in Licensee's books and records shall be kept confidential
except to the extent necessary to permit enforcement of Licensor 's
rights hereunder, and Licensor agrees that such information inspected
and/or copied on behalf of Licensor hereunder shall be used only for the
purposes of determining the accuracy of the Statements, and shall be
revealed only to such employees, agents and/or representatives of
Licensor as necessary to verify the accuracy of the Statements except to
the extent necessary to permit enforcement of Licensor 's rights
hereunder. Licensee shall be furnished with a copy of Licensor 's
auditor report within thirty (30) days after the completion of such
report. In no event shall an audit with respect to any Statement
rendered hereunder commence after one year after the date of the
relevant Statement nor shall audits be made hereunder more frequently
than one (1) time annually nor shall the records supporting any such
Statements be audited more than once.
(f) Audits. If any audit of Licensee's books and records reveals
that License has failed properly to account and pay royalties owing to
Licensor hereunder, and the amount of any royalties which Licensee has
failed properly to account for and pay for any quarterly accounting
period exceeds, by ten percent (10%) or more, the royalties actually
accounted for and paid to Licensor for such period, Licensee shall, in
addition to paying Licensor such past due royalties, reimburse Licensor
for its reasonable documented costs incurred in conducting the audit,
together with interest on the overdue royalty amount at an annual rate
of two percent (2%) over the prevailing prime interest rate fixed and
published by The First National Bank of Chicago, Illinois in effect as
of the date on which such overdue royalty amount should have been paid
to Licensor.
5
10. Agreements with Manufactures and Distributors.
(a) Manufacturers and Distributors. Licensee shall have the
right to arrange with others to manufacture the Products or components
thereof for the exclusive sale, use, and distribution by Licensee, or to
serve as a distributor, localizer, translator promoter or sales
representative for the Products. Licensee agrees to enter into written
agreements with all manufactures and distributors and agrees to
incorporate into such written agreements all of the provisions contained
herein which relate to the production, distribution and sale of the
Products or are otherwise relevant to the third party's performance as
distributor or manufacturer, including an express agreement by the
parties that Licensor is a third party beneficiary of the agreement.
Licensee further agrees, upon request, to furnish Licensor within thirty
(30) days of execution, copies of all agreements with such manufactures
and distributors.
(b) Enforcement of Agreements. Licensee agrees strictly to
enforce its manufactures and distributors all of the provisions in such
agreements which protect Licensor's rights, to advise Licensor of any
material violations thereof which may have a detrimental effect on the
Licensor's rights to the Properties and of corrective actions taken by
the Licensee and the results thereof, and, at the request of Licensor,
to terminate such agreements if any manufacturer or distributor is in
material violation of any provisions identical or similar to the
obligations undertaken by Licensee herein.
11. Term and Termination.
(a) Term. Except as otherwise provided herein, the term of this
Agreement shall be the Term set forth in Section 3 of Schedule A of this
Agreement (the "Term").
(b) Termination on Thirty Days Notice. If Licensee breaches any
of the terms of this Agreement other than those specified in (a) above,
and fails to cure the breach within forty-five (45) days after receiving
written notice thereof or fails to undertake, within such forty-five
(45) day period, the necessary steps so that the breach may be cured
within a reasonable time, this Agreement will terminate at the end of
the relevant forty-five (45) day notice period.
(c) Bankruptcy or Insolvency. Licensor may terminate this
Agreement if: (i) Licensee becomes insolvent, or a petition in
bankruptcy or for reorganization is filed by or against it, or any
insolvency proceedings are instituted by or against it, which petition
or proceedings are not contested in good faith by Licensee or (ii)
Licensee makes an assignment for the benefit of its creditors, is placed
in the hands of a receiver, or liquidates its business. If Licensor
terminates this Agreement under any of the foregoing provisions, the
Licensee, its receivers, trustees, or other representatives shall have
no right to sell, exploit, or in any way deal with the Products,
Properties or the Advertising Materials, except with the express written
consent of Licensor.
