SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1999
[ ] TRANSACTION 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.
(Name of small business issuer in its charter)
Delaware 94-3261987
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1694 The Alameda, Suite 100, San Jose, California 95126
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (408) 288-8199
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.0001 par value The Nasdaq SmallCap Market
Warrants to Purchase Common Stock
---------------------------------
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statement incorporated by reference in Part III of this
Form 10KSB or any amend to this Form 10-KSB [ X ]
Revenues for its most recent fiscal year: $665,632
Aggregate market value of common stock held by nonaffiliates at March 27,
2000: $23,567,453
Number of shares of common stock outstanding at March 27, 2000: 6,368,647
Documents Incorporated by Reference: Location in Form 10-K
Portions of the Proxy Statement for Part III
1999 Annual Meeting of Shareholders
Transitional Small Business Disclosure Format (check one):
Yes _____ No ___x___
TABLE OF CONTENTS
Part I
Item 1 Description of Business
Item 2 Description of Property
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
Part II
Item 5 Market for Common Equity and Related Stockholder Matters
Item 6 Management's Discussion and Analysis or Plan of Operation
Item 7 Financial Statements
Item 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Part III
Item 9 Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Item 10 Executive Compensation
Item 11 Security Ownership of Certain Beneficial Owners and Management
Item 12 Certain Relationships and Related Transactions
Item 13 Exhibits and Reports on Form 8-K
PART I
Item 1. Description of Business
General
American Champion Entertainment, Inc. is a Delaware corporation
headquartered in San Jose, California and incorporated on February 5,
1997. The Company was formed as a holding company for its wholly-owned
subsidiary, American's Best Karate, a California corporation ("ABK"),
formed in June 1991. ABK wholly owns American Champion Media, Inc.,
a Delaware corporation ("AC Media"), formed in February 1997. AC Media
wholly owns American Champion Marketing Group, a Delaware corporation
("AC Marking") formed in July 1999. Unless indicated otherwise, references
the "Company" herein shall include ABK, AC Media and AC Marketing.
AC Media is a media production company and AC MArketing is a marketing
company. Through AC Media and AC Marketing, the Company is involved in
(i) the development, production and marketing of "ADVENTURES WITH KANGA
RODDY", a television program aimed at pre-school and primary school
children (the "Kanga Roddy Series"), (ii) the licensing of merchandising
rights related to the Kanga Roddy Series, (iii) the development,
production and marketing of various audio tapes, video tapes and workbooks
that specialize in fitness information, and (iv) acquire the licensing
rights to other intellectual properties. ABK owned and operated a karate
school in the year 1999, which was subsequently closed on January 31,
2000, when its lease expired.
"Adventures With Kanga Roddy"
The Company has developed and produced twenty nine (29) one half-hour
episodes of the Kanga Roddy Series. The Kanga Roddy Series features a
six-foot tall kangaroo character named Kanga Roddy who is a martial arts
expert. Unlike other martial arts programs which feature violence, Kanga
Roddy never fights because he understands that conflict can always be
resolved through traditional martial arts values such as knowledge,
compassion, humility, discipline, respect and an open mind. The show
merges these values, with contemporary music, dance, vibrant colors and
exciting movements designed to capture the attention of its target
audience consisting primarily of pre-school and primary school children.
Each episode of the Kanga Roddy Series focuses on a group of children at
a community center and their teachers (played by Jennifer Montana and
Karen Lott, wives of former San Francisco 49ers football players, Joe
Montana and Ronnie Lott) working on activities such as reading, physical
fitness and arts and crafts. During these activities, the children
encounter an ethical or social problem which causes uneasiness or
unhappiness among some of the children. The teachers sense the problem
and suggest that the children seek help from their friend, Uncle Pat,
the prorietor of a rare bookstore played by actor Pat Morita, who was
previously featured in "The Karate Kid" movies. Uncle Pat, with the
assistant of his pet bookworm, Shakespeare, magically transport the
children to the land of Hi-Yah where Kanga Roddy lives.
Once in the land of Hi-Yah, Kanga Roddy and his friends Bantu - a female
African snake, Tackle Bear - his workout partner, Cimbop and Kimbop - a
pair of feline sisters, and Zatochi - a wise old snow monkey, help the
children solve their problem by giving examples presented through songs.
Kanga Roddy gets inspiration for the proper solution to the problem
thorugh flashbacks to lessons learned from his martial arts teacher
Zatochi or parallels drawn from encounters with his buddy Tackle
Bear. The children and the costumed cast present the answers in song
and dance routines. When the children return to the community center,
they review what they have learned with their teachers.
In May 1997, the Company and KTEH, the public broadcasting station serving
the San Jose, California area, entered into a Distribution Agreement (the
"Distribution Agreement") which grants KTEH the exclusive right to
distribute, advertise, market or otherwise exploit the Kanga Roddy Series
on public broadcast affiliated stations throughout the United States for a
two-year period ending May 1999. KTEH cleared the broadcast of the Kanga
Roddy Series with 40 other public broadcast stations which broadcast to
approximately 50% of the households in the United States (approximately
40 million households). The Company delivered 13 half-hour episodes to
KTEH for broadcast and received $430,000 from KTEH for the exclusive
broadcast rights for the series for a period of two years. Under
the Distribution Agreement, the Company has also committed to sharing
with KTEH (i) 8% of revenues from the sale (less fees and commissions)
and licensing of non-broadcast ancillary rights of educational
products such as video tapes, books and music tapes and (ii) 5%
of gross profits (less fees and commissions) of the Company from the
sale and licensing of toys and clothing. The Company has also granted
KTEH a right of first refusal with respect to broadcast rights to the
Kanga Roddy Series not granted to KTEH in the Distribution Agreement.
On April 20, 1998, the Company entered into a Continuing Distribution
Agreement with KTEH for the distribution of 26 more half-hour Kanga Roddy
shows and two one-hour specials. Under the Continuing Distribution
Agreement, KTEH receives the exclusive domestic broadcast rights to the
new episodes for two years and agrees to pay the Company $30,000 for
each half-hour program and $60,000 for each of the two one-hour shows.
As of December 31, 1999, the Company has completed and delivered 29
half-hour episodes to KTEH.
In January 1999, American Public Television ("APT"), a major national
distributor for PBS programming, agreed to distribute 26 new episodes of
the Kanga Roddy Series. As a result, the Kanga Roddy Series will now be
available for airing on over 300 PBS stations nationwide commencing April
4, 1999.
In August 1998, the Company signed an exclusive contract with Portfolio
Entertainment of Toronto, Ontario, for the international TV distribution
of the Kanga Roddy Series.
In December 1998, the Company signed an agreement with Timeless Toys of
Foster City, California, for the licensing of the Kanga Roddy and all
related characters for premium plush toys.
In September 1999, the Company signed a consulting agreement with
TLA/Consor Inc. of La Jolla, California, for the Company to provide Consor
with licensing services.
In September 1999, the Company signed a licensing agreement with Brighter
Child of Westerville, Ohio, for the licensing of the Kanga Roddy story and
all related characters for use in interactive CD-Rom games.
In October 1999, the Company signed a licensing agreement with Prestige
Toys of New York, New York, for the licensing of the Kanga Roddy and all
related characters for use and manufacturing of plush toy items in all
sizes.
The Company's strategy includes pursuing licensing and merchandising
opportunities related to the Kanga Roddy Series. Characters developed in
a popular series, and often the series itself, achieve a high level
of recognition and popularity, making them valuable licensing and
merchandising assets. Among the most popular licensed items are toys,
clothing, food, dinnerware/lunch boxes, watches and soft vinyl goods such
as boots, backpacks and raincoats. The Company plans to retain worldwide
rights to the characters and images developed in the Kanga Roddy Series,
to protect its rights to such characters and images through appropriate
registration, and to license their use to manufacturers for specific
products. There is no assurance, however, that the Company will be able to
successfully retain or protect its rights through registration, or to
license its properties. The Company also hopes to realize revenues through
the distribution of the Kanga Roddy Series in the home video market,
although there is no assurance that the Company will be able to do so. If
the Kanga Roddy Series does not attain and maintain widespread television
distribution, or widespread popularity, it is unlikely that any significant
licensing or merchandising opportunities or revenue will arise or be
maintained.
Fitness Products
The Company develops, produces and markets various video tapes, audio tapes
and workbooks that specialize in fitness information and education
("Fitness Products"). The Company's Fitness Product, entitled the "MONTANA
EXERCISE VIDEO," is a cardio kick-boxing video starring former superstar
quarterback Joe Montana and his wife Jennifer, both of whom have trained at
the Company's karate schools.
In August 1999, the Company signed an exclusive contract with Diamond
Entertainment Corporation of Cerritos California, for the domestic
distribution the Montana Exercise Video.
Competition
Each of the industries in which the Company competes is highly competitive
and most of the companies with which the Company competes have greater
financial and other resources than the Company. With respect to the
Company's media activities, the Company competes with major production
companies, and competition for access to a limited supply of facilities and
talented creative personnel to produce its programs is often based on
relationships and pricing. The Company's programs compete for time slots,
ratings, distribution channels and financing, and related advertising
revenues with other programming products. The Company's competitors include
motion picture studios, television networks, and independent television
production companies, which have become increasingly active in children's
programming, and many of which have substantially greater financial and
other resources than the Company. The Company competes for broadcast
commitments and production funding for public television projects with
Children's Television Workshop, other independent production companies, and
projects produced by local public television stations.
If the Company attempts to expand into other areas, including commercial
television, it will face more intense competition from other, larger
entities, which have substantially greater financial and other resources
than the Company, such as The Walt Disney Company, Fox, Nickelodeon, Jim
Henson Productions, Scholastic Productions, Cinar, Lancit Media
Entertainment, and certain television syndicators, production companies,
and networks which also seek to attract the children's/family audience
segments with their programming. In addition, there is a strong trend
toward vertical integration in the business, with more networks owning
productions, making it more difficult for smaller, independent companies
such as the Company to obtain favorable production financing and
distribution terms.
The Company's Fitness Products compete with many other products aimed at
the fitness and weight loss markets, including other video tapes, audio
tapes and workbooks, and various types of exercise machinery. Many of these
competing products are sponsored or endorsed by celebrities and sports
figures, and many are marketed by companies having significantly greater
resources than the Company.
In the licensing industry, there is strong competition from other
independent licensing agencies and from the in-house licensing divisions
of other production companies and television studios.
In November 1999 the Company signed a Stock Exchange Agreement with the
Great Wall International Sports Media Company of China ("Great Wall") for
the acquisition of 80% of the common stock of Great Wall. Great Wall is a
producer and promoter of international sporting events. The Agreement is
subject to review by the SEC and approval by shareholders of the Company.
The Company intends to file a proxy statement and solicit shareholders
votes for the intended acquisition at the year 2000 annual meeting of
shareholders.
Employees
As of March 27, 2000, the Company employed a total of 16 employees on a
full-time basis, 6 of which are management and 10 of which are clerical.
The Company also contracts with additional employees for the production of
the Kanga Roddy Series through the American Federation of Television and
Radio Artists.
Item 2. Description of Property
The Company leases approximately 3,000 square feet of space for its San
Jose headquarters pursuant to a two year lease expiring July 2000 at
approximately $10,000 per month.
Item 3. Legal Proceedings
On April 24,1998, the Company filed a Complaint for Declaratory Relief in
the U.S. District Court, Northern District of California, against William
Charles Jeffreys, requesting a judicial determination of the Company's
rights in certain intellectual property associated with the Adventures with
Kanga Roddy show, and that Mr.Jeffreys has no such rights. Mr.Jeffreys
filed an answer to the Company's complaint on June 15, 1998 along with a
counterclaim. The Company disputes all claims of Mr. Jeffreys to an
interest in certain of the Company's intellectual property and intends to
vigorously protect its ownership and rights to such intellectual property.
In February 1999, Mr. Jeffreys and the Company have agreed to settle the
lawsuit and counterclaim for $36,000 which the Company will pay Mr.
Jeffreys in twelve monthly payments of $3,000 each beginning in March of
1999, and the last payment was made in February 2000.
With the exception of the foregoing, no lawsuits or proceedings are
currently pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of shareholders was held on December 10, 1999 for the
following matters.
Proposal 1 - To amend the Company's Bylaws from "a majority" to "one-third"
of outstanding shares to constitute a quorum at all meetings of
stockholders:
For % Against Abstain Not Voted
4,052,099 51.54 312,448 27,565 3,469,716
Proposal 2 - To amend the Comapny's Bylaws to increase the maximum number
of seats on the Board of Directors from 9 to 15 with the exact number of
directors for each year to be determined by the Board.
For % Against Abstain Not Voted
7,641,143 97.19 184,172 36,513 0
Proposal 3 - 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 from 4,800,000
to 7,000,000.
For % Against Abstain Not Voted
4,022,741 51.17 321,081 48,290 3,469,716
Proposal 4 - To approve the increase of the number of shares of Common
Stock issuable un der the Compnay's 1997 Non-Employee Directors Stock
Option Plan from 550,000 to 800,000.
For % Against Abstain Not Voted
4,061,597 51.66 237,425 93,090 3,469,716
Proposal 5 - To approve the two Securities Purchase Agreement, dated June
18, 1999 and September 24, 1999, and all transactions contemplated thereby,
including the issuance of $1,750,000 and $1,000,000 of convertible
debentures respectively, issued on June 18, 1999 and September 24, 1999
respectively.
For % Against Abstain Not Voted
4,131,015 52.55 147,359 113,738 3,469,716
Proposal 6 - To approve a reverse stock split of the outstanding shares of
the Company's Common Stock, if necessary, at a ratio to effect the market
price of the Company's Common Stock to be at a level in compliance with the
continued listing requirements of the Nasdaq SmallCap Market.
For % Against Abstain Not Voted
7,343,508 93.41 493,980 24,340 0
The result were confirmed by the Inspector, and the proposal to approve a
reverse stock split of the outstanding shares of the Company's COmmon
Stock, if necessary, at a ratio to effect the market price of the COmpany's
Common Stock to be at a level in compliance with the continued listing
requirements of the Nasdaq SmallCap Market was duly approved.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market For Securities
Our Common Stock and Common Stock Purchase Warrants commenced quotation on
the Nasdaq SmallCap Market System under the symbols "ACEI" and "ACEIW,"
respectively, on August 1, 1997. The range of high and low reported closing
sales prices for the Common Stock as reported by Nasdaq SmallCap Market
since the commencement of trading were as follows:
Common Stock:
High Low High Low
(adjust for 1:4 reverse
split on January 4, 2000)
1997
Third Quarter $5.500 $4.125 $22.00 $16.50
Fourth Quarter $8.000 $4.813 $32.00 $19.50
1998
First Quarter $9.625 $7.750 $38.50 $31.00
Second Quarter $9.563 $6.563 $38.25 $26.25
Third Quarter $7.000 $3.500 $28.00 $14.00
Fourth Quarter $3.625 $0.969 $14.50 $3.88
1999
First Quarter $3.000 $1.063 $12.00 $4.25
Second Quarter $2.438 $0.781 $9.75 $3.12
Third Quarter $1.656 $0.516 $6.62 $2.06
Fourth Quarter $1.406 $0.313 $5.62 $1.25
2000
First Quarter - - $6.03 $2.13
(up to March 27, 2000)
The prices set forth above reflect inter dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following section discusses the significant operating changes, business
trends, financial condition, earnings and liquidity that have occurred in
the three-year period ended December 31, 1999. This discussion should be
read in conjunction with the Company's consolidated financial statements
and notes appearing elsewhere in this report.
The following discussion may contain forward-looking statements that are
subject to risks and uncertainties. Such risks and uncertainties could
cause actual results to differ materially from those indicated. For a
discussion of factors that could cause actual results to differ, please see
the discussion contained herein. Readers should not place undue reliance on
the forward-looking statements, which reflect management's view only as of
the date hereof. The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect subsequent events or
circumstances. Readers are also encouraged to review the Company's
publicly available filings with the Securities and Exchange Commission.
Results of Operations
The Company was formed in February 1997 and has a wholly owned subsidiary,
ABK which owns and operates one karate studio in 1999. ABK wholly owns AC
Media, a media production company, which owns AC Marketing, a licensing and
marketing company.
