FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] Annual Report pursuant to Section 13 or 15(d) of THE SECURITIES
EXCHANGE ACT of 1934 for the three fiscal years ended October 31, 1997.
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 0-7633
CONTINENTAL HERITAGE CORPORATION
(Exact name or Registrant as specified in its charter)
Delaware 75-1449332
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1020 Macon Street, Fort Worth, Texas 76102
(Address of principal executive offices)
Registrant's telephone number, including area code: (817)429-6261
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
On Which Registered
None --
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value per share
(Title of class)
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 No X
Indicate by a check mark if the disclosure of delinquent filers pursuant
to Item 405 of Regulation S-X is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or in
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Based on the closing sales price of June 30, 1995, the aggregate market
value of the voting stock held by non-affiliates of the registrant was $*.
The number of shares outstanding of the registrant's common stock, $.10
par value, at September 30, 1998 was 1,373,860.
APPLICABLE ONLY TO REGISTRANTS 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 of 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
None
This Annual Report on Form 10-K has 36 pages. The Exhibit Index is on page 31.
- -----------------
*As stated in Item 5 of this Annual Report on Form 10-K there were no published
quotations in the Pink Sheets for the registrant's common stock during the
three fiscal years of the Registrant ended October 31, 1997 and the current
fiscal year through August 31, 1998. The Registrant has been advised by the
National Quotation Bureau, the publisher of the Pink Sheets, that there were no
published quotations for such stock since October 31, 1994, the period covered
by the last Annual Report on Form 10-K of Registrant. Accordingly, no
aggregate market value for the stock held by non-affiliates can be provided.
<PAGE>
TABLE OF CONTENTS
Page No.
Item 1. BUSINESS 4
Item 2. PROPERTIES 9
Item 3. LEGAL PROCEEDINGS 9
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS 9
Item 6. SELECTED FINANCIAL DATA 10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION 10
Item 7A QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 11
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 12
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 29
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 29
Item 11. EXECUTIVE COMPENSATION 30
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 30
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 31
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K 32
<PAGE>
PART I
Item 1. BUSINESS.
Introduction
The last Annual Report on Form 10-K filed by Continental Heritage
Corporation , which together with its subsidiaries is collectively referred to
in this Annual Report as the "Registrant" unless otherwise indicated by the
context, pursuant to Section 13 or 15(d) of the Securities and Exchange Act of
1934, as amended ("Exchange Act"), was its Annual Report on Form 10-K for the
fiscal year ended October 31, 1994. In that Annual Report and in prior Annual
Reports, the Registrant reported a significant shortfall in its working capital
causing it to rely on advances made to it by its principal shareholder to pay
all of its expenses other than those related to office building in Hurst, Texas
where rental revenues were sufficient to pay the expenses and debt service
related to that building. In order to conserve its funds the Registrant did
not file its Annual Reports for the years ended October 31, 1995 to October 31,
1997. As indicated below, the Registrant has entered into a letter of intent
to acquire the outstanding shares of Encore International, Inc. ("Encore"), a
recently organized company, which proposes to conduct a business of
distributing through a network of distributors directly to retail customers
pharmaceutical products that can be administered via a transdermal drug
delivery through the skin from adhesive patches, other pharmaceutical and first
aid products and homeopathic products. Under the terms of the letter of intent
between Encore and the Registrant, the Registrant obligated itself to become
current in its filings under the Exchange Act. In connection therewith, Encore
loaned to the Registrant the sum of $20,000 which Registrant will use towards
payment of professional fees incurred in bringing its periodic reports under
the Exchange Act current.
During the three fiscal years ended October 31, 1997, the Registrant
continued to be engaged in various aspects of real estate business, such as
management and investment in real properties. During November, 1994, the
Registrant sold its quarter horses, resulting in the termination of that
business activity. As a result, the Registrant's business consisted of the
ownership of both an office building in Hurst, Texas and one undeveloped real
property parcel. The Registrant has not been able to interest developers or
financial institutions in assisting in the development of its undeveloped
property.
Manhattan National Properties, Inc. was acquired in 1989 in a tax free
exchange for all of the stock in Manhattan National Properties, Inc. for
100,000 shares of common stock of the Registrant. The business of Manhattan
National Properties, Inc. is the ownership and operation of an office building
in Hurst, Texas at 951 W. Pipeline Road. This is a one story brick veneer
building consisting of approximately 27,000 square feet.
Registrant's executive offices are located at 1020 Macon Street, Fort
Worth, Texas. These offices contain approximately 470 square feet of floor
area and are leased at the present time on a month to month rental of $272.50.
During the three fiscal years ended October 31, 1997 and for the period of the
current fiscal year to date, Registrant's income arose solely out of the rental
revenues derived from the office building in Hurst, Texas.
Although there are Federal, State and local statutes, regulations and
ordinances relating to discharge of material into the environmental or
otherwise relating to the environment including those concerning clear air,
water and sewage, in Registrant's opinion none of these will materially or
adversely affect the Registrant's contemplated use or development of its
properties. In addition, Federal and State statutes and regulations have been
enacted for the protection of the purchaser of the subdivided lands, including
those covering financing of the purchase price, interest rates and disclosure
or registered requirements. The Registrant does not believe that compliance
with such statutes and regulations will materially or adversely affect any
possible subdivision of any of its undeveloped property located in Forest Hill,
Texas.
