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, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, For the transition period
___________ 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 Num
1694 The Alameda, Suite 100, San Jose, California 95126
(408) 288-8199
(Registrant's Address of Principal Executive Offices and Telephone N
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all report
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 bee
subject to such filing requirements for the past 90 days.
Yes ..X.. No .....
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING TH
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15 (d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes ..... No .....
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at June 30, 2000
------------------------- --------------------------
Common Stock, $.0001 par value 7,008,618 shares
Transitional Small Business Disclosure Format (check one) Yes.... No
Exhibit Index on Page
AMERICAN CHAMPION ENTERTAINMENT, INC.
Form 10-QSB
June 30, 2000
TABLE OF CONTENTS
PART I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 2000
Consolidated Statements of Operations for the three mon
the six month periods ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows for the three mon
the six month periods ended June 30, 2000
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and analysis of
Financial Condition and Results of Operations
PART II - Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
Exhibits
PART I - FINANCIAL INFORMATION
ITEM 1- Financial Statements - (unaudited)
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, December
2000 1999
------------ --------
<S> <C> <C>
Assets
Cash...................................... $211,842 $32,
Account receivable........................ 1,099,349 481,
Loans receivable, related parties......... 114,937 114,
Prepaid expenses ......................... 22,164 7,
Property and equipment, net............... 271,168 312,
Investments............................... -- 203,
Film costs, net........................... 7,561,834 7,553,
Note receivable........................... 354,814 354,
Other assets.............................. 285,029 226,
------------ --------
Total assets.............................. $9,921,137 $9,286,
============ ========
Liabilities
Accounts payable and accrued expenses..... $700,957 $1,042,
Note payable, related parties............. -- 4,
Other..................................... -- 4,
Deferred revenues......................... 16,920 16,
Notes payable............................. 1,154,562 450,
------------ --------
Total long-term liabilities............... 1,872,439 1,598,
Stockholders' Equity:
Preferred stock -- --
Common stock, paid in capital............. 23,167,328 17,594,
Accumulated deficit........................ (15,118,631) (9,906,
------------- --------
Total stockholders' equity ................ 8,048,697 7,688,
------------- --------
Total Liabilities and Stockholders Equity.. $9,921,137 $9,286,
============= ========
</TABLE>
See accompanying notes.
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Mon
June 30, June
---------------------- -----------
2000 1999 2000
----------- ---------- -----------
<S> <C> <C> <C>
REVENUE:
Tuition and related fees......... $8,415 $19,256 $50,601
Accessories and video sales...... 40 0 145
License fee and sponsorship fee.. 465,050 0 465,050
Film income...................... 15,290 214,206 17,268
Interest income.................. 3,100 0 9,678
----------- ---------- -----------
Total revenue.................... 491,895 233,462 542,742
----------- ---------- -----------
COSTS AND EXPENSES:
Cost of sales.................... 842 0 1,617
Amortization of film costs....... 31,057 231,569 31,057
Salaries and payroll taxes....... 261,438 10,653 561,911
Rent............................. 33,900 72,249 62,807
Selling, general and
administrative................. 1,662,196 333,135 4,608,036
Financing expense*............... -- 741,210 --
Debenture conversion expense..... 65,683 -- 83,817
Beneficial conversion feature
of debentures.................. 107,429 -- 372,393
Interest......................... 11,681 607,583 33,295
-----------------------------------
Total costs and expenses......... 2,174,226 1,996,400 5,754,933
-----------------------------------
Net Loss From Operations............(1,682,331)(1,762,938) (5,212,191)
Gain On Sale Of Studio 0 0 0
Net Loss Before Income Tax..........(1,682,331)(1,762,938) (5,212,191)
Income Tax 0 4,240 0
Net Loss (1,682,331)(1,767,178) (5,212,191)
Accumulated Deficit (15,118,631)(5,853,684) (15,118,631)
Weighted average number of shares
outstanding**.................... 6,555,737 1,964,081 6,555,737
======================= ===========
Basic loss per share............... (0.26) (0.90) (0.80)
======================= ===========
</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.
** Adjusted for 1:4 reverse split of the Company's common stock on
January 4, 2000.
See accompanying notes.
