SECURITIES AND EXCHANGE COMMISSION
                            Washington, DC 20549
                                Form 1O-QSB

           [X]   Quarterly Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934
                    For the Quarterly Period Ended June 30, 1998

         [  ]   Transition report pursuant to Section 13 or 15(d) of the
           Securities Exchange Act of 1934, For the transition period from 
                           ___________ to ____________

                         Commission File Number 333-18967

                       AMERICAN CHAMPION ENTERTAINMENT, INC.
              (Exact Name of Registrant as Specified in its Charter)

            Delaware                                            94-3261987      
  (State or Other Jurisdiction or                             (IRS Employer 
   Incorporation or Organization)                        Identification Number)

             1694 The Alameda, Suite 100, San Jose, California 95126-2219
                                 (408) 288-8199
    (Registrant's Address of Principal Executive Offices and Telephone Number)

            26203 Production Avenue, Suite 5, Hayward, California 94545
   (Former Name, Former Address and Former Fiscal Year, if Changed Since Last
                                    Report)

Indicate by check mark whether the registrant: (1) has filed all 
reports required to be filed by Section 13 or 15(d) of the Securities 
Exchange Act of 1934 during the preceding 12 months (or for such 
shorter period that the registrant was required to file such reports), 
and (2) has been subject to such filing requirements for the past 90 
days.

                Yes ..X..                       No .....   

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING 
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents 
and reports required to be filed by Section 12, 13 or 15 (d) of the 
Securities Exchange Act of 1934 subsequent to the distribution of 
securities under a plan confirmed by a court.

                 Yes .....                      No .....        


APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's 
classes of common stock, as of the latest practicable date.

         Class                          Outstanding at June 30, 1998

  -----------------------               ---------------------------
  Common Stock, $.0001 par value               3,832,345 shares

Transitional Small Business Disclosure Format (check one) Yes  .....  No ..X..

                           Exhibit Index on Page 23

<PAGE>

                      AMERICAN CHAMPION ENTERTAINMENT, INC.
                                 Form 10-QSB
                                June 30, 1998

                              TABLE OF CONTENTS

                                                                       Page
                                                                       -----

PART I -        Financial Information

        Item 1. Financial Statements                                     3

                Consolidated Balance Sheet as of June 30, 1998           3

                Consolidated Statements of Operations for 
                the three month periods and the six month periods 
                ended June 30, 1998 and 1997                             4

                Consolidated Statements of Cash Flows for
                the three month periods and the six month periods 
                ended June 30, 1998 and 1997                             5

                Notes to Consolidated Financial Statements               7

       Item 2.  Management's Discussion and analysis of
                Financial Condition and Results of Operations           20


PART II -       Other Information

        Item 1. Legal Proceedings                                       22

       Item 6.  Exhibits and Reports on Form 8-K                        22


Signatures                                                              23


Exhibit Index                                                           24


Exhibits                                                                26

<PAGE>

PART I -        FINANCIAL INFORMATION

ITEM 1- Financial Statements - (unaudited)

                      AMERICAN CHAMPION ENTERTAINMENT, INC.
                      Condensed Consolidated Balance Sheets 
<TABLE>
<CAPTION>
                                                 June 30,      December 31,
                                                 1998          1997
                                                 ------------  ------------
<S>                                              <C>           <C>
                     Assets                      (unaudited)
Current assets:
  Cash.......................................       $144,247    $1,795,657
  Account receivable.........................         50,817       220,817
  Loans receivable, related parties..........        115,137       114,773
  Current portion of note receivable                   6,401             0
  Current portion of film costs..............      1,200,000       655,500
  Prepaid expenses and other.................         79,984        96,556
                                                 ------------  ------------
  Total current assets.......................      1,596,586     2,883,303

Property and equipment, net..................        247,032       255,423

Other Assets
  Film costs, net..............................    2,623,106     1,789,917
  Note receivable                                     46,458             0
  Other assets.................................       31,552        35,152
                                                 ------------  ------------
                                                  $4,544,734    $4,963,795
                                                 ============  ============
          Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable and accrued expenses......       $348,215      $199,344
  Deferred revenues, current portion.........        222,491       282,056
  Loans payable, related parties.............         36,477        37,255
  Long-term debt, current portion............          6,307         5,856
  Obligations under capital leases,
    current portion..........................         10,945        10,157
  Other......................................          4,216         4,216
                                                 ------------  ------------
  Total current liabilities..................        628,651       538,884
                                                 ------------  ------------
Long-term liabilities:
  Deferred revenues..........................        104,305       261,464
  Long-term Debt.............................         51,785        58,343
  Obligations under capital leases...........            849         6,565
  Other......................................          2,108         4,216
                                                 ------------  ------------
  Total long-term liabilities................        159,047       330,588
                                                 ------------  ------------

Stockholders' Equity:
  Common stock, $.0001 par value, 3,832,345 o.t.   5,529,419     5,529,419
  Common stock warrants......................        149,500       149,500
  Accumulated deficit........................     (1,921,883)   (1,584,596)
                                                 ------------  ------------
  Total stockholders' equity ................      3,757,036     4,094,323
                                                 ------------  ------------
                                                  $4,544,734    $4,963,795
                                                 ============  ============
</TABLE>
                      See accompanying notes. 