The Registrant during the past several years has in general been able to
meet its current obligations from rental revenues produced by the Hurst, Texas
office building. The Registrant attempted to expand its business interest to
act as a real estate agent but did not realize any income from such activity.
All such efforts have been terminated.
Registrant determined that owning and dealing in registered quarter horses
was not profitable and terminated this business by selling all of such horses.
Through October 31, 1994, the business of selling, breeding and training these
horses was not a profitable enterprises. The Registrant sold the horses on
November 29, 1994, for $45,000. A loss was incurred on such sale.
Apollo Enterprises, Inc. (a wholly owned subsidiary of the Registrant)
owns approximately 63 acres of undeveloped land in Forest Hill, Texas. It has
tried to develop or sell the 63 acres in Forest Hill, Texas or find a joint
venture partner to develop the property, but has not yet been successful in
these efforts. There is not assurance that the Forest Hill property can be
developed or sold in the near future.
Apollo Realty, Inc. (a wholly owned subsidiary of the Registrant) was
formed and incorporated in the State of Texas on August 5, 1987. It was formed
so that the Registrant could actively pursue sale of commercial and residential
properties other than properties owned by the Registrant and its subsidiaries .
Although the Registrant felt that the commissions on such sales could be an
important source of income, it was unable to effect any sales. The Registrant
has terminated such activities.
The Registrant considers the Hurst, Texas office building an excellent
property for renovation and improvement for leases and/or sale. Substantial
improvements have been made, but these improvements have been limited and
primarily have been made when leases are signed and funds are available for
financing. Leasing of space in this building has improved and rents have
increased. The mortgage loan, which as of October 31, 1994 was in the
principal amount of $151,001, and secured by a mortgage on the Hurst building,
was paid off during the current fiscal year.
Letter of Intent with Encore International, Inc.
As indicated above, and in the Registrant's Current Report on Form 8-K filed
with the Securities and Exchange Commission on September 14, 1998, as of
September 3, 1998, a letter of intent dated August 27, 1998 was entered into
among the Registrant, Walter G. Cook, its principal shareholder and President,
Encore, a privately held company located in Oklahoma City, Oklahoma, and Lee
Kaplan, a principal stockholder of Encore. Under the terms of the letter of
intent, it is proposed that the Registrant acquire all of the outstanding
common stock of Encore in exchange initially for 5,500,000 shares of the
Registrant's common stock with an additional 2,000,000 shares issuable to the
shareholders of Encore as follows: 1,000,000 shares to be issued to the
original shareholders of Encore if the sales of the Registrant, on a
consolidated basis, for the first calendar year following the transaction,
equal or exceed $8,000,000 and, in the event that sales on a consolidated but
non-cumulative basis for the second calendar year after the transaction equal
or exceed $15,000,000, an additional 1,000,000 shares of the Registrant's
common stock will be so issued.
Encore is a recently organized company which has yet to conduct the
business which it proposes to conduct. Encore has acquired certain assets
described in the next sentence from Aspira 2000, Inc., a company which
previously sold via a network of distributors directly to retail customers
nutri-ceutical products and homeopathic products. The assets so acquired by
Encore consist primarily of database and software programs used to maintain
Aspira's distribution system, store market research data and genealogy tracking
relative to products previously sold by it. Aspira 2000, Inc. is presently
inactive. Encore intends to sell homeopathic products and nutri-ceutical
products through a network of distributors directly to retail customers.
Further, under the terms of the letter of intent, at or prior to the
acquisition of the outstanding stock of Encore by the Registrant, the two
properties owned by the Registrant, consisting of the office building in Hurst,
Texas and approximately 65 undeveloped acres of realty in Forest Hill, Texas,
and certain assets related to the properties, will be transferred to Walter G.
Cook in satisfaction of the indebtedness of the Registrant to Walter G. Cook.
As of October 31, 1997, such indebtedness consisted of $408,631.79 of principal
and $369,369.48 of accrued interest or a total of $778,001.27 and is evidenced
by a note of the Registrant and three subsidiaries of Registrant, Apollo
Enterprises, Inc., Manhattan National Properties, Inc. and National Heritage
Corporation. The note bears interest at the rate of 12% per annum. It is
intended, at or prior to the acquisition of the outstanding shares of Encore,
that the subsidiaries of the Registrant that own the aforementioned office
building and 65 acres will borrow an aggregate of $150,000 to be secured by
mortgages on each of such properties. Such funds will be used to reduce the
outstanding debt of the Registrant to Walter G. Cook. Mr. Cook, in connection
with the transfer of the office building and the Forest Hill property, will
assume the obligations of the entities borrowing the $150,000 to repay the same
to the lender.
Consummation of the transactions involving the acquisition by the
Registrant of the outstanding shares of Encore and the issue by it initially of
5,500,000 shares of its common stock, are conditioned upon the preparation,
approval and execution of a definitive acquisition agreement between the
Registrant and the holders of the outstanding capital stock of Encore.
Item 2. PROPERTIES.
Reference is made to Item 1 of this Annual Report on Form 10-K for
information concerning the properties of the Registrant.
