SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 1O-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 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 July 31, 1999
------------------------- --------------------------
Common Stock, $.0001 par value 8,939,492 shares
Transitional Small Business Disclosure Format (check one) Yes.... No ..X..
Exhibit Index on Page 16
AMERICAN CHAMPION ENTERTAINMENT, INC.
Form 10-QSB
June 30, 1999
TABLE OF CONTENTS
Page
------
PART I - Financial Information
Item 1. Financial Statements 3
Consolidated Balance Sheet for the three 3
month period and the six month periods
ended June 30, 1999
Consolidated Statements of Operations for
the three month period and the six month periods
ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for
the three month periods and the six month periods
ended June 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
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Assets
Cash...................................... $342,049 $2,763
Account receivable........................ 684,788 37,675
Loans receivable, related parties......... 114,937 114,937
Prepaid expenses ......................... 41,448 56,267
Property and equipment,................... 351,975 395,330
Film costs, net........................... 6,484,746 5,381,329
Note receivable........................... 80,424 80,424
Other assets.............................. 16,860 11,673
------------ ------------
Total assets.............................. $8,117,226 $6,080,398
============ ============
Liabilities
Accounts payable and accrued expenses..... $987,547 $1,122,307
Note payable, related parties............. 71,400 137,037
Other..................................... -- --
Deferred revenues......................... 25,841 78,020
Notes payable............................. 60,393 831,266
Long-term debt............................ 1,804,172 --
Obligations under capital leases.......... 6,565 6,565
------------ ------------
Total long-term liabilities............... 2,955,918 2,175,195
Stockholders' Equity:
Preferred stock -- --
Common stock, paid in capital............. 8,897,162 6,522,459
Common stock warrants...................... 618,050 290,901
Accumulated deficit........................ (4,353,905) (2,908,157)
------------- -------------
Total stockholders' equity ................ 5,161,307 3,905,203
------------- -------------
Total Liabilities and Stockholders Equity.. $8,117,226 $6,080,398
============= =============
</TABLE>
See accompanying notes.
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Tuition and related fees......... $19,256 $192,027 $80,610 $318,932
Accessories and video sales...... 0 9,475 0 22,876
Film income...................... 214,206 31,667 439,842 246,667
Interest income.................. 0 2,406 0 29,098
----------- ---------- ----------- ----------
Total revenue.................... 233,462 235,575 520,452 617,573
----------- ---------- ----------- ----------
COSTS AND EXPENSES:
Cost of sales.................... 0 5,281 1,722 13,992
Amortization of film costs....... 231,569 11,688 369,821 85,020
Salaries and payroll taxes....... 10,653 182,952 20,672 398,586
Rent............................. 72,249 73,081 114,578 157,697
Selling, general and
administrative................. 333,135 153,809 647,244 389,926
Financing expense*............... 741,210 -- 741,210 --
Interest......................... 23,955 8,761 66,673 17,662
------------------------------------------------
Total costs and expenses......... 1,412,772 435,572 1,961,920 1,062,883
------------------------------------------------
Net Loss From Operations............(1,179,309) (199,997) (1,441,467) (445,310)
Gain On Sale Of Studio 0 0 0 115,473
Net Loss Before Income Tax (1,179,309) (199,997) (1,441,467) (329,837)
Income Tax 4,240 2,400 4,281 7,450
Net Loss 1,183,550 (202,397) (1,445,748) (337,287)
Accumulated Deficit (4,353,905) (1,921,883) (4,353,905) (1,921,883)
Weighted average number of shares
outstanding...................... 7,856,324 3,832,345 7,856,324 3,832,345
======================= =======================
Basic loss per share................ $0.15 ($0.05) ($0.18) ($0.09)
================ =================
</TABLE>
* 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.
See accompanying notes.
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
-----------------------
1999 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $(1,183,550) $(1,445,748)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization............... 261,620 429,752
Costs on debenture redemption............... 629,281 629,281
Stock warrants issued to consultants --- 150,000
Amortization of original issue discount
On long-term debt........................ 8,485 13,917
(Increase) Decrease in:
Accounts receivable........................... (461,851) (650,113)
Prepaid expenses and other.................... (1,415) 7,146
Increase (Decrease) in:
Accounts payable and accrued expenses......... 32,772 (139,299)
Deferred revenues............................. (10,495) (52,179)
-----------------------
Net cash used for operating activities..... (725,153) (1,057,243)
-----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase or (sale) of property and equipment.... 5,318 (1,815)
Payments for film costs......................... (604,456) (1,487,998)
Advances to stockholders........................ (183,550) (183,550)
-----------------------
Net cash used for investing activities..... (782,688) (1,673,363)
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debentures............ 2,042,790 2,042,790
Proceeds from issuance of warrants.............. 68,062 608,062
Offering costs.................................. (8,139) (8,139)
Proceeds from issuance of common stock.......... 85,969 85,969
Payments of loans from related parties.......... --- (7,968)
Proceeds on notes payable....................... 1,412,957 2,327,053
Payments on notes payable....................... (597,000) (832,874)
Payments on debenture redemption................ (1,145,000) (1,145,000)
-----------------------
Net cash provided by financing activities.. 1,859,639 3,069,893
-----------------------
NET INCREASE (DECREASE) IN CASH................. 351,798 339,287
CASH, beginning of period....................... (9,748) 2,763
----------- -----------
CASH, end of period............................. 342,050 342,050
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................... $23,955 $66,673
State income taxes.......................... --- $40
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Long-term debt converted to equity.......... $418,040 $1,521,858
Common stock warrants issued with debt...... $179,275 $240,400
Common stock warrants issued for redeemed
Debentures................................ $121,187 $121,187
Original issue discount on redeemed debt.... $157,214 $157,214
Exercise of warrants........................ $102,500 $102,500
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 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
JUNE 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
JUNE 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:
June 30 December 31
1999 1998
----------- ----------
Television Program $6,929,002 $5,455,764
The Adventures with Kanga Roddy
Videos
Montana Exercise Video 148,253 148,253
Strong Mind Fit Body 18,042 18,042
---------- ----------
7,095,297 5,622,059
Less accumulated amortization 610,551 240,730
---------- ----------
$6,484,746 $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
JUNE 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 - Financing Through the Sale of Convertible Debentures
During the quarter ended June 30, 1999, the Company sold
$1,145,000 in a convertible debenture that was subsequently
redeemed and replaced with another convertible debenture
transaction for $1,750,000. The terms of this transaction were
filed by the Company on Form S-3 with the SEC on July 16, 1999.