<PAGE>

                      AMERICAN CHAMPION ENTERTAINMENT, INC.
                   Condensed Consolidated Statements of Operations
                                  (unaudited)
<TABLE>
<CAPTION>
                                     Three Months Ended     Six Months Ended
                                         June 30,               June 30,
                                    ---------------------  ---------------------
                                    1998       1997        1998       1997
                                    ---------- ----------  ---------- ----------
<S>                                 <C>        <C>         <C>        <C>
REVENUE:
  Tuition and related fees.........  $192,027   $171,462    $318,932   $427,412
  Accessories and video sales......     9,475     17,512      22,876     39,750
  Film income......................    31,667       --       246,667          0
  Interest income..................     2,406       --        29,098          0
                                    ---------- ----------  ---------- ----------
  Total revenue....................   235,575    188,974     617,573    467,162
                                    ---------- ----------  ---------- ----------
COSTS AND EXPENSES:
  Cost of sales....................     5,281     11,404      13,992     25,976
  Amortization of film costs.......    11,688       --        85,020          0
  Salaries and payroll taxes.......   182,952    188,110     398,586    381,138
  Rent.............................    73,081    109,567     157,697    233,866
  Selling, general and
    administrative.................   153,809     69,134     389,926    125,012
  Interest.........................     8,761     45,445      17,662     95,830
  Write off of film costs..........         0       --             0          0
  Write off of loan fees...........         0       --             0          0
  Facilities closure costs.........         0       --             0          0
                                    ---------- ----------  ---------- ----------
  Total costs and expenses.........   435,572    423,660   1,062,883    861,822
                                    ---------- ----------  ---------- ----------
Net Loss From Operations............($199,997) ($234,686)  ($445,310) ($394,660)

Gain On Sale Of Studio                      0          0     115,473          0

Net Loss Before Income Tax           (199,997)  (234,686)   (329,837)  (394,660)

Income Tax                              2,400          0       7,450          0

Net Loss                             (202,397)  (234,686)   (337,287)  (394,660)

Accumulated Deficit              (1,921,883) (1,177,840) (1,921,883) (1,177,840)

Weighted average number of shares 
  outstanding...................... 3,832,345  2,515,700   3,832,345  2,515,700
                                    ========== ==========  ========== ==========

Basic loss per share..............    ($0.05)    ($0.09)     ($0.09)    ($0.16)
                                    ========== ==========  ========== ==========
</TABLE>
                      See accompanying notes. 

<PAGE>

                              AMERICAN CHAMPION ENTERTAINMENT, INC.
                         Condensed Consolidated Statements of Cash Flows
                                        (unaudited)
<TABLE>
<CAPTION>
                                                       Three Months Ended       Six Months Ended
                                                           June 30,                 June 30,
                                                      -----------------------  -----------------------
                                                      1998        1997         1998        1997
                                                      ----------- -----------  ----------- -----------
<S>                                                   <C>         <C>          <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................       ($202,397)  ($234,686)   ($337,287)  ($394,660)
Adjustments to reconcile net loss to
  net cash used for operating activities:
    Gain on sale of studio......................              $0          $0    ($115,473)         $0
    Depreciation and amortization...............          29,283      12,229      118,088      25,011
    Write off of film costs.....................               0           0            0       --
    Interest amortization, debt issue costs.....               0      23,016            0      44,014
    Rent concession amortization................               0      (1,054)      (2,108)     (2,108)
    Loss on property and equipment..............               0         440            0         440
    Common stock issued related to salary.......               0           0            0       --
    Common stock issued related to loan fees....               0           0            0       --
Decrease in:
  Accounts receivable...........................         170,000           0      170,000       --
  Prepaid expenses and other....................            (279)    (10,636)      19,808      (6,583)
Increase in:                                                   0           0            0           0
  Accounts payable and accrued expenses.........         (32,832)      8,135      148,871      (4,626)
  Deferred revenues.............................         (81,331)    (21,035)    (154,110)    (86,393)
  Other liabilities.............................               0           0            0       --
                                                      ----------- -----------  ----------- -----------
     Net cash used for operating activities.....        (117,556)   (223,591)    (152,211)   (424,905)
                                                      ----------- -----------  ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..............         (11,450)     (1,618)     (24,676)     (1,618)
Payments for film costs.........................        (275,221)    (23,124)  (1,462,710)    (56,313)
Advances to stockholders........................               0           0            0     (21,278)
Deposits........................................               0       9,172            0      13,866
                                                      ----------- -----------  ----------- -----------
     Net cash used for investing activities.....        (286,671)    (15,570)  (1,487,386)    (65,343)
                                                      ----------- -----------  ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stocks.........               0           0            0     248,020
Proceeds from issuance of warrants..............               0           0            0       --
Deferred Offering costs.........................               0     (20,444)           0    (111,862)
Rescission of common stock......................               0           0            0       --
Proceeds of short-term debts....................               0      95,640            0      91,210
Proceeds (payments) of loans from related
  parties.......................................             974     195,877         (778)    299,019
Payments on long-term debt......................          (4,169)    (27,565)      (6,107)    (39,486)
Principal payments on capital leases............          (2,500)     (5,311)      (4,928)    (10,805)
                                                      ----------- -----------  ----------- -----------
     Net cash provided by financing activities..          (5,695)    238,197      (11,813)    476,096
                                                      ----------- -----------  ----------- -----------
NET INCREASE IN CASH............................        (409,922)       (964)  (1,651,410)    (14,152)
CASH, beginning of period.......................         554,169      15,575    1,795,657      28,763
                                                      ----------- -----------  ----------- -----------
CASH, end of period.............................        $144,247     $14,611     $144,247     $14,611
                                                      =========== ===========  =========== ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the year for:
    Interest....................................                                  $17,662     $55,068