Item 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending against the Registrant or
any of its subsidiaries.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
Market Information
The principal United States market in which the Registrant's Common Stock
has been traded in the past is the over-the-counter market. The Registrant has
been advised by the National Quotation Bureau, LLC that during the three fiscal
years ended October 31, 1997, and the current fiscal year through August 31,
1998, there were no bid or offer quotations for Registrant's Common Stock in
the Pink Sheets published by it.
Security Holders
The approximate number of holders of record of the Registrant's Common
stock as of September 30, 1998 was 232.
Dividends
The payment of dividends, if any, in the future will be at the discretion of
the Registrant's Board of Directors and will depend, among other things, upon
the Registrant's earnings, its capital requirements and its financial
condition. The Registrant has not paid dividends since its inception and has no
intention of doing so in the near future.
Item 6. SELECTED FINANCIAL DATA
Statement of Income Information:
Year Ended October 31,
1997 1996 1995 1994 1993
Gross Revenues $184,367 $177,513 $190,765 $170,982 $156,223
Net Income (Loss) 7,877 432 (3,690) (61,817) (64,815)
Net Income (Loss)
Per Share .01 .00 (.01) (.045) (.04)
Dividends declared
per common share - - - - -
Balance Sheet Data:
October 31,
1997 1996 1995 1994 1993
Total Assets $774,249 $781,843 $821,132 $885,271 $907,869
Current Liabilities 60,587 75,293 123,128 115,056 110,391
Long Term Debt 778,908 778,293 770,376 838,900 804,346
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
During the five fiscal years of the Registrant ended October 31, 1997, all
of Registrant's revenues were from the rentals derived from the operation of
the Hurst, Texas office building. The revenues from the Hurst, Texas office
building are only sufficient to pay the expenses and mortgage debt service
related to that building, which mortgage debt was paid off April 1, 1998. All
other funding requirements of the Registrant were provided by advances made to
it by Walter G. Cook, its principal shareholder. Other than the payment to be
made to Walter Cook out of the proceeds of a $150,000 mortgage loan secured by
the two properties which Registrant hopes to secure, the Registrant has been
unable to make payments of interest or principal on its debt to Mr. Cook. Since
the Registrant has suffered continuing losses from its operations, unless the
Registrant is able to sell off its current real estate holdings or find another
source of capital, it will not be able to pay its debt to Mr. Coo k or be able
to acquire other properties or assets to produce revenues. Accordingly, there
is substantial doubt as to the Registrant's ability to continue as going
concern.
Management of the Registrant has for the past three years been engaged in
a search for an acquisition that would add a viable business to Registrant so
as to place it in a position to be able to continue as a going concern. Taking
that need into consideration, Registrant has entered into the letter of intent
with Encore as described in Item 1. Although Encore has yet to commence its
business activities and is in the process of negotiating a financing to provide
it with adequate working capital required to start its operations, the
Registrant has been advised by Encore that it anticipates securing such
financing so as to allow it start its business activities in the near future.
Item 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONTINENTAL HERITAGE CORPORATION
AND
CONSOLIDATED SUBSIDIARIES
FINANCIAL STATEMENTS
AS OF OCTOBER 31, 1997, 1996, 1995 AND 1994
AND FOR THE YEARS ENDED
OCTOBER 31, 1997, 1996, 1995, 1994 AND 1993
ALONG WITH AUDITORS' REPORT
<PAGE>
June 10, 1998
To the Stockholders and Board of Directors of
Continental Heritage Corporation and
Consolidated Subsidiaries
Fort Worth, Texas
Independent Auditor's Report
We have audited the accompanying balance sheets of Continental Heritage
Corporation and Consolidated Subsidiaries as of October 31, 1997, 1996, 1995
and 1994 and the related statements of income, stockholders' equity and cash
flow for the years then ended and for the year ended October 31, 1993. 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 audit.
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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Continental Heritage
Corporation and Consolidated Subsidiaries as of October 31, 1997, 1996, 1995
and 1994 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 6 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Notes 6 and
9. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
SPILLAR, MITCHAM, EATON & BICKNELL, L.L.P.