The proceeds from which will be used for production expenses and
working capital. As of June 30, 1999 none of the debenture
principle has been converted into common stock.
During the quarter ended June 30, 1999, the Company decided not to
proceed with the closing of the series C Preferred Stock
Transaction although $1 million was raised in escrow, which was
above the minimum amount of $700,000. The primary reason not to
proceed with this transaction was due to the restrictive
conditions and burdens that would have attached to the Company at
the closing. Such conditions would have been acceptable if the
maximum of $4.5 million was raised.
Note 8 - Common Stock Purchase Warrants
During the Quarter ended June 30, 1999, the Company issued 975,000
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.
As of June 30, 1999 none of the warrants has been exercised into
common stock.
Note 9 - Common Stock
During the quarter ended June 30, 1999, the Company issued 600,000
shares of the Company's common stock to a consultant, Chris
Scoggin Ltd., for services to be provided to the Company for one
year. The consultant does not have registration rights to the
shares and the delivery of the shares are contingent upon certain
conditions specified in the agreement between the Company and the
consultant.
Note 10 - Susequent Events
Subsequent to quarter ended June 30, 1999, the Company signed a
Letter of Intent on July 16, 1999 with Pulse Entertainment
Network, Inc. ("Pulse") for a proposed acquisition of Pulse
through an exchange of capital stock between the two companies.
Note 11 - 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.
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 June 30, 1999, the Company's
total revenue decreased to $233,462, a decrease of $2,113 or 0.9% as
compared to total revenue for the three months ended June 30, 1998 of
$235,575. This small decrease is due to the reduction in the Company's
karate studio operation, while realizing an increase in film income
mainly derived from the delivery of seven episodes of the television
show "Adventures with Kanga Roddy".
Costs and Expenses. The Company's revenues were offset by
amortization of film costs of $231,569, calculated based upon the
proportion to the revenue generated by the television show in this
second quarter compared to total expected revenues from the television
show.
The Company's expenses for salaries and payroll taxes decreased to
$10,653, a decrease of $172,299 or 94% for the three months ended June
30, 1999 from $182,952 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 was $72,249 for the three months ended June 30, 1999
and was basically unchanged from the comparable period in 1998. A
decrease in rents due to the closure of karate studios was offset by an
increase in rent for the corporate office.
Total selling, general and administrative expenses increased to
$333,135, an increase of $179,326 or 116.6% for the three months ended
June 30, 1999 from $153,809 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.
Financing expense - During the quarter ended June 30, 1999 the
Company sold $1,145,000 in a convertible debenture ("May Debenture")
that was subsequently redeemed and replaced with another convertible
debenture transaction ("June Debenture") for $1,750,000. Pursuant to
the redemption of the May Debenture, the Company incurred $741,210 in
financing expenses of which $114,500 was in cash and the remainder
$626,710 in valuation of common stock and warrants granted to the
investors of the May Debenture. None of such investors were related
parties of the Company.
Interest expense increased to $23,955, an increase of $15,194 or
173.4% for the three months ended June 30, 1999 from $8,761 for the
comparable period in 1998. This 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 $1,179,309 during the three months ended June 30, 1999 from
$199,997 for the comparable period in 1998. Net loss per share
increased to $0.15 for the three months ended June 30, 1999 from $0.05
for the comparable period in 1998. Weighted average number of shares
outstanding increased to 7,856,324 the three months ended June 30, 1999
from 3,832,345 for the comparable period in 1998 primarily due to the
conversion of debentures into the Company's common stock.
Liquidity And Capital Resources
Cash increased for the three months ended June 30, 1999 by
$351,798 of which $782,688 was used for investing activities related to
the production of the Adventures With Kanga Roddy show. Net operating
cash loss was $725,153 and financing activities resulted in an inflow of
$1,859,639.