Revenues.
During the year ended December 31, 1999, the Company's total revenue
decreased to $665,632, a decrease of $71,069 or 9.6% as compared to total
revenue for the year ended December 31, 1998 of $736,701.
The Company's revenues from the operation of its karate studio for the year
ended December 31, 1999 was $73,180, a decrease of 77.5% from revenues of
$324,730 for the year ended December 31, 1998. The decrease is attributable to
the planned closure of the one remaining karate studio. The Company closed the
remaining studio when the lease for that location expired on January 31, 2000.
For the year ended December 31, 1999 the Company recognized $517,995 in film
income, an increase of $174,118 or 50.6% from film income of $343,877 for the
year ended December 31, 1998. Film income was derived from the delivery of the
nine episodes of the television show "Adventures with Kanga Roddy" to KTEH
pursuant to its Distribution Agreement with KTEH, and also from licensees of
the intellectual property of the Kanga Roddy series. See "Business."
Revenues from sale of accessories was $10,515 for the year ended December
31, 1999 as compared to $37,956 for the year ended December 31, 1998. The
decrease was due to the planned closure of the remaining karate school.
The Company's interest income of $63,942 was earned from investment
activities.
Costs and Expenses.
The Company recognized $450,100 in amortization of film cost, which was
capitalized production costs for the television show "Adventures With Kanga
Roddy", for the year ended December 31, 1999 as compared to $177,732 for
1998.
The Company's expenses for salaries and payroll taxes were $465,532 for
1999, a decrease of $381,615 or 45.0% from $847,147 in 1998. Total selling,
general and administrative expenses was $3,712,595 for 1999, an increase of
$2,787,855 or 301.5% from $924,740 in 1998. This increase was primarily due
to marketing and promotion expenses related to the Company and its
television show.
Interest expense was $208,069 for 1999, a increase of $131,662 or 172.2%
from $76,447 in 1998. Interest expense for 1999 was primarily attributed to
interest bearing convertible debentures the Company sold within the year.
The Beneficial Conversion Feature of Debentures is a non-cash charge of
$1,233,684 related to the beneficial conversion feature of the convertible
debentures issued within 1999. The debentures are convertible to common
stock of the Company with the shares to be issued upon conversion based on
either 75% or 77.5% of the fair value of the stock at the time of
conversion. Since the debt can be converted at any time, the value of the
discount as of the issuance date has been recorded as an expense with a
corresponding increase to additional paid in capital. Rent expense was
$243,053 for 1999, a decrease of $64,954 or 21.1% from $308,007 in 1998.
As a result of foregoing factors, the Company's net loss increased by
$4,474,812 or 232.6% from ($1,923,516) for the year ended December 31, 1998
to ($6,398,328) for the year ended December 31, 1999. Net loss per share
increased from ($0.48) in 1998 to ($0.67) in 1999, while weighted average
number of shares outstanding increased from 4,033,619 shares in 1998 to
9,542,487 shares in 1999.
Liquidity and Capital Resources
Stockholders' equity increased to $7,688,425 at the end of 1999,
representing a 96.9% increase from 1998. Cash increased for the twelve
months ended December 31, 1999 by $29,751. Cash utilized for operations for
the twelve months ended December 31, 1999 was ($1,635,429). Cash used for
investing activities for the twelve months ended December 31, 1999 was
($3,122,723) and was primarily attributable to the cost of producing nine
episodes of the Kanga Roddy Series. Cash from financing activities for the
twelve months ended December 31, 1999 was an increase of $4,787,903 which
resulted primarily from sales of convertible debentures.
The Company has historically financed its operating and capital outlays
primarily through sales of common stock, loans from stockholders and other
third parties and bank financing.
Notes payable as of December 31, 1999 was $450,183 as compared to $831,266
at December 31, 1998. The decrease in notes payable was attributable to
outstanding unconverted convertible debentures at the end of 1999. Loans
payable to related parties as of December 31, 1999 was $84,100 as compared
to $137,037 as of December 31, 1998. In addition, deferred revenues
decreased by $61,100 from $78,020 at December 31, 1998 to $16,920 at
December 31, 1999. Deferred revenues are primarily pre-paid tuition for the
karate studios which cannot be immediately recognized and the decrease is
the result of the conversion of such deferred revenues into recognized
revenues from elimination of deferred revenues on studios sold and the
refund of pre-paid tuition for students who terminate their karate
instruction prior to completing their subscribed program.
The Company maintains a credit line with Wells Fargo Bank pursuant to which
the Company has borrowed approximately $38,000 as of December 31, 1999 and
repayment of this amount is made at the monthly rate of 2% of the
outstanding balance of the borrowing. Other than such loan, the Company
does not presently maintain any other borrowing facility or have any
indebtedness to financial institutions.
On January 19, 1999, the Company sold $950,000 in convertible debentures.
On May 27, 1999 the Company sold $1,145,000 in convertible debentures which
the Company subsequently redeemed and replaced by another convertible
debenture transaction on June 18, 1999, in the amount of $1,750,000. On
September 24, 1999, the Company sold another $1,000,000 in convertible
debentures.
We now estimate that the average cost of developing and producing each
episode of the Kanga Roddy Series is $240,000 and that we will require
approximately $2.88 million of additional financing to complete the
remaining 12 episodes of the Kanga Roddy Series. Except for the Proposed
Offering described above, we have no other current arrangements with
respect to additional financing and there can be no assurances that
additional financing will be available on acceptable terms, if at all. The
net proceeds from the Proposed Offering may not be sufficient to fund
production of all of the remaining 12 episodes of the Kanga Roddy series.
To the extent that the Company's available working capital is insufficient
to finance the Company's working capital requirements, the Company will be
required to raise additional funds through public or private equity or debt
financing or by exercising its rights to redeem the outstanding warrants to
purchase common stock. There can be no assurance that such additional
financing will be available, or, if available, will be on terms
satisfactory to the Company or not dilutive of existing shareholders.
Subsequent to the end of the year 1999, in January 2000, the Company sold
$1,250,000 of convertible debentures to finance its cash needs. The
Company intends to secure an equity line of credit of up to $5,000,000
within the second quarter of year 2000.
Item 7. Financial Statements
The consolidated financial statements of the Company and subsidiaries and
independent auditors' report are filed herewith on pages 14 through 37 of
this report.
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Person;
Compliance With Section 16(a) of the Exchange Act
See information under the caption "Election of Directors" and "Compliance
with Section 16(a) of the Exchange Act" of the Company's proxy statement
for the 1999 Annual Meeting of Shareholders (the "1999 Proxy Statement")
which information is incorporated by reference herein.
Item 10. Executive Compensation
See information under the caption "Executive Compensation" of the 1999
Proxy Statement which information is incorporated by reference herein.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
See information under the caption "Principal Shareholders" and "Stock
ownership of Management" of the 1999 Proxy Statement which information is
incorporated by reference herein.
Item 12. Certain Relationships and Related Transactions.
See information under the caption "Certain Relationships and Related
Transactions" of the 1999 Proxy Statement which information is incorporated
by reference herein.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
See Index to Exhibits at pages 38 to 39 of this Form 10-KSB.
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: March 30, 2000
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: /s/ ANTHONY K. CHAN
-----------------------------------
Anthony K. Chan, President
(Principal Executive Officer)
In accordance with the Securities Exchange Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
Signature Title Date
- ----------------------- -------------------------------- ---------------
<S> <C> <C>
/s/ ANTHONY K. CHAN President, Chief Executive March 30, 2000
- ----------------------- Officer, and Director
Anthony K. Chan (Principal Executive Officer)
/s/ GEORGE CHUNG Chairman of the Board and March 30, 2000
- ----------------------- Director
George Chung
/s/ MAE LYN WOO Vice President, Chief Operation March 30, 2000
- ----------------------- Officer and Chief Financial Officer
Mae Lyn Woo (Principal Financial Officer)
/s/ JAN D. HUTCHINS Director March 30, 2000
- -----------------------
Jan D. Hutchins
/s/ WILLIAM T. DUFFY Director March 30, 2000
- -----------------------
Willian T. Duffy
/s/ ALAN ELKES Director March 30, 2000
- -----------------------
Alan Elkes
/s/ E. DAVID GABLE Director March 30, 2000
- -----------------------
E. David Gable
/s/ RONALD M. LOTT Director March 30, 2000
- -----------------------
Ronald M. Lott
/s/ JOY M. TASHJIAN Director March 30, 2000
- -----------------------
Joy M. Tashjian
</TABLE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
AND
SUBSIDIARIES
INDEPENDENT AUDITOR'S REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
American Champion Entertainment, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheet of American
Champion Entertainment, Inc., and Subsidiaries (the "Company") as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the accompanying financial statements present fairly, in
all material respects, the financial position of the Company as of December
31, 1999 and 1998, and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 20 to the
financial statements, the Company had limited cash reserves at December 31,
1999 and based on management's current cash flow estimates, will not have
sufficient cash to meet obligations over the next twelve months without
additional sources of capital. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plan in
this regard is discussed in Note 20. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Moss Adams LLP
San Francisco, California
January 27, 2000
AMERICAN CHAMPION ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Assets
Cash....................................... $ 32,514 $ 2,763
Account receivable......................... 481,449 37,675
Loans receivable, related parties.......... 114,937 114,937
Prepaid expenses........................... 7,460 56,267
Property and equipment..................... 312,949 395,330
Investments................................ 203,110 --
Film costs, net............................ 7,553,133 5,381,329
Note receivable............................ 354,814 80,424
Other Assets............................... 226,084 11,673
----------- -----------
Total assets............................... 9,286,450 6,080,398
=========== ===========
Liabilities
Accounts payable and accrued expenses...... $1,042,577 $1,122,307
Note payable, related parties.............. 84,100 137,037
Other...................................... 4,245 6,565
Deferred revenues.......................... 16,920 78,020
Notes payable.............................. 450,183 831,266
----------- -----------
Total liabilities.................. 1,598,025 2,175,195
----------- -----------
Stockholders' Equity
Preferred stock, $.0001 per share,
6,000,000 shares authorized, none
issued or outstanding.................... -- --
Common stock, $0.0001 par value;
40,000,000 shares authorized;
paid-in capital.......................... 17,594,865 7,413,315
Accumulated deficit........................ (9,906,440) (3,508,122)
----------- -----------
Total stockholders' equity................. 7,688,425 3,905,203
----------- -----------
$9,286,450 $6,080,398
=========== ===========
</TABLE>
See accompanying notes.
AMERICAN CHAMPION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUE:
Film income........................... $ 517,995 $ 343,877
Tuition and related fees.............. 73,180 324,730
Accessories........................... 10,515 37,956
Interest income....................... 63,942 30,138
------------ ------------
Total revenue......................... 665,632 736,701
------------ ------------
COSTS AND EXPENSES:
Cost of sales......................... 8,174 26,152
Amortization of film costs............ 450,100 177,732
Salaries and payroll taxes............ 465,532 847,147
Rent.................................. 243,053 308,007
Selling, general and administrative... 3,712,595 924,740
Interest.............................. 208,069 76,447
Beneficial conversion feature of debenture 1,233,684 599,955
Debenture conversion expense 741,210 --
------------ ------------
Total costs and expenses.............. 7,062,417 2,960,180
------------ ------------
Loss from operations ................... ($6,396,785) ($2,223,479)
============ ============
Gain on sale of karate studio........... -- 307,429
------------ ------------
Loss before provision for income taxes.. (6,396,785) (1,916,050)
Provision for income taxes.............. 1,543 7,466
------------ ------------
Net Loss................................ (6,398,328) (1,923,516)
============ ============
Weighted average number of shares
outstanding........................... 9,542,487 4,033,619
============ ============
Basic loss per share.................... $ (0.67) $ (0.48)
============ ============
</TABLE>
See accompanying notes.
AMERICAN CHAMPION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
--------------------------------------- Total
Number Number Paid-in Stockholders
of of Capital Accumulated Equity
Shares Warrants (Deficit) Deficit (Deficit)
--------------------------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997............. 3,832,345 1,625,000 $5,678,919 ($1,584,596) $4,094,323
Common stock warrants issued in
connection with debentures......... -- 254,501 $124,501 -- $124,501
Conversion of debentures
to common stock.................... 1,421,901 -- 993,040 -- 993,040
Exercise warrants to purchase
common stock warrants.............. -- -- 16,900 -- 16,900
Beneficial conversion feature
of debentures...................... -- -- 599,955 -- 599,955
Net loss............................. -- -- -- (1,923,516) (1,923,516)
--------------------------------------------------------------------
Balance, December 31, 1998............. 5,254,246 1,879,501 $7,413,315 ($3,508,112) $3,905,203
Common stock warrants issued in
connection with debentures......... 150,000 652,985 349,680 -- 349,680
Conversion of debentures
to common stock.................... 10,230,455 3,731,110 -- 3,731,110
Exercise warrants to purchase
common stock ...................... 1,385,000 (1,385,000) 1,092,139 -- 1,092,139
Exercise options to purchase
common stock ...................... 886,000 -- 365,625 -- 365,625
Common Stock issued for services..... 1,575,440 -- 1,216,703 -- 1,216,703
Warrants issued for Services......... -- 2,374,167 1,329,593 -- 1,329,593
Options to purchase common
stock issued for services.......... -- -- 393,520 -- 393,520
Common Stock and Warrants issued
for Redemption of Debentures....... 267,930 175,000 469,496 -- 469,496
Beneficial conversion feature
of Debentures...................... -- -- 1,233,684 -- 1,233,684
Net loss -- -- -- (6,398,328) (6,398,328)
------------ ----------- ------------ ------------- ------------
Balance, December 31, 1999............. $19,749,071 $3,696,653 $17,594,865 ($9,906,440) $7,688,425
============ =========== ============ ============= ============
</TABLE>
See accompanying notes.
AMERICAN CHAMPION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ ($6,398,328) ($1,923,516)
Adjustments to reconcile net loss to
net cash used for operating activities:
Non-cash charge for beneficial conversion
feature of debentures..................... 1,233,684 599,955
Gain on sale of karate studio............... -- (307,429)
Depreciation and amortization............... 540,724 253,405
Rent concession amortization................ -- (4,216)
Redemption of debenture..................... 638,202 --
Amortization of original issue discount
on long term debt......................... 52,530 15,560
Conversion of debenture interest to
common stock ............................. 88,828 9,452
Securities issued for services.............. 2,939,816 --
Bad debts................................... 15,075 --
(Increase) Decrease in:
Accounts receivable........................... (443,774) 183,142
Prepaid expenses and other.................... (165,604) 30,986
Increase (Decrease) in:
Accounts payable and accrued expenses......... (75,482) 918,746
Deferred revenues............................. (61,100) (190,041)
------------- -------------
Net cash used for operating activities..... (1,635,429) (413,956)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............. (8,243) (237,402)
Payments for film costs......................... (2,621,904) (3,113,644)
Deposit related to acquistion................... (203,110) --
Advances to stockholders........................ -- (164)
Increase in notes receivable.................... (300,000) --
Payments received on notes receivable........... 10,534 6,150
------------- -------------
Net cash used for investing activities..... (3,122,723) (3,345,060)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options.. 365,625 --
Proceeds from exercise of warrants.............. 1,092,139 16,900
Proceeds on loans from related parties ......... 120,400 137,000
Payments on loans from related parties.......... (173,337) (37,218)
Proceeds on notes payable....................... 5,114,089 2,010,963
Payments on notes payable....................... (1,724,448) (151,366)
Principal payments on capital leases............ (6,565) (10,157)
------------- -------------
Net cash provided by financing activities.. 4,787,903 1,966,122
------------- -------------
NET (DECREASE) INCREASE IN CASH................. 29,751 (1,792,894)
CASH, beginning of year......................... 2,763 1,795,657
------------- -------------
CASH, end of year............................... $32,514 $2,763
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................... $66,711 $60,887
============= =============
State income taxes.......................... $1,543 $7,466
============= =============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Long-term debt converted to equity............ $3,731,110 $993,040
Beneficial conversion feature of debentures... 1,233,684 559,955
Common stock warrants issued with debt........ 349,680 124,501
Common stock and warrants issued
related to services........................ 2,939,816 --
Common stock and warrants issued
related to redemption of debentures........ 469,496 --
</TABLE>
See accompanying notes.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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").