<PAGE>
CONTINENTAL HERITAGE CORPORATION
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
OCTOBER 31, 1997, 1996, 1995 AND 1994
ASSETS
1997 1996 1995 1994
CURRENT ASSETS
Cash in bank $ 36,308 $ 18,087 $ 15,521 $ 9,348
Rents receivable - - 600 1,200
Escrow held in trust 2,874 1,873 18,301 12,827
Prepaid expenses - - - 4,660
Inventory - - - 45,100
------ ------ ------ ------
Total Current Assets 39,182 19,960 34,422 73,135
PHYSICAL PROPERTY
Land 115,920 115,920 115,920 115,920
Buildings 504,607 500,532 500,532 500,532
Furnishings 4,271 4,271 4,271 4,271
------- ------- ------- -------
624,798 620,723 620,723 620,723
Less: Accumulated depreciation 185,688 160,556 135,529 110,503
------- ------- ------- -------
Total Physical Property 439,110 460,167 485,194 510,220
OTHER ASSETS AND INVESTMENTS
Raw land and development costs 271,837 271,837 271,837 271,837
Future net income tax benefits 24,200 29,579 29,579 29,579
Utility deposit - - - 400
Organization expense (net) 100 100 100 100
------- ------ ------ ------
Total Other Assets
and Investments 296,137 301,516 301,516 301,916
------- ------- ------- -------
TOTAL ASSETS $774,429 $781,643 $821,132 $885,271
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996 1995 1994
CURRENT LIABILITIES
Accounts payable $ 13,195 $ 14,413 $ 29,621 $ 50,879
Prepaid rent received 11,962 11,962 12,791 625
Rental deposits 5,630 5,000 3,650 1,400
Current portion of long-term debt 29,800 43,918 77,069 62,152
------- ------ ------- -------
Total Current Liabilities 60,587 75,293 123,128 115,056
LONG-TERM DEBT
Related party debt
and accrued interest 777,908 748,493 696,658 678,083
Long-term debt less
current portion - 29,800 73,718 160,817
------- ------- ------- -------
Total Long-Term Debt 777,908 778,293 770,376 838,900
------- ------- ------- -------
Total Liabilities 838,495 853,586 893,507 953,956
STOCKHOLDERS' EQUITY
Common stock -
par value $.10 per share
10,000,000 shares authorized,
1,373,860 issued and outstanding 137,386 137,386 137,386 137,386
Capital in excess of par value of
common stock 468,425 468,425 468,425 468,425
Retained earnings (deficit) (669,877) (677,754) (678,186) (674,496)
------- ------- ------- -------
Total Stockholders' Equity (Deficit) (64,066) (71,943) (72,375) (68,685)
------ ------ ------ ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $774,429 $781,643 $821,132 $885,271
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONTINENTAL HERITAGE CORPORATION
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996, 1995, 1994 AND 1993
1997 1996 1995 1994 1993
REVENUES
Rents $ 184,367 $ 177,513 $ 190,765 $ 170,982 $ 156,223
Sales -
net of book value - - - - -
EXPENSES
Taxes 21,794 20,267 21,798 17,132 23,919
Interest 34,122 38,686 43,002 50,647 44,332
Rent 3,270 3,270 3,270 3,270 3,270
Office expense - 51 269 209 66
Maintenance 32,335 29,433 32,760 25,149 30,358
Utilities 45,290 50,187 49,689 44,332 39,949
Legal and accounting 864 4,175 8,888 4,050 2,700
Advertising 102 - - 180 84
Insurance 3,373 3,313 540 755 4,970
Care and training
of horses - - 2,717 37,084 34,914
Telephone 4,829 2,573 2,950 2,724 3,662
Fees and dues - 99 250 92 304
Commissions - - - - 810
Depreciation 25,132 25,027 25,027 24,217 19,505
Contract services - - 1,966 10,277 15,335
Bad debts - - - 1,200 -
Travel and entertainment - - 1,329 - -
------ ------ ------ ------ ------
Total Expenses 171,111 177,081 194,455 221,318 224,178
NET INCOME (LOSS) BEFORE
FROM OPERATIONS 13,256 432 (3,690) (50,336) (67,955)
OTHER EXPENSE
Write down inventory to
market value - - - 22,965 -
NET INCOME (LOSS) BEFORE
INCOME TAX 13,256 432 (3,690) (73,301) (67,955)
INCOME TAXES
Current income tax
expense (benefit) 5,379 - - (11,484) (3,140)
NET INCOME (LOSS) BEFORE
EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE
IN 1993 $ 7,877 $ 432 $ (3,690) $ (61,817) $ (64,815)
Cumulative effect on
prior years of
accounting change - - - - 14,955
NET INCOME (LOSS) $ 7,877 $ 432 $ (3,690) $ (61,817) $ (49,860)
NET INCOME (LOSS)
PER SHARE .01 .00 .01 .04 .04
WEIGHTED AVERAGE NUMBER
OF SHARES 1,373,860 1,373,860 1,373,860 1,373,860 1,373,860
========= ========= ========= ========= =========
accompanying notes are an integral part of these financial statements.