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Six
Ended E
June 30, Ju
-----------------
2000 2
----------- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $(1,682,331) $(5,2
Adjustments to reconcile net loss to
net cash used for operating activities:
Non-cash charge related to beneficial
conversion feature of debentures.......... 107,429 37
Depreciation and amortization............... 53,750 8
Conversion of debenture interest to common stock 9,171 2
Amortization of original issue discount
On long-term debt........................ 65,683 8
Amortization of loan fees................... 22,322 2
Securities issued for services.............. 94,465 2,46
Options granted for services................ 356,378 35
Amortization of deferred consulting expenses 93,300 18
(Increase) Decrease in:
Accounts receivable........................... (406,057) (41
Prepaid expenses and other.................... 6,235 (1
Increase (Decrease) in:
Accounts payable and accrued expenses......... 108,438 (34
Deferred revenues............................. --
-----------------
Net cash used for operating activities..... (1,171,217) (2,39
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase or (sale) of property and equipment.... -- (
Payments for film costs......................... (36,088) (4
-----------------
Net cash used for investing activities..... (36,088) (5
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options.. 100,000 43
Payments on redemption of common stock.......... (63,072) (6
Payments of loans from related parties.......... -- (8
Proceeds from exercise of warrants.............. -- 45
Proceeds on notes payable....................... 1,000,000 2,25
Payments on notes payable....................... -- (27
Payments of OID on notes payable................ (88,873) (8
Principal payments on capital leases............ (1,878) (
-----------------
Net cash provided by financing activities.. 946,177 2,62
-----------------
NET INCREASE (DECREASE) IN CASH................. (261,128) 17
CASH, beginning of period....................... 472,970 3
----------- -----
CASH, end of period............................. 211,842 21
=========== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................... $--- $-
State income taxes.......................... $--- $-
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Long-term debt converted to equity.......... $346,000 $1,07
Beneficial conversion feature of debentures. $107,429 $37
Common stock and warrants issued related
to services............................... $94,465 $2,10
Common stock warrants issued with debts..... $83,962 $36
Stock options granted to consultants........ $356,378 $35
Stock warrants issued to consultants........ $--- $35
Common stock warrants issued related to
loan fees................................. 351,828 35
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
Note 1 - Nature of Operations and Summary of Significant Accounting
Policies
Nature of Operations and Consolidation - The consolidated financial st
include the accounts of American Champion Entertainment, Inc. (the "Co
and its wholly owned subsidiary, America's Best Karate ("ABK") which o
of American Champion Media, Inc. ("AC Media"). The Company and AC Med
formed during 1997. Pursuant to an Agreement and Plan of Merger, dated
July 14, 1997, the Company entered into a reorganization transaction p
to which the Company acquired all of the issued and outstanding shares
(the "Reorganization"). The financial statements included herein give
to the Reorganization in which the Company became the successor to ABK
significant intercompany accounts and transactions have been eliminate
consolidation.
AC Media focuses on operating and managing all media-related programs
Company. These programs consist of fitness information video tapes, bo
audio tapes and production of educational television programs for chil
which emphasize martial arts values and fun. ABK focuses solely on ope
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 t
accrual method. Film costs are amortized using the
individual-film-forecast-computation method which amortizes costs in t
ratio that current gross revenues bear to anticipated total gross reve
from all sources. The management of AC Media periodically reviews its
estimates of future revenues for each master and if necessary a revisio
made to amortization rates and a write down to net realizable value may
occur.
Concentration of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk are cash and acco
receivable arising from its normal business activities. The Company pla
its cash with high credit quality financial institutions. The amount on
deposit in any one institution that exceeds federally insured limits i
subject to credit risk. To reduce credit risk, the Company requires ad
payments from students and thus, no student fees receivable is recorded
Film Costs - Film costs consist of the capitalized costs related to the
production of original film masters for videos and television programs.
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 fa
value due to the short maturity of these instruments. The carrying valu
long-term obligations approximates fair value since the interest rates
either fluctuate with the lending banks' prime rates or approximate mar
rate. None of the financial instruments are held for trading purposes.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
Note 1 - Nature of Operations and Summary of Significant Accounting
Policies (continued)
Basic Loss Per Share - Net loss per share is based on the weighted ave
outstanding shares issued. Because the Company has a net loss, the comm
stock equivalents would have an anti-dilutive effect on earnings per sh
Accordingly, basic earnings per share and diluted earnings per share ar
same.
Income Taxes - Deferred tax assets and liabilities are recognized for t
expected tax consequences of temporary differences between the tax base
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
media-related segment of the Company is expected exceed 12 months.
Accordingly, an unclassified presentation is utilized for the accompan
balance sheet, which is an acceptable method under SFAS No. 53, "Financ
Reporting by Producers and Distributors of Motion Picture Films".