During 1999 the Company organized American Champion Marketing ("AC
Marketing"), which is a wholly owned subsidiary of ACM. There was no
activity in AC Marketing during 1999. 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 production of educational television
programs for children, which emphasize martial arts values and fun. The
Company also produces fitness information video tapes, books and audio
tapes. ABK focuses solely on operating and managing the Company's karate
studios, which are located in the San Francisco Bay Area. During 1999 the
Company closed its last karate studio.
Revenue Recognition - AC Media - Revenue from films is recognized on delivery
of each master. 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 - The Company has collected advance fees from student enrolled in its
karate studios. The Company may be required to refund these fees to
students. Fee payments subject to refund are included in the financial
statements as deferred revenue, which will be recognized as revenue in the
future years if there is no cancellation by the student. See Note 18
related to sales of studios.
Concentration of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk are cash and accounts
receivable arising from its normal business activities. The Company places
its cash with high credit quality financial institutions. The amount on
deposit in any one institution that exceeds federally insured limits is
subject to credit risk. To reduce credit risk, the Company requires
advanced payments from students and thus, no student fees receivable is
recorded.
Cash and Cash Equivalents - The Company considers certain highly liquid
instruments purchased with original maturities of year or less to be cash
equivalents.
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.
Film Costs - Film costs consist of the capitalized costs related to the
production of original film masters for videos and television programs. The
net film costs are presented on the balance sheet at the net realizable
value for each master.
Fair Values of Financial Instruments - The carrying value of cash,
receivables, accounts payable and short-term borrowings approximate fair
value due to the short maturity of these instruments. The carrying value of
long-term obligations approximate fair value since the interest rates
either fluctuate with the lending banks' prime rates or approximate market
rate. None of the financial instruments are held for trading purposes.
Basic Loss Per Share - Statement of Financial Accounting Standards (SFAS)
No. 128 was adopted by the Company during the year ended December 31, 1997.
Basic loss per share is based on the weighted average outstanding shares
issued. Because the Company has a net loss, the common stock equivalents
would have an anti-dilutive effect on earnings per share. Accordingly,
basic earnings per share and diluted earnings per share are the same.
Income Taxes - Deferred tax assets and liabilities are recognized for the
expected tax consequences of temporary differences between the tax bases of
assets and liabilities and their reported amounts. The Company and its
Subsidiaries file a consolidated tax return.
Presentation - Because of the Company's reduced activity in its karate
instruction segment, management believes utilizing a classified balance
sheet presentation is no longer appropriate, as the operating cycle of the
media-related segment of the Company is expected exceed 12 months.
Accordingly, an unclassified presentation is utilized for the accompanying
balance sheet, which is an acceptable method under SFAS No. 53, "Financial
Reporting by Producers and Distributors of Motion Picture Films".
Reclassifications - Certain reclassifications have been made to the 1998
amounts to conform to the current presentation.
Note 2 - Uses of Estimates, Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates used in these financial statements include the
recovery of film costs, which has a direct relationship to the net
realizable value of the related asset. It is at least reasonably possible
that management's estimate of revenue from films could change in the near
term, which could have a material adverse effect on the Company's financial
condition and results of operations.
Note 3 - Property and Equipment
1999 1998
----------- -----------
Furniture and fixtures...................... $60,448 $53,705
Equipment................................... 70,429 70,429
Production equipment........................ 404,387 402,887
----------- -----------
535,264 527,021
Less accumulated depreciation and
amortization............................. 222,315 131,691
----------- -----------
$312,949 $395,330
=========== ===========
Depreciation expense was $90,624 and $75,673 for the years ended December
31, 1999 and 1998, respectively.
Note 4 - Film Costs
Film costs consist of the capitalized costs related to the production of
videos and programs for television as follows:
1999 1998
----------- -----------
Television program
The Adventures with Kanga Roddy............. $8,077,669 $5,455,764
Videos
Montana Exercise Video...................... 148,253 148,253
Strong Mind Fit Body........................ 18,042 18,042
----------- -----------
8,243,964 5,622,059
Less accumulated amortization............... 690,831 240,730
----------- -----------
7,553,133 5,381,329
=========== ===========
Production of the first seven episodes of The Adventures with Kanga Roddy was
completed during 1997. The Company completed 9 and 13 additional episodes
during the years ended December 31, 1999 and 1998, respectively. Both
exercise videos were completed in 1996, but only the Strong Mind Fit Body
video has been released.
Note 5 - Notes Payable, Related Parties
The notes payable to related parties bear interest at 0% to 12% and are
unsecured. Substantially all amounts due have been repaid subsequent to
year-end.
Note 6 - Notes Payable
1999 1998
Debentures, interest at 7% due
quarterly, unsecured and due
September 30, 2002, net of original
issue discount of $23,741.
Convertible to common stock at 75%
of the market price of the common stock
on the date of conversion or 117.5% of the
market price of the stock at the date
of issue. $226,259 $ --
Debentures, interest at 7% due
quarterly, unsecured and due July 1,
2000, net of original issue discount
of $86,662. Convertible to common
stock at 75% of the market price of the
common stock on the date of conversion or
117.5% of the market price of the
stock at the date of issue. -- $ 536,896
Notes payable to individuals, interest
at 0% to 12%, unsecured and due at
various dates through 2000. 170,000 230,000
Drawings from a $40,000 bank business
credit card line with interest at
the banks prime rate plus 6.5%. 36,253 40,000
Other 17,671 24,370
---------- ----------
$ 450,183 $ 831,266
========== ==========
The debentures are due in 2002. However, these debentures, together with
accrued interest, were converted to 561,244 shares of common stock (140,311
shares split adjusted) subsequent to year-end. The remaining notes payable
are substantially all due in 2000.
Note 7 - Income Taxes
Reconciliation of the Federal statutory tax rate of 34% and state tax rate
of 8.8% to the recorded amounts are as follows:
1999 1998
------------ -----------
Federal tax benefit at statutory rates...... ($2,150,000) ($450,000)
State tax benefit at statutory rates........ (550,000) (117,000)
Non-deductible securities issued for services
and beneficial conversion feature
of debentures............................ 1,301,543 7,466
Increase in valuation allowance............. 1,400,000 567,000
------------ -----------
$1,543 $7,466
============ ===========
The Company has net operating loss (NOL) carryforwards for federal and
state income tax purposes of approximately $6,300,000, the benefit of
which expire in 2011 through 2014 for federal purposes and through 2004 for
state purposes. The NOLs created by the Company's subsidiaries prior to
their reorganization and the NOLs created as a consolidated group
subsequent to the reorganization described in Note 1, may have limitations
related to the amount of usage by each subsidiary or the consolidated group
as described in the Internal Revenue Code. In addition, because of changes
in ownership of the Company, the utilization of NOLs in any one year will
be limited by Section 382 of the Internal Revenue Code.
Significant components of the Company's deferred tax assets and
liabilities are as follows:
1999 1998
------------ -----------
DEFERRED TAX ASSETS
NOL carryford............................... $2,600,000 $1,175,000
Deferred revenue............................ 5,000 25,000
Valuation allowance......................... (2,575,000) (1,175,000)
------------ -----------
30,000 25,000
============ ===========
DEFERRED TAX LIABILITIES
Depreciation................................ 30,000 25,000
------------ -----------
30,000 25,000
------------ -----------
$ -- $ --
============ ===========
Generally accepted accounting principles require the Company to record a
valuation allowance when it is "more likely than not that some portion of
the deferred tax asset will not be realized." Management believes that some
of the excess NOL carryforwards over temporary differences may be utilized
in future periods. However, due to the uncertainty of future taxable
income, a valuation allowance for the net amount of the deferred tax assets
and liabilities has been recorded at December 31, 1999 and 1998.
Note 8 - Lease Commitments
The Company leases facilities under operating leases that expire at various
dates through June 2000. Future minimum lease payments under operating leases
due in 2000 are approximately $80,000.
Note 9 - Commitments and Contingencies
In September 1996, the Company entered into an agreement with the director
of The Adventures With Kanga Roddy television program, whereby the
director would receive 2% in the distribution of net profits from the TV
broadcasting, syndication, and video sales of the first 13 episodes
of that program.
The Company has entered into a distribution agreement with KTEH, the public
broadcasting system ("PBS") station serving the San Jose, California area,
for the exclusive right to distribute the "The Adventures with Kanga Roddy"
series throughout the United States for a two-year period. Under the terms
of the Distribution Agreement, the Company will receive $430,000, which is
based on delivery of 13 episodes to KTEH. This amount was recognized in
revenue in prior years. In addition, the Company is entitled to 85% of any
distribution fees collected by KTEH in excess of $505,000. Under the
Distribution Agreement, the Company has also committed to sharing with KTEH
(i) 8% of all revenues from the sale and licensing of products such as
video tapes, books and music tapes and (ii) 5% of gross profits of the
Company from the sale and licensing of toys and clothing. The Company has
also granted KTEH a right of first refusal with respect to rights to the
Kanga Roddy Series not granted to KTEH in the Distribution Agreement.
In April 1998, KTEH agreed to purchase an additional 26 episodes and 2
one-hour specials for approximately $900,000. The Company recognized
revenue of $433,000 during 1999 under this agreement.
During 1998, the Company entered into a non-exclusive toy licensing
agreement with Timeless Toys with respect to the "The Adventures with Kanga
Roddy" television program. Under the agreement, the Company is entitled to
an 8% royalty. The agreement expires in January 2001.
The Company has entered into an agreement with the two participants of the
Montana Exercise Video in which a royalty fee of $1 will be paid for each
tape sold.
Note 10 - Related Party Transactions
In November 1996, the Company agreed to pay to two participants of the
Montana Exercise Video the sum of $50,000 from the proceeds of the initial
public offering and another $50,000, which is included in accounts payable
at December 31, 1999, will be paid 30 days prior to the release date. These
two participants are stockholders of the Company.
During 1999 and 1998, the Company paid $2,500 and $67,500, respectively, to
two shareholders for story lines and scripts for the production of the
television series "The Adventures with Kanga Roddy".
Note 11 - New Authoritative Pronouncements
There are no new authoritative pronouncements that are expected to have a
material effect on the Company's financial statements.
Note 12 - Industry Segments
The Company is involved in the development of educational television
programs and fitness videos and operated one karate studio at December 31,
1999, which are segmented into two categories for reporting purposes.
Television and videos reflect the activities related to the development and
production of educational television programs and fitness videos. Tuition
and related fees includes activities related to operations of karate
studios.
The relative contributions to net sales, income from operations and
identifiable assets of the Company's two industry segments for the years
ended December 31, 1998 and 1997 are as follows:
1999 1998
----------- -----------
Net sales (1):
Tuition and related fees.................... $83,695 $362,686
Video and television........................ 517,995 343,877
Corporate................................... 63,942 30,138
----------- -----------
Net sales................................... $665,632 $736,701
=========== ===========
Depreciation and amortization:
Tuition and related fees.................... $1,552 $8,616
Video and television........................ 539,172 244,789
----------- -----------
Depreciation and amortization............... $540,724 $253,405
=========== ===========
Capital expenditures:
Tuition and related fees.................... -- $2,778
Video and television........................ 8,243 3,348,268
----------- -----------
Capital expenditures ....................... $8,243 $3,351,046
=========== ===========
Income (loss):
Tuition and related fees.................... ($181,705) ($598,226)
Video and television........................ (1,367,878) ( 77,378)
Corporate................................... (4,848,745) (1,247,912)
----------- -----------
Net loss.................................... ($6,398,328) ($1,923,516)
=========== ===========
Identifiable assets (2):
Tuition and related fees.................... $202,404 $218,048
Video and television........................ 8,329,256 5,800,159
----------- -----------
Totals...................................... 8,531,660 6,018,207
Add: Corporate............................... 754,790 62,191
----------- -----------
Assets...................................... $9,286,450 $6,080,398
=========== ===========
[1] There were no sales between industry segments.
[2] Corporate and other assets are principally notes receiveable, deposits
and consulting fees.
Note 13 - Employment Agreements
During 1997, the Company entered into employment agreements with each of
Mr. Chung, Mr. Chan, Mr. Berryessa, and Mr. Hutchins. Each agreement has a
term of five years except Mr. Hutchins, which is two years. Pursuant to the
agreements, the Company will pay to these individuals a base salary of
$150,000, $150,000, $105,000 and $75,000 per year, respectively. Each
agreement also provides for the following bonuses: (i) options to purchase
87,500, 87,500, 25,000 and 20,000 shares of Common Stock of the Company,
respectively, exercisable at 120% of the public Offering price of the
Common Stock of the Company upon consummation of the Offering ($6 per
share) and (ii) $200,000, $200,000, $100,000 and $100,000, respectively, if
all of the Warrants issued to the public in the Offering are exercised by
the holders thereof within the five-year (two-year for Mr. Hutchins)
exercise period of such Warrants. Additional options to purchase 20,000,
20,000, 15,000 and 10,000 shares of the Company's Common Stock will be
granted at the end of each twelve-month period beginning July 1, 1998 at
$6.5625 per share. The executives are also entitled to certain fringe
benefits. If any of these individuals is terminated other than for cause,
death or disability, the Company is obligated to pay such executive an
amount equal to his base salary then in effect for the remaining term of
the agreement.
Note 14 - Stock Plans
The Stock Plan was adopted by the Board of Directors and stockholders of
the Company during 1997. During 1999, the shares available under the plan
were increased from 800,000 to 7,800,000. The Plan provides for the grant
of stock options, stock appreciation rights ("SARs") and other stock awards
to employees of the Company or any consultant or advisor engaged by the
Company who renders bona fide services to the Company; provided, that such
services are not in connection with the offer or sale of securities in a
capital raising transaction. The Plan is administered by the Compensation
Committee of the Board of Directors (the "Committee"). Stock options may be
granted by the Committee on such terms, including vesting and payment
forms, as it deems appropriate in its discretion; provided, that no option
may be exercised later than ten years after its grant, and the purchase
price for incentive stock options and non-qualified stock options shall not
be less than 100% and 85% of the fair market value of the Common Stock at
the time of grant, respectively.
Unless terminated by the Board of Directors, the Plan continues until
December 2007 The Plan provides for the automatic grant to each of the
Company's non-employee directors of (i) an option to purchase 5,000 shares
of Common Stock on the date of such director's initial election or
appointment to the Board of Directors (the "Initial Grant") and (ii) an
option to purchase 2,000 shares of Common Stock on each anniversary thereof
on which the director remains on the Board of Directors (the "Annual
Grant"). The options will have an exercise price of 100% of the fair market
value of the Common Stock on the date of grant and have a 10-year term.
Note 15 - Common Stock
During the year ended December 31, 1997, the Company sold 1,300,000 shares
of its common stock at $5 per share and 1,495,000 warrants to purchase the
Company's common stock at $.10 per warrant, in a public offering. In
addition, 130,000 warrants were issued to the underwriters for nominal
consideration. During 1999, the Company issued 1,575,440 shares of common
stock in consideration for services provided to the Company and 150,000
shares of common stock in connection with debentures. During 1999, the
Company also issued 267,930 shares of common stock to redeem debentures.
During 1998, the Company issued 130,000 warrants upon exercise of
underwriter's warrants to purchase warrants to purchase the Company's
common stock. The Company received proceeds of $16,900 related to these
warrants. The Company also issued 652,985 and 124,501 warrants in
connection with the debentures issued during 1999 and 1998, respectively.
The Company received no proceeds related to these warrants. The value of
these warrants has been accounted for as original issue discount (OID). The
OID is being amortized against the related debt. The Company has also
issued 2,374,167 warrants during 1999 as consideration for services
provided to the Company. These warrants were valued at $1,329,593 using the
Black-Scholes option pricing model. At December 31, 1999, included in other
assets is $215,000 related to unamortized costs of consulting agreements
that expire in 2000. During 1999, the Company also issued 175,000 warrants
to redeem debentures.
Note 16 - Stock Options
The Company applies the intrinsic value based method prescribed by
Accounting Principals Board Opinion No. 25 "Accounting for Stock Issued to
Employees," in accounting for employee stock options and non-employee
directors. Accordingly, compensation expense is recognized only when
options are granted with a discounted exercise price. Any such compensation
expense is recognized ratably over the associated service period, which is
generally the vesting term.