    State income taxes..........................                                   $5,050      $1,600

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
  AND FINANCING ACTIVITIES:
   Common stock issued for short-term debt......                                       $0     $27,000


  Debt converted to equity......................                                       $0    $133,500


  Options and common stock issued                                                      $0          $0
                                                                               =========== ===========
</TABLE>
                      See accompanying notes. 
<PAGE>


NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998


Note 1 - Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations and Consolidation - The consolidated 
financial statements include the accounts of American Champion 
Entertainment, Inc. (the "Company") and its wholly owned 
subsidiary, America's Best Karate ("ABK") which owns 100% of 
American Champion Media, Inc. ("AC Media"). The Company and AC 
Media were formed during 1997. Pursuant to an Agreement and Plan 
of Merger, dated as of July 14, 1997, the Company entered into a 
reorganization transaction pursuant to which the Company acquired 
all of the issued and outstanding shares of ABK (the 
"Reorganization"). The financial statements included herein give 
effect to the Reorganization in which the Company became the 
successor to ABK. All significant intercompany accounts and 
transactions have been eliminated in consolidation.

AC Media focuses on operating and managing all media-related 
programs for the Company. These programs consist of fitness 
information video tapes, books and audio tapes and production of 
educational television programs for children which emphasize 
martial arts values and fun. ABK focuses solely on operating and 
managing the Company's karate studios which are located in the 
San Francisco Bay Area.

Revenue Recognition - AC Media - Revenue from films is recognized 
on the accrual method. Film costs are amortized using the 
individual-film-forecast-computation method which amortizes costs 
in the ratio that current gross revenues bear to anticipated 
total gross revenues from all sources. The management of AC Media 
periodically reviews its estimates of future revenues for each 
master and if necessary a revision is made to amortization rates 
and a write down to net realizable value may occur.

ABK - Substantially all ABK's students are required to sign a 
student enrollment agreement (the "Enrollment Agreement") 
covering a period from 36 to 48 months to complete a black belt 
course or a 2nd degree black belt course, respectively. The 
students have the option to (a) make an initial fee payment equal 
to 2-5 months of instruction with the remaining amount payable 
monthly over the remaining term of the agreement, (starting with 
the month following enrollment), or (b) make one or more lump sum 
payments for the entire course at a significant discount. 
Revenues are recognized over the term of the Enrollment 
Agreement.

<PAGE>

Note 1 - Nature of Operations and Summary of Significant Accounting 
Policies (continued)

A student may cancel an Enrollment Agreement at any time. A 
refund, if any, is made if the student's advanced payments exceed 
the elapsed portion of the course, prorated at $75 per month 
(additional family members prorated at $45 per person per month). 
The elapsed portion of the course is the number of months between 
the course starting date and the cancellation date. Fee payments 
subject to refund are shown in the financial statements as 
deferred revenue which will be recognized as revenue in the 
future years if there is no cancellation by the student.

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 six 
months or less to be cash equivalents. The Company had cash 
equivalents of $20,940 at June 30, 1998.

Property and Equipment - Property and equipment is stated at 
cost. Depreciation for furniture and fixtures and certain 
equipment is computed using the straight-line method over an 
estimated useful life of five years. Leasehold improvements are 
amortized using the straight-line method over the term of the 
respective leases. Leased assets under capital lease agreements 
are amortized using the straight-line method over the shorter of 
the estimated useful lives or the length of the lease terms, 
ranging from two to five years.