Reclassifications - Certain reclassifications have been made to the 199
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 fina
statements. In the opinion of management, such statements include all
adjustments (consisting only of normal recurring items) which are consi
necessary for a fair presentation of the financial position of the Comp
at June 30, 2000 and the results of its operations and its cash flows f
the three months periods ended June 30, 2000 and 1999. The accompanyin
unaudited financial statements should be read in conjunction with the
financial statements and notes for the year ended December 31, 1999 inc
in the Company's Form 10-KSB as filed with the SEC on March 30, 2000.
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 a
assumptions that affect the reported amounts of assets and liabilities
disclosure of contingent assets and liabilities at the date of the fina
statements and the reported amounts of revenues and expenses during th
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 real
value of the related asset. It is at least reasonably possible that
management's estimate of revenue from films could change in the near te
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 o
videos and programs for television as follows:
June 30, 2000 1999
-------------- -------
Television program
The Adventures with Kanga Roddy............. $8,117,427 $8,077,
Videos
Montana Exercise Video...................... 148,253 148,
Strong Mind Fit Body........................ 18,042 18,
----------- --------
8,283,722 8,243,
Less accumulated amortization............... 721,888 690,
----------- --------
7,561,834 7,553,
=========== ========
Production of the first seven episodes of The Adventures with Kanga Rod
completed during 1997. The Company completed 9 and 13 additional episod
during the years ended December 31, 1999 and 1998, respectively. Both
exercise videos were completed in 1996, but only the Strong Mind Fit Bo
video has been released.
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 EIT
"Accounting for Convertible Securities with Beneficial Conversion Featu
Contingently Adjustable Conversion." The application of EITF D-60 resu
the recognition of a non-cash charge to interest expense of $107,429 fo
quarter ended June 30, 2000 corresponding increase to additional paid i
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 h
from liability for forward-looking statements. Certain information incl
in this Form 10-QSB and other materials filed or to be filed by the Com
with the Securities and Exchange Commission (as well as information inc
in oral statements or other written statements made or to be made by or
behalf of the Company) are forward-looking, such as statements relating
operational and financing plans, capital uses and resources, competitio
and demands for the Company's products and services. Such forward-looki
statements involve important risks and uncertainties, many of which wil
beyond the control of the Company. These risks and uncertainties could
significantly affect anticipated results in the future, both short-term
long-term, and accordingly, such results may differ from those expresse
forward-looking statements made by or on behalf of the Company. These r
and uncertainties include, but are not limited to, the acceptance by
television viewers and public television stations of the television ser
ADVENTURES WITH KANGA RODDY, production delays and/or cost overruns wit
respect to such series, changes in external competitive market factors
the Company's internal budgeting process which might impact trends in t
Company's results of operations, unanticipated working capital or other
requirements, changes in the Company's business strategy or an inabili
execute its strategy due to unanticipated change in the industries in w
it operates; and various competitive factors that may prevent the Compa
from competing successfully in the marketplace.
The following section discusses the significant operating changes, busi
trends, financial condition, earnings and liquidity that have occurred
the three-month period ended June 30, 1999. This discussion should be r
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, 2000, the Compan
total revenue increased to $491,895, an increase of $258,433 or 110.7%
compared to $233,462 for the comparable period in 1999. This increase i
due to the sponsorship revenue for the Company 's boxing event in April
Costs and Expenses. Within the three months ended June 30, 200
Company has an amortized expense of film cost in the amount of $31,057
its television show. Such amortization, is calculated based upon the
proportion to the revenue generated by the television show in this peri
compared to total expected revenues from the television show.
The Company's expenses for salaries and payroll taxes increased
$261,438, an increase of $250,785 for the three months ended June 30, 2
from $10,653 for the comparable period in 1999. The increase was the c
result of all salaries and payroll taxes charged to expense instead of
capitalizing to production and an increase in marketing personnel.
Rent expense decreased to $33,900 for the three months ended Ju
2000, a decrease of $38,349 or 53.1% from $72,249 for the comparable pe
1999. The decrease in rents is due to the closure of karate studios.
Total selling, general and administrative expenses increased to
$1,662,196, an increase of $1,329,061 for the three months ended June 3
from $333,135 for the comparable period in 1999. This increase is prim
due to cost of producing the boxing event in China in the amount of $74
Interest expense decreased to $11,681, a decrease of $595,902 f
three months ended June 30, 2000 from $607,583 for the comparable perio
1999. The beneficial conversion feature of debenture expense for the q
ended June 30, 2000 is a non-cash charge of $107,429 related to the
convertible debentures the Company issued issued earlier in the year, a
there were no such charge for the comparable period in 1999. The debent
are convertible to common stock of the Company with the shares to be is
upon conversion based on 17.5% of the fair value of the stock at the ti
conversion. Since the debt can be converted at any time, the value of
discount as of the issuance date has been charged to interest expense w
corresponding increase to additional paid in capital. The balance of t
increase is attributable to the interest accrued on convertible debentu
and certain private loans of the Company.
