SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported) November 27, 1998.
CONTINENTAL HERITAGE CORPORATION
(Exact name of Registrant as Specified in Charter)
Delaware 0-7633 75-1449332
(State of incorporation) (Commission (IRS Employer
File Number) Identification No.)
2140 America's Cup Circle, Las Vegas, Nevada 89117
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (702) 228-8146
Former Name or Former Address, if Changed Since Last Report
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
Financial Statements
(a) Financial Statements of Business Acquired:
The audited financial statements of Encore International, Inc. as of July 31,
1998 and the related statements of operations, changes in stockholders'
deficiency and cash flows for the period December 30, 1997 (inception) to July
31, 1998 are filed as part of this Current Report on Form 8-K/A.
(b) Pro Forma Financial Information required pursuant to Article 11 of
Regulation S-X:
The unaudited pro forma condensed combined Balance Sheet and Statement of
Operations of Continental Heritage Corporation and Encore International, Inc.
for the year ended October 31, 1997 and the nine months ended July 31, 1998 are
filed as a part of this Current Report form 8-K/A.
(c) Exhibits:
The following exhibits were filed as part of the Current Report on Form 8-K
filed with the Commission on December 8, 1998:
20.1 Registrant's Schedule 14(f)(1), Information Statement Pursuant to Section
14(f) of the Securities Exchange Act of 1034 and Rule 14(f)(1) thereunder
(filed with the Commission on November 15, 1998, and incorporated herein by
reference).
99.1 Stock Exchange Agreement dated November 27, 1998 by and among the Company
and the shareholders of Encore.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Continental Heritage Corporation (Registrant)
Date: January 22, 1999. By: /s/Steve Gould
Steve Gould, President and
Principal Executive Officer
INDEX TO FINANCIAL STATEMENTS
Page
Encore International, Inc.:
Report of Independent Certified Public Accountants F-1
Balance Sheet as of July 31, 1998 (audited) F-2
Statement of Operations for the period from
December 30, 1997 (inception) to July 31, 1998 (audited) F-3
Statement of Changes in Stockholders' Deficiency
for the period from December 30, 1997 (inception) to
July 31, 1998 (audited) F-4
Statement of Cash Flows for the period from
December 30, 1997 (inception) to July 31, 1998 (audited) F-5
Notes to Financial Statements F-6
Pro Forma Financial Statements:
naudited Pro Forma Condensed Combined Balance Sheet
as of July 31, 1998 F-9
Unaudited Pro Forma Condensed Combined Statement of
Operations for the Nine Months Ended July 31, 1998 F-11
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements F-12
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
Encore International, Inc.
We have audited the accompanying balance sheet of Encore International, Inc. (a
development stage company) as of July 31, 1998 and the related statements of
operations, changes in stockholders' deficiency, and cash flows for the period
December 30, 1997 (inception) to July 31, 1998. 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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 Encore International, Inc. as
of July 31, 1998 and the results of its operations and its cash flows for the
period December 30, 1997 (inception) to July 31, 1998 in conformity with
generally accepted accounting principles.
BUCHBINDER TUNICK & COMPANY LLP
November 12, 1998
(November 27, 1998 as to a portion of Note 5)
F-1
ENCORE INTERNATIONAL, INC.
(A Development Stage Company)
Balance Sheet
July 31, 1998
ASSETS
Property assets, at cost less
accumulated depreciation of $400 $ 5,067
-----
Total assets $ 5,067
=====
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accrued expenses $ 19,071
Loans payable 127,000
-------
Total current liabilities 146,071
Stockholders' deficiency:
Common stock, $.01 par value;
50,000 shares authorized;
10,000 shares issued and outstanding 100
Additional paid-in capital 900
Deficit accumulated during the
development stage (142,004)
-------
Total stockholders' deficiency (141,004)
-------
Total liabilities and stockholders' deficiency $ 5,067
=====
See notes to financial statements.
F-2
ENCORE INTERNATIONAL, INC.
(A Development Stage Company)
Statement of Operations
For the period December 30, 1997 (inception) to July 31, 1998
Revenues $ -
Operating expenses:
Consulting fees 117,548
Professional fees 24,056
Depreciation 400
-------
Total operating expenses $ 142,004
Net loss $ (142,004)
========
See notes to financial statements.