During the quarter ended June 30, 1999, the Company sold
$1,145,000 in a convertible debenture that was subsequently redeemed and
replaced with another convertible debenture transaction for $1,750,000.
The terms of this transaction were filed by the Company on Form S-3 with
the SEC on July 16, 1999. The proceeds from which will be used for
production expenses and working capital. As of June 30, 1999 none of
the debenture principle has been converted into common stock.
During the quarter ended June 30, 1999, the Company decided not to
proceed with the closing of the series C Preferred Stock Transaction
although $1 million was raised in escrow, which was above the minimum
amount of $700,000. The primary reason not to proceed with this
transaction was due to the restrictive conditions and burdens that would
have attached to the Company at the closing. Such conditions would have
been acceptable if the maximum of $4.5 million was raised.
As of June 30, 1999, total long-term debt was $1,804,172 and loans
payable to related parties was $71,400. In addition, deferred revenues
were $25,841 at June 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 April 2, 1999 the Company terminated the agreement with
Kreative Video Products for the distribution of the Company's video
products. On April 20, 1999, the Company signed a two-year agreement
with Fast Forward Marketing for the distribution of the Company's video
products, mainly the Company's TV series "Adventures With Kanga Roddy"
on video cassettes.
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.
Subsequent to quarter ended June 30, 1999, the Company signed a
Letter of Intent on July 16, 1999 with Pulse Entertainment Network, Inc.
("Pulse") for a proposed acquisition of Pulse through an exchange of
capital stock between the two companies.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There is no on-going legal proceedings during the three months
ended June 30, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
On May 5, 1999 the Company held it's Annual Meeting of
Stockholders to discuss and vote upon the following proposals:
1. To elect eight directors to the Corporation's Board of
Directors, each to hold office until his successor is elected and
qualified or until his earlier resignation or removal (Proposal
No. 1); and
2. To approve the increase of the number of shares of the
Company's common stock, $.0001 par value per share (the "Common
Stock") issuable under the Company's 1997 Employee Stock Option
Plan to 4,800,000 (Proposal No. 2); and
3. To approve the increase of the number of shares of Common
Stock issuable under the Company's 1997 Non-Employee Directors
Stock Option Plan to 550,000 (Proposal No. 3); and
4. To approve the Securities Purchase Agreement, dated January
19, 1999, and all transactions contemplated thereby, including the
issuance of an aggregate of $950,000 of convertible debentures,
issued in January 19, 1999 (Proposal No. 4); and
5. To approve the Placement Agent's Agreement between the Company and
JW Genesis Capital Markets, LLC and all transactions contemplated
thereby, including the issuance of a minimum of $700,000 and a
maximum of $4,500,000 of Units, each Unit consisting of 50 shares
of Series C Redeemable Convertible Preferred Stock, $.0001 par
value per share, 25,000 Class A Common Stock Purchase Warrants,
and 25,000 Class B Common Stock Warrants, at a price of $50,000
per Unit (Proposal No. 5); and
6. To amend the Company's Certificate of Incorporation to increase
the authorized amount of capital stock from 23,000,000 shares to
46,000,000 shares, of which 40,000,000 shall be Common Stock, and
6,000,000 shall be preferred stock (Proposal No. 6); and
7. To ratify the appointment of Moss Adams LLP as the Company's
independent certified public accountants for the 1999 fiscal year
(Proposal No. 7); and
The Company's Shareholders approved all seven of the above stated
proposals either by proxy or by attending the meeting in person to cast
their vote.
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: August 16, 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
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 Termination of Kreative Video Products, Inc.
10.44 Video Products distribution agreement between Fast Forward
Marketing, Inc. and American Champion Entertainment. Inc.
10.45 Consultant Agreement between Chris Scoggin, LTD. And American
Champion Entertainment, 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.
Exhibit 10.43
April 2, 1999
Mr. Philip Knowles
President & CEO
Kreative Video Products, Inc.
21638 Lassen Street
Chatsworth, CA 91311
Re: Termination of Agreements
Dear Mr. Knowles:
Per our telephone conversation earlier this week during which I
expressed concern over the likelihood of significant sales in the future
of our video products through distribution by Kreative Video Products,
Inc. ("KVP"), and further that American Champion Media, Inc. ("ACM")
wishes to terminate KVP's rights to distribute ACM's video products,
earlier than the one year period as specified in the distribution
agreements made between our companies. In the same conversation, you
also indicated that you are in agreement to such termination if we so
desire.
We appreciate the efforts you have made so far in bring our video
products to market, and we would like to make the following settlement
or termination offer:
a) The Non-Exclusive Distribution Agreement for Kanga Roddy Volumes 1 - 6
dated August 19, 1998, and
The Non-Exclusive Distribution Agreement for the Joe Montana -
Strong Mind Fit Body Workout dated August 21, 1998
made by and between KVP and ACM will be terminated as of the date of
this letter, with the rights and obligations of the two parties, as
specified in the two agreements, completely nullified and voided.
b) For the 6-month period beginning April 2 and ending September 30,
1999, ACM will pay KVP 10% of net profits from sales of the Kanga Roddy
videos to Blockbuster Video Stores only (net profits = gross sales less
cost of goods, music license fees, talent royalties, director's and
KTEH's royalties), excluding sales of Kanga Roddy videos to any other
customer and excluding any sales of the Joe Montana - Strong Mind Fit
Body Workout video.
c) For the 6-month period beginning October 1, 1999 and ending March
31, 2000, ACM will pay KVP 5% of net profits per terms as specified in
above Clause b).