Stock options granted to non-employees for services provided to the Company
are accounted for under Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation." The Company
accounted for 1,109,834 and -0- options under this method with a value of
$393,050 and -0- during 1999 and 1998, respectively.
Pro forma net earnings and earnings per share information, as required by
SFAS 123, has been determined as if the Company had accounted for employee
stock options under SFAS 123's fair value method. The fair value of these
options was estimated at grant date using a Black-Scholes option pricing
model with the following weighted average assumptions for fiscal 1999 and
1998, respectively: risk free interest rate of 5.00% and 4.65%; dividend
yield of 0%; expected option life of 7 years; and volatility of 140% and 78%.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the one-year average vesting period of
the options. The Company's pro forma net loss for the year ended December
31, 1999 and 1998, respectively, was $(8,000,000) and $(2,480,000) and pro
forma net loss per per share was $(0.84) and $(0.61).
Shares of Common Stock
-----------------------------------
Available
for
Exercise of Options
Options/ Under
Award Plan Warrants
----------- ----------- -----------
Balance, December 31, 1997...... 7,000 393,000 1,625,000
Authorized.................... 400,000 -- --
Granted....................... 407,000 407,000 254,501
----------- ----------- -----------
Balance, December 31, 1998...... -- 800,000 1,879,501
Authorized.................... 7,000,000 -- --
Granted....................... (4,898,334) 4,898,334 3,202,152
Exercised..................... -- (967,667) (1,385,000)
----------- ----------- -----------
Balance, December 31, 1999...... 2,901,666 4,730,667 3,696,653
=========== =========== ===========
<TABLE>
<CAPTION>
Options and Warrants
Options and Warrants Outstanding Exercisable
------------------------------------ ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Outstanding Life Price Exercisable Price
------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1998
Options.... 800,000 8.2 4.07 389,000 5.59
Warrants... 1,879,501 3.6 6.57 1,879,501 6.57
1999
Options.... 4,730,667 8.5 1.45 2,938,417 1.76
Warrants... 3,696,653 2.6 4.15 3,596,653 4.24
</TABLE>
Note 17 - Year 2000
Because of the unprecedented nature of the Year 2000 Issue, its effects, if
any, may not be identified until a future date. Management cannot assure
that the Company has identified all Year 2000 Issues, that the Company's
remediation efforts has been successful in whole or in part, or that
parties with whom the Company does business will not be significantly
impacted by Year 2000 Issues.
Note 18 - 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 $16,000, which is included in deferred revenue. Management
will evaluate this liability quarterly in light of cancellations to date
and expected future cancellations.
Note 19 -Subsequent Events
Common Stock Reverse Split - Subsequent to year-end, the Company, with the
consent of the stockholders, effected a 1 for 4 reverse split of its common
stock. All holders of the Company stock received one share of stock for
every four shares held on the effective date of the reverse split.
Financing - Subsequent to year-end the Company issued convertible
debentures totaling $1,250,000. The interest rate on the Debentures is 7%
per annum, payable in cash or in shares of the Company's Common Stock. The
Debentures mature December 31, 2002 and may be converted to shares of
Common Stock. The Company also issued 500,000 warrants (pre-reverse split)
in connection with these debentures. The Company received no proceeds from
these warrants. The warrants are convertible to shares of the Company's
common stock at $0.77148 per share and expire January 31, 2003. Holders of
these debentures converted principal of $475,000 and interest of $5,892 to
779,164 shares of the Company's common stock subsequent to year-end.
Acquisition - Subsequent to year-end the Company entered into an agreement to
acquire 80% of Great Wall International Sports Media Company. This Company is
located in The Peoples Republic of China. This acquisition will require the
approval of the stockholders of the Company. The Company will issue common
stock in exchange for an 80% interest in the Company. Prior to year0end the
Company issued 500,000 shares with a market value of $200,000 to Great Wall as
a deposit. This amount has been included under investment in the accompanying
balance sheet. If the Company is unable to compplete the acquisition, this
amount will be charged to expense.
Stock Incentive Plan - Subsequent to year-end the Company adopted the 2000
Stock Incentive Plan. The plan provides for the issuance of 1,500,000
shares (6,000,000 shares per-reverse split) of common stock to be issued to
key employees, non-employee directors and consultants. Subsequent to
year-end the Company granted 633,000 shares (2,532,000 shares pre-reverse
split) of common stock to certain employees and Board of Directors
members. The stock grant will be accounted for as compensation to the
employees and directors and will be charged against fiscal 2000 operations.
Note 20 -Going Concern
The Company plans to produce additional episodes of the television series
"The Adventures of Kanga Roddy" as well as pursue other production,
licensing and other business opportunities. Management's plans and the
ongoing operations of the Company are expected to require working capital
in excess of the proceeds from the debentures and warrants (Note 19), which
were closed subsequent to year-end. In addition the Company has experienced
continuing losses from operations. These factors cause substantial doubt
about the ability of the Company to continue as a going concern. Management
will be required to obtain additional capital to fund obligations incurred
during the production of these episodes and other working capital
requirements during the remainder of 2000.
Subsequent to the end of the year 1999, in January 2000, the Company sold
$1,250,000 of convertible debentures to finance its cash needs. The
Company intends to secure an equity line of credit of up to $5,000,000
within the second quarter of year 2000.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities and commitments in the normal course of operations. The
continuation of the Company as a going concern is dependent upon the
success of obtaining additional capital and, thereafter, on attaining
profitability. There can be no assurance that management will be
successful in the implementation of its plan. The financial statements do
not include any adjustments in the event the Company is unable to continue
as a going concern.
Note 21 - Fourth Quarter Adjustment
During the fourth quarter certain adjustment were made to account for non-
cash transactions related to common stock warrants and common stock options
issued for services provided to the Company. The effect of these
adjustments on each of the quarters during 1999 are as follows:
(Quartetly information unaudited)
Q1 Q2 Q3
======================================
General and administrative expense
As reported $ 315,831 $ 333,135 $ 393,850
Restated $ 315,831 $1,385,781 $ 806,615
Net loss
As reported $ (578,394) $(1,767,178) $(1,061,930)
Restated $ (578,394) $(2,819,824) $(1,474,695)
INDEX TO EXHIBITS
Exhibit No. Exhibit
1.1(1) Form of Underwriting Agreement
3.1(1) Amended and Restated Certificate of Incorporation dated April 24, 1997
3.11(5) Amended and Restated Certificate of Incorporation dated June 4, 1998
3.2(1) Bylaws
4.1(1) Specimen stock certificate
4.2(1) Warrant Agreement with form of Warrant
4.3(1) Form of Underwriters' Warrant
4.41(4) Securities Purchase Agreement dated July 2, 1998
4.42(4) Form of Debenture dated July 2, 1998
4.43(4) Joint Escrow Instructions
4.44(4) Registration Rights Agreement dated July 2, 1998
4.45(4) Form of Warrant dated July 2, 1998
4.461(7) Securities Purchase Agreement dated January 19, 1999
4.462(7) Form of Debenture dated January 19, 1999
4.463(7) Joint Escrow Instructions dated January 19, 1999
4.464(7) Registration Rights Agreement dated January 19, 1999
4.465(7) Form of Warrant dated January 19, 1999
4.471(9) Securities Purchase Agreement dated June 17, 1999
4.472(9) Form of Debenture dated June 17, 1999
4.473(9) Joint Escrow Instructions dated June 17, 1999
4.474(9) Registration Rights Agreement dated June 17, 1999
4.475(9) Form of Warrants dated June 17, 1999
4.481(10) Securities Purchase Agreement dated September 24, 1999
4.482(10) Form of Debenture dated September 24, 1999
4.483(10) Joint Escrow Instructions dated September 24, 1999
4.484(10) Registration Rights Agreement dated September 24, 1999
4.485(10) Form of Warrants dated September 24, 1999
5(1) Opinion of Sheppard, Mullin, Richter & Hampton LLP
10.1(1) 1997 Stock Plan
10.2(1) Form of Stock Option Agreement for 1997 Stock Plan
10.3(1) 1997 Non-Employee Directors Stock Option Plan
10.4(1) Form of Non-Employee Directors Stock Option Agreement
10.8(1) Promissory Note dated December 15, 1994 made payable by Messrs.
Chung and Chan and their wives in favor of Michael Triantos M.D.
Inc. Money Purchase and Profit Sharing Pension Plans Trust
10.9(1) Employment Agreement between the Company and George Chung dated
March 4, 1997, effective upon the closing date of the Offering
10.10(1) Employment Agreement between the Company and Anthony Chan dated
March 4, 1997, effective upon the closing date of the Offering
10.11(1) Employment Agreement between the Company and Don Berryessa dated
March 4, 1997, effective upon the closing date of the Offering
10.12(1) Employment Agreement between the Company, AC Media and Jan
Hutchins dated March 4, 1997, effective upon the closing date of
the Offering
10.13(1) Convertible Loan Agreement dated as of May 5, 1995, between ABK
and David Y. Lei
10.15(1) Amended Deal Memo between ABK and Rick Fichter dated February
23, 1997, with respect to payments related to the Kanga Roddy
Series
10.17(1) Form of Indemnification Agreement
10.19(1) Letter dated October 29, 1996 from the Company to Tim Pettitt
regarding certain payments to the Montanas
10.20(1) Distribution Agreement dated June 18, 1996 by and between
America's Best Karate and InteliQuest
10.21(1) Distribution Agreement, dated May 6, 1997, by and between KTEH,
San Jose Public Television and American Champion Media, Inc.
10.22(1) Letter Agreement, dated June 1997, between AC Media, Inc. and
Sega of America, Inc.
10.23(1) Business Loan Agreement between America's Best Karate and Karen
Shen
10.24(1) Business Loan Agreement between America's Best Karate and Thomas
J. Woo
10.25(2) Licensing Agent Agreement, dated July 25, 1997, between American
Champion Media, Inc. and Sega of America, Inc.
10.26(3) Continuous Distribution Agreement dated April 20, 1998 between
KTEH, San Jose and American Champion Media, Inc.
10.27(3) Sponsorship Agreement dated April 29, 1998 between Sara Lee
Corporation and American Champion Media, Inc.
10.28(3) Engagement Agreement dated April 24, 1998 between JW Charles
and American Champion Entertainment, Inc.
10.29(5) Amendment to Employment Agreement with George Chung, dated July 1,
1998
10.30(5) Amendment to Employment Agreement with Anthony Chan, dated July 1,
1998
10.31(5) Amendment to Employment Agreement with Don Berryessa, dated July 1,
1998
10.32(5) Amendment to Employment Agreement with Jan Hutchins, dated July 1,
1998
10.33(5) Amendment to Employment Agreement with Mae Lyn Woo, dated July 1,
1998
10.34(5) Amendment to Employment Agreement with Kristen Simpson, dated July 1,
1998
10.35(6) International Distribution Agreement with Portfolio Entertainment
dated August 19, 1998
10.36(6) Video Distribution Agreement for the Kanga Roddy Series with Kreative
Video Products dated August 19, 1998
10.37(6) Video Distribution Agreement for the Montana Exercise Video with
Kreative Video Products dated August 21, 1998
10.38(8) Consultant Agreement between Olympia Partners, LLC, Dalton Kent
Securities Group, Inc. and American Champion Entertainment, Inc.
10.39(8) Merchant Licensing Agreement between Timeless Toys and American
Champion Media, Inc.
10.40(8) Loan Agreement between Olympia Partners and American Champion
Entertainment, Inc.
10.41(8) SEGA Agreement termination letter.
10.42(8) Consultant Agreement between American Champion Entertainment, Inc.
and Trademark Management
10.43(11) Termination of Kreative Video Products, Inc.
10.44(11) Video Products distribution agreement between Fast Forward
Marketing, Inc. and American Champion Entertainment. Inc.
10.45(11) Consultant Agreement between Chris Scoggin, LTD. And American
Champion Entertainment, Inc.
10.46(12) Consulting Services Agreement between Consor, Inc., and American
Champion Marketing Group, Inc.
10.47(12) Licensing Agreement between Brighter Child Interactive, LLC and
American Champion Media, Inc.
10.48 Licensing Agreement between Prestige Toys and American Champion
Marketing Group, Inc.
10.49 Stock Exchange Agreement between Great Wall International Sports
Media Company and American Champion Entertainment, Inc.
21.1(1) Subsidiaries of the Registrant
23.1 Consent of Moss Adams, LLP
27.1 Financial Data Schedule (shown on EDGAR format only)
(1) Filed as an exhibit with the registrant's Form SB-2 filed with the
SEC on March 21, 1997 or Form SB-2/A filed March 3 and June 20, 1997
And incorporated by reference herein.
(2) Filed as an exhibit with the registrant's Form 10-KSB filed with the
SEC on March 30, 1998 and incorporated by reference herein.
(3) Filed as an exhibit with the registrant's Form 10-QSB filed with the
SEC on May 15, 1998 and incorporated by reference herein.
(4) Filed as an exhibit with the registrant's Form S-3 filed with the SEC
On August 3, 1998 and incorporated by reference herein.
(5) Filed as an exhibit with the registrant's Form 10-QSB filed with the
SEC on August 7, 1998 and incorporated by reference herein.
(6) Filed as an exhibit with the registrant's Form 10-QSB filed with the
SEC on November 16, 1998 and incorporated by reference herein.
(7) Filed as an exhibit with the registrant's Form S-3 filed with the SEC
On Feburary 12, 1999 and incorporated by reference herein.
(8) Filed as an exhibit with the registrant's Form 10-KSB filed with the
SEC on March 31, 1999 and incorporated by reference herein.
(9) Filed as an exhibit with the registrant's Form S-3 filed with
the SEC on July 16, 1999 and incorporated by reference herein.
(10) Filed as an exhibit with the registrant's Form S-3 filed with
the SEC on November 5, 1999 and incorporated by reference herein.
(11) Filed as an exhibit with the registrant's Form 10-QSB filed with the
SEC on August 16, 1999 and incorporated by reference herein.
(12) Filed as an exhibit with the registrant's Form 10-QSB filed with the
SEC on November 17, 1999 and incorporated by reference herein.
Exhibit 10.48
LICENSING AGREEMENT
This Licensing Agreement (this "Agreement") is made and entered into on
this 19 day of October, 1999 by and between American Champion Media Inc.,
a corporation duly organized and existing under the laws of the state of
California, located at 1694 The Alameda Suite 100, San Jose, California
95126 ("Licensor") Prestige Toys Corp., a corporation duly organized and
existing under the laws of the state of New York, located at 131 West 33rd
Street Room 606, New York, New York 10001 ("Licensee").
The Licensor is the owner of and/or has the right to license the Kanga
Roddy character and all the related characters including the television
program entitled "Adventures with Kanga Roddy" (collectively the
"Characters"), the names, symbols, likenesses, designs and other indicia
associated with the Characters, and all copyrights, including all
derivative works, and trademarks which exist in the Characters and the
names and likeness of the characters ("Properties"); and
The License desires to obtain a license to manufacture and sell certain
Products using or based upon the Properties;
In consideration of the mutual covenants contained herein the
parties agree as follows.
1. License To Use Properties.
(a) Grant of License. Licensor grants to licensee a non-transferable
exclusive License to all channels of retail distribution with exception to
the following categories which shall be non-exclusive, (Department Stores,
Educational Chains, Electronic Commerce, Gift Stores) to use the
Properties in connection with the manufacture, distribution and sale of the
Products in the Territory. Except for the specific rights,which are granted
to Licensee under this Agreement, all rights in and to the Properties are
retained by Licensor. Except to the extent set forth in paragraph 10(a)
below, Licensee shall not have the right to sublicense any of the rights
granted to it under this Agreement.
