SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended April 30, 1999
[x] 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 000-7633
CONTINENTAL HERITAGE CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 75-1449332
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7674 W. Lake Mead Blvd., Suite 150, Las Vegas Nevada 89128
(Address of principal executive offices) (Zip Code)
(702) 307-2000
(Issuer's telephone number, including area code)
----------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the (issuer) (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or such
shorter period that 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
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
6,928,860 as of May 31,1999.
Transitional Small Business Disclosure Format
Yes [ ] No: [X]
CONTINENTAL HERITAGE CORPORATION
INDEX
Part I - Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheet - April 30, 1999 F-1
Consolidated Statement of Operations for the
three months and six months ended
April 30, 1998 and 1999 F-2
Consolidated Statements of Cash Flows for the
six months ended April 30, 1998 and 1999 F-3
Notes to Consolidated Financial Statements F-4
Item 2. Management's Discussion and Analysis
or Plan of Operation 1
Part II - Other Information
Item 1. Legal Proceedings 7
Item 2. Changes in Securities 7
Item 3. Defaults upon Senior Securities 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Item 5. Other Information 7
Item 6. Exhibits and Reports on Form 8-K 7
Signatures 8
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page No.
Consolidated Balance Sheet as of April 30, 1999 F-1
Consolidated Statement of Operations
for the three months and six months ended
April 30, 1998 and 1999 F-2
Consolidated Statement of Cash Flows
for the six months ended April 30, 1998 and 1999 F-3
Notes to Consolidated Financial Statements F-4
CONTINENTAL HERITAGE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)
April 30, 1999
ASSETS
Current assets:
Cash $ 36,232
Inventory and depostis 251,823
Prepaid expenses 45,930
-------
Total current assets 333,985
Property assets, at cost less
accumulated depreciation of $1,200 272,888
Other assets 27,847
--------
Total assets $ 634,720
=======
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Notes payable $ 66,133
Accounts payable and accrued expenses 250,102
Current portion of long-term debt 41,106
-------
Total current liabilities 357,341
Long-term debt, less current portion 982,874
Commitments and contingencies
Stockholders' deficiency:
Common stock, $.10 par value; 10,000,000 shares
authorized; 6,928,860 shares issued and outstanding 692,886
Additional paid-in capital 46,425
Deficit accumulated during the development stage (796,123)
Accumulated deficit (648,683)
-------
Total stockholders' deficiency (705,495)
-------
Total liabilities and stockholders' deficiency $ 634,720
=======
CONTINENTAL HERITAGE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Operations (Unaudited)
Cumulative
Three Months Ended Six Months Ended from Inception
April 30, April 30 to
1998 1999 1998 1999 April 30, 1999
Development stage
activities:
Revenues $ - $ - $ - $ - $ -
------- ------- ------- ------- -------
Operating expenses:
Professional fees - 78,408 - 121,080 157,119
General and
administrative 17,710 269,407 89,710 379,626 637,804
Depreciation - - - 400 1,200
------- ------- ------- ------- -------
Total operating costs 17,710 347,815 89,710 501,106 796,123
------- ------- ------- ------- -------
Loss from development
stage activities (17,710) (347,815) (89,710) (501,106) $(796,123)
Discontinued operations:
Income from discontinued
operations 3,614 - 7,296 13,370
Gain on disposal of
discontinued operations
(net of income taxes
of $31,000) - - - 96,978
------- ------- ------- -------
Income from
discontinued
operations 3,614 - 7,296 110,348
------- ------- ------- -------
Net (loss) $(14,096) $(347,815) $(82,414) $(390,758)
Net (loss)
per common share
Weighted average
of common shares
outstanding: 6,875,860 6,892,400 6,875,860 6,882,976
Loss from development
stage activities $ - $ (0.05) $ (0.01) $ (0.07)
Discontinued operations:
Income (loss) from
discontinued operations - - - -
Gain on disposal of
discontinued operations - - - .01
------ ----- ----- -----
Net (loss) $ - $ (0.05) $ (0.01)$ (0.06)
====== ====== ====== ====
CONTINENTAL HERITAGE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Cash Flows (Unaudited)
Six Months Ended April 30, 1998 and 1999
1998 1999
Development stage activities:
Net income (loss) $ (82,414) $ (390,758)
Adjustments to reconcile net loss
to net cash used in development
stage activities:
Income from discontinued operations (7,296) (110,348)
Depreciation - 400
(Increase) in inventory - (223,823)
(Increase) in prepaid expenses - (45,930)
(Increase) in other assets - (26,847)
Increase in accounts payable and
accrued expenses - 150,717
------ -------
Net cash used in development
stage activities (89,710) (646,589)
------- -------
Financing activities:
Issuance of common stock - 5,500
Proceeds from borrowings 91,564 933,380
Payments on long-term debt - (1,400)
------ -------
Net cash from financing activities 91,564 937,480
------ ------=
Investment activities:
Purchase of property assets (1,854) (268,621)
----- -------
Net cash from investment activities (1,854) (268,621)
----- -------
Cash used in discontinued operations (4,849) (26,710)
----- ------
Increase (decrease) in cash (4,849) (4,440)
Cash, beginning of period 36,308 40,672
------ ------
Cash, end of period $ 31,459 $ 36,232
====== ======
Supplementary cash flow disclosure:
Interest paid - development stage activities $ - $ 502
====== ======
Interest paid - discontinued operations $ 1,750 $ 913
===== ======
CONTINENTAL HERITAGE CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to Financial Statements
April 30, 1999
Note 1 - General
The consolidated interim financial statements are unaudited and include the
accounts of the Company and its wholly-owned subsidiaries. Material
intercompany items and transactions have been eliminated in consolidation.
Such financial statements have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission and,
accordingly, do not include all information and footnote disclosures required
by generally accepted accounting principles for complete financial statements.
These financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto for the year ended October
31, 1998 and the quarter ended January 31, 1999.
In the opinion of management, the unaudited interim consolidated financial
statements include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation. The results of operations for
the six months and three months ended April 30, 1999 are not necessarily
indicative of results for the year ending October 31, 1999.
Note 2 - Reverse Acquisition
On November 27, 1998, the Company entered into a Stock Exchange Agreement
with the stockholders of Encore International, Inc. whereby the Company
acquired the outstanding stock of Encore in exchange for 5,500,000 shares of
the Company's common stock with a maximum 2,000,000 additional common shares
issuable to Encore's stockholders in the event certain sales levels are
achieved by the Company on a consolidated basis during the next two years. The
combination will be accounted for as a reverse acquisition. Accordingly, the
consolidated statement of operations includes the activities of Encore for
all periods, as if the combination had been continuously effective.
Encore, currently operating as VisionQuest Worldwide, Inc., was organized on
December 30, 1997, and has realized no revenues from operations. It considers
itself to be a development stage company and intends to engage in the
wholesale and retail distribution of nutri-ceutical and homeopathic products.
Pursuant to the terms of the Stock Exhange Agreement, the former stockholders
of Encore may receive 1,000,000 additional common shares if consolidated net
revenues are at least $8,000,000 for the twelve month period beginning July 1,
1999. In that event, in accordance with the loan agreement described in Note
4, two individuals, one of whom was a stockholder in Encore, will also receive
warrants to purchase an aggregate 427,500 of the Company's common shares at
$.3125 through March, 2005.
An additional 1,000,000 of the Company's common shares are reserved for
issuance to the former stockholders of Encore if the Company's consolidated
net revenues are at least $15,000,000 for the twelve month period beginning
July 1, 2000. In such event, in accordance with the loan agreement described
in Note 4, the same two individuals described previously will receive
additional warrants to purchase an aggregate 427,500 of the Company's common
shares at $.3125 per share through March, 2006.
Note 3 - Discontinued Operations
Prior to November 20, 1998, the Company was engaged in the business of
operating and developing real estate. On that date, the Company effectively
terminated its previously conducted real estate operations by transferring all
its operating assets and substantially all related liabilities to its then
principal stockholder in satisfaction of an indebtedness owing to him. The
transaction resulted in a gain of approximately $97,000, net of related income
taxes of approximately $31,000.
Summarized operating data for the discontinued real estate operations are as
follows:
Three Months Ended Six Months Ended
April 30, April 30,
1998 1999 1998 1999
Rental income $ 56,988 $ - $110,565 $ 16,818
Income before
provision for income taxes $ 4,251 $ - $ 8,584 $ 13,370
Income from
discontinued operations $ 3,614 $ - $ 7,296 $ 13,370
Note 4 - Long-Term Debt
Long-term debt at April 30, 1999 consisted of the following:
Notes payable with several investors; interest at 10% per annum
with a balloon payment on August 31, 2000. The loan agreement
grants the Company the rights to borrow additional amounts not
to exceed a maximum of $700,000. An additional $318,000 was
borrowed from the investors subsequent to April 30, 1999.