F-3
ENCORE INTERNATIONAL, INC.
(A Development Stage Company)
Statement of Changes in Stockholders' Deficiency
For the period December 30, 1997 (inception) to July 31, 1998
Deficit
$.01 Par Value Accumulated
Common Stock During the Total
Number Par Additional Development Stockholders'
of Shares Value Paid-In Capital Stage Deficiency
Sale of
common
stock 10,000 $ 100 $ 900 $ - $ 1,000
Net loss - - - (142,004) (142,004)
Balances,
July 31,
1998 10,000 $ 100 $ 900 $(142,004) $ (141,004)
See notes to financial statements.
F-4
ENCORE INTERNATIONAL, INC.
(A Development Stage Company)
Statement of Cash Flows
For the period December 30, 1997 (inception) to July 31, 1998
Cash flows from operating activities:
Net loss $ (142,004)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 400
Increase in accrued expenses 19,071
-------
Total adjustments 19,471
Net cash used in operating activities (122,533)
-------
Cash flows from investing activities:
Purchase of property assets (5,467)
-----
Net cash used in investing activities (5,467)
Cash flows from financing activities:
Proceeds from notes payable 127,000
Proceeds from issuance of common stock 1,000
-------
Net cash provided by financing activities 128,000
-------
Net change in cash -
Cash, December 30, 1997 -
-------
Cash, July 31, 1998 $ -
========
See notes to financial statements.
F-5
ENCORE INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
July 31, 1998
Note 1 - Organization
Encore International, Inc. (the "Company") has been in the development stage
since it was organized under the laws of the State of Oklahoma on December 30,
1997. The Company will engage in the wholesale and retail distribution of
nutri-ceutical and homeopathic products. It has adopted a fiscal year ending
each October 31.
Note 2 - Summary of Significant Accounting Policies
Property Assets
Property is recorded at cost. Depreciation expense is calculated over the
estimated useful lives of the assets by the straight-line method.
Organization Costs
The Company has elected to adopt Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities." Under these rules, costs of start-up activities
and organization costs, including professional and consulting fees, are charged
to operations as incurred.
Income Taxes
For income tax reporting purposes, costs of start-up activities are capitalized
and amortized over a five year period beginning in the month in which business
begins.
Use of Estimates in the Preparation of Financial Statements
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.
F-6
ENCORE INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements (Continued)
July 31, 1998
Note 3 - Property Assets
At July 31, 1998, property assets consisted of the following
Computer equipment $ 4,100
Furniture and fixtures 1,367
-----
Total 5,467
Less accumulated depreciation (400)
Net property assets $ 5,067
=====
Note 4 - Loans Payable
The Company entered into agreements with certain individuals and a limited
liability company for loans totaling $127,000. The loans are non-interest
bearing. Such indebtedness will be satisfied in full or in part by the transfer
of shares of stock of Continental Heritage Corporation (CHC) upon completion
of the exchange of shares between the Company's stockholders and CHC (Note 5).
Note 5 - Subsequent Events
On August 20, 1998, the Company entered into an agreement with Aspira 2000,
Inc. (Aspira) to acquire the sellers' distributor data base, market research
data, and various software used for genealogy tracking. The purchase price was
$1,000. Additionally, the Company granted a key distributorship to Aspira of
all distributors listed in the distributor data base.
On November 27, 1998, the Company and its stockholders entered into a Stock
Exchange Agreement with Continental Heritage Corporation (CHC) whereby CHC
acquired the outstanding stock of Encore in exchange for 5,500,000 shares of
CHC's common stock with a maximum 2,000,000 additional common shares issuable
to the Company's stockholders in the event certain sales levels are achieved
by the Company during the next two years. The Company also loaned CHC $20,000.
The loan is payable in one year and bears interest at 8% per annum.
F-7
ENCORE INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements (Continued)
July 31, 1998
Note 5 - Subsequent Events (Continued)
In a transaction effected on November 20, 1998, CHC effectively terminated its
previously conducted real estate operations by transferring substantially all
its operating assets and liabilities to its principal stockholder in
satisfaction of an indebtedness owing to him. The transaction resulted in an
extraordinary gain of approximately $74,000, net of a related income tax
provision of approximately $20,000.