Film Costs - Film costs consist of the capitalized costs related 
to the production of original film masters for videos and 
television programs. The net film costs are presented on the 
balance sheet at the net realizable value for each master.

Fair Values of Financial Instruments - The carrying value of 
cash, receivables, accounts payable and short-term borrowings 
approximates fair value due to the short maturity of these 
instruments. The carrying value of long-term obligations 
approximates fair value since the interest rates either fluctuate 
with the lending banks' prime rates or approximate market rate. 
None of the financial instruments are held for trading purposes.

<PAGE>

Note 1 - Nature of Operations and Summary of Significant Accounting 
Policies (continued)

Net Loss Per Share - Statement of Financial Accounting Standards 
(SFAS) No. 128 was adopted by the Company during the year ended 
December 31, 1997. Net loss per share is based on the weighted 
average outstanding shares issued. Because the Company has a net 
loss, the common stock equivalents would have an anti-dilutive 
effect on earnings per share. Accordingly, basic earnings per 
share and diluted earnings per share are the same.

Income Taxes - Deferred tax assets and liabilities are recognized 
for the expected tax consequences of temporary differences 
between the tax bases of assets and liabilities and their 
reported amounts. The Company and its Subsidiaries file a 
consolidated tax return.


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 the reported amounts 
of assets and liabilities and disclosure of contingent assets and 
liabilities at the date of the financial statements and the 
reported amounts of revenues and expenses during the reporting 
period. Actual results could differ from those estimates. 
Significant estimates used in these financial statements include 
the recovery of film costs which has a direct relationship to the 
net realizable value of the related asset. It is at least 
reasonably possible that management's estimate of revenue from 
films could change in the near term which could have a material 
adverse effect on the Company's financial condition.


Note 3 - Property and Equipment

Furniture and fixtures                                       $   88,910
Equipment                                                        60,355
Leasehold improvements                                            3,228
Leased assets                                                   119,899
Production equipment                                            234,350
                                                               --------
                                                                506,742

Less accumulated depreciation and amortization                  259,710
                                                               --------
                                                             $  247,032
                                                               ========

<PAGE>

Note 3 - Property and Equipment (continued)

Depreciation expense was $33,067 for the six months ended 
June 30, 1998. The accumulated depreciation related to the leased 
assets at June 30, 1998 was $119,899.


Note 4 - Film Costs

Film costs consist of the capitalized costs related to the 
production of videos and program for television as follows:

Television program             
         Adventures With Kanga Roddy                          $3,804,830
Videos
           Montana Exercise Video                                148,253
           Strong Mind Fit Body                                   18,042
                                                                --------
                                                               3,971,125
                                                                --------
         Less accumulated depreciation                           148,019
                                                                --------
                                                               3,823,106

         Less current portion of film costs                    1,200,000
                                                                --------
         Long-term portion of film costs                      $2,623,106
                                                              ========== 


Production of the first seven episodes of The Adventures of Kanga 
Roddy was completed during 1997. Six additional episodes were 
completed during the six months ended June 30, 1998. Both videos 
were completed in 1996, but only the Strong Mind Fit Body video 
has been released.


Note 5 - Notes Payable, Related Parties

The note payable to related party bears interest at 12% and is 
unsecured. The note has been classified as current, as the non-
current portion is not material.

<PAGE>

Note 6 - Long-Term Debt

Long-term debt consists of a credit line with a bank pursuant to 
which the Company has a balance of $31,217 outstanding at 
March 31, 1998, repayment of which is made at the monthly rate of 
2% of the outstanding balance of the borrowing. Other than the 
bank loan and an immaterial amount owed to another bank, the 
Company does not presently maintain any other borrowing facility 
or have any indebtedness to financial institutions.

The Company also has loans from three individuals and a bank 
totaling $26,875, with interest at rates ranging from 13% to 14%, 
maturing through June 2000.


Note 7 - Income Taxes

Reconciliation of the Federal statutory tax rate of 34% and state 
tax rate of 9.3% to the recorded amounts are as follows:

Federal tax benefit at statutory rates                        $  (132,000)
State tax benefit at statutory rates                              (20,000)
Other                                                              30,550
Increase in valuation allowance                                   114,000
                                                                 ---------
                                                              $    (7,450)
                                                                 =========

The Company has net operating loss (NOL) carryforwards for 
federal income tax purposes of approximately $1,350,000 and for 
state income tax purposes of approximately $675,000, the benefits 
of which expire in 2011 through 2013. The NOLs created by the 
Company's subsidiaries prior to the 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.

<PAGE>

Note 7 - Income Taxes (continued)

Significant components of the Company's deferred tax assets and 
liabilities are as follows:

DEFERRED TAX ASSETS
  NOL carryforward                                        $  555,000
  Deferred revenue                                           131,000
  Other                                                         -
  Valuation allowance                                       (614,000)
                                                            ---------
                                                              72,000
                                                            ---------

DEFERRED TAX LIABILITIES
  Accounts receivable                                         52,000
  Depreciation                                                20,000
                                                            ---------
                                                              72,000
                                                            ---------
                                                                -
                                                          $
                                                            =========

SFAS No. 109 requires 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 June 30, 1998.