I trust the above terms are acceptable to KVP, and if they are so,
please apply your signature below and return this letter via fax to:
408-288-8098.
On behalf of: Agreed and accepted for:
American Champion Media, Inc. Kreative Video Products, Inc.
/s/ Anthony K. Chan /s/ Philip Knowles
Anthony K. Chan Philip Knowles
Chief Executive Officer President & CEO
Exhibit 10.44
American Champion Entertainment
Mr. Anthony Chan & Mr. George Chung
1694 The Alameda Suite 100
San Jose, CA 95126-2219
AGREEMENT BETWEEN FAST FORWARD MARKETING,INC.
AND AMERICAN CHAMPION ENTERTAINMENT
APRIL, 1999
Concurrent with the representation of American
Champion Entertainment and your "Products", it
is necessary for Fast Forward Marketing, Inc. to
act as a "direct vendor" in order to facilitate
sales of your Products.
TITLE TO THE PRODUCTS: American Champion
Entertainment will retain title to the Products
until the Products are delivered to the
Purchaser, in accordance with California's
Uniform Commercial Code (the "UCC") Section
2401(1).Fast Forward Marketing will use due
diligence, provide sales invoicing and receiving
services, sales and support services and be a
non-inventory stocking distributor for the
Products on behalf of American Champion
Entertainment. Fast Forward Marketing shall have
no claim to title to the Products, whether in
connection with the sale of the Products or in
connection with the return of the Products from
the Purchaser to American Champion
Entertainment. Fast Forward Marketing will have
the power to transfer American Champion
Entertainment's title to the Products to the
Purchasers of the Products. Fast Forward
Marketing shall not have the right or power to
transfer any of American Champion Entertainment
's copyright or trademark rights in or to the
Products.
SECURITY INTEREST: Under UCC Section 2505,
American Champion Entertainment will retain a
security interest in the Products in order to
secure payment from the Purchaser. If the
Purchaser of the Products from Fast Forward
Marketing fails to remit full payment for the
Products, rejects the products, or refuses to
receive or retain the Products or otherwise
returns the Products, title to any such
Products, not paid for, rejected, refused or
returned will revest in Supplier.
TERM: This agreement shall commence as of the
date of signing and shall continue for two (2)
years. Term shall be automatically renewed
period for subsequent two-year periods unless
renegotiated or terminated in accordance with
Amendment Paragraph 3.
BILLING PRICE: Fast Forward Marketing will
purchase your products for 60% off SRP.
PAYMENT TERMS: Fast Forward Marketing bills
purchasers at net 60 day terms and pays
suppliers within 15 days after receiving funds
from Purchaser. When Products are sold on
returnable basis a portion of the payment may be
held back if the Purchaser anticipates a return
on the Products.
RETURNS: The Products are 100% returnable,
within one (1) year of date of last invoice,
unless otherwise stated in writing. (See
Amendment Paragraph 2)
MINIMUM ORDER AMOUNT: ________
FREIGHT: Prepaid
ADVERTISING: Customers may propose to feature
American Champion Entertainment's Products in an
advertising promotion and American Champion
Entertainment receive a written request in
advance of any such promotion. With written
approval of requested amount and proof of
performance, American Champion Entertainment
agrees to reimburse Fast Forward Marketing
directly.
TRADE SHOW EXPENSES: In order to expose our
suppliers to as many potential customers as
possible, each year, Fast Forward Marketing
attends a number of trade and gift shows.
American Champion Entertainment will be
informed on an annual basis of any shows that
would be applicable to their products and the
annual amount to participate. An annual Trade
Show Deduction from invoice will be made in the
amount of $500 or 5% of the net sales of the
previous contract year, (deduction not to exceed
$10,000).
PRODUCT LAUNCH EXPENSES: American Champion
Entertainment agrees to reimburse Fast Forward
Marketing in the amount of $150 to cover the
cost of the initial launch of the Products. This
expense, which will be deducted from invoice,
covers initial mailing and other miscellaneous
expenses associated with informing our
purchasers of you products and setting you up in
our system.
This Agreement and the following Amendments
comprise the entire Agreement between the
parties and supersedes all prior oral and
written agreements, understandings, commitments,
and practices between the parties relating to
the subject matter of this Agreement.
AGREED TO AND ACCEPTED BY FAST FORWARD
MARKETING, INC.
SIGNATURE /s/ Steve F. Wallace
DATE April 20, 1999
STEVE F. WALLACE,
Vice President of Sales
AGREED TO AND ACCEPTED BY AMERICAN CHAMPION
ENTERTAINMENT:
SIGNATURE /s/ Don Berryessa
DATE April 14, 1999
Authorized Representative of
American Champion Entertainment
Fast Forward Marketing is authorized to sell any
accounts or classes of trade not specifically
noted. Seller/Company agrees not to sell
products on a direct basis to any Purchaser who
purchases the Products from Seller/Company in
any way connected with Fast Forward Marketing's
efforts during the term of this Agreement.