CONTINENTAL HERITAGE CORPORATION
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996, 1995, 1994 AND 1993
Common Capital in Excess
Stock of Par Value Earnings
Balance, October 31, 1992 137,386 468,425 (562,819)
Net (loss) for the year
ended October 31, 1993 -
before effect of change
in accounting principle (64,815)
Cumulative effect on prior
years of accounting change 14,955
------- ------- -------
Balance, October 31, 1993 137,386 468,425 (612,679)
Net (loss) for the year ended
October 31, 1994 (61,817)
------- ------- -------
Balance, October 31, 1994 137,386 468,425 (674,496)
Net income (loss) for the year ended
October 31, 1995 (3,690)
------- ------- -------
Balance, October 31, 1995 137,386 468,425 (678,186)
Net income for the year ended
October 31, 1996 432
------- ------- -------
Balance, October 31, 1996 137,386 468,425 (677,754)
Net income for the year ended
October 31, 1997 7,877
------- ------- -------
Balance, October 31, 1997 $137,386 $468,425 $(669,877)
======= ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONTINENTAL HERITAGE CORPORATION
AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOW
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996, 1995, 1994 AND 1993
1997 1996 1995 1994 1993
OPERATING ACTIVITIES:
Net income (loss) $ 7,877 $ 432 $(3,690) $(61,817) $(64,815)
Adjustments to reconcile
net (loss) income to net
cash provided by operating
activities:
Cumulative effect of
accounting change 14,955
Depreciation and
amortization 25,132 25,027 25,027 24,217 19,505
Decrease in inventory 45,100 22,965
Decrease in prepaid expenses 4,660
(Increase) decrease in
escrow (1,001) 16,427 (5,473) 1,745 1,367
(Increase) decrease in
receivables 600 600 3,305 (7,240)
(Increase) in future income
tax benefit 5,379 (11,484) (18,095)
Decrease in utility deposit 400
Increase (decrease) in
accounts payable (1,218) (15,208) (21,259) 23,818 6,684
Increase (decrease) in
prepaid rent received (829) 12,166 (10,369) 10,994
Increase in accrued
liabilities and
rent deposits 29,675 29,916 28,305 28,587 24,455
------ ------ ------ ------ ------
Net Cash Provided
(Used) By Operating
Activities 65,844 56,365 85,836 20,967 (12,190)
INVESTING ACTIVITIES:
Purchase of physical
property (4,075) (29,514) (107,878)
------ ------ ------ ------ -------
Net Cash (Used) By
Investing Activities (4,075) - - (29,514) (107,878)
FINANCING ACTIVITIES:
Proceeds from borrowings 3,370 23,270 14,220 69,520 184,570
Repayment of debt (46,918) (77,069) (93,883) (72,337) (51,773)
------ ------ ------ ------ ------
Net Cash Provided
(Used) By Financing
Activities (43,548) (53,799) (79,663) (2,817) 132,797
------ ------ ------ ----- -------
Increase (Decrease) in cash 18,221 2,566 6,173 (11,364) 12,729
Cash at the beginning of
the year 18,087 15,521 9,348 20,712 7,983
Cash at the end of the year $ 36,308 $ 18,087 $ 15,521 $ 9,348 $ 20,712
====== ====== ====== ====== ======
Interest paid $ 5,076 $ 9,302 $ 16,947 $ 21,831 $ 19,873
accompanying notes are an integral part of these financial statements.
<PAGE>
CONTINENTAL HERITAGE CORPORATION
AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF OCTOBER 31, 1997, 1996, 1995 AND 1994
AND FOR THE YEARS ENDED OCTOBER 31, 1997, 1996, 1995, 1994 AND 1993
NOTE 1 - ORGANIZATION
Continental Heritage Corporation was organized in 1974 for the purpose of
operating and developing real estate and other investment projects for the
stockholders. All subsidiaries are 100% owned.
MANHATTAN NATIONAL PROPERTIES, INC. - The corporation operates a
commercial office building in Hurst, Texas and holds unimproved land in Alvord,
Texas.
NATIONAL HERITAGE CORPORATION - The corporation owns, trains, and markets
thoroughbred cutting horses. The inventory of horses was sold in December
1994.
APOLLO ENTERPRISES, INC. - This corporation owns unimproved land in Forest
Hill, Texas.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements of Continental Heritage Corporation
(the Company) include the accounts of all subsidiaries.
All significant intercompany transactions have been eliminated in
consolidation.
INVENTORY
Inventory of thoroughbred cutting horses was held as of November 1, 1994
but was sold and disposed of during the year ended October 31, 1995.
PHYSICAL PROPERTY
The property is recorded at cost and used as office rental space.
Buildings and improvements are being depreciated over 20 years on a
straight-line basis. Furnishings are depreciated over 6 years on a straight
line basis.
INVESTMENTS
Investments in land are stated at cost plus capitalized development cost
(interest and property tax).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
FEDERAL INCOME TAXES
The Company reports income for federal income tax purposes on a calendar
year basis.
In the year ended October 31, 1993 the Company adopted the new accepted
method of accounting for income taxes. Under this method, an asset is
recognized for the future benefit of the income tax loss carryforwards. Losses
are allowed to be carried forward fifteen years. The cumulative effect of the
change in accounting principle is included in determining net income for the
year ended October 31, 1993. Financial statements for prior years have not
been restated.
An asset is recognized for the future benefit of the income tax less
carryforwards and deferred interest payable to related party payees. Losses
are allowed to be carried forward fifteen years. Expiration of the benefit
begins in the year 2003.
Gross loss carryforwards resulted from losses in the following tax years.
Losses available at October 31,
1997 1996 1995 1994
Year of tax loss - 1988 $ $ $ 36,668 $ 46,856
1989 85,556 113,098 113,137 113,137
1992 13,242 13,242 13,242 13,242
1993 74,431 74,431 74,431 74,431
------ ------- ------- -------
$173,229 $200,771 $237,478 $247,666
Deferred interest of $233,519, $203,983, $176,019 and $149,871 as of October
31, 1997, 1996, 1995 and 1994 will be expensed when paid.
The above timing differences are reduced by a valuation allowance that provides
the resulting actual estimated tax benefits expected to be realized.
Valuation allowance totals $35,914, $30,468, $31,064 and $29,579 as of October
31, 1997, 1996 and 1995.
NOTE 3 - NOTES PAYABLE
The note payable at October 31, 1997, 1996, 1995 and 1994 are as follows:
1997 1996 1995 1994
Askew Nowlin Mortgage
Company - A note
due in monthly
installments of
$5,295 including
interest at 8.625%
and escrow deposit
for tax and insurance.