In connection with the loan agreement, the lenders also received
warrants to purchase an aggregate 2,000,000 of the Company's
common shares at $.3125 per share through February 8, 2004 and
two other individuals received warrants to purchase an aggregate
351,250 common shares under similar terms. $ 800,000
Notes payable, stockholders , interest at 10% per
annum, due August 31, 2000. The payment of principal
and interest is subordinated to all payments of principal
and interest due on the note obligations referred to above.
In connection with the financing, the stockholders
received warrants. 112,000
Capital lease obligations with interest at 6.5% to
33% per annum. 111,980
-------
1,023,980
Current maturities 41,106
--------
$ 982,874
=======
Note 5 - Commitments and Contingencies
The Company occupies office space in Las Vegas, Nevada under a non-cancelable
operating lease that is guaranteed by a shareholder and requires monthly
rentals of $19,569 through June 30, 2004. The Company also leases equipment
and furniture under capital leases. Such capitalized equipment amounted to
$113,382 at April 30, 1999.
Minimum future rental payments under the leases are tabulated as follows:
Operating Capital
Years Ending April 30, Leases Leases
2000 $ 236,607 $ 64,522
2001 256,769 40,306
2002 263,885 33,370
2003 271,001 3,286
2004 254,397 2,696
2005 - 225
--------- -------
Total minimum rentals $ 1,282,659 144,405
=========
Less interest and
other costs 32,425
------
Present value of minimum
lease payments 111,980
Less: current portion 41,106
-------
Long-term portion $ 70,874
======
Note 6 - Subsequent Events
On June 16, 1999, the Company borrowed $100,000 from an investor. The note
requires monthly payments of $16,667 starting on July 31, 2000 and bears
interest at 10% annum.
Item 2. Management's Discussion and Analysis or Plan of Operation
Forward Looking Statement
This Quarterly Report on Form 10-QSB contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward- looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, the
Company's ability to establish an adequate client base, its ability to develop
and continue its marketing strategies, and those set forth below in this
Registrant's Quarterly Report on Form 10-QSB under the caption "Certain
Factors That May Affect Future Results."
The following discussion of the Company's results of operations and financial
condition should be read in conjunction with the Company's condensed
consolidated unaudited Financial Statements listed in Part I, Item 1 and the
Notes thereto appearing elsewhere in this Form 10- QSB, and the Company's
audited Financial Statements appearing in the Company's 1998 Annual Report on
Form 10-KSB.
During the fiscal year ended October 31, 1998, including the first three months
of that fiscal year ended January 31, 1999, all of Registrant's revenues were
from the rentals derived from the operation of its Hurst, Texas office
building. The revenues from the Hurst, Texas office building were 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 its then
principal shareholder. Other than the payment to be made to such person out of
the proceeds of a $150,000 mortgage loan secured by the two properties which
Registrant obtained in the last quarter of fiscal 1998, the Registrant was
unable to make payments of interest or principal on this debt. Accordingly,
unless the Registrant had been able to sell off its real estate holdings or
find another source of capital, it would not have been able to pay its debt to
its principal stockholder or to acquire other properties or assets to produce
revenues.
Management of the Registrant had 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 entered into the Stock Exchange
Agreement with the shareholders of Encore International, Inc. (Encore) and
acquired all of the outstanding shares of Encore (see Note 2 of the Notes to
Financial Statements). Effective February 9, 1999, the Registrant entered into
a loan agreement to provide it with $1,000,000 in operating capital which has
allowed it to start the business activities of its subsidiary.
After consummation of the Stock Exchange Agreement with Encore and Encore's
subsequent merger with VisionQuest Worldwide, Inc. (VisionQuest), a
subsidiary of the Registrant, the Registrant has initiated its marketing
program (the VisionQuest Marketing Program) though a national network of
independent distributors. The VisionQuest Marketing Program has been developed
by the officers of the Registrant who believe that the program illustrates a
comprehensive understanding of the network marketing industry. The Registrant
has aligned its product line with future health and business trends, as those
trends are identified through research and other means.
The three principal founding members of the business of VisionQuest are Steve
Gould, Lee Kaplan and Robert Bray, who are the Registrant's current officers
and directors.