The combination will be accounted for as a reverse acquisition. Unaudited pro
forma combined results of operations are summarized below, and give effect to
both the extraordinary gain realized upon the transfer of assets in
satisfaction of indebtedness and the issuance of 5,500,000 common shares by
CHC, as if the combination had been continuously effective from November 1,
1996. Such unaudited pro forma combined operating results reflect solely the
historical real estate operating results of CHC for the year ended October 31,
1997 because Encore was not organized until December 30, 1997. The unaudited
pro forma combined operating results for the nine months ended July 31, 1998
include Encore's net loss of $142,004, consisting solely of costs incurred
during its development stage.
Year Ended Nine Months Ended
October 31, July 31,
1997 1997 1998
Rental income $ 187,367 $ 134,938 $ 167,256
======= ======= =======
Income (loss) before
extraordinary gain on
settlement of indebtedness $ 7,877 $ 8,800 $ (152,076)
===== ===== =======
Net income (loss) $ 7,877 $ 8,800 $ (77,938)
===== ===== ======
Per common share:
Income (loss) before
extraordinary gain $ - $ - $ (.02)
===== ===== ======
Net income (loss) $ - $ - $ (.01)
===== ===== ======
Weighted average number of
common shares outstanding 6,873,860 6,873,860 6,873,860
========= ========= =========
F-8
Unaudited Pro Forma Condensed Combined Balance Sheet
July 31, 1998
The following unaudited pro forma condensed combined financial statements
combine the historical assets, liabilities, equity accounts, and operating
results of Continental Heritage Corporation and Encore International, Inc.
pursuant to the terms of a Stock Exchange Agreement dated November 27, 1998
(Note A). Such unaudited pro forma financial statements also reflect a
November 20, 1997 transaction whereby Continental Heritage Corporation
transferred substantially all its operating assets and liabilities to its
principal stockholder in satisfaction of an indebtedness to him, thereby
effectively terminating its previously conducted real estate operations (Note
A). The combination has been accounted for as a reverse acquisition. The pro
forma financial statements assume that the resultant combination has been
continuously effective from November 1, 1996. They should be read in
conjunction with the related Notes to Unaudited Pro Forma Financial Statements
included herein.
Historical Historical
Continental Encore
Heritage International, Pro Forma Pro Forma
Corporation Inc. Adjustments Combined
(Note B)
ASSETS
Current assets:
Cash $ 47,922 $ - (2)$ (47,922) $ -
Miscellaneous 3,602 - (2) (3,602) -
------ ----- ------ ------
Total current assets 51,524 - -
Property assets, at cost
less accumulated
depreciation 421,501 5,067 (2) (421,501) 5,067
Other assets:
Undeveloped land 260,917 - (2) (260,917) -
Future income
tax benefits 25,388 - (2) (20,000) -
(3) (5,388)
Miscellaneous 100 - (3) (100) -
------- ----- ------ -----
Total other assets 286,405 - -
------- ----- ------ -----
Total assets $ 759,430 $ 5,067 $ 5,067
======= ===== =====
F-9
Unaudited Pro Forma Condensed Combined Balance Sheet
(Continued)
July 31, 1998
Historical Historical
Continental Encore
Heritage International, Pro Forma Pro Forma
Corporation Inc. Adjustments Combined
(Note B)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable
and other $ 39,795 $ 19,071 (2) (39,795) $ 19,071
Loans payable - 127,000 127,000
------ ------- -------
Total current liabilities 39,795 146,071 146,071
Long-term debt due to
related party, including
accrued interest 788,285 - (2) (788,285) -
Stockholders' deficiency:
Common stock -
par value $.10;
authorized -
10,000,000 shares;
issued and outstanding -
1,373,860 shares
(historical)
and 6,873,860 shares
(pro forma) 137,386 - (1) 550,000 687,386
Common stock -
par value $.01;
authorized - 50,000 shares;
issued and outstanding -
10,000 shares- 100 (1) (100) -
Additional
paid-in capital 468,425 900 (1) (469,325) -
(1) (80,575)
Accumulated deficit (674,461) - (2) 74,138 (686,386)
(3) (5,488)
Deficit accumulated
during the development
stage - (142,004) (142,004)
------- ------- -------
Total stockholders'
deficiency (68,650) (141,004) (141,004)
------ ------- -------
Total liabilities
and stockholders'
deficiency $ 759,430 $ 5,067 $ 5,067