(b) Use of Licensed Properties. The Licensee will: (i) use the
Properties only on Products and Advertising Materials, as defined below;
(ii) package and sell Products only in packaging approved by Licensor;
(iii) refrain from use of the Properties except under the terms of this
Agreement; (iv) notify Licensor in writing of any conflicting uses,
applications for registration or registrations of the properties or marks
similar thereto of which it has knowledge; (v) execute any documentation
requested by Licensor relating to the Properties; (vi) indicate on the
Products and/or their labeling or packaging that the Products are
manufactured by Licensee, or a manufacturer as described in paragraph
10(a), and that such manufacture is pursuant to license from Licensor;
(vii) comply with all of Licensor's instructions relating to the use and
display of the properties; and (viii) not knowingly sell Products to
parties who intend or are likely to resell them outside the Territory.
(c) Restriction on Use of Properties. The properties, either in whole or
in part, will not be shown endorsing the Licensee or products (including
the Products) or services of Licensee or others, without the prior written
approval of Licensor. None of the Properties shall be combined in any
Products or Advertising materials with any other characters or persons.
(d) Restrictions on Sale of Products. Licensee shall not use or sell the
Products as premiums, including, but not limited to, using or selling the
Products in connection with self-liquidating programs, joint merchandising
programs, tie-ins, giveaways, sales incentive programs, door openers,
traffic builders, fundraisers, sweepstakes prizes and any other
promotional programs designed to encourage the sale of the Products or
other goods or services of the Licensee or a third party without the prior
written approval of Licensor.
(e) Method of Sale. Licensee agrees that the products will be sold,
shipped and distributed outright, not on an approval, consignment, sale or
return basis, at a competitive price that does not exceed the price
customarily charged the trade by Licensee. Licensee will not be
discriminate against the Products by granting commissions or discounts to
sales persons, dealers and/or distributors in favor of Licensee's other
products. Licensee further agrees that the Products will only be sold to
retailers or to distributor for sale, shipment and distribution to
retailers, with the understanding that the Products shall be sold to the
public only in the manner in which merchandise of the same general
description is customarily marketed, displayed and sold. License agrees to
offer a warranty to purchasers of the Products substantially similar to
that offered for products competitive with Products, and in no event
shorter or less comprehensive than the warranty offered by Licensee for
other similar items produced by it.
2. Product Quality.
(a) Quality Standards. Licensee acknowledges that the quality of Products
must be high in order to preserve and maintain Licensor's reputation and
the goodwill inherent in the Properties, and agrees that failure to adhere
to Licensor's quality ("Standards") or depicting the Properties in a
manner which is unethical, immoral or offensive to good taste, will impair
the value and goodwill associated with the Properties and Licensor's
licensing program in general. Licensee therefore agrees that prior to the
sale of any Product, it will submit (3) samples of the Product to Licensor
for approval, as provided in Section 3. Once Licensor's approval has been
obtained, Licensee agrees that it will not deviate from the approved
samples. Failure by Licensee to conform its Products to the approved
samples will be considered a breach of this Agreement and upon notice of
such, Licensee agrees that it will immediately stop the manufacture,
distribution and sale of the nonconforming Products. The determination
and the judgement as to whether the Products conform to the approved
samples shall rest solely with Licensor.
(b) Provision of Samples. Licensee will furnish free of charge to
Licensor twenty-four (24) samples of each Product. Upon written request,
Licensor may annually request an additional twelve (12) samples of each
Product.
(c) Inspections. Upon reasonable notice from Licensor, Licensee shall
permit representatives of Licensor to enter Licensee's premises and
plant(s) during normal business hours for the purpose of inspecting
Licensee's plant(s), equipment, records, operation and supplies which
relate to the manufacture, distribution and sale of the Products.
(d) Changes in Standards. Licensor shall have the right from time to time
to change, withdraw, or supplement the Standards or its approval of
samples previously authorized for use and sale by Licensee. Licensee will
have a reasonable period of time to dispose of its existing inventory of
Products if the changes to the Standards or approved samples result solely
from a decision made in Licensor's discretion. In any other event,
Licensee agrees to implement all changes immediately at its own expense.
(e) Product Warranty. Licensee represents and warrants that the Product
will be of good quality in design, material and workmanship and will be
suitable for their intended purpose; that no injuries, detleerious, or
toxic substances will be used in or on the Products; that the Products
will not cause harm when used in a foreseeable manner; and that Licensee
will, at its own expense, comply with all laws and regulations, including
those relating to the operation of Licensee's plants, the manufacture,
sale and distribution of the Products, including the labeling thereof and
including safety standards and testing of the Products.
3. Approval Procedures.
(a) Approval of Products. Prior to producing or offering any Product for
sale, Licensee will submit to Agent for its review and written approval,
three (3) identical production samples of the Product, and the address of
the production facilities where the Product will be produced.
(b) Approval of Advertising Materials. With respect to all advertising
and promotional materials and all packaging wrapping, and labeling
materials for the Products (including, but not limited to, catalogs, sales
shoots, package inserts, hang tags, and displays) which make any use of or
reference to the Properties ("Advertising Materials"), Licensee will
submit three (3) prior to the final printed samples of the Advertising
Materials where feasible (as for example, in the case of labels, hang
tags, printed brochures, catalogs, and the like) to Licensor for its
review and written approval. Advertising Materials must be submitted with
a description of the proposed uses of the Advertising Materials, including
the media in which the items will run, and the duration of such proposed
uses. Approval of Advertising Materials will extend only to proposed uses
described in Licensee's submissions and will not be deemed approval for
other uses.
(c) Approval Standards. Licensor and Agent shall have the right, in their
sole discretion, to approve or disapprove any Products or Advertising
Materials.
(d) Time for Approval. Licensor or Agent will use reasonable efforts to
approve or disapprove any Products or Advertising Materials within fifteen
(15) business days after Agent's receipt thereof. Agent's failure to
approve or disapprove within such period shall be deemed disapproval,
unless Agent subsequently notifies Licensee of its approval.
(e) Artwork for Properties. If Licensee requests Licensor to furnish it
with any artwork or copies of material relating to the Properties,
Licensee agrees to reimburse Licensor for its costs of supplying such
materials to Licensee, to the extent Licensor is able to furnish such
materials.
(f) Translations. All translations of written material used on or in
connection with the Products or Advertising Materials shall be accurate.
Licensee shall pay directly all costs incurred by Licensor in verifying the
accuracy of the translations.
4. Sale of Products.
(a) Initial Approval and Sale. If Licensee has not begun the sale of any
approved Product by the Initial Sale Date in every country in the
Territory. Licensor shall have the right to terminate this Agreement
immediately by giving notices of termination to Licensee in relation to
Products for which approval has not been obtained or for countries in the
Territory where sales have not been made.
(b) Exploitation of Rights. Licensee agrees that during this Agreement, it
will diligently and continuously distribute, ship and sell all of the
Products in all countries of the Territory and that it will use its best
efforts to manufacture the Products in sufficient quantities to meet the
reasonably anticipated demand in the Territory. Licensor shall have the
right to terminate the portion(s) of this Agreement relating to any
Products and any county(s) in the Territory of Licensee, for any reason,
after the commencement of sale, shipment and distribution of Products in
such country or countries, fails for a period in excess of sixty (60) days
to continue to sell, ship and distribute such Products therein. Licensee
also agrees to advertise and promote the Products at its own expense so as
to maximize the sale of the Products in the Territory.
(c) Sale to Licensor. Licensee agrees to sell to Licensor, on request,
up to one hundred (100) units of each Product at Licensee's cost for such
Product. No royalties will be due on sales to Licensor.
5. Protection of the Properties.
(a) Registrations. Licensor shall have the right, in its sole
discretion, to file trademark, design, patent or other applications in the
Territory, relating to the use or proposed use by Licensee of any of the
Properties and/or to record this Agreement. Such filings will be made in
the name of the Licensor or in the name of any third party selected by
Licensor.
(b) Trademark Use For Licensor's Benefit. All uses of the names,
symbols, designs and other works associated with the Properties
("Trademarks") by Licensee shall inure to the benefit of the Licensor,
which shall own all trademarks and trademark rights and all copyrights
created by such uses. To the extent Licensee acquires any rights to any
of the Copyrights and Trademarks, Licensee hereby assigns and transfers to
Licensor and agrees to execute any documentation relating to such
assignment, all trademarks and trademark rights and all copyrights created
by such uses, together with the goodwill of the business in connection
therewith. Licensee agrees to use the text appearing in conjunction with
the trademarks, and not as the generic name of the Product.
(c) Other Uses of Trademarks. Licensee shall not use any of the
Trademarks in combination with any other trademark, word, symbol, letter,
or design, or as part of its company name or in connection with any
product other than the Products. Further, Licensee agrees not to adopt
any trademark, trade name, design, logo or symbol which, in Licensor's
opinion, is similar to or likely to be confused with any of the Trademarks.
(d) Copyright Protection. Licensee recognizes the importance to Licensor
of preserving copyright protection and registrations therefor on the
Properties and all works relating to the Properties, including new works
and derivative works ("Copyrights"), and the importance of securing
copyright protection for the products and Advertising Materials which
constitute "new works" or derivative works" for copyright law purposes,
and for all reproductions of the Properties which appear on the Products
or in the Advertising Materials. Therefore, Licensee's license to
manufacture, distribute and sell products and to display Advertising
Materials is expressly conditioned upon Licensee's agreeing to place a
copyright notice(s) in the name(s) specified by Licensor on all Products
and Advertising Materials. Licensee agrees that it will not affix to the
Products or the Advertising Materials a copyright notice in its name or
the name of any other person, firm, or corporation, except as requested by
Licensor. Licensee acknowledges that proper copyright notices must be
permanently affixed to all products and Advertising Materials and to any
portions of products or Advertising Materials intended to be used
separately by the ultimate purchaser or user. Such notices will be
sufficient in size, legibility, form, location, and permanency to comply
with both the United States copyright laws and also the copyright notice
requirements of the Universal Copyright Convention.
(e) Assignment by licensee. The Licensee hereby sells, assigns, and
transfers to Licensor its entire worldwide right, title, and interest in
and to all "new works", derivative and/or "joint works" heretofore or
hereafter created using all or any portion of the Properties including,
but not limited to the Copyrights and renewal copyrights thereon. If
parties who are not employees of Licensee living in the United States make
or have made any contribution to the creation of a work, so that such
parties might be deemed to be "authors" as that term us used in present or
future United States copyright statutes, Licensee agrees to obtain from
such parties a full assignment of rights so that the foregoing assignment
by Licensee shall vest in Licensor full rights in the work, free of any
claims, interests, or rights of other parties. Licensee will not permit
any of its employees to obtain or reserve any rights as "authors" of such
works and agrees to furnish Licensor with full information concerning the
creation of new works and/or derivative works and with copies of
assignments of rights obtained from other parties, and to execute, without
charge, any documents requested by Licensor for such purposes.
(f) Notices. The Licensee agrees to affix or to cause its authorized
manufacturing sources to affix to both the Products and Advertising
Materials notices in the format shown on Page 1 or as otherwise requested
by Licensor in relation to Licensor's trademark, copyright, patent or
other protection. The Licensee agrees that it will not distribute or
sell, not authorize others to distribute or sell, any Products or
Advertising Materials which do not carry copyright and other notices
meeting the requirements of this section.
(g) Acknowledgement of Validity. Licensee shall not, directly or
indirectly, in any way dispute or impugn the validity of the Trademarks,
Copyrights or Properties, or Licensor's sole ownership and right to use
and control the use of the Trademarks, Copyrights and Properties during
the term of this Agreement and thereafter. Licensee will not do or permit
to be done and action or thing which will in any way impair Licensor's
rights in and to the Trademarks, Copyrights and Properties. Licensee
acknowledges that its use of the Trademarks, Copyrights and Properties
will not create in any right, title or interest therein and agrees that
all use thereof will be for the benefit of Licensor.
6. Infringements.
(a) Infringement by Third Parties. When Licensee learns that a party is
making unauthorized use of the rights granted to the Licensee hereunder,
Licensee agrees promptly to give Licensor written notice containing full
information with respect to the actions of such party. Licensor, entirely
at its option, will decide what, if any, action to take. Licensee agrees
not to make any demands or claims, bring suit, effect any settlement, or
take any other action in relation to such party without the prior written
consent of Licensor. Licensee agrees to cooperate with Licensor, at
Licensor's expense, in connection with any action taken by Licensor to
terminate infringements.
(b) Claims. If a claim is made or suit is brought against Licensor or
Licensee by a party asserting rights in the Properties, or names or
designs similar thereto, or if either party hereto learns that another
party has or claims rights which would or might conflict with the proposed
or actual use of some or all of the Properties by Licensee, Licensee
agrees either to make responsible modifications in its use of the
Properties as requested by Licensor, or to discontinue the us eof the
allegedly infringing part of the Properties in the country of the
Territory in question on the particular Products which are involved, if
Licensor, in its sole discretion, considers such action necessary or
desirable to resolve or settle the claim or suit to eliminate or reduce
the threat of a claim or suit by such party. In no event shall Licensee
have the right to acknowledge the validity of such a claim, to obtain or
seek a license from such party, or to take any other action which might
impair the ability of Licensor to contest h claim. Licensor shall have
the right to participate fully at its own expense in the defense of any
claim or suit instituted against Licensee with respect to the use of the
Properties by Licensee.
7. Indemnification's.
(a) Licensee's Indemnification. Licensee agrees to indemnify and hold
Licensor harmless, from any and all claims, liabilities, judgements,
penalties, losses, costs, damages, and expenses resulting therefrom,
including reasonable attorney's fees, but excluding lost profits,
allegedly arising out of (i) any act pursuant to this Agreement by
Licensee, its subsidiaries, manufactures, distributor, agents or
representatives, or their employees or agents; (ii) the exercise by
Licensor of its termination rights in Section 10. (b) against third
parties appointed by Licensee to manufacture or distribute the Products;
and (iii) Licensee's failure to comply with the terms hereof. Claims
based solely upon the use of the Properties by Licensee in manner which had
been previously approved by Licensor in strict accordance with the terms
of this Agreement are expressly excluded from Licensee's indemnity of
Licensor.
(b) Licensor's Indemnification. Licensor agrees to indemnify and hold
Licensee harmless, up to the amount of royalties paid by Licensee to
Licensor, from any and all claims, liabilities, judgements, penalties,
losses, costs, damages, and expenses resulting therefrom, including
reasonable attorney's fees, but excluding lost profits, made by third
parties asserting rights in the properties as used on Products, when use
of the Properties by Licensee has been in strict accordance with the terms
of this Agreement.
(c) Claims Procedures. With respect to the forgoing indemnification's;
(i) each party agrees promptly to notify and keep the other fully advised
with respect to such claims and the progress suits in which the other
party is not participating; (ii) each party shall have the right to
assume, at its sole expense, in any suit instituted against it and to
approve any attorney's selected by the other party to defend it, which
approval shall not be unreasonably withheld or delayed; and (iv) a party
assuming the defense of a claim or suit against the other party shall not
settle such a claim or suit without the prior or written approval of the
other party, which shall not be unreasonably withheld.
8. Insurance.
(a) Insurance Required. The Licensee agrees during the term hereof and
for as long as Products are offered for sale to end users, to obtain and
maintain at its own cost from an insurance company acceptable to Licensor,
standard Product Liability Insurance, Contractual Liability and
Advertising Insurance, the form of which must be acceptable to Licensor,
naming Licensor, its subsidiaries and affiliates, and their directors,
officers, agents, employees, assignees, and successors as additional named
insureds.
(b) Products Liability Insurance. Licensee's product and contractual
liability insurance policy shall provide coverage for any and all losses,
expenses, claims, demands, causes of action and settlements, including
attorney's fees, allegedly arising out of any contractual liability or any
defects in the Products or any material used in connection therewith,
their failure to perform, or any use thereof. The amount of coverage
shall be a minimum of $1,000,000 combined single limit with no deductible
amount, for each single occurrence for bodily injury and/or for property
damage or contractual liability.
(c) Certificate of Insurance. Within thirty (30) days after the
execution of this Agreement, Licensee will provide a certificate to
Licensor issued by Licensee's carrier confirming that such policy has been
issued and is in full force and effect and provides coverage as required
by this Section 8., and also confirming that before any cancellation,
modification, or reduction in coverage of such policy, the insurance
company will give Licensor thirty (30) days prior written notice thereof.
The policy (s) will include a provision that it will be deemed primary
insurance and any insurance obtained by Licensor will be excess insurance.