Note 8 - Lease Commitments

The Company leases facilities under operating leases and gym 
equipment under capital leases that range from two to six years 
and expire at various dates through 2000. Some leases have 
options to renew for additional terms and some require additional 
increases as defined.

<PAGE>

Note 8 - Lease Commitments (continued)

Future minimum lease payments under these leases are:

                                                         Capital      Operating

1998                                                   $ 11,615       $  64,134
1999                                                      1,049          90,648
2000                                                       -             15,553
                                                        -------         -------
Total minimum lease payments                             12,665       $ 170,335
                                                                        =======
Less amount representing interest                           871
                                                        -------
Present value of net minimum capital lease payments      11,794
Less current portion of obligations under capital lease  10,945
                                                        -------
Non-current portion of obligations under capital lease $    849
                                                        =======

Management of the Company has developed a plan to close certain 
studios related to its karate studio segment. As of June 30, 
1998, the Company has accrued $57,000 to account for the 
estimated costs to be incurred in future periods related to 
studios which have been closed. The accrual is included in 
accounts payable and accrued expenses in the accompanying balance 
sheet.


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.

<PAGE>

Note 9 - Commitments and Contingencies (continued)

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 
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. For the period ended June 30, 1998, the Company 
had recognized revenue of $215,000 which was based on delivery of 
the remaining six episodes. 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 
for approximately $900,000. No revenue has been recognized from 
this transaction as of June 30, 1998.

In June and July 1997, the Company and SEGA entered into two 
agreements appointing SEGA as the Company's non-exclusive agent 
for purposes of licensing and merchandising the "Kanga Roddy" 
trademark, brand name and logo. In such agreements, SEGA agreed 
to introduce the Company to prospective sub-licensees in 
consideration of an amount equal to 30% of all revenues earned by 
the Company under any agreement entered into during the three-
year period following execution of the agreement by the Company 
with any person or entity introduced to the Company by SEGA. 
Pursuant to such agreement, SEGA is not subject to any minimum 
sales requirement.

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

Advances to stockholders were $115,137 at June 30, 1998.

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 intended initial public offering and another 
$50,000, which is included in accounts payable at June 30, 1998, 
will be paid 30 days prior to the release date. These two 
participants are stockholders of the Company.

<PAGE>

Note 11 - New Authoritative Pronouncements

In June 1997 the Financial Accounting Standards Board (FASB) 
issued Statement of Financial Accounting Standards (SFAS) No. 130 
and SFAS No. 131 and in February 1998 issued SFAS No. 132. SFAS 
No. 130 establishes standards for reporting and display of 
comprehensive income and its components. SFAS No. 131 establishes 
standards for reporting operating segments, products, and 
services, geographic areas, and major customers. SFAS No. 132 
revises employers' disclosures about pension and other post-
retirement benefit plans. The standards become effective for 
fiscal years beginning after December 15, 1997. Management plans 
to adopt these standards in the year ending December 31, 1998. 
Management believes the provisions of SFAS Nos. 130, 131 and 132 
will not have a material effect on the financial condition or 
reported results of operations. 


Note 12 - Industry Segments

The Company is involved in the development of educational 
television programs and fitness videos and operates a chain of 
karate studios 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 six months ended June 30, 1998 are as follows:

<PAGE>

Note 12 - Industry Segments (continued)

Net Sales [1]:
  Tuition and Related Fees                                     $  341,808
  Videos and Television                                           246,667
  Corporate                                                        29,098
                                                               ----------
  NET SALES                                                    $  617,573
                                                               ==========

Depreciation and Amortization:
  Tuition and Related Fees                                     $    5,139
  Videos and Television                                           112,949
  DEPRECIATION AND AMORTIZATION                                $  118,088
                                                               ==========

Capital Expenditures
  Tuition and Related Fees                                     $    5,938
  Videos and Television                                         1,481,448
                                                               ----------
  CAPITAL EXPENDITURES                                         $1,487,386

Income [Loss] From Operations:                                 
  Tuition and Related Fees                                     $ (226,379)
  Videos and Television                                            79,264
  Corporate                                                      (190,172)
                                                               -----------
  NET LOSS                                                     $ (337,287)

Identifiable Assets [2]:
  Tuition and Related Fees                                     $  334,655
  Videos and Television                                         4,124,886
                                                               -----------
  Totals                                                        4,459,541
  Add: Corporate                                                   85,193
                                                               -----------
                                                               $4,544,734
                                                               ===========

[1] There were no sales between industry segments.
[2] Corporate and other assets are principally cash and prepaid 
expenses.