The note is collater-
alized by an office
building and land.
The note was paid
off in 1998. $ 29,800 $ 73,118 $ 114,019 $ 151,001
Bank One - Fort Worth -
A note due in monthly
installments of $3,200
plus interest at the
banks base rate. The
note is not collater-
alized. A lump sum is
due when the note
matures February 10,
1995. The note is in
the name of Walter G.
Cook (majority stock-
holder). All monies
are advanced directly
to and will be repaid
by the Company. The
note is expected to be
renewed in the same
terms when it
matures. $ $ $ 36,768 $ 71,968
------ ------ ------- -------
Totals 29,800 73,718 150,787 222,969
Less current portion 29,800 43,918 77,069 62,152
Long-term portion $ - $ 29,800 $ 73,718 $ 160,817
====== ====== ====== =======
The amounts of principal due are to be paid off in 1998.
NOTE 4 - NOTES AND ACCOUNTS PAYABLE TO RELATED PARTIES
1997 1996 1995 1994
Walter G. Cook
(majority stockholder) -
various notes all of
which are due on
demand or if no
demand, within three
years of the date
made. The intent of
the Company is to
renew these notes
until funds become
available from the
operations of the
Company, sales of
Company assets or
through refinancing.
The notes are not
collateralized. $ 408,631 $ 408,261 $ 315,331 $ 392,472
Interest is accrued
on these notes at
a rate of 6-7%.
As of October 31, 369,277 340,232 311,552 285,611
------- ------- ------- -------
Total related party
debt and accrued
interest $ 777,908 $ 748,493 $ 626,883 $ 678,083
======= ======= ======= =======
NOTE 5 - INDUSTRY SEGMENTS
The Company's business segments consist of rental of commercial property,
raising, training and breed of thoroughbred horses (sold in December 1995) and
land held for investment.
Year Ended Horse Invest-
October 31, 1997 Rentals Farm ments Other Total
Revenues $ 185,967 $ - $ 400 $ $ 186,367
Operating Expense (109,724) (109,724)
General and
Administration (4,133) (4,133)
Depreciation (25,132) (25,132)
Interest Expense (34,122) (34,122)
Other Income
(Expense) - Net (5,379) (5,379)
------- ------- ---- ------- -------
Net Income (Loss) $ 41,599 $ - $ 400 $(34,122) $ 7,877
Year Ended
October 31, 1996
Revenues $ 175,713 $ - $ 1,800 $ - $ 177,513
Operating Expense (105,189) (683) (105,872)
General and
Administration (7,496) (7,496)
Depreciation (25,027) (25,027)
Interest Expense (38,686) (38,686)
Other Income
(Expense) - Net - - - -
Net Income (Loss) $ 38,001 $ - $ 1,117 $(38,686) $ 432
====== ====== ===== ====== ===
Year Ended
October 31, 1995
Revenues $ 188,365 $ 45,100 $ 2,400 $ - $ 235,865
Operating Expense (107,926) (47,818) (3,406) - (159,150)
General and
Administration (12,376) - - - (12,376)
Depreciation (25,027) - - - (25,027)
Interest Expense - - - (43,002) (43,002)
Other Income
(Expense) - Net - - - - -
-------- ------- ----- ------ ------
Net Income (Loss) $ 43,036 $ (2,718) $(1,006) $(43,002) $ (3,690)
====== ===== ===== ====== =====
Year Ended
October 31, 1994
Revenues $168,582 $ - $ 2,400 $ - $ 170,982
Operating Expense (101,822) (37,103) - - (138,925)
General and
Administration (7,494) (34) - - (7,528)
Depreciation (24,218) - - - (24,218)
Interest Expense - - - (50,647) (50,647)
Other Income
(Expense) - Net 11,484 (22,965) - - (11,481)
------ ------ ---- ------ ------
Net Income (Loss) $ 46,532 $(60,102) $ 2,400 $(50,647) $ (61,817)
====== ====== ===== ====== ======
Year Ended
October 31, 1993
Revenues $153,823 $ - $ 2,400 $ - $ 156,223
Operating Expense (119,391) (34,914) - - (154,305)
General and
Administration (6,036) - - - (6,036)
Depreciation (19,505) - - - (19,505)
Interest Expense - - - (44,332) (44,332)
Other Income
(Expense) - Net 3,140 - - - 3,140
------ ------ ----- ------ ------
Net Income (Loss) $ 12,031 $(34,914) $ 2,400 $(44,332) $ (64,815)
====== ====== ===== ====== ======
NOTE 6 - GOING CONCERN CONDITIONS
Under current conditions without loans, additional capital from
shareholders, sale of assets, or additional income from operations, the Company
might not be able to continue business. The majority stockholder has loaned
and plans to continue to loan the Company necessary working capital for
operations.
The Company's management believes the market value of its assets is
significantly higher than the book value reflected in these financial
statements. Asset sales or transfers to the majority stockholder are expected
to be used to repay this debt and improve the Company's conditions.
NOTE 7 - OTHER RELATED PARTY TRANSACTIONS
The Company rents office space and services from Walter G. Cook, the
majority stockholder, during all years presented. The amount of rent expense
each year has amounted to $3,270 each year. This arrangement is month to month
but is expected to continue.