In no event will Licensee manufacture, offer for sale, sell, advertise,
promote, ship and/or distribute Products prior to the receipt by Licensor
of such evidence of insurance.
9. Royalties.
(a) Guaranteed and Advance Royalties. Licensee agrees to pay Licensor a
Guaranteed Royalty, and on execution of this Agreement to pay Licensor a
nonrefundable Advance against royalties as stated on page 1 (one) of this
agreement. If, on expiration or termination of this Agreement, the
Advance and Earned Royalties paid to Licensor pursuant to subsections (a)
and (b) are less than the Guaranteed Royalty; Licensee shall immediately
pay the difference to Licensor. Only Earned Royalties paid pursuant to
subsection (b) in relation to products shipped prior to expiration or
termination of this Agreement to persons or entities in the Territory will
be credited against the Guaranteed Royalty. No portion of the Advance or
Guaranteed Royalty will be refundable to Licensee on termination or
expiration of this Agreement.
(b) Earned Royalty. Licensee agrees to pay Licensor the Earned Royalty
on Net Sales of the Products. "Net Sales" as used herein shall mean
Licensee's total invoice price less actual returns for defensive products
or credits given to customers for defective Products in lieu of returns,
up to a maximum of ten percent (10%) of the Net Sales being reported. A
sale shall be deemed to have taken place when the Products are shipped,
transferred or invoiced by Licensee, whichever occurs first. Whenever
Products are transferred in whole or in part in transactions in which some
or all of the consideration is non-monetary, or where the transferee is
affiliated with :Licensee, the transferee shall be deemed to have
purchased the Products at licensee's list price or the price quoted to
non-affiliated buyers for similar Products, whichever is higher.
(c) Deductions. There will be no deduction from royalties for
uncollectible amounts, taxes based on Licensee's income or sales, fees,
assessments, or other expenses of any kind which may be incurred or paid by
Licensee in connection with performance of this Agreement. It is Licensee's
sole responsibility and expense to obtain the approval of any foreign
authorities and to take whatever steps may be required to effect the
remission of funds to Licensor.
(d) Reports. Licensee shall provide Licensor and Agent with a report of
transactions relating to products on which royalties have accrued for each
calendar quarter during the term of this Agreement. Licensee shall
forward the original report to Agent with copies of such report to
Licensor at: American Champion Media, Inc. 1694 The Alameda, Suite 100,
San Jose, CA 95126-2219. Licensee shall furnish to Licensor and Agent a
full and complete statement, duly certified by an officer of Licensee to
be true and accurate, showing the number of each type of product sold by
country in the Territory during the calendar quarter in question, and the
total Gross Sales for each such Product, together with any information
requested by Licensor. Al amounts shall first be stated in the currency
in which the sales were actually made with the equivalent amount stated in
United States dollars or other currency in which royalties are being
remitted, and the actual rate exchange obtained by the Licensee, used in
making the conversion. In the event there have not been any transactions
relating to the Products during the quarter, Licensee will provide
Licensor with a report indicating this. Reports shall be due thirty (30)
days after the end of each calendar quarter. Payment for royalties which
exceed the advance, as provided in Section 9. (a), will accompany each
report to Licensor. All royalties will be due and payable in US dollars,
unless otherwise specified by Licensor.
(e) Taxes. If any taxes imposed by governments other than the U.S based
on funds remitted to Licensor are required to be paid by Licensee on
behalf of Licensor and Licensee in fact pays such taxes. Licensee may
deduct these from the royalties due, provided that Licensee furnishes
Licensor with documentation sufficient to enable Licensor to receive a
credit for such taxes from the U.S government and that Licensor is able to
claim the benefit of such credit. Licensee agrees to reimburse Licensor
for any taxes withheld from royalties for which Licensor does not receive
such a credit.
(f) Retention of Records. During the term of this Agreement and for two
years thereafter, Licensee shall keep full and accurate books of account
and copies of all documents and other material relating to this Agreement
at Licensee's principal office, which are necessary for a ready
determination of royalty obligations due by Licensee. The Licensor, its
agents or representatives, shall have the right to audit books, documents,
and other material, shall have access thereto during ordinary business
hours, and shall be allowed to make copies of such books, documents, and
other material. At Licensor's request, Licensee shall provide an employee
to assist in the examination of Licensee's records.
(g) Audits. If any audit of Licensee's books and records reveals that
License has failed properly to account and pay royalties owing to Licensor
hereunder, and the amount of any royalties which Licensee has failed
properly to account for and pay for any quarterly accounting period
exceeds, by five percent (5%) or more, the royalties actually accounted
for and paid to Licensor for such period, Licensee shall, in addition to
paying Licensor such past due royalties, reimburse Licensor for its
incurred in conducting the audit, together with interest on the overdue
royalty amount at an annual rate of two percent (2%) over the prevailing
prime interest rate fixed and published by The First National Bank of
Chicago, Illinois in effect as of the date on which such overdue royalty
amount should have been paid to Licensor.
10. Agreements with Manufactures and Distributors.
(a) Manufacturers and Distributors. Licensee shall have the right to
arrange with others to manufacture the products or components thereof for
the exclusive sale, use, and distribution by Licensee, or to serve as a
distributor for products which have been made by or for Licensee and sold
to such distributor. Licensee agrees to enter into written agreements
with all manufactures and distributors and agrees to incorporate into such
written agreements all of the provisions contained herein which relate to
the production, distribution and sale of the Products or are otherwise
relevant to the third party's performance as distributor or manufacturer,
including an express agreement by the parties that Licensor is a third
party beneficiary of the agreement. Licensee further agrees to furnish
Licensor within thirty (30) days of execution, copies of all agreements
with such manufactures and distributors.
(b) Enforcement of Agreements. Licensee agrees strictly to enforce its
manufactures and distributors all of the provisions in such agreements
which protect Licensor's rights, to advise Licensor of any violations
thereof and of corrective actions taken by the Licensee and the results
thereof, and, at the request of Licensor, to terminate such agreements if
any manufacturer or distributor is in violation of any provisions
identical or similar to the obligations undertaken by Licensee herein. If
Licensee fails to give notice of termination to the other party within
twenty (20) days after being requested to do so by Licensor, Licensee
irrevocably appoints Licensor as its attorney-in-fact to terminate the
manufacture or distributor in the name of Licensee. Any breach by a
manufacturer or distributor appointed by Licensee will be considered a
breach of this Agreement by Licensee.
11. Term and Termination.
(a) Term. Except as otherwise provided herein, the term of this
Agreement shall be the Term set forth on page 1 of this Agreement.
(b) Immediate Right of termination. Licensor shall have the right to
terminate this Agreement immediately on notice to Licensee, if Licensee:
(i) breaches any of the provisions of Section 2.;
(ii) becomes subject to any order of any governmental agency involving
the recall of any of the Products;
(iii) makes, sells, offers for sale, distributes or uses any Product
or item of Advertising Material without having the prior written approval
of the Licensor or Agent, as required by Section 3.;
(iv) fails to obtain approval of or offer sale products in the
Territory, as required by Section 4. (a); or to continue to sell products
as required by Section 4.(b);
(v) fails to comply with Section 5. (e) or (g);
(vi) fails to obtain or maintain insurance as required by Section 8.;
(vii) two or more times during a twelve-month period fails to make
timely payment of royalties or fails to make timely submission of royalty
statements as provided in Section 9.; or
(viii) is unable to perform for reasons described in Section 12. (a)
for a period in excess of sixty (60) days.
(c) Termination on Thirty Days Notice. If Licensee breaches any of the
terms of this Agreement other than those specified in (a) above, and fails
to cure the breach within thirty (30) days after receiving written notice
thereof, this Agreement will terminate at the end of the thirty (30) day
notice period.
(d) Bankruptcy or Insolvency. Licensor may terminate this Agreement if:
(i) Licensee becomes insolvent, or a petition in bankruptcy or for
reorganization is filed by or against it, or any insolvency proceedings
are instituted by or against it, or (ii) Licensee makes an assignment for
the benefit of its creditors, is placed in the hands of a receiver, or
liquidates its business. If Licensor terminates this Agreement under any
of the foregoing provisions, the Licensee, its receivers, trustees, or
other representatives shall have no right to sell, exploit, or in any way
deal with the Products, Properties or the Advertising Materials, except
with the express written consent of Licensor.
(e) Effect of Termination. Termination of this Agreement shall be
without prejudice to any rights or claims which Licensor may otherwise
have against Licensee. Upon termination of this Agreement,
notwithstanding anything to the contrary herein, all royalties on sales
thereto made shall become immediately due and payable to Licensor,
including the Guaranteed Royalty set forth in Section 9.(a)
(f) Discontinuance of Use of Trademarks. Subject to the provisions of
subsection 11. (g), upon the expiration or termination of this Agreement,
Licensee agrees immediately to discontinue manufacturing selling,
advertising. distributing, and using the Products and Advertising
Materials; to turn over to Licensor or to destroy any molds, dies,
patterns, or similar items from which the Products and Advertising
Materials were made, as requested by Licensor, unless it is possible to
completely obliterate all references to Licensor and the Properties, and
to terminate all agreements with manufactures, distributors, and others
which relate to the manufacture, sale, distribution, and use of the
Products.
(g) Disposition of Inventory Upon Expiration. Notwithstanding the
provisions of subsection 11. (f), if this Agreement expires in accordance
with its terms and is not terminated for a breach by Licensee, Licensee
shall have the right to sell Products on hand or in the process of
manufacture as of such expiration or termination for a period of ninety
(90) days immediately following expiration, subject to payment of
royalties to Licensee on any such sales and compliance with all the terms
of this Agreement. The sell-off right granted to Licensee is expressly
conditioned on Licensee's providing Licensor with an accurate total of all
inventory of Products on hand and on Licensor's having the right to
conduct a physical inventory in order to verify such inventory. In the
event Licensee fails to provide such inventory to Licensor, and/or refuses
to permit Licensor to conduct a physical inventory, the terms of
subsection 11. 9f) will control. Upon expiration of the sell-off period,
all remaining Products shall upon Licensor's option be sold to Licensor at
Licensee's direct cost of manufacture, excluding overhead, or Licensee
shall destroy the Products and furnish Licensor with a sworn certificate
of destruction.
12. General Provisions.
(a) No Liability. Neither party will be liable to the other for any loss
or injury incurred or damages sustained by the other party sue to a
failure on the part of a party to perform under this Agreement, except
Licensee's failure to make payments to Licensor as provided herein, if
such failure to perform is a result of war, not labor strike or lock-out,
shortages, fire, flood, wind, storm, Act of God, governmental control or
regulation or other similar condition beyond the party's control.
(b) Relationship of the Parties. Nothing contained in this Agreement and
no action taken by either party to this Agreement will be deemed to
constitute any party or any of such party's employees, agents, or
representatives to be an employee, agent or representative of any other
party or will be deemed to create any partnership, joint venture,
association or syndication among or between any of the parties, or will be
deemed to confer on any party any express or implied right, power or
authority to enter into any agreement or commitment, express or implied,
or to incur any obligation or liability on behalf of any other.
(c) Final Agreement. This Agreement sets forth the entire and final
agreement and understanding of the parties with respect to the matter
hereof. Any and all prior agreements or understandings, whether written
or oral, with respect to the subject matter of this Agreement are
terminated. Subject to Licensor's right to delete Products and countries
of the Territory from this Agreement pursuant to Section 4., this
Agreement may not be modified or amended except by an instrument in
writing specifically referring to this Agreement and executed by the
parties hereto.
(d) No Waiver. No waiver, forbearance or failure by any party of its
right to enforce any provision of this Agreement will constitute a waiver
or estoppel of such party's right to enforce any other provision of this
Agreement or such party's right to enforce such provision in the future.
(e) Remedies. The right of or to be indemnified and held harmless under
Section 7. will not be exclusive, but will be in addition to any and all
other rights and remedies to which Licensor may be entitled under this
Agreement or otherwise.
(f) Notice. Any notice or other communication will be and effective only
if given in writing, evidenced by a delivery receipt, and personally
delivered or sent by facsimile, overnight courier, or mail, postage
prepaid to the addresses shown on page 1. Any notice or other
communication if given personally will be effective upon the date shown or
the delivery if given receipt. Notices directed to Licensor will be given
to both Agent and Licensor.
(g) Assignment. Licensee may not assign or otherwise transfer by
operation of law or otherwise, this Agreement to any entity without the
express written consent of Licensor and any attempt to do so will be null
and void. Licensor may assign or otherwise transfer this Agreement
without Licensee's consent.
(h) Governing Law. This Agreement will be constructed and enforced in
accordance with the laws of the State of California, USA. The parties
agree that the exclusive jurisdiction and venue of any action between the
parties arising out of this relationship, including disputes that may
arise following termination of this Agreement, shall be the Superior Court
of California for the County of Santa Clara or the United States District
court for the Northern District of California and each of the parties
hereby submits itself to the exclusive jurisdiction and venue of such
courts for the purpose of such an action.
(i) Submission to Jurisdiction. The Licensee hereby consents to the
jurisdiction of the courts specified above and waives any objection based
on improper venue or forum non conveniences to the court of any proceeding
in such court and waives personal service of any and all process upon it,
and consents that all such service of process be made by mail directed to
it at the address set forth on page one of the Agreement and that service
so made shall be deemed to be completed upon the earlier of actual receipt
or three (3) days after the same shall have been sent to Licensee by
Licensee's agent as set forth below. Licensee irrevocably appoints Yee
and Dublin, LLP, in Los Angeles, California with notification to Licensor
in writing, as its agent for the purpose of accepting the service of any
process within the State of California.
(j) Captions. The captions in this Agreement are for convenience only
and will not be considered a part of or be deemed to affect the
construction or interpretation of, any provision of this Agreement.
(k) Attorney Fees. If Licensor initiates any action to collect monies
due to Section 9., or to obtain Licensee's compliance with the provisions
of Section 5., Licensee will pay all of Licensor's costs, including
attorney's fees, incurred in relation to such action.
The parties have agreed to the terms of this license contained above.
American Champion Media, Inc. Prestige Toy Corp.
By: /s/ Joy Tashjian By: /s/ Robert Gershin
(signature) (signature)
Robert Gershin, President
Addendum to clause 10(a):
In the event that Licensor has reasons to suspect that manufacturer,
distributor or sub-licensee may be
shipping licensed goods without the knowledge of the licensee or the
Licensor, Licensee agrees to provide
Licensor, upon Licensor's request, copies of all correspondences,
memoranda, and any other document or
record of communication between Licensee and any manufacturer,
distributor or sub-licensee.
Exhibit 10.49
AGREEMENT CONCERNING THE EXCHANG OF COMMON STOCK
AMONG AMERICAN CHAMPION ENTERTAINMENT, INC. ("ACEI")
GREAT WALL INTERNATIONAL SPORTS MEDIA COMPANY ("GWIS") AND
THE SHAREHOLDERS OF GREAT WALL INTERNATIONAL SPORTS MEDIA COMPANY
AGREEMENT
AGREEMENT, made as of the 30th day of November , 1999, by and among
American Champion Entertainment, Inc. of the United States of America, a
Delaware corporation ("ACEI"), Great Wall International Sports Media
Company, a corporation formed under the laws of the People's Republic of
China ("GWIS") and the shareholders of Great Wall International Sports
Media Company (the "Shareholders"). This agreement is subject to review by
the U.S. Securities and Exchange Commission and approval by shareholders
of ACEI.