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 $100,000, $100,000, $65,000 
and $39,600 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 years for Mr. Hutchins) exercise period 
of such Warrants. In addition, 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.

        The Company has executed, with approval by an by unanimous written
consent of the Compensation Committe, effective on July 1, 1998, amendments to
employment agreements with certain key employees to adjust their compensation
in both salary and stock option grants.  Such stock option grants are
exercisable at $6.5625 per share, which is the closing price of the Company's
common stock on July 1, 1998 as traded on Nasdaq.

                                                                  Stock Option
                                                     Annual       Grants each 12
Name             Position                            Salary       month period

George Chung     Chairman of the Board & Director    $150,000     20,000 shares

Anthony K. Chan  President, Chief Executive Officer  $150,000     20,000 shares
                 & Director

Don Berryessa    Senior Vice President, Chief        $105,000     15,000 shares
                 Operations Officer & Director

Jan D. Hutchins  President of American Champion      $75,000      10,000 shares
                 Media & Director

Mae Lyn Woo      Vice President & Chief Financial    $70,000      15,000 shares
                 Officer

Kristen Simpson  Vice President of Marketing and     $93,900      10,000 shares*
                 Development

*  Stock option grants to Kristen Simpson can be up to 20,000 shares for each
   12 month period based on certain performance levels, which details are
   contained in Exhibit 10.34.

<PAGE>

Note 14 - Stock Plans

The Stock Plan was adopted by the Board of Directors and 
stockholders of the Company during 1997. The total number of 
shares of Common Stock subject to issuance under the Stock Plan 
is 400,000, subject to adjustments as provided in the Plan. 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.

In the event of a change in control of the Company, the Committee 
retains the discretion to accelerate the vesting of stock options 
and SARs and to remove restrictions on transfer of restricted 
stock awards. 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. Each warrant entitles the 
registered holder to purchase one share of common stock at $6.50 
per share at any time through August 2002. In addition, $250K 
warrants were issued to the underwriters for nominal 
consideration.

Note 16 - Stock Options

At December 31, 1997, there were 400,000 options authorized and 
393,000 options outstanding under the Company's Stock Plan. 
During 1998, the Plan was amended to increase the authorized 
options to 800,000. No options were exercised or canceled during 
the six months ended June 30, 1998.

<PAGE>

Note 16 - Stock Options (continued)

Stock options granted to non-employees for services provided to 
the Company are accounted for under by Statement of Financial 
Accounting No. 123 (SFAS 123), "Accounting for Stock-Based 
Compensation." At December 31, 1997, the Company accounted for 
100,000 options which were issued in connection with the 
production of The Adventures With Kanga Roddy under this method. 
These options were valued at $200,000 and are included in film 
costs and additional paid in capital in the accompanying balance 
sheet.

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. 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. 
No options were granted during the six months ended June 30, 
1998.

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 1997: risk free 
interest rate of 6.25 percent; dividend yield of 0 percent; 
expected option life of 7 years; and volatility of 42 percent.

For purposes of pro forma disclosures, the estimated fair value 
of the options is amortized to expense over the two-year average 
vesting period of the options. The Company's pro forma net loss 
for the six months ended June 30, 1998 was $(320,000) and pro 
forma net loss per share was $(.08).

                                           Shares of Common Stock
                              ------------------------------------------------
                               Available For
                                Exercise of         Options         Warrants
                               Option/Award        Under Plan
                              ------------------------------------------------
Balance, December 31, 1997         7,000            393,000         1,755,000
  Authorized                     400,000               -                 -
  Granted                           -                  -                 -
                                ---------          ---------        ---------
Balance, June 30, 1998           407,000            393,000         1,755,000
                                =========          =========        =========

No options were exercised or lapsed during the six months ended June 30, 1998.

<PAGE>

Note 16 - Stock Options (continued)

           Options and Warrants Outstanding    Options and Warrants Exercisable
          ----------------------------------  ----------------------------------
                        Weighted
                        Average    Weighted                         Weighted
                       Remaining   Average                          Average
            Number    Contractual  Exercise          Number         Exercise
          Outstanding     Life      Price          Exercisable       Price

Options     393,000       7.3      $   5.61          368,000         $  5.61

Warrants  1,755,000       4.3      $   6.50        1,495,000         $  6.50


Note 17 - Year 2000

In the opinion of management, no material adverse effect on 
either results of operations or financial position is anticipated 
due to the modifications or replacement of existing information 
systems in order to accommodate year 2000 implications.