(d) Effect of Termination. Termination of this Agreement shall
be without prejudice to any rights or claims which Licensor or Licensee,
as the case may be, may otherwise have against the other.
(e) Discontinuance of Use of Trademarks. Subject to the
provisions of subsection 11. (g), upon the expiration or termination of
this Agreement, Licensee agrees immediately to discontinue manufacturing
selling, advertising. distributing, and using the Products and
Advertising Materials; to turn over to Licensor or to destroy any molds,
dies, patterns, or similar items in its possession or under its control
from which the Products and Advertising Materials were made, as
requested by Licensor, unless it is possible to completely obliterate
all references to Licensor and the Properties, and to terminate all
agreements with manufactures, distributors, and others which relate to
the manufacture, sale, distribution, and use of the Products.
(f) Disposition of Inventory Upon Expiration. Notwithstanding
the provisions of subsection 11.(e), if this Agreement expires in
accordance with its terms and is not terminated for a breach by
Licensee, Licensee shall have the right to sell Products on hand or in
the process of manufacture as of such expiration or termination for a
period of one hundred and eighty (180) days immediately following
expiration, subject to payment of royalties to Licensee on any such
sales and compliance with all the terms of this Agreement. The sell-off
right granted to Licensee is expressly conditioned on Licensee's
providing Licensor with an accurate total of all inventory of Products
on hand and on Licensor's having the right to conduct a physical
inventory in order to verify such inventory. In the event Licensee
fails to provide such inventory to Licensor, and/or refuses to permit
Licensor to conduct a physical inventory, the terms of subsection 11.
9f) will control. Upon expiration of the sell-off period, all remaining
Products shall upon Licensor's option be sold to Licensor at Licensee's
direct cost of manufacture, excluding overhead, or Licensee shall
destroy the Products and furnish Licensor with a sworn certificate of
destruction.
12. General Provisions.
(a) No Liability. Neither party will be liable to the other for
any loss or injury incurred or damages sustained
by the other party due to a failure on the part of a party to perform
under this Agreement, except Licensee's failure to
make payments to Licensor as provided herein, if such failure to perform
is a result of war, not labor strike or
lock-out, shortages, fire, flood, wind, storm, Act of God, governmental
control or regulation or other similar condition
beyond the party's control.
(b) Representations and Warranties. Licensor warrants and
represents that: (i) Licensor has full right and power to enter into
this Agreement and to grant the rights set forth herein; (ii) the
Characters and Properties and all associated materials will be original
or under license by Licensor; (iii) the Characters and Properties and
all associated materials will not contain any libelous or otherwise
unlawful material or violate any personal, proprietary or contractual
right of any person or entity; (iv) all third party tools used to create
the Characters and Properties and all associated materials do not
infringe on the intellectual property rights of any third parties.
Licensee warrants and represents that: (i) Licensee has full right and
power to enter into this Agreement; (ii) the packaging and marketing
materials will be original or under license by Licensee; (iii) the
packaging and marketing materials will not contain any libelous or
otherwise unlawful material or violate any personal, proprietary or
contractual right of any person or entity; and (v) all third party tools
used to create the packaging and marketing materials do not infringe on
the intellectual property rights of any third parties.
(c) Relationship of the Parties. Nothing contained in this
Agreement and no action taken by either party to this Agreement will be
deemed to constitute any party or any of such party's employees, agents,
or representatives to be an employee, agent or representative of any
other party or will be deemed to create any partnership, joint venture,
association or syndication among or between any of the parties, or will
be deemed to confer on any party any express or implied right, power or
authority to enter into any agreement or commitment, express or implied,
or to incur any obligation or liability on behalf of any other.
(d) Final Agreement. This Agreement sets forth the entire and
final agreement and understanding of the parties with respect to the
matter hereof. Any and all prior agreements or understandings, whether
written or oral, with respect to the subject matter of this Agreement
are terminated. This Agreement may not be modified or amended except by
an instrument in writing specifically referring to this Agreement and
executed by the parties hereto.