(This includes sales through other manufacture's
reps and sales agents such as Tapeworm, Victory
Multimedia and TNT Sales.)
BELOW PLEASE LIST ACCOUNTS OR CLASSES OF TRADE
THAT ARE RESTRICTED FROM FAST FORWARD MARKETING
OR COMPLETE ATTACHED APPROVED ACCOUNTS LIST.
Fast Forwardsm and Fast Forward Marketing are
service marks of Fast Forward Marketing, inc.
Unauthorized use of these marks is prohibited by
federal and state law.
AMENDMENTS TO AGREEMENT BETWEEN FAST FORWARD
MARKETINGr AND AMERICAN CHAMPION ENTERTAINMENT
1. COLLECTIONS: Fast Forward Marketing monitors
the credit worthiness of each customer and uses
its best efforts to insure funds are received
promptly, but is expressly not liable for
uncollected funds. In the event an account that
has purchased Products through Fast Forward
Marketing ceases to conduct business in the
ordinary course or becomes subject to any
bankruptcy proceeding, Fast Forward Marketing
and American Champion Entertainment agree to
share equally in product manufacturing hard
costs, not to exceed $1.50 per unit, of any
outstanding debt. Furthermore, American
Champion Entertainment releases Fast Forward
Marketing from any additional liability.
2. RETURNS PROCEDURES: The Products are 100%
returnable, within one (1) year of date of last
invoice, unless otherwise stated in writing.
When a Purchaser notifies Fast Forward Marketing
of an impending return of Products, a master
return number (M#) is assigned for all tracking
and accounting purposes and a debit for the
dollar amount of the return is posted against
the amounts due to Supplier.
Return requests may come at any time, even after
the Product has been paid for. If American
Champion Entertainment has received payment for
products and a credit balance results due to
the subsequent return by any purchaser, American
Champion Entertainment agrees to reimburse Fast
Forward Marketing in cash within 10 days of Fast
Forward Marketing's deduction or receipt of such
returned merchandise, whichever is sooner.
American Champion Entertainment agrees to pay
freight charges and handling fee of $0.60 per
unit on overstock returns from the following
customers. Borders, Cambridge, Strawberries,
Best Buy, Camelot, Musicland, Store of
Knowledge, Target, Transworld, Tower, Anderson
Merchandisers, Wherehouse. Fast Forward
Marketing reserves the right to add accounts.
3. TERMINATION: This Agreement may be canceled
by either Fast Forward or American Champion
Entertainment at any time with a three (3) month
written notice. In accordance with return
policies in Amendments Paragraph 4, Supplier
will allow Fast Forward Marketing to establish a
reserve against potential returns equal to the
wholesale value of products in the field or
until all discontinued products are accounted
for, for a period of six (6) months from date
of cancellation or termination. It is
acknowledged and accepted that all returns still
in the field shall be the responsibility of
Supplier and/or its new distributor and Fast
Forward Marketing shall have no further
responsibility for such returns after the date
of the termination.
4. PRICE PROTECTION: American Champion
Entertainment agrees to extend to Fast Forward
Marketing any price reduction off of the
Suggested List Price on any Product covered by
this agreement and will give Fast Forward
Marketing thirty (30) days written notice prior
to such price reductions, agreeing to extend
this price protection for a total of ninety (90)
days from notification.
5. PRODUCT REQUIREMENTS: Products must be in
shrink-wrapped packaging and must contain a UPC
code.
6. SAMPLES: American Champion Entertainment will
furnish a reasonable number of samples at no
charge.
7. SHIPPING NOTICE AND INVOICING
RESPONSIBILITIES: American Champion
Entertainment accepts full responsibility for
shipment of products and agrees to adhere to all
terms and conditions as stated on Fast Forward
Marketing's Purchase Order and listed below.
Fast Forward Marketing bills Purchasers only
after American Champion Entertainment provides
invoices which must be received by Fast Forward
Marketing within 72 hours after shipment of
Products. Invoices must contain the following
information: CUSTOMER'S PURCHASE ORDER NUMBER,
APPLICABLE FREIGHT CHARGES, SHIPPING DATE,
DESTINATION, QUANTITY SHIPPED, PACKING SLIP
NUMBER
Each Purchase Order is to be packaged and
shipped individually and is not to be co-mingled
or shipped with any other Purchase Order. Each
carton must be identified with the customer's
purchase order number and the words "FAST
FORWARD MARKETING BILLING". Back-orders may be
shipped within 90 days of order date unless
otherwise specified on the Purchase Order.
Shipment of back-orders beyond the 90 day limit
must be approved by Fast Forward Marketing prior
to shipping.
Proof of Delivery (POD) must be provided within
30 days when requested by Fast Forward
Marketing. If not provided within this term
American Champion Entertainment agrees that Fast
Forward Marketing may charge-back the wholesale
cost of the shipment billed to Fast Forward
Marketing at the time of shipping. When
requested, the POD must include signature of
person who accepted delivery of shipment, the
weight and number of cartons comprising
shipment.