NOTE 8 - CONCENTRATION
The Corporation's commercial rental income is derived from one complex
located in Hurst, Texas and approximately 70% of its annual rental is paid by
one customer (the State of Texas).
NOTE 9 - CONTINGENT SUBSEQUENT EVENT
The Corporation intends to pay the accrued interest and related party debt
owed Walter G. Cook by transferring ownership of its commercial business
property (net book value of $293,425 at October 31, 1997), investment land
(book value of $245,723 at October 31, 1997) and a note receivable to the
Corporation with a balance of approximately $2,800 as of June 1998 to Mr. Cook.
The Corporation intends to borrow $150,000, secured by the investment land
and commercial property, that will be assumed by Mr. Cook upon transfer of
such properties to Mr. Cook. The proceeds of such loan will be used to pay
down the debt of the Corporation to Mr. Cook.
The Corporation then intends to acquire 100% of the shares of another
corporation (Encore International, Inc.) in exchange for 5,500,000 common
shares of Continental Heritage Corporation. The issuance of an additional
2,000,000 shares of the Corporation as additional consideration for the shares
of Encore International are contingent on the net sales of the Corporation in
the next two calendar years.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is provided with respect to each director and officer
of the Registrant:
Name Age Position
Walter G. Cook 71 President, Chief Executive
and Financial Officer and Director
Peggy Janes 49 Secretary-Treasurer and Director
The term of each director will expire at the next Annual Meeting of
Stockholders and when their respective successors have been elected and
qualified. Officers serve at the pleasure of the Board of Directors.
Walter G. Cook has been President of the Registrant since 1989 and a Director
and officer of the Registrant since 1975. Mr. Cook has been a practicing
attorney in Fort Worth, Texas since 1952.
Peggy Janes has been Secretary-Treasurer of the Registrant since March 1, 1989.
Ms. Janes has been employed by Walter G. Cook as an administrative assistant
for more than 23 years.
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Registrant's officers and directors and persons who own more than 10% of
registered class of the Registrant's equity securities ("Reporting Persons") to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Reporting Persons are required by Securities and Exchange
Commission regulations to furnish the Registrant with copies of all Section
16(a) reports they file.
Based solely on its review of copies of such forms received by the Registrant
and representations from certain Reporting Persons, the Registrant believes
that during each of the fiscal years ended October 31, 1995, 1996 and 1997
covered by this Annual Report, its Reporting Persons, consisting of the
officers and directors listed above in this Item 10 and the persons owning more
than 10% of the outstanding Common Stock listed in Item 12 of this Report,
complied with all filing requirements applicable to them.
Item 11. EXECUTIVE COMPENSATION
No compensation has been paid or accrued for the benefit of any executive
officer of the Registrant during the fiscal years ended October 31, 1995, 1996
and 1997.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The
following table sets forth the number of shares, based on information obtained
from the persons named below, of the Common Stock of the Registrant
beneficially owned as of September 30, 1998 by (i) owners of more than 5% of
the Registrant's Common Stock, (ii) each director of the Company and (iii) all
officers and directors of the Registrant as a Group:
Number of Shares Beneficially
Owned Percentage Owned
Walter G. Cook 541,978 (4) 39.5%
Nancy M. Cook 541,978 (5) 39.5%
Peggy Janes 21,750 1.5%
All Officers and Directors as a
Group (3 persons)
563,728 41.01%
1. The address of each of the persons listed above is c/o of the Registrant.
2. Unless otherwise noted, the Registrant believes that all persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
3. Based upon 1,373,860 shares of Common Stock outstanding as of September 1,
1998.
4. Includes 306,239 shares of Common Stock owned by Nancy Cook, Walter G.
Cook's wife. Mr. Cook disclaims any beneficial ownership of the shares owned
by his wife.
5. Includes 235,739 shares of Common Stock owned by Walter G. Cook. Nancy Cook
disclaims beneficial ownership of the shares held by her husband, Walter G.
Cook.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since November 1, 1994, no director or executive officer of the Registrant, any
nominee for election as a director, or any person known to the Company to own
of record or beneficially more than 5% of Registrant's Common Stock or any
member of the immediate family of any of the foregoing persons had, or will
have any direct or material interest in any transaction or series of similar
transactions to which the Registrant or any of it subsidiaries, was or is to be
a party, in which the amount involved exceeds $60,000, except as follows:
As of November 1, 1994, the Registrant was indebted to Walter G. Cook and a
corporation owned by him in the amount of $678,083 representing an aggregate of
unpaid principal and interest on loans made by Mr. Cook since he became the
principal shareholder of the Registrant in 1975. Such loans bore interest at
rates of 8-10% per annum. During the three year period ended October 31, 1997,
as a result of additional loans made by Mr. Cook to the Registrant and accrued
interest, $778,001 of principal and interest was owed to Mr. Cook and the
aforesaid corporation as of October 31, 1997. The debt of $778,001 bears
interest at the rate of 12% per annum.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K.
Page
(a)(i) Financial Statements:
The following consolidated financial
statements of the Registrant and
subsidiaries are included in Item 8:
Report of Independent Certified Public Accountant
Consolidated Balance Sheets as of October 31, 1994,
1995, 1996 and 1997.