WHEREAS, ACEI desires to acquire 80% of all of the issued and outstanding
shares of GWIS, in exchange for a total value of $5,500,000 of ACEI
authorized but unissued shares of the common stock, $.0001 par value, of
ACEI (the "Exchange Stock"); and
WHEREAS, included in the Exchange Stock, a number of shares equal to
$750,000 in value based on the market price of ACEI's common stock on the
date of closing will be granted with registration rights to GWIS; and
WHEREAS, the remainder of the Exchange Stock, will be granted on an
earn-out basis between the years 2000 through 2002 according to the
following projections:
GWIS Revenue Projections 2000 2001 2002
(in RMB & U.S. $)
Gross Revenue (RMB) 78,000,000 85,800,000 94,380,000
Gross Revenue (US$) $9,397,590 $10,337,349 $11,371,084
Gross Revenue (US$) x 80% $7,518,072 $8,269,880 $9,096,867
EBITDA (Earnings Before Interest, Tax, Depreciation & Amortization)
EBITDA (RMB) 3,900,000 4,290,000 4,719,000
EBITDA (US$) $469,880 $516,867 $568,554
EBITDA (US$) x 80% $375,904 $413,494 $454,843
18% of Gross Revenue, payable $1,353,253 $1,488,578 $1,637,436
in ACEI common stock
18% of EBITDA, payable $67,663 $74,429 $81,872
in ACEI common stock
Total payable in ACEI stock $1,420,916 $1,563,007 $1,719,308
Total payments over years 2000 to 2002, to be paid in $4,703,231
ACEI common stock at a price equal to the average closing price over the
entire year. Such shares granted annually shall be subject to the following
restrictions from disposition: 25% without restriction, 25% restricted for
6 months and 50% restricted for 12 months.
WHEREAS, the Shareholders desire to exchange their GWIS shares for the
Exchange Stock as set forth herein; and
WHEREAS, GWIS desires to assist ACEI in a business combination which will
result in the Shareholders of GWIS owning approximately 30% of the then
issued and outstanding shares of ACEI's Common Stock and ACEI owning 80% of
the issued and outstanding shares of GWIS's Capital Stock;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
representations contained herein, the parties hereto agree as follows:
ARTICLE I
Exchange of Securities
1.1 Issuance of Shares. Subject to all of the terms and conditions of
this Agreement, ACEI agrees to issue to the Shareholders the shares of the
Exchange Stock as described above in exchange for 80% of all of the
outstanding shares of GWIS capital stock owned by the Shareholders, as set
forth on Exhibit 1.1.
1.2 Exemption from Registration. Except as specified above for issuance
of shares with registration rights, the parties hereto intend that the
Common Stock to be issued by ACEI to the Shareholder shall be exempt from
the registration requirements of the Securities Act of 1933, as amended
(the "Act") pursuant to Section 4(2) of the Act and the rules and
regulations promulgated thereunder.
ARTICLE 2
Representations and Warranties of GWIS
GWIS and the Shareholders of GWIS represent to ACEI that:
2.1 Organization. GWIS is a corporation duly organized and validly
existing and in good standing under the laws of the People's Republic of
China and has all necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it, and is duly
qualified to do business and is in good standing where its business
requires qualification. (Further legal descriptions of GWIS, if necessary,
such as transfer of assets and liabilities of another entity, etc).
2.2 Capital. The authorized capital stock of GWIS is as set forth on the
annexed Exhibit 2.2, a copy of which is annexed hereto and made a part
hereof. The shares currently outstanding are owned by the Shareholders.
All of the issued and outstanding shares of GWIS are duly and validly
issued, fully paid, and non-assessable. There are no outstanding
subscriptions, options, rights, warrants, debentures, instruments,
convertible securities, or other agreements or commitments obligating GWIS
to issue or to transfer from treasury any additional shares of its capital
stock of any class.
2.3 Subsidiaries. As of the date of this Agreement, GWIS does not have
any subsidiaries or own any interest in any other enterprise.
2.4 (a) Directors and Officers. Exhibit 2.4 to this Agreement, the text
of which is incorporated herein by reference, contains the names and
titles of all directors and officers of GWIS as of the date of this
Agreement.
2.5 (b) Financial Statements. The GWIS financial statements are to be
audited by a reputable international auditing firm for the year ending
December 31, 1999 which are annexed hereto as Exhibit 2.5 and must be
delivered to ACEI prior to the Closing. Such financial statements are to be
complete, accurate and fairly present the financial condition of GWIS as of
the date thereof and the results of operations for the year ending December
31, 1999, for the business of GWIS that has been operated in the normal
course.
There are no material liabilities, either fixed or contingent, not
reflected in such financial statements other than contracts or obligations
in the ordinary and usual course of business; and no such contracts or
obligations in the usual course of business constitute liens or other
liabilities which, if disclosed, would materially alter the financial
condition of GWIS as reflected in such financial statements. The financial
statements of GWIS are incorporated herein by reference and deemed to be a
part hereof.
2.6 Investigation of Financial Condition. Without in any manner reducing
or otherwise mitigating the representations contained herein, ACEI and/or
its attorneys shall have the opportunity to meet with accountants and
attorneys of ACEI to discuss the financial condition of GWIS. GWIS shall
make available to ACEI and/or its attorneys all books and records of GWIS.
If the transaction contemplated hereby is not completed, all documents
received by ACEI and/or its attorneys shall be returned to GWIS and all
information so received shall be treated as confidential.
2.7 Compliance with Laws. GWIS has complied with and are not in
violation of applicable national, state or local statutes, laws and
regulations (including, without limitation, any applicable building, zoning
or other law, ordinance or regulation) affecting its properties or the
operation of its business. All national, state and local income tax returns
required to be filed by GWIS have been filed and all required taxes have
been paid or an adequate reserve therefor has been established in the
financial statements. GWIS's tax returns have not been audited by any
authority empowered to do so.
2.8 Litigation. Neither GWIS nor the Shareholders are a party to any
suit, action, arbitration or legal, administrative or other proceeding, or
governmental investigation pending or, to the best knowledge of GWIS and
the Shareholders, threatened against or affecting GWIS or the Shareholders,
their assets or financial condition, except for matters which would not
have a material effect on GWIS, the Shareholders or their respective
properties. Neither GWIS nor the Shareholders are in default with respect
to any order, writ, injunction or decree of any national, state, local or
foreign court, department, agency or instrumentality applicable to it.
Neither GWIS nor Shareholders are engaged in any lawsuits to recover any
material amount of moneys due to GWIS or Shareholders.
2.9 Authority. The Board of Directors of GWIS has authorized the
execution of this Agreement and the consummation of the transactions
contemplated herein, and upon obtaining any necessary shareholder approval,
GWIS will have full power and authority to execute, deliver and perform
this Agreement and this Agreement will be a legal, valid and binding
obligation of GWIS, enforceable in accordance with its terms and
conditions, except as may be limited by bankruptcy and insolvency laws and
by other laws affecting the rights of creditors generally.
2.10 Ability to Carry Out Obligations. The execution and delivery of
this Agreement by GWIS and the performance by GWIS of its obligations
hereunder in the time and manner contemplated will not cause, constitute or
conflict with or result in (a) any breach or violation of any of the
provisions of or constitute a default under any license, indenture,
mortgage, charter, instrument, articles of incorporation, by-laws, or other
agreement or instrument to which GWIS or Shareholders are a party or by
which either may be bound, nor will any consents or authorizations of any
party other than those hereto be required; (b) an event that would permit
any party to any agreement or instrument, to terminate it or to accelerate
the maturity of any indebtedness or other obligation of GWIS or
Shareholders; or (c) an event that would result in the creation or
imposition of any lien, charge, or encumbrance on any asset of GWIS or
Shareholders.
2.11 Full Disclosure. None of the representations and warranties made by
GWIS and the Shareholders herein, or in any exhibit, certificate or
memorandum furnished or to be furnished by GWIS, or on its behalf, contains
or will contain any untrue statement of material fact, or omit any
material fact, the omission of which would be misleading.
2.12 Material Contracts. Neither GWIS nor the Shareholders has any
material contracts to which either is a party or by which they are bound,
except for those agreements set forth on the annexed hereto as Exhibit 2.12.
2.13 Indemnification. GWIS and the Shareholders agree to defend and hold
harmless ACEI, its officers and directors against and in respect of any
and all claims, demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries and deficiencies, including interest, penalties and
reasonable attorney's fees, that it shall incur or suffer, which arise out
of, result from or relate to any breach of or failure by GWIS to perform
any of its respective representations, warranties, covenants and
agreements in this Agreement or in any exhibit or other instrument
furnished or to be furnished by GWIS under this Agreement.
2.14 Transactions with Officers and Directors. Except as otherwise
disclosed in GWIS's financial statements dated December 31, 1998 and
delivered to ACEI, there have been, and through the date of Closing there
will be (1) no bonuses or unusual compensation to any of the officers or
directors of GWIS; (2) no loans, leases or contracts made to or with any of
the officers or directors of GWIS; (3) no dividends or other distributions
declared or paid by GWIS; and (4) no purchases by GWIS of any of its
capital shares.
2.15 Background of Officers and Directors. During the past five year
period, no officer or director of GWIS has been the subject of:
(a) A petition under the U.S. Federal Bankruptcy laws or any other
insolvency law or has a receiver, fiscal agent or similar officer been
appointed by a court for the business or property of such person, or any
partnership in which he was a general partner at or within two years before
the time of such filing, or any corporation or business association of
which he was an executive officer at or within two years before the time
of such filing;
(b) A conviction in the United States in a criminal proceeding or a
named subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(c) Any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining him from, or otherwise limiting, the following
activities:
(i) Acting as a futures commission merchant, introducing broker,
commodities trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the United
States Commodity Futures Trading Commission or an associated person of any
of the foregoing, or as an investment advisor, underwriter, broker or
dealer in securities, or as an affiliated person, director or employee of
any investment company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or practice in
connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the purchase and sale
of any security or commodity or in connection with any violation of U.S.
Federal, State or other securities law or commodities law.
(d) Any order, judgment, decree, not subsequently reversed, suspended
or vacated, of any U.S. Federal, State or local authority barring,
suspending, or otherwise limiting for more than 60 days the right of such
person to engage in any activity described in the preceding sub-paragraph,
or to be associated with persons engaged in any such activity;
(e) a finding by any court of competent jurisdiction in a civil action
or by the United States Securities and Exchange Commission to have
violated any securities law, and the judgment in such civil action or
finding by such Commission has not been subsequently reversed, suspended or
vacated; or (f) a finding by any court of competent jurisdiction in a
civil action or by the United States Commodity Futures Trading Commission
to have violated any commodities law, and the judgment in such civil action
or finding by such Commission has not been subsequently reversed,
suspended or vacated.
2.16 Employee Benefits. GWIS does not have any pension plan, profit
sharing or similar employee benefit plan.
ARTICLE 3
Representations and Warranties of ACEI
ACEI represents and warrants to GWIS that:
3.1 Organization. ACEI is a corporation duly organized, validly existing
and in good standing under the laws of Delaware, and has all necessary
corporate powers to own properties and to carry on business.
3.2 Capital. The authorized capital stock of ACEI consists of 40,000,000
shares of Common Stock, par value $.0001 per share and 6,000,000 shares of
Preferred Stock, par value $.0001 per share, which may be issued in one or
more series at the discretion of the board of directors. As of the date
of this Agreement, there were approximately 12,000,000 shares of Common
Stock outstanding, all of which were fully paid and non-assessable, and
there was no Preferred Stock outstanding. Except for the Options and
common stock purchase warrants as listed in Exhibit 3.2 and convertible
debentures that ACEI has sold and that the underlying common stock are
registered on Form S-3's filed with the U.S. Securities and Exchange
Commission on July 22, 1999 and November 5, 1999, there are no outstanding
subscriptions, options, rights, warrants, convertible securities, or other
agreements or commitments obligating ACEI to issue or to transfer from
treasury any additional shares of its capital stock of any class.
3.3 Subsidiaries. ACEI's subsidiaries are identified on Exhibit 3.3,
annexed hereto and made a part hereof.
3.4 Directors and Officers. Exhibit 3.4, annexed hereto and hereby
incorporated herein by reference, contains the names and titles of all
directors and officers of ACEI as of the date of this Agreement.
3.5 Financial Statements. Exhibit 3.5, annexed hereto and incorporated
herein by reference, consists of the ACEI audited financial statements as
of December 31, 1998, and unaudited financial statements for the three
month periods ended March 31, 1999 and June 30, 1999.
3.6 Changes Since December 31, 1998. Since December 31, 1998, there has
been not been any adverse change in the financial condition and operations
of ACEI.
3.7 Absence of Undisclosed Liabilities. As of December 31, 1998, ACEI
does not have any material debt, liability, or obligation of any nature,
whether accrued, absolute, contingent, or otherwise, and whether due or to
become due, that is not reflected in ACEI balance sheet as of December 31,
1998 or as presented in the Notes to the Financial Statements. There have
been no new liabilities incurred since December 31, 1998, except for those
described in the reports for the three month periods ended March 31, 1999
and June 30, 1999 and those incurred in the ordinary course of business
and in connection with this transaction.
3.8 Tax Returns. Within the times and in the manner prescribed by law,
ACEI has filed all federal, state and local tax returns required by law
and has paid all taxes, assessments and penalties due and payable. The
provisions for taxes, if any, reflected in the balance sheet included in
Exhibit 3.5 is adequate for any and all federal, state, county and local
taxes for the period ending on the date of such balance sheet and for all
prior periods, whether or not disputed. There are no present disputes as
to taxes of any nature payable by ACEI.
3.9 Investigation of Financial Condition. Without in any manner reducing
or otherwise mitigating the representations contained herein, GWIS shall
have the opportunity to meet with ACEI's accountants and attorneys to
discuss the financial condition of ACEI. ACEI shall make available to GWIS
all books and records of ACEI.
3.10 Trade Names and Rights. Except for the subsidiaries of ACEI as
described in Exhibit 3.3 which own trademark and copyrights of intellectual
properties, ACEI does not use any trademark, service mark, trade name, or
copyright in its business, or own any trademarks, trademark registrations
or applications. To the best knowledge of ACEI, no person owns any
trademark, trademark registration or application, service mark, trade name,
copyright, or copyright registration or application the use of which is
necessary or contemplated in connection with the operation of ACEI's
business as a holding company.
3.11 Compliance with Laws. ACEI has complied with and is not in
violation of applicable federal, state or local statutes, laws or
regulations (including, without limitation, any applicable building,
zoning, securities or other law, ordinance, or regulation) affecting its
properties or the operation of its business.
3.12 Litigation. ACEI is not a party to any suit, action, arbitration,
or legal, administrative, or other proceeding, or governmental
investigation pending or, to the best knowledge of ACEI, threatened against
or affecting ACEI or its business, assets or financial condition. ACEI is
not engaged in any legal action to recovery moneys due to it.
3.13 Authority. The Board of Directors and Shareholders of ACEI have
authorized the execution of this Agreement and the transactions
contemplated herein, and ACEI has full power and authority to execute,
deliver and perform this Agreement and this Agreement is the legal, valid
and binding obligation of ACEI, is enforceable in accordance with its terms
and conditions, except as may be limited by bankruptcy and insolvency laws
and by other laws affecting the rights of creditors generally.
3.14 Ability to Carry Out Obligations. The execution and delivery of
this Agreement by ACEI and the performance by ACEI of its obligations
hereunder will not cause, constitute, or conflict with or result in (a) any
breach or violation of any of the provisions of or constitute a default
under any license, indenture, mortgage, charter, instrument, articles of
incorporation, by-laws, or other agreement or instrument to which ACEI is
a party, or by which it may be bound, nor will any consents or
authorizations of any party other than those hereto be required; (b) an
event that would permit any party to any agreement or instrument to
terminate it or to accelerate the maturity of any indebtedness or other
obligation of ACEI; or (c) an event that would result in the creation or
imposition of any lien, charge, or encumbrance on any asset of ACEI.
3.15 Validity of ACEI Shares. The shares of ACEI Common Stock to be
delivered pursuant to this Agreement, when issued in accordance with the
provisions of this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable.
3.16 Full Disclosure. None of the representations and warranties made by
ACEI herein, or in any exhibit, certificate or memorandum furnished or to
be furnished by ACEI, or on its behalf, contains or will contain any
untrue statement of material fact, or omit any material fact, the omission
of which would be misleading.
3.17 Assets. ACEI has good and marketable title to all of its property
free and clear of any and all liens, claims and encumbrances, except as
disclosed in its financial statements.
3.18 Material Contracts. Except as otherwise disclosed in this agreement
and in its Report on From 10-KSB for the year ended December 31, 1998 and
the three month periods ended March 31, 1999 and June 30, 1999, ACEI has
no material contracts to which it is a party or by which it is bound.