8. INDEMNIFICATION: American Champion
Entertainment indemnifies and holds Fast Forward
Marketing free and harmless from any and all
claims, demands, causes of action, damages,
liabilities, expenses or losses, including
reasonable attorneys fees arising in connection
with (i) the Product (whether or not defective,
mislabeled or mis-shipped); (ii) any act of
Supplier, (iii) infringement of any patent or
copyright or other rights of third parties, (iv)
any violations of municipal, state or federal
laws or regulations governing the merchandise or
its sale.
9. AGREEMENT TO PERFORM NECESSARY ACTS: Each
party agrees and covenants that it will, upon
the request of the other, execute, acknowledge,
deliver or perform all such further acts, deeds,
assignments, transfers, conveyances and
assurances as may be required to carry out the
terms and provisions of this Agreement.
10. MODIFICATIONS: No provision of this
Agreement or any of the documents referred to
herein may be amended, modified, supplemented,
changed, waived, discharged, or terminated,
except by written agreement.
11. GOVERNING LAW: This Agreement and the
obligations of the parties shall be interpreted,
construed and enforced in accordance with the
laws of the State of California.
12. NOTICE: All notices, requests, consents,
directions or demands hereunder shall be deemed
given and delivered (a) on the date of service,
if served personally on the party to whom notice
is to be given or if transmitted by facsimile
machine to the facsimile number indicated, or
(b) on the third business day after mailing,
when duly deposited in the United States mail,
postage prepaid, return receipt requested,
addressed to the party to whom notice is to be
given at that party's address.
13. CONSENTS AND WAIVERS: No consent or waiver,
express or implied, by any party to, or any
breach or default by any other party in the
performance of its obligations hereunder shall
be deemed or construed to be a consent to or
waiver of any other breach or default in the
performance by such other party of the same or
any other obligations hereunder. Failure on the
party of a party to complain of any act of the
other party or to declare a party in default,
irrespective of how long such failure continues,
shall not constitute a waiver of such party of
its rights hereunder, regarding any such breech
or subsequent breech.
14. BANKRUPTCY OF SUPPLIER: Supplier agrees that
Fast Forward Marketing may establish a
reserve against potential returns equal to
the actual dollar value of inventory in the
field that Fast Forward Marketing determines,
in good faith, may be returned under the
following circumstances. Such reserve shall
be liquidated within six (6) months and shall
only be created upon the occurrence of one or
more of the events listed below:
a. Supplier executes a general assignment for
the benefit of its creditors, ceases to conduct
business in the ordinary course as it is now
conducted, convenes any meeting of its
creditors, becomes insolvent, admits in writing
its insolvency or inability to pay its debts, or
is unable to pay or is generally not paying its
debts as they become due;
b. A receiver, liquidator, sequestrator,
trustee, custodian or other officer having
similar powers is appointed to take possession
of any or all of Supplier's assets; c. Any
proceeding is voluntarily involuntarily
commenced under any provision of the Federal
Bankruptcy Code or other federal or state law
relating to debtor rehabilitation, insolvency,
bankruptcy, liquidation or reorganization,
15. ARBITRATION AND ATTORNEYS FEES: In the event
of a dispute arising from this Agreement, within
sixty (60) days from the date notice is given by
one party to the other as to the existence of
such a dispute, the parties agree to submit any
such dispute to a resolution by arbitration in
accordance with the Commercial Arbitration Rules
of the American Arbitration Association, or the
rules of any other mutually agreed upon
arbitrator (the "Rules"). Any hearing under the
Rules shall take place at Los Angeles,
California in accordance with Rule 11 of the
Rules. The hearing shall be before one
arbitrator in accordance with Rule 17 of the
Rules. The provisions of Section 1283.05 of the
California Code of Civil Procedure are
incorporated into and made a part of this
Agreement. Any award rendered by the
Arbitrator pursuant to this Agreement and the
Rules shall be enforceable in the Superior Court
of the County of Los Angeles, in and for the
State of California as the court having
exclusive jurisdiction over such arbitration.
Such arbitration shall be binding and final.
The prevailing party shall be entitled to
immediate payment of all costs incurred by such
party in such dispute, including but not limited
to, court costs and reasonable attorneys' fees.
In agreeing to arbitration, the parties
acknowledge that in the event of a dispute
arising from this agreement, each party is
giving up the right to have the dispute decided
in a court of law before a judge or jury and
instead are accepting the use of arbitration for
resolution.
Exhibit 10.45
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is entered into this 26th day of
May, 1999, to be effective as of May 26 , 1999, between American
Champion Entertainment , Inc. a corporation organized and existing under
the laws of Delaware ("ACEI"), and Chris Scoggin, Ltd., a limited
partnership organized and existing under the laws of Texas, and doing
business as Chris Scoggin & Associates ("SCOGGIN"), and consists of the
following terms and conditions:
1. PROVISION OF SERVICES
SCOGGIN shall provide advice based on the experiences of SCOGGIN
with respect to market-making information, and shareholder and
investor relations, but only so long as the rendering of such
advice does not require that SCOGGIN be licensed or directly
regulated in any pertinent state or federal jurisdiction or
otherwise cause it to become subject to such licensure or
regulation (the "Services"). The Services are not, and are not to
be construed as, without limitation, legal, tax, accounting,
investment banking, brokerage or any other services or advice
which would require the dispenser of such advice to be licensed or
otherwise directly regulated by any entity of the federal or any
state government. SCOGGIN specifically disclaims all warranties,
express or implied, including fitness for a specific or intended
purpose.