Initial Products
The natural health and nutritional supplement industry is a $30 billion plus a
year business. The Registrant, through VisionQuest, intends to provide access
to this large market through innovative, effective and high demand
life-enhancing products.
The VisionQuest product line will be composed of historically proven,
life-enhancing health remedies as well as new health discoveries from around
the world including a variety of breakthrough products derived from the sea.
Through high potency nutri-ceutical products and formulations developed using
sound principles and time proven therapies such as homeopathy and ayurvedic
medicine, the VisionQuest product line is designed to promote consumer
confidence and results. These proprietary products will be sold person to
person or through convenient and automatic delivery to the customer's home.
VisionQuest's cornerstone product philosophy will be based on a three pronged
approach to achieving optimum health: (i) cleanse the body of toxins, (ii)
boost the body's immune system, and (iii) provide the body with comprehensive
nutritional protection.
VisionQuest has engaged the services of Leonard Haimes, M.D., a medical doctor
with 40 years experience. Dr. Haimes is nationally recognized in the field of
bariatric medicine, and is a well-known alternative health care physician who
is a specialist in homeopathy. VisionQuest has been actively working with Dr.
Haimes, and on March 25, 1999, VisionQuest entered into a five- year agreement
with Dr. Haimes to perform consulting and support services relative to both the
current product line of VisionQuest and in the development of new products for
VisionQuest. Through this alliance, VisionQuest has secured his services as the
company's Medical Director and his endorsement of the products. The products
have been formulated according to strict standards for quality and performance,
and then electro-magnetically balanced to assure the formulas to be toxin free
and effective.
VisionQuest's initial product line (Initial Products) consists of four
exclusive products: (i) LiveRx, a homeopathic formulation designed to cleanse
the liver and kidneys; (ii) Ocean Gold, a high potency shark liver oil designed
to enhance the body's immune system; (iii) Pro Algaen Omega, a comprehensive
marine nutri-ceutical formulation containing special anti-oxidants and omega 3
fish oils; and (iv) SlenderQuest, a homeopathic weight management system.
All of the Initial Products consist of proprietary formulations of homeopathic
and/or marine products and their distribution will be exclusive to VisionQuest.
VisionQuest has entered into an agreement with Marine Biologics, Inc., which is
a broker for third party suppliers of the components of VisionQuest's Initial
Products, whereby VisionQuest will have exclusive distribution rights for these
specific formulations. This contract is for a term of five years and
automatically renews for an additional term at the end of five years, provided
that neither party provides written notification of its intention not to renew.
The Initial Products will be periodically and strategically followed with a
variety of additional leading-edge products which will compliment the
VisionQuest marketing program.
VisionQuest has placed its order for the initial inventory of its Initial
Products and has been accepting delivery of the products. Sales of products
commenced during June 1999.
VisionQuest Marketing Program
VisionQuest markets its products through a network of independently contracted
distributors called "Team Members." These Team Members purchase the product
directly from VisionQuest and then resell the product to end-users, making a
retail profit. In addition, through a comprehensive, state-of-the-art
"multi-level" commission structure, Team Members will have the opportunity to
earn bonuses on their membership organization which they build at their own
pace. The Team Members will be supported through an array of marketing and
training tools provided by the Registrant including voice-activated and online
systems the Registrant calls "VisionWorks" Voice and "VisionWork Online
services."
In the effort to quickly establish its membership network, VisionQuest has
gathered commitments from a significant number of key independently contracted
sales people with backgrounds in network marketing and business operation.
VisionQuest intends, through utilization of these independent contractors, to
recruit many more independent distributors into the network in a relatively
short amount of time.
1999 Private Financing
The Registrant estimated that it required between $1,000,000 to $1,500,000 in
funding to establish the new line of business. Effective February 9, 1999, the
Registrant entered into a Loan Agreement with seven individual investors (the
Investors), pursuant to which the Investors agreed to lend $1,000,000 (the
Loan) to the Registrant, with the right for the Registrant to borrow up to an
additional $500,000 from the Investors. The loan proceeds have been placed
into an escrow account which the Registrant may access for advances through
application to a Disbursement Agent. The Disbursement Agent, Gerald M.
Holland, is a shareholder of the Registrant and one of the Investors. Through
June 21, 1999, the Registrant has drawn $1,090,000 from the funds set aside in
the escrow account.