3.19 Complience With SEC Reporting Requirements. The Common Stock of ACEI
is registered under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). ACEI has duly filed all materials and
documents required to be filed pursuant to all reporting obligations under
either Section 13(a) or 15(d) of the Exchange Act prior to the consummation
of the transaction contemplated hereby. The Common Stock of ACEI is
currently traded on the Nasdaq SmallCap Market.
ARTICLE 4
Representations and Warranties of Shareholders
4.1 Share Ownership. The Shareholders represent that they hold shares of
GWIS's common stock as set forth in Exhibit 2.2 hereof, and that such
shares are owned of record and beneficially by such shareholders, and such
shares are not subject to any lien, encumbrance or pledge, and are
restricted securities as defined in Rule 144 of the Securities Act of 1933.
The Shareholders severally represent that they hold authority to exchange
their shares pursuant to this Agreement.
4.2 Investment Intent. The Shareholders understand and acknowledge that the
shares of Exchange Stock are being offered for exchange in reliance upon the
exemption provided in Section 4(2) of the Securities Act of 1933 for
non-public offerings; and The Shareholders make the following representations
and warranties with the intent that same may be relied upon in determining the
suitability of each such shareholder as a purchaser of securities:
(a) The Shareholders acknowledge that the Exchange Stock being acquired solely
for the account of such Shareholders, for investment purposes only, and not
with a view towards or for sale in connection with any distribution thereof,
and with no present intention of distributing or re-selling any part of the
Exchange Stock;
(b) The Shareholders agree not to dispose of his Exchange Stock, or any
portion thereof unless and until counsel for ACEI shall have determined that
the intended disposition is permissible and does not violate the Securities
Act of 1933 or any applicable state securities laws, or the rules and
regulations thereunder;
(c) The Shareholders acknowledge that ACEI has made all documentation
pertaining to all aspects of the herein transaction available to them and to
their qualified representatives, if any, and has offered such person or
persons an opportunity to discuss such transaction with the officers of ACEI;
(d) The Shareholders represent that they have relied solely upon ACEI's Report
on Form 10-KSB for the period ended December 31, 1998 and all other filings
made by ACEI with the Securities and Exchange Commission and independent
investigations made by the Shareholders or their representatives, if any;
(e) The Shareholders represent that they are knowledgeable and experienced in
making and evaluating investments of this nature and desire to acquire the
Exchange Stock on the terms and conditions herein set forth;
(f) The Shareholders represent that they are able to bear the economic risk
of an investment, as a result of the herein transaction, in the Exchange Stock;
(g) The Shareholders represent that they understand that an investment in the
Exchange Stock is not liquid, and The Shareholders represent that they have
adequate means of providing for their current needs and personal contingencies
and have no need of liquidity in this investment; and
(h) The Shareholders represent that they are an "accredited investor" as that
term is defined in Rule 501 of Regulation D, promulgated under the Securities
Act of 1933.
4.3 Indemnification. The Shareholders recognize that the offer of the
Exchange Stock to them is based upon the representations and warranties made
by the Shareholders set forth and contained herein and the Shareholders hereby
agree to indemnify and hold harmless ACEI against all liability, costs or
expenses (including reasonable attorney's fees) arising as a result of any
misrepresentations made herein by such Shareholder.
4.4 Legend. The Shareholders agree that the certificates evidencing the
Exchange Stock acquired pursuant to this Agreement will have a legend placed
thereon stating that the securities have not been registered under the Act or
any state securities laws and setting forth or referring to the restrictions
on transferability and sale of such securities.
ARTICLE 5
Covenants
5.1 Investigative Rights. From the date of this Agreement until the Closing
Date, ACEI and GWIS shall provide to each other, and such other party's
counsels, accountants, auditors and other authorized representatives, full
access during normal business hours and upon reasonable advance written notice
of each party's properties, books, contracts, commitments and records for the
purpose of examining the same. Each party shall furnish the other party with
all information concerning each party's affairs as the other party may
reasonably request.
5.2 Conduct of Business. Prior to the Closing, ACEI and GWIS shall each
conduct its business in the normal course, and shall not sell, pledge, or
assign any assets, without the prior written approval of the other party
except in the regular course of business or as part of the transactions
contemplated hereby. Neither ACEI nor GWIS shall amend its Articles of
Incorporation or By-laws, declare dividends, redeem or sell stock or other
securities, incur additional or newly funded liabilities, acquire or dispose
of fixed assets, change employment terms, enter into any material or long term
contract, guarantee obligations of any third party, settle or discharge any
balance sheet receivable for less than its stated amount, pay more on any
liability than its stated amount, or enter into any other transaction other
than in the regular course of business.
ARTICLE 6
Conditions Precedent to ACEI's Performance
6.1 Conditions. ACEI's obligations hereunder shall be subject to the
satisfaction, at or before the Closing, of all the conditions set forth in
this Article 6. ACEI may waive any or all of these conditions in whole or in
part without prior notice; provided, however, that no such wavier of a
condition shall constitute a waiver by ACEI of any other condition or of any
of ACEI's other rights or remedies, at law or in equity, if GWIS or the
Shareholders shall be in default of any of their representations, warranties
or covenants under this Agreement.
6.2 Accuracy of Representations. Except as otherwise permitted by this
Agreement, all representations and warranties by Shareholders and GWIS in this
Agreement or in any written statement that shall be delivered to ACEI by GWIS
under this Agreement shall be true and accurate on and as of the Closing Date
as though made at that time.
6.3 Performance. GWIS shall have performed, satisfied, and complied with all
covenants, agreements and conditions required by this Agreement to be
performed or complied with by it, on or before the Closing Date.
6.4 Absence of Litigation. No action, suit or proceeding before any court or
any governmental body or authority, pertaining to the transaction contemplated
by this Agreement or to its consummation, shall have been instituted or
threatened against GWIS or the Shareholders on or before the Closing Date.
6.5 Acceptance by GWIS Shareholders. The holders of an aggregate of not less
than 100% of the issued and outstanding shares of common stock of GWIS shall
have agreed to exchange a percentage of their shares as stipulated in this
Agreement, for shares of the Exchange Stock.
6.6 Officer's Certificate. GWIS shall have delivered to ACEI a certificate,
dated the Closing Date, and signed by the President of GWIS, certifying that
each of the conditions specified in Sections 6.2 through 6.5 hereof have been
fulfilled.
6.7 Opinion of Counsel to GWIS. GWIS shall have delivered to ACEI an opinion
of its Chinese and United States counsel, as applicable, dated the Closing
date, to the effect that:
(a) GWIS is a corporation duly organized, validly existing and in good
standing under the laws of the People's Republic of China and the City of
Beijing;
(b) The authorized capital stock of GWIS is as set forth on the annexed
Exhibit 2.2, a copy of which is annexed hereto and made a part hereof. All
issued and outstanding shares are legally issued. (c) This Agreement has been
duly and validly authorized, executed and delivered and constitutes the legal
and binding obligation of GWIS, except as limited by bankruptcy and insolvency
laws and by other laws affecting the rights of creditors generally; and
ARTICLE 7
Conditions Precedent to
GWIS's and Shareholders' Performance
7.1 Conditions. GWIS's and Shareholders' obligations hereunder shall be
subject to the satisfaction, at or before the Closing, of all the conditions
set forth in this Article 7. GWIS and Shareholders may waive any or all of
these conditions in whole or in part without prior notice; provided, however,
that no such waiver of a condition shall constitute a waiver by GWIS and
Shareholders of any other condition or of any of GWIS's and Shareholders'
rights or remedies, at law or in equity, if ACEI shall be in default of any of
its representations, warranties or covenants under this Agreement.
7.2 Accuracy of Representations. Except as otherwise permitted by this
Agreement, all representations and warranties by ACEI in this Agreement or in
any written statement that shall be delivered to GWIS and Shareholders by ACEI
under this Agreement shall be true and accurate on and as of the Closing Date
as though made at that time.
7.3 Performance. ACEI shall have performed, satisfied, and complied with all
covenants, agreements and conditions required by this Agreement to be
performed or complied with by it, on or before the Closing Date.
7.4 Absence of Litigation. No action, suit or proceeding before any court or
any governmental body or authority, pertaining to the transaction contemplated
by this Agreement or to its consummation, shall have been instituted or
threatened against ACEI on or before the Closing Date, except as disclosed
herein.
7.5 Current Status. ACEI shall have prepared and filed with the Securities
and Exchange Commission its Annual Report on Form 10-KSB for the period ended
December 31, 1998 and its Quarterly Report on Form 10-QSB for the three month
periods ended March 31, 1999 and June 30, 1999.
7.6 Directors of ACEI. ACEI's Board of Directors shall remain to serve until
a new board is elected at the next annual meeting of stockholders in the year
2000.
7.7 Officers of ACEI. ACEI's officers shall remain in their office as per
terms of their employment agreements.
7.8 Intentionally Left Blank
7.9 Officers' Certificate. ACEI shall have delivered to GWIS and
Shareholders a certificate, dated the Closing Date and signed by the President
of ACEI certifying that each of the conditions specified in Sections 7.2
through 7.7 have been fulfilled.
7.10 Opinion of Counsel. ACEI shall deliver an opinion of its counsel in the
form annexed hereto as Exhibit 7.10;
ARTICLE 8
Closing
8.1 Closing. The Closing of this transaction shall be held at the offices of
Sichenzia, Ross & Friedman LLP, Esqs., 135 West 50th Street, New York, New
York 10020, or such other place as shall be mutually agreed upon, on
______________________ , 2000 or such other date as shall be mutually agreed
upon by the parties. At the Closing:
(a) Shareholder shall present the certificates representing their shares of
GWIS being exchanged to ACEI, and such certificates will be duly endorsed in
blank;
(b) Shareholders shall receive a certificate or certificates representing the
number of shares of ACEI Common Stock for which the shares of GWIS common
stock shall have been exchanged;
(c) ACEI shall deliver an officer's certificate, as described in Section 7.9
hereof, dated the Closing Date, that all representations, warranties,
covenants and conditions set forth in this Agreement on behalf of ACEI are
true and correct as of, or have been fully performed and complied with by, the
Closing Date;
(d) ACEI shall deliver a resolution of its Board of Directors of ACEI
approving this Agreement and each matter to be approved by the Directors of
ACEI under this Agreement;
(e) ACEI shall deliver an opinion of its counsel, as described in Section
7.10 hereof, dated the Closing Date;
(f) GWIS shall deliver an officer's certificate, as described in Section 6.6
hereof, dated the Closing Date, that all representations, warranties,
covenants and conditions set forth in this Agreement on behalf of GWIS are
true and correct as of, or have been fully performed and complied with by, the
Closing Date.
(g) GWIS shall deliver an opinion of its counsel, as described in Section 6.7
hereof, dated the Closing Date; and
(h) GWIS shall deliver resolutions of its Board of Directors approving this
Agreement and each matter to be approved by the Directors of GWIS under this
Agreement.
ARTICLE 9
Miscellaneous
9.1 Captions and Headings. The Article and paragraph headings throughout
this Agreement are for convenience and reference only, and shall in no way be
deemed to define, limit, or add to the meaning of any provision of this
Agreement.
9.2 No Oral Change. This Agreement and any provision hereof may not be
waived, changed, modified or discharged orally, but it can be changed by an
agreement in writing, signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
9.3 Non-Waiver. Except as otherwise expressly provided herein, no waiver of
any covenant, condition or provision of this Agreement shall be deemed to have
been made unless expressly in writing and signed by the party against whom
such waiver is charged; and (i) the failure of any party to insist in any one
or more cases upon the performance of any of the provisions, covenants or
conditions of this Agreement or to exercise any option herein contained shall
not be construed as a waiver or relinquishment for the future of any such
provisions, covenants or conditions; (ii) the acceptance of performance of
anything required by this Agreement to be performed with knowledge of the
breach of failure of a covenant, condition or provision hereof shall not be
deemed a waiver of such breach or failure; and (iii) no waiver by any party of
one breach by another party shall be construed as a waiver with respect to any
other or subsequent breach.
9.4 Entire Agreement. This Agreement contains the entire agreement and
understanding between the parties hereto and supersedes all prior agreements
and understandings.
9.5 Choice of Law. This Agreement and its application shall be governed by
the laws of the State of California.
9.6 Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may be
in the English and Chinese languages. In the event of discrepancies between
the two languages, the English version shall prevail.
9.7 Notices. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
on the date of service if served personally on the party to whom notice is to
be given, or on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered or certified, postage
prepaid, and properly addressed as follows:
To ACEI:
Mr. Anthony K. Chan
President & CEO
American Champion Entertainment, Inc.
1694 The Alameda, Suite 100
San Jose, CA 95126
U. S. A.
Phone: 1-408-288-8199
Fax: 1-408-288-8098
E-mail: [email protected]
To GWIS:
Mr. Niu Li Xin
Chairman of the Board
9/F, North Office Building
New World Center, 3B
Chong Wen Men Wai Street
Chong Wen District
Beijing, China 100062
Phone: 86-10-6708-2388
Fax: 86-10-6708-2386
E-mail: [email protected]
9.8 (deleted)
9.9 Binding Effect. This Agreement shall inure to and be binding upon the
heirs, executors, personal representatives, successors and assigns of each of
the parties to this Agreement.
9.10 Mutual Cooperation. The parties hereto shall cooperate with each other
to achieve the purpose of this Agreement and shall execute such other and
further documents and take such other and further actions as may be necessary
or convenient to effect the transaction described herein.
9.11 Announcements. ACEI and GWIS will consult and cooperate with each other
as to the timing and content of any announcements of the transactions
contemplated hereby to the general public or to employees, customers or
suppliers.
9.12 Expenses. Each party will pay its own legal, accounting and any other
out-of-pocket expenses reasonably incurred in connection with this
transaction, whether or not the transaction contemplated hereby is
consummated. In no event shall one party be liable for any of the expenses of
the other party.
9.13 Survival of Representations and Warranties. The representations,
warranties, covenants and agreements of the parties set forth in this
Agreement or in any instrument, certificate, opinion or other writing provided
for in it, shall survive the Closing irrespective of any investigation made by
or on behalf of any party.
9.14 Exhibits. As of the execution hereof, the parties hereto have provided
each other with the Exhibits provided for hereinabove, including any items
referenced therein or required to be attached thereto. Any material changes
to the Exhibits shall be immediately disclosed to the other party.
WHEREFORE, the above agreement is hereby agreed to and accepted as of the date
first above written.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: /s/ Anthony K. Chan
Anthony K. Chan
President & CEO
GREAT WALL INTERNATIONAL SPORTS MEDIA COMPANY
By: /s/ Niu Li Xin
Niu Li Xin
Chairman of the Board
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
American Champion Entertainment, Inc.:
We consent to the incorporation by reference in Registration Statement Numbers
333-60511, 333-67879, 333-72253, 333-82963, 333-90459 and 333-30626 on Forms
S-3 and Registration Statement Numbers 333-60107, 333-80269, 333-95435 and
333-96419 (American Champion Entertainment, Inc. 1997 Stock Plan and 1997
Non-Employee Directors Stock Option Plan of American Champion Entertainment,
Inc.) on Forms S-8 of our report dated January 27, 2000 appearing in and
incorporated by reference in this 10-KSB of American Champion Entertainment,
Inc. for the year ended December 31, 1999.
/s/ Moss Adams LLP
Moss Adams LLP
San Francisco, California
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Balance Sheet and Statement of Operations included in
the Company's Form 10-K for the year ended December 31, 1998 and
is qualified in its entirety by reference to such Financial
Statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<PERIOD-TYPE> 12-MOS
<CASH> 32,514
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<RECEIVABLES> 481,449
<ALLOWANCES> 0
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<CURRENT-ASSETS> 9,286,450
<PP&E> 535,264
<DEPRECIATION> 222,315
<TOTAL-ASSETS> 9,286,450
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0
0
<COMMON> 17,594,865
<OTHER-SE> (9,906,440)
<TOTAL-LIABILITY-AND-EQUITY> 9,286,450
<SALES> 601,690
<TOTAL-REVENUES> 665,632
<CGS> 8,174
<TOTAL-COSTS> 458,274
<OTHER-EXPENSES> 4,421,180
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,441,933
<INCOME-PRETAX> (6,396,785)
<INCOME-TAX> 1,543
<INCOME-CONTINUING> (6,398,328)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<EPS-BASIC> ($0.67)
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