2. PERFORMANCE OF SERVICES
(a) SCOGGIN shall devote its best efforts and experience to the
performance of the Services, and shall perform the Services
with due diligence, in accordance with the highest
prevailing standards and subject to all applicable laws,
regulations and standards.
(b) SCOGGIN shall report to ACEI's representative, or to such
other individual(s) as ACEI may specify in writing.
3. PAYMENT
(a) As compensation for all the Services performed and to be
performed by SCOGGIN pursuant to this Agreement, SCOGGIN
shall receive the following:
(i) Six Hundred Thousand (600,000) Shares of restricted,
unregistered common stock of ACEI (the "Common
Stock"), to be issued upon execution of this
Agreement. SCOGGIN acknowledges that the Common Stock
will be subject to a minimum holding period of one
year pursuant to the provisions of SEC Rule 144. The
parties further agree that the Common Shares will be
issued effective as of the date SCOGGIN or its agents
first rendered services to ACEI, which the parties
stipulate and agree was or will be May 26 ,
1999 (the "Commencement Date").
(ii) Unregistered Warrants to purchase Fifty Thousand
(50,000) Shares of unregistered common stock of ACEI
at each of the following strike prices per share:
$5.00, $6.00, $7.00, $8.00, $9.00, and $10.00, for a
total of Three Hundred Thousand (300,000) such
warrants (the "Warrants"). The Warrants will be
substantially similar to the form of Warrant attached
as Exhibit A to this agreement.
(b) Four Hundred Eighty Thousand (480,000) shares of the Common
Stock issued pursuant to this agreement, but not the
Warrants, shall be subject to an Escrow Agreement in the
form attached as Exhibit B to this agreement. These shares
will be released to SCOGGIN in the following amounts upon
ACEI's share price reaching or exceeding the following
closing prices for two consecutive trading days:
Number of Shares Released Closing
Price per Share
120,000 shares $ 1.75
120,000 shares $ 2.50
120,000 shares $ 3.25
120,000 shares $ 4.00
(c) ACEI represents and warrants that it will not dilute the
compensation to SCOGGIN hereunder except by the issuance of
its shares for acquisitions or financing activities in
accordance with its business plan as evidenced by its
filings with the SEC and NASDAQ. To the extent shares are
issued for any other purpose except de minimus amounts not
exceeding 100,000 shares in the aggregate during the twelve
months following the execution of this agreement, the
Company will immediately issue comparable shares to SCOGGIN
sufficient to maintain its same percentage of the actual
outstanding shares immediately prior to such issuance using
the total compensation as if it were released and/or
exercised at such date.
(d) The amounts specifically provided for in this Agreement are
the only compensation to be paid to SCOGGIN hereunder,
unless otherwise agreed.
4. TERM
(a) The term of this Agreement shall commence effective as of
the Commencement Date, and shall continue thereafter for an
initial term of one (1) year. Thereafter, this Agreement
may be extended for any number of successive periods by
mutual written agreement.
(b) Any of the parties may terminate this Agreement for cause
during the initial term, or any extension of this Agreement.
5. TAXES
SCOGGIN shall be responsible for the ascertainment and payment of
all taxes, including, without limitation, income taxes and social
security taxes, fees, duties, imposts and other charges imposed
upon the consideration paid to SCOGGIN under this Agreement.
6. CONTRACTOR STATUS
In the performance of the Services, SCOGGIN is an independent
contractor, and SCOGGIN shall not be considered the employee, agent or
servant of ACEI. SCOGGIN shall have no authority to bind ACEI, nor to
act on its behalf, nor to make decisions for ACEI, except as expressly
provided in this Agreement. ACEI, being interested only in the results
of SCOGGIN's performance of the Services, will give only broad direction
thereto, provided such direction is clear and adequate relative to the
Services to be performed.
7. CONFLICT OF INTEREST
SCOGGIN represents that, to the best of its knowledge, neither its
entering into, nor its performance under, this Agreement creates
nor will create any conflict of interest as to any relationship,
contractual, fiduciary or otherwise, which SCOGGIN may have with
any third party. In addition, SCOGGIN shall not enter into any
such conflict-of-interest relationship with any third party during
the term of this Agreement. If any actual or potential conflict
of interest arises during the term of this Agreement regarding
SCOGGIN's performance under this Agreement, SCOGGIN shall so
notify ACEI immediately. SCOGGIN and ACEI shall use their best
efforts to settle satisfactorily any point of conflict.
8. CONFIDENTIALITY
(a) All data, information and reports received by SCOGGIN from
ACEI, in the course of performing the Services shall remain
the sole property of ACEI. SCOGGIN shall keep confidential
all such data, information and reports.
(c) For purposes hereof, confidential information shall not
include information which is public knowledge or in the
public domain, is known to SCOGGIN at or prior to the time
of disclosure thereof by ACEI or becomes known to SCOGGIN
independent of the disclosure by ACEI.
(d) The rights and obligations under this Article 11 shall be
continuing ones and shall survive the expiration or
termination, for any reason, of this Agreement for a period
of three (3) years after that expiration or termination.