======= ===== =====
F-10
Unaudited Pro Forma Condensed Combined
Statement of Operations
Historical Historical
Continental Encore
Heritage International, Pro Forma Pro Forma
Corporation Inc. Adjustments Combined
(1) (Note B)
For the Year Ended October 31, 1997
Rental income $ 184,367 $ - $ 184,367
Costs and expenses 171,111 - 171,111
------- ---- -------
Income before
provision for income
taxes 13,256 - 13,256
Provision for
income taxes 5,379 - 5,379
------ ----- ------
Net income $ 7,877 $ - $ 7,877
====== =====
Net income per common
share (Note C) $ .01 $ -
====== =====
Weighted average
number of common
shares outstanding
(Note C) 1,373,860 6,873,860
========= =========
For the Nine Months Ended July 31, 1998
Rental income $ 167,256 $ - $ 167,256
------- ------ -------
Costs and expenses:
Operating costs 173,028 - (3) 5,488 178,516
Developmental stage
expenditures - 142,004 142,004
------- ------- -------
Total costs and
expenses 173,028 142,004 320,520
------- ------- -------
Loss before credit
for income taxes (5,772) (142,004) (153,264)
Credit for income
taxes (1,188) - (1,188)
----- ------- -------
Loss before
extraordinary gain
on settlement of
indebtedness $ (4,584) $(142,004) $ (152,076)
===== ======= =======
Loss per common
share before
extraordinary
gain (Note C) $ - $ (.02)
===== =======
Weighted average
number of common
shares outstanding
(Note C) 1,373,860 6,873,860
========= =========
(1) Included in the results for the nine months ended July 31, 1998
are data from the date of organization, December 30, 1997.
F-11
Notes To Unaudited Pro Forma
Condensed Combined Financial Statements
Note A- The Transactions
(a) Stock Exchange Agreement
On November 27, 1998, Continental Heritage Corporation and Encore
International, Inc. entered into a Stock Exchange Agreement whereby Encore's
stockholders exchanged all of its outstanding common shares for an aggregate
5,500,000 Continental common shares. A maximum 2,000,000 additional
Continental common shares are issuable to Encore's stockholders in the event
certain sales levels are achieved by the Company during the next two years.
The combination will be accounted for as a reverse acquisition.
Encore was organized on December 30, 1997, and has realized no revenues from
operations. It considers itself to be a development stage company.
(b) Transfer of Assets
On November 20, 1998, Continental transferred substantially all its operating
assets and liabilities to its principal stockholder in satisfaction of an
indebtedness, including accrued interest, owing to him. As a result of this
transaction, which resulted in a gain of approximately $74,000, net of income
taxes of $20,000, Continental effectively terminated its previously conducted
real estate operations that had represented its sole economic activity.
Note B- Pro Forma Adjustments
The pro forma adjustments are summarized as follows:
(1) To record the issuance of 5,500,000 common shares, par value $.10, by
Continental Heritage Corporation in exchange for 10,000 issued and outstanding
common shares, par value $.01, of Encore International, Inc.
(2) To record the transfer by Continental of substantially all its operating
assets and liabilities to its principal stockholder in satisfaction of an
indebtedness owing to him. As a result of this transaction, on which a gain of
approximately $74,000 will be recognized, net of related income taxes of
$20,000, Continental effectively terminated its previously conducted real
estate operations.
(3) To write-off certain assets which will not be realized through future
operations, including a previously recognized deferred tax asset representing
the estimated future tax benefits of a net operating loss carryforward that
will no longer be available to Continental.
Note C- Per Share Data
Historical per share data for Continental Heritage Corporation are based on the
weighted average number of common shares outstanding during the respective
periods. Pro forma per share data are based on the historical weighted average
number of Continental common shares outstanding, retroactively adjusted to
reflect the issuance of 5,500,000 Continental common shares in exchange for all
outstanding common shares of Encore International, Inc. in a combination
accounted for as a reverse acquisition.