(e) No Waiver. No waiver, forbearance or failure by any party of
its rig ht to enforce any provision of this Agreement will constitute a
waiver or estoppel of such party's right to enforce any other provision
of this Agreement or such party's right to enforce such provision in the
future.
(f) Remedies. The right of or to be indemnified and held
harmless under Section 7. will not be exclusive, but will be in addition
to any and all other rights and remedies to which Licensor may be
entitled under this Agreement or otherwise.
(g) Notice. Any notice or other communication will be and
effective only if given in writing, evidenced by a delivery receipt, and
personally delivered or sent by facsimile, overnight courier, or mail,
postage prepaid to the addresses shown on page 1. Any notice or other
communication if given personally will be effective upon the date shown
or the delivery if given receipt. Notices directed to Licensor will be
given to both Agent and Licensor.
(h) Assignment. This Agreement will be binding upon and inure to
the benefit of the successors and assigns of the parties hereto.Licensee
and Licensor may not assign or otherwise transfer by operation of law or
otherwise, this Agreement to any entity without the express written
consent of the other party, which consent shall not be unreasonably
withheld and any attempt to do so will be null and void.Notwithstanding
the foregoing, either party may assign this Agreement pursuant to the
sale of a significant portion of its assets or undertaking.
(i) Governing Law. This Agreement will be constructed and
enforced in accordance with the laws of the State
of California, USA. The parties agree that the exclusive jurisdiction
and venue of any action between the parties arising out of this
relationship, including disputes that may arise following termination of
this Agreement, shall be the Superior Court of California for the County
of Santa Clara or the United States District court for the Northern
District of California and each of the parties hereby submits itself to
the exclusive jurisdiction and venue of such courts for the purpose of
such an action.
7
(j) Submission to Jurisdiction. The Licensee hereby consents to
the jurisdiction of the courts specified above and waives any objection
based on improper venue or forum non conveniences to the court of any
proceeding in such court and waives personal service of any and all
process upon it, and consents that all such service of process be made
by mail directed to it at the address set forth on page one of the
Agreement and that service so made shall be deemed to be completed upon
the earlier of actual receipt or three (3) days after the same shall
have been sent to Licensee by Licensee's agent as set forth below.
(k) Captions. The captions in this Agreement are for convenience
only and will not be considered a part of or be deemed to affect the
construction or interpretation of, any provision of this Agreement.
The parties have agreed to the terms of this license contained above.
American Champion Media, Inc. Brighter Child Interactive LLC
By: /s/ Joy Tashjian By: /s/ Richard Pam
(signature) Richard Pam, CEO
September 30, 1999 September 30, 1999
(date) (date)
SCHEDULE A
1. Guaranteed Royalty: Up to $ 75,000 for the first Term of the
Agreement to be paid by Licensee to Licensor at the end of such Term. This
amount includes the advances mentioned below. The amount of Earned Royalties
paid to the Licensor shall decrease, dollar for dollar, the amount of the
Guaranteed Royalty.
2. Advances: $10,000 upon execution of the Agreement
$10,000 on November 1, 1999 on the condition that the television program "The
Adventures with Kanga Roddy" is airing five times a week on 75% of the U.S.
market. If this condition is not fulfilled, the $10,000 shall not be payable.
3. Term: The Term shall be from June 28, 1999 until December 31, 2002.
The Term shall be automatically and continuously renewed for subsequent three
(3) year periods in the event that the Licensor has received, by the end of
the relevant Term, at least $150,000 in Earned Royalties.
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FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND
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REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
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<SECURITIES> 0
<RECEIVABLES> 975,354
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<COMMON> 12,835,857
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<TOTAL-LIABILITY-AND-EQUITY> 9,333,606
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<TOTAL-REVENUES> 578,217
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<OTHER-EXPENSES> 2,647,891
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,333,548
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