As a result of the foregoing factors, the Company's net loss
decreased to $1,682,331 during the three months ended June 30, 2000 fro
$1,762,938 for the comparable period in 1999. Net loss per share decre
to ($0.26) for the three months ended June 30, 2000 from ($0.90) for th
comparable period in 1999. Weighted average number of shares outstandin
increased to 6,555,737 for the three months ended June 30, 2000 from
1,964,081 for the comparable period in 1999 primarily due to the conver
of debentures into the Company's common stock. The outstanding number o
shares and net loss per share figures are adjusted for the 1:4 reverse
of the company's common stock on January 4, 2000.
Liquidity And Capital Resources
Cash decreased for the three months ended June 30, 2000 by $261
which $1,171,217 was net operating cash loss and $36,088 was used in th
production of the Adventures With Kanga Roddy show, while financing act
resulted in an inflow of $946,177.
Deferred consulting fees of $93,300 relate to common stock and
issued to consultants and are being amortized over the term of the cons
agreements which range from 12 to 24 months.
As of June 30, 2000, total liabilities were $1,872,439 and ther
no loan payable to related parties. In addition, deferred revenues we
$16,920 at June 30, 2000. Deferred revenues are pre-paid tuition for t
karate studios and booked revenue from sponsorship activities which can
immediately recognized. The last karate studio was closed during the q
ended March 31, 2000. There has not been significant request for refun
pre-paid tuition and the Company may elect to claim the remaining defer
revenues later this year.
The Company continues to believe that the unamortized cost of t
Kanga Roddy program is recoverable due to the fact that management is
actively pursuing other broadcast avenues for the program. The current
exclusive distribution agreement with public television through KTEH, t
affiliate station in San Jose, is expiring in April 2001. The Company
optimistic that a commercial broadcaster or cable network would distrib
the Kanga Roddy series, thereby generating distribution revenue and
creating a larger audience and demand for ancillary products.
The distributor for the Montana exercise video is planning on a
Internet marketing plan within the third quarter of 2000. With correct
pricing and an aggressive outreach strategy, the Company maintains that
unamortized costs of this program is recoverable.
Recent Developments
In April 2000, the Company engaged into an Equity Line of Credi
Sibson Holdings, Ltd. The equity line is for a maximum of $5,000,000 wi
bridge loan of $1,000,000. The Company is in the process of filing a
registration statement on form SB-2 for this transaction, and will seek
shareholders' approval to ratify this transaction at the coming shareho
meeting scheduled on September 27, 2000.
On May 3, 2000, the Company's subsidiary American Champion Mark
Group, Inc. ("ACMG") signed an agreement with Irwin Toy Limited for the
licensing of characters from the TV program "ReBoot". ACMG is the lice
agent for Mainframe Entertainment, Inc., the producer of "ReBoot".
On July 17, 2000, the Company signed a short-form agreement for
acquisition of 50.01% of 21e-sports Company, Ltd. of Beijng China. Upo
satisfactory completion of the due diligence process, a final agreement
be executed and then the Company will file a proxy statement with the S
seek shareholders' approval for the acquisition.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There is no on-going legal proceedings during the three
months ended June 30, 2000.
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 June 30, 2000.
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
the Company has duly caused this report to be signed on its behalf by t
undersigned, thereunto duly authorized.
AMERICAN CHAMPION ENTERTAINMENT, INC.
(Registrant)
Dated: August 14, 2000 By: /s/ Anthony K. Chan
------------------------------
Anthony K. Chan, Chief Executive Offi
By: /s/ Mae Lyn Woo
------------------------------
Mae Lyn Woo, Vice President,
Chief Financial Officer &
Chief Operations Officer
INDEX TO EXHIBITS
Exhibit No. Exhibit
10.53 Sponsorship Agreement between Shun Li De Commerce and Tradin
American Champion Media, Inc. for sponsorship of boxing even
10.54 Deal Memorandum between Irwin Toy Limited and American Champ
Marketing Group, Inc. for the licensing of characters from t
program "ReBoot" produced by Mainframe Entertainment, Inc.
(portions deleted pursuant to request for confidential treat
27.1 Financial Data Schedule (shown on EDGAR format only)
