Is there room for an American Champion in China? That may be one question investors will be asking as they look at recent announcements from a company called American Champion Entertainment, Inc.
There are likely to be other questions as well. Like, what is the current state of the Company’s karate school operations. At one time American Champion operated a chain of karate studios. Now, only one remains open.
Other questions revolve around the status of a children’s television program that the Company has featured as the centerpiece of its business. "The Adventures of Kanga Roddy" is a children’s show starring a ten foot kangaroo and such supporting players as the wives of former San Francisco 49er football stars Joe Montana and Ronnie Lott. But the Company has produced only 29 episodes of the series so far and financial constraints cast some doubt upon its ability to deliver more shows. Without more funding, Kanga Roddy’s adventures could come to an untimely end.
Then there are those investors who may wonder about the Company’s strategy for raising funds and addressing ongoing financial concerns. The Company’s principal source of revenues since it became public would appear to be the sale of convertible debentures to a group of independent investors, including a recurring cast of off-shore companies.
And some investors may ask whether there is any reason that prices for the Company’s shares might triple in a single day, or why trading in American Champion stock would skyrocket on that same day. Such was recently the case with American Champion, whose shares moved up from just under $3 per share in late January to hit highs of $9 on February 9th, before closing at $6.03. Add to that the fact that share volume also increased 6000% on February 9th, from 122,000 shares the day before to over 8.4 million, and you have an eye-catching situation
By February 23rd shares were back down again, closing at $3 13/16.
What caused the sudden interest in American Champion? Has the Company discovered a way to generate significantly greater revenues and turn profits? Is Kanga Roddy dating Christina Aguilera?
THE PATH TO WISDOM
The sudden increase in the value of American Champion stock coincided with two notable events. On February 9th the Company issued a press release announcing that it had entered into a Letter of Intent to acquire control of a Chinese company called Beijing Wisdom Network Technology Company Ltd., in exchange for cash and stock. According to the press release, Beijing Wisdom installs fiber optic cable in buildings throughout China. Its clients are said to include Beijing International Airport and the headquarters of Motorola Asia.Although the press release painted the potential alliance with broad strokes, American Champion did not disclose further details of the proposed arrangement, such as the amount of cash to be paid or the number of shares to be exchanged. Or, perhaps most important, the potential impact of the acquisition on American Champion’s revenues.
The press release did point out that Beijing Wisdom had revenues of $3.9 million in 1999, although it also noted that these revenues were unaudited. Revenues, of course, only provide a piece of a company’s financial picture. No mention was made of the Chinese company’s expenses or its bottom line profits or losses. Without those numbers, or audited financial statements, investors cannot fairly assess the potential impact of this new business – if in fact it progresses past the Letter of Intent stage. In any event, the Company says the transaction will not go forward until due diligence is completed, it receives audited financial statements from Beijing Wisdom and American Champion stockholders approve the acquisition.
Despite these remaining contingencies and financial uncertainties, share prices increased immediately after the announcement, rising from $4.125 on February 8th to $9.125 on February 9th before closing at $6.03. Was the mere mention of a potential Chinese connection enough to cause the market value of American Champion shares to increase by almost 50% in one day? What else was happening with American Champion at the time?
On the same day the Company announced its Letter of Intent with Beijing Wisdom, the Company also filed an S-8 Registration Statement with the SEC. Form S-8 is used by public companies to register shares to be sold by officers, directors, employees and certain consultants. On this occasion, American Champion registered 1.5 million shares for the benefit of its Chief Executive Officer and President Anthony Chan; its Chairman of the Board, George Chung; seven other directors and officers; and the Company’s attorneys.
An S-8 differs from other registration statements because it is effective as soon as it is filed. As a result, it would appear from the publicly filed documents that the American Champion Selling Shareholders were able to sell their stock on February 9th, the same date the Company announced its plans to acquire Beijing Wisdom. On that date, American Champion shares traded at prices between $5.75 and $9.125, up from the previous day’s close of $4.125.
The S-8 shares represented a significant addition to the Company’s potential public float. But they were not the only such recent addition. A short time earlier the Company had completed another registration of shares for a group of selling shareholders (more about that in a later installment of this series). According to the Company, by the time the S-8 was filed on February 9th, American Champion had approximately 5.9 million shares outstanding. That would mean that when the market closed on February 9th, the Company had a value of more than $24 million.
So what has American Champion been doing since its July 1997 IPO? In our next installment we look at the business of champions.
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