Hug hug....He is in China and if not US citizen, out of US juris
I assume even if you appeal, you probably have to appeal in china, where you don't have any networking and connection, which also means there is a very slight chance to win. I'm so sorry to say that and it probably makes you disappointed. But it's better to know as a reminder. If you decide to do so, try to seek for any possible help for the lawsuit from your friends back in china.It's very important. Of course if like all the other JMs' suggestions, you can get the justice by filing in the states, it'll be perfect.
For the kids, I don't think it's a good idea to directly tell the truth,and the irresponsible side of their dad.That'll make you just like their stupid evil dad.
To a 10 and 12 year old like your kids, the direct truth hurts a lot and may cause more damage to their innocent hearts. You can use other ways, like telling a story, or doing calculations, without directly addressing their dad's bitter issue.
For example, tell your own story but make the characters as other family, ask questions during the story telling and then you can make a subtle comparison between the story and your family at the very end.
Important thing is, you have to ensure them both you and their dad love them unconditionally, even if it seems a lie talking about their dad this way:(
Good luck!