Note 18 - Sale of Karate Studio

During the six months ended June 30, 1998, the Company sold a 
karate studio to the location's  general manager. The Company 
received a note receivable of $52,859 due in 70 monthly payments of 
$1,000 including interest imputed at 10%. The Company has 
guaranteed payments of the studio lease which are $4,673 per month 
through March 2000. The Company retained all advance payments of 
enrollment fees which were $156,536 at June 30, 1998; however, the 
Company is liable for any future refunds to students enrolled prior 
to June 30, 1998. The Company reduced the liability for advance 
payments of enrollment fees to $19,000 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

Financing - In July 1998, the Company issued approximately 
$1,800,000 of convertible debt securities, the proceeds from 
which will be used for production expenses.

Leases - The Company entered into a new lease agreement for its 
corporate headquarters subsequent to June 30, 1998. The new lease 
stipulates monthly payments in the amount of $10,000.00, and 
expires on July 31, 2000.

<PAGE>

PART I -        FINANCIAL INFORMATION

ITEM 2 -        Management's Discussion And Analysis Of 
                Financial Condition And Results Of Operations


Forward Looking Information

The Private Securities Litigation Reform Act of 1995 provides a "safe 
harbor" from liability for forward-looking statements. Certain 
information included in this Form 10-QSB and other materials filed or 
to be filed by the Company with the Securities and Exchange Commission 
(as well as information included in oral statements or other written 
statements made or to be made by or on behalf of the Company) are 
forward-looking, such as statements relating to operational and 
financing plans, capital uses and resources, competition, and demands 
for the Company's products and services. Such forward-looking 
statements involve important risks and uncertainties, many of which 
will be beyond the control of the Company. These risks and 
uncertainties could significantly affect anticipated results in the 
future, both short-term and long-term, and accordingly, such results 
may differ from those expressed in forward-looking statements made by 
or on behalf of the Company. These risks and uncertainties include, but 
are not limited to, the acceptance by the television viewer and public 
television stations of the television series - ADVENTURES WITH KANGA 
RODDY, production delays and/or cost overruns with respect to such 
series, changes in external competitive market factors or in the 
Company's internal budgeting process which might impact trends in the 
Company's results of operations, unanticipated working capital or other 
cash requirements, changes in the Company's business strategy or an 
inability to execute its strategy due to unanticipated change in the 
industries in which it operates; and various competitive factors that 
may prevent the Company from competing successfully in the marketplace.


The following section discusses the significant operating changes, 
business trends, financial condition, earnings and liquidity that have 
occurred in the three-month period ended June 30, 1998. This discussion 
should be read in conjunction with the Company's consolidated financial 
statements and notes appearing elsewhere in this report.


Results of Operations

        Revenues.  For the three months ended June 30, 1998, the  Company's
total revenue increased to $235,575, an increase of $46,601  or 25% as compared
to total revenue for the three months ended June 30,  1997 of $188,974.  This
increase is mainly due to the recognition of deferred revenues from the
Company's karate studio operation and film income derived from sponsorship
revenue for the television show "Adventures With Kanga Roddy" as detailed below.

        The Company's revenues from the operation of its karate studios  for
the three months ended June 30, 1998 was $192,027, an increase of  12% from
revenues of $171,462, for the three months ended June 30,  1997.  The increase
is attributable to deferred revenues claimed this quarter from  the Company's
karate studio that was sold on March 31, 1998.  The studio was sold to a former
employee of the Company for $52,859 which was paid in the form of a promissory
note which provides for 70 monthly payments of $1,000 including interest.  

        For the three months ended June 30, 1998, the Company recognized 
$31,667 in film income.  Film income was derived from the proration of 
sponsorship revenue for the television show "Adventures With Kanga 
Roddy". On April 29, 1998, the Company executed a sponsorship 
agreement with Sara Lee Corporation, the parent company of Hanes, which 
provides for Hanes' corporate sponsorship of the "Adventures With Kanga 
Roddy" show.  The sponsorship amount is $95,000 and the sponsorship 
period is from May 1998 through October 1998.

<PAGE>

        Costs and Expenses.  The Company's revenue from its karate 
studios and film business were offset by amortization of film costs of 
$11,688, calculated in proportion to the revenue generated by the 
television show in this second quarter to total expected revenues from 
the television show.

        The Company's expenses for salaries and payroll taxes decreased 
by $5,158 or 3% for the three months ended June 30, 1998 from $188,110 
for the comparable period in 1997.  The slight decrease was  the 
combined result of a decrease in karate studio personnel offset by a 
comparable increase in administrative, film production and marketing 
personnel.  

        Rent expense decreased by $36,486 or 33% for the three months  ended
June 30, 1998 from $109,567 for the comparable period in 1997.   The decrease
is due to the closure of five (including two in Las Vegas) of the Company's
karate studios in 1997 and one studio sold at the end of the first quarter
1998.  The Company is currently operating a total of four studios in California.

        Total selling, general and administrative expenses increased by 
$84,675 or 122% for the three months ended June 30, 1998 from $69,134 
for the comparable period in 1997.  This increase is primarily due to 
promotional expenses related to the television show, depreciation of 
production equipment and legal and accounting fees.