Consolidated Statements of Income for the Years
Ended October 31, 1993, 1994, 1995, 1996 and 1995.
Consolidated Statements of Stockholder's Equity.
Consolidated Statements of Cash Flows for the Years
Ended October 31, 1993, 1994, 1995, 1996 and 1997.
Notes to Consolidated Financial Statement.
(a)(ii) Financial Statement Schedules:
None.
(a)(iii) Exhibits:
The following exhibits required to be filed by
Item 601 of Regulation S-K are attached to and
filed as part of this Annual Report on Form 10-K:
2.1 Plan and Agreement of Merger of Station One West
with and into Registrant dated January 9, 1994*
2.2 Letter of Intent dated August 27, 1998 among the
Registrant, Walter G. Cook, Encore International, Inc.
and Lee Kaplan**
3.1 Certificate of Incorporation of Registrant*
3.2 Bylaws of Registrant*
10.1 Promissory Note dated October 31, 1994 of Manhattan
National Properties, Inc. and Continental Heritage
Corporation payable to Walter G. Cook in the amount
of $147,433.46*
10.2 Promissory Note of Continental Heritage Corporation
dated October 31, 1994 payable to the order of Spanish
West Enterprises, Inc. in amount of $34,027.13*
10.3 Promissory Note of Continental Heritage Corporation
dated October 31, 1994 payable to Walter G. Cook in the
amount of $227,624.36*
10.4 Promissory Note of National Heritage Corporation and
Continental Heritage Corporation dated October 31, 1994
payable to Walter G. Cook in the amount of $226,929.81*
10.5 Promissory Note of Apollo Enterprises, Inc. and Continental
Heritage Corporation dated October 31, 1994 payable to
Walter G. Cook in the amount of $41,860.79*
10.6 Promissory Note of Registrant and Apollo Enterprises, Inc.,
Manhattan National Properties, Inc. and National Heritage
Corporation dated October 31, 197 payable to Walter G. Cook
in the amount of $778,001.27
21. List of Subsidiaries
(b)Reports on Form 8-K:
None.
- ----------------------
* Incorporated by reference to the Exhibit bearing the same number in
Registrant's Annual Report on Form 10-K for the fiscal year ended
October 31, 1994.
** Incorporated by reference to the Exhibit to Registrant's Current Report
11, on Form 10-Q dated September 11, 1998 and filed on September 14, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchanges Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CONTINENTAL HERITAGE CORPORATION
Dated October 22, 1998 By:/s/ Walter G. Cook
Walter G. Cook, President and
Principal Executive Officer
Pursuant to the requirements of 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.
Dated October 22, 1998 By:/s/ Walter G. Cook
Walter G. Cook, President and Director
(Principal Executive and Principal Financial Officer)
Dated October 22, 1998 By:/s/ Peggy Janes
Peggy Janes, Director
<PAGE>
EXHIBIT 10.6
CONSOLIDATED NOTE
$778,001.27 Forth Worth, Texas 10-31-97
On Demand and if No Demand Three Years after date, for value received, I, we,
or either of us, promise to pay to the order of Walter G. Cook the sum of Seven
Hundred Seventy Eight Thousand & One Dollar & .27/100 Dollars ($778,001.27)
with interest from date to maturity at the rate of Twelve percent (12%) per
annum, payable at 1020 Macon, Ft. Worth, Texas.
WE THE MAKERS, ENDORSERS, AND GUARANTORS OF THIS NOTE HEREBY SEVERALLY WAIVE
PRESENTATION FOR PAYMENT, NOTICE OF NON-PAYMENT, PROTEST AND NOTICE OF PROTEST
AND DILIGENCE IN BRINGING SUIT AGAINST ANY PARTY THERETO, AND CONSENT THAT THE
TIME OF PAYMENT MAY BE EXTENDED WITHOUT NOTICE FROM TIME TO TIME. IT IS
FURTHER EXPRESSLY AGREED THAT IN THE EVENT THIS NOTE IS PLACED IN THE HANDS OF
AN ATTORNEY FOR COLLECTION, OR SUIT IS BROUGHT ON SAME, OR IF COLLECTED THROUGH
BANKRUPTCY OR PROBATE THEN, AND IN THAT EVENT, TO PAY THE ADDITIONAL AMOUNT OF
FIFTEEN PERCENT (15%) ADDITIONAL ON THE PRINCIPAL AND INTEREST THEN DUE AS
ATTORNEY'S FEES.
DUE $408,631.79 Principal
$369,369.48 Interest
ADDRESS 1020 Macon Street
Fort Worth, TX
PHONE (817) 336-0436 (817) 429-6261
Continental Heritage Corporation
By: /s/ Walter G. Cook, Officer
Apollo Enterprises, Inc.
By: /s/ Walter G. Cook, Officer
Manhattan National Properties, Inc.
By: /s/ Walter G. Cook, Officer
National Heritage Corporation
By: /s/ Walter G. Cook, Officer
EXHIBIT 21
Subsidiaries of Registrant
PERCENTAGE OF VOTING
Name and State of Incorporation Securities Owned
Apollo Enterprises, Inc. (Texas) 100%
National Heritage Corporation (Texas) 100%
Manhattan National Properties, Inc. (Texas) 100%
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