9. FORCE MAJEURE
If either SCOGGIN or ACEI is rendered unable to perform any
obligations hereunder, in whole or in part, due to force majeure,
then upon prompt notice to the other, that party's performance
shall be suspended for the period that it is unable to perform the
obligation, and any corresponding remaining obligations of the
other party shall also be suspended for that period. For the
purpose of this Agreement, "force majeure" shall mean any act or
event beyond the reasonable control of the party affected
including, but not limited to, a strike, labor dispute, lockout,
fire, flood, tornado, hurricane, earthquake, explosion, act of God
or the public enemy, war (declared or undeclared), terrorism,
blockade, governmental regulation, order or decree, insurrections,
riots and other civil disturbances.
10. INDEMNIFICATION AND CONSEQUENTIAL DAMAGES
SCOGGIN agrees that it shall, defend, indemnify and hold harmless
ACEI, its co-owners, joint venturers and its and their
shareholders, officers, directors, agents, employees and invitees,
against any direct or indirect damage, cost or expense arising out
of this Agreement and relating to any losses sustained by ACEI and
caused exclusively by the acts of SCOGGIN, its officers, agents or
employees in the performance of activities pursuant to this
Agreement.
ACEI agrees that it shall, defend, indemnify and hold harmless
SCOGGIN, its co-owners, joint venturers and its and their
shareholders, partners, officers, directors, agents, employees and
invitees, against any direct or indirect damage, cost or expense
arising out of this Agreement and relating to any losses sustained
by SCOGGIN and caused exclusively by the acts of ACEI, its
officers, agents or employees in the performance of activities
pursuant to this Agreement.
Neither SCOGGIN nor ACEI shall be liable to the other for any of
its incidental or consequential damages (including, without limitation,
lost profits). Neither of them shall assert any such claim against the
other or its subsidiaries or affiliated companies or their respective
shareholders, partners, officers, directors or employees.
11. ASSIGNMENT
SCOGGIN shall not assign, in whole or in part, any of its rights
or obligations under this Agreement, unless the assignment is made
to an affiliate or subsidiary of. ACEI may assign any of its
rights and obligations under this Agreement to any of its
affiliates upon written consent of SCOGGIN, which shall not be
unreasonably withheld..
12. APPLICABLE LAW AND ARBITRATION
THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, U.S.A., EXCLUDING ANY CHOICE-OF-LAW
RULE(S) WHICH WOULD CAUSE THE LAW OF ANOTHER JURISDICTION TO APPLY. ANY
CONTROVERSY, CLAIM OR DISPUTE OF WHATEVER NATURE ARISING BETWEEN THE
PARTIES AND RELATING TO THIS AGREEMENT SHALL BE EXCLUSIVELY REFERRED TO
AND DETERMINED BY ARBITRATION IN HOUSTON, TEXAS, BY USING ONE ARBITRATOR
IN ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION.
TO THE EXTEND PERMITTED BY LAW, THE ARBITRATION SHALL BE FINAL AND
BINDING UPON THE PARTIES. THE NON-PREVAILING PARTY IN THE ARBITRATION
PROCEEDING SHALL REIMBURSE THE PREVAILING PARTY FOR ALL REASONABLE
ATTORNEY'S FEES ASSOCIATED WITH THE ARBITRATION.
13. INTEGRATED AGREEMENT AND AMENDMENT
(a) This Agreement constitutes the entire agreement between ACEI
and SCOGGIN regarding the subject matter of this Agreement,
and it supersedes all prior discussions, correspondence,
negotiations and agreements regarding that subject matter.
This Agreement may not be amended except by a written
instrument duly signed by both ACEI and CONTRACTOR.
(b) The headings to the Articles of this Agreement are for
convenience only, and shall not be utilized in interpreting
this Agreement.
14. NOTICES
Any notice that is required or permitted to be delivered hereunder
shall be deemed to be delivered only when actually received by a
party, at the addresses set forth below, or at such other address
as a party has specified:
American Champion Entertainment, Inc.
1694 The Alameda, Suite 100
San Jose, CA 95126
Attn: Anthony Chan, CEO
Chris Scoggin, Ltd.
14520 Memorial Drive, Suite 50
Houston, Texas 77079
Attn: Chris Scoggin, CEO
15. COUNTERPARTS
Each Party may sign identical counterparts of this Agreement with
the same effect as if the Parties signed the same document. A
copy of this Agreement signed by a Party and delivered by
facsimile transmission to the other Party shall have the same
effect as the delivery of an original of this Agreement containing
the original signature of such Party.
16. JOINT DRAFTING
The parties acknowledge that each party and its counsel have
reviewed this Agreement and that the normal rule of construction
to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this
Agreement, it extensions or any amendment thereto.
IN WITNESS WHEREOF, this Agreement is signed as of the date first above
written.
AMERICAN CHAMPION ENTERTAINMENT, INC
Signature: /s/ Anthony K. Chan
Name: Anthony K. Chan
Title: President & CEO
Date: May 26, 1999
CHRIS SCOGGIN, LTD.
Signature: /s/ Chris Scoggin
Name: Chris Scoggin
Title: CEO
Date: May 26, 1999
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<ARTICLE> 5
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FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND THE
STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
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