        Interest expense decreased $36,684 or 81% for the three months 
ended June 30, 1998 from $45,445 for the comparable period in 1997.   
This decrease in expense is attributable to the payoff of loans in 1997 
with proceeds from the Company's IPO.

        As a result of the foregoing factors, the Company's net loss 
decreased by $34,689 or 15% from $234,686 for the three months ended 
June 30, 1997 to $199,997 for the three months ended June 30, 1998.  
Net loss per share decreased from $0.09 for the three months ended 
June 30, 1997 to $0.05 for the comparable period in 1998.  Weighted 
average number of shares outstanding increased from 2,515,700 for the 
three months ended June 30, 1997 to 3,832,345 for the comparable period 
in 1998 due to the Company's initial public offering on July 30, 1997.

Liquidity And Capital Resources

        Cash decreased for the six months ended June 30, 1998 by 
$1,651,410 of which $1,487,386 was for investing activities related to 
the production of the Adventures With Kanga Roddy show.  Net operating 
cash loss was $152,211 and the balance of $11,813 was used in financing 
activities.

        As of June 30, 1998, total long-term debt was $51,785 and loans 
payable to related parties was $36,477.  In addition, deferred revenues 
were $222,491 (current portion) and $104,305 (long-term liabilities) at 
June 30, 1998.  Deferred revenues are pre-paid tuition for the karate 
studios and booked revenue from sponsorship activities which cannot be 
immediately recognized.  

        Due to the closure of the Company's two karate studios in Las Vegas,
lease obligations had been restructured with the property owners.  For these
two leases, the Company is obligated to pay a total of approximately $4,150
monthly until April 2000, and thereafter $1,500 monthly until November 2002.

Recent Developments

        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-
half hour shows.  

<PAGE>

        In anticipation of its need for additional working capital to 
produce more episodes of the Kanga Roddy series, the Company has signed 
agreements with two investors for the sale of up to $1.8 million of 7% 
convertible debentures.  Details of this transaction can be obtained 
from the Company's filing of a Form S-3 Registration Statement with the 
Securities and Exchange Commission on August 3, 1998.

        The Company has executed, with approval by an by unanimous written
consent of the Compensation Committe, effective on July 1, 1998, amendments to
employment agreements with certain key employees to adjust their compensation
in both salary and stock option grants.  Such stock option grants are
exercisable at $6.5625 per share, which is the closing price of the Company's
common stock on July 1, 1998 as traded on Nasdaq.

                                                                  Stock Option
                                                     Annual       Grants each 12
Name             Position                            Salary       month period

George Chung     Chairman of the Board & Director    $150,000     20,000 shares

Anthony K. Chan  President, Chief Executive Officer  $150,000     20,000 shares
                 & Director

Don Berryessa    Senior Vice President, Chief        $105,000     15,000 shares
                 Operations Officer & Director

Jan D. Hutchins  President of American Champion      $75,000      10,000 shares
                 Media & Director

Mae Lyn Woo      Vice President & Chief Financial    $70,000      15,000 shares
                 Officer

Kristen Simpson  Vice President of Marketing and     $93,900      10,000 shares*
                 Development

*  Stock option grants to Kristen Simpson can be up to 20,000 shares for each
   12 month period based on certain performance levels, which details are
   contained in Exhibit 10.34.


PART II - OTHER INFORMATION

Item 1.  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.  On July 6 the Company 
filed an answer to Mr. Jeffreys 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.

Item 6.  Exhibits and Reports on Form 8-K.

        (a)     Exhibits.  See the Exhibit Index beginning on page 24.

        (b)     Reports on Form 8-K.  No reports on Form 8-K were filed 
                during the quarter for which this report is filed.

<PAGE>

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 
1934, the Company has duly caused this report to be signed on its 
behalf by the undersigned, thereunto duly authorized.

                                    AMERICAN CHAMPION ENTERTAINMENT, INC.
                                    (Registrant)

Dated:  August 7, 1998                 By:      /s/ Anthony K. Chan     

                                       Anthony K. Chan, Chief Executive Officer

<PAGE>


                           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     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
 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    Amendment to Employment Agreement with George Chung, dated July 1,
          1998
 10.30    Amendment to Employment Agreement with Anthony Chan, dated July 1,
          1998
 10.31    Amendment to Employment Agreement with Don Berryessa, dated July 1,
          1998
 10.32    Amendment to Employment Agreement with Jan Hutchins, dated July 1,
          1998
 10.33    Amendment to Employment Agreement with Mae Lyn Woo, dated July 1,
          1998
 10.29    Amendment to Employment Agreement with Kristen Simpson, dated July 1,
          1998
 21.1(1)  Subsidiaries of the Registrant 
 23.1(2)  Consent of Moss Adams, LLP
 27.1     Financial Data Schedule


(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.

<PAGE>