In return for their agreement to loan funds to the Registrant, the Investors
received a promissory note for $1,000,000 plus Class A Warrants for the
purchase of an aggregate of 2,000,000 shares of the Registrant's common stock.
The promissory note bears interest at the rate of 10% per annum and matures on
August 31, 2000. The Class A Warrants have an exercise price of $.3125 per
share and expire on February 8, 2004. The Investors also agreed to loan, on a
pro rata basis, an additional $500,000 over and above the $1,000,000 original
loan if additional funds are required by the Registrant for purchase of
product. If the additional loan is made, the Investors will receive additional
Class A Warrants on a pro rata basis for the additional funds loaned. Class A
Warrants for the purchase of an aggregate of 351,250 shares of the Registrant's
common stock were also issued to Gerald M. Holland and Damaso W. Saavedra, two
individuals who represented the Investors in the negotiations with the
Registrant, which were Warrants those Investors would have otherwise received.
As additional collateral for the Loan, Steve Gould, Lee Kaplan, Robert Bray and
Gerald Holland executed a Non-Recourse Pledge Agreement and an Irrevocable
Proxy in favor of the Investors. The Pledge Agreement provides that Messrs.
Gould, Kaplan, Bray and Holland pledge as collateral security for payment of
the Loan an aggregate of 4,978,264 shares of the Registrant's Common Stock
which they hold to the Investors. The Investors at any time prior to repayment
of the initial loan and/or the additional loan may use the Irrevocable Proxy to
vote on major decisions presented to the Registrant's shareholders, provided
however, that the Proxy may not be used by the Investors to vote to remove any
director or officer from the Registrant for reasons other than gross
negligence, theft, or legal incompetency. Further, the Investors may not vote
to elect any person as a director of the Registrant other than those persons
currently holding that position. The Proxy terminates upon repayment of the
initial loan and/or the additional loan to the Investors.
In connection with the Loan, the Registrant also granted to the Investors a
Master Distributorship directly below the Master Distributorship granted to Lee
Kaplan. The Master Distributorship granted to the Investors shall be operated
in accordance with the policies of VisionQuest Worldwide, Inc., the subsidiary
of the Registrant, and is entitled to receive compensation in accordance with
VisionQuest's Distributor Compensation Plan, commissions and bonuses on
down-line sales activity. The Investors shall receive 80% of the commissions
earned by the Master Distributorship and 10% of such commissions shall be paid
to each of Messrs. Holland and Saavedra. Payment of the commission earned by
the Master Distributorship will be made monthly by the Registrant and will be
included in the Company's regular monthly bonus run as to its independent
Distributors and/or Team Members.
On October 1, 1998, prior to the Registrant's acquisition of Encore
International, Inc., Encore executed and delivered promissory notes in the
amount of $56,000 each to Steve Gould and Lee Kaplan in payment for funds
advanced by them to initiate the business of Encore. Such notes bore interest
at the rate of 6% per annum and matured on September 30, 1999. In connection
with the Registrant's 1999 private financing, both Messrs. Gould and Kaplan
agreed to accept replacement notes which provided that no payment of interest
or principal may be made to them until such time as all payments of principal
and interest due on the promissory notes delivered to the Investors shall have
been made. The replacement notes delivered by the Registrant to Messrs. Gould
and Kaplan bear interest at a rate of 10% per annum and mature August 31, 2000.
In addition to the replacement notes, Messrs. Gould and Kaplan will each
receive Class A Warrants to purchase 112,000 shares of Registrant's Common
Stock. Such Class A Warrants are on the same terms and conditions as the Class
A Warrants issued to the Investors in the 1999 Private Financing.
Use of Proceeds of 1999 Private Financing
The majority of the proceeds of the 1999 private financing has been utilized
for deposit on inventory and marketing material as well as operating capital
during VisionQuest's pre-launch phase.
The Registrant intends to pursue a moderately aggressive approach to building
inventory during the first six months, while maintaining some funds in reserve
so that it can support the needs of the Registrant's Team Members in a timely
manner.
Certain Factors Which May Affect Future Results
The Registrant may be considered a development stage company because of its
entry into a new line of business and there is a significant risk that the
Registrant may not be able to obtain the volume of business necessary to become
a going concern. The Registrant believes that the VisionQuest business plan
provides a comprehensive approach in assembling all the essential parts that
will make up a successful network marketing company; however, there can be no
assurance that the Registrant will be able to generate revenues or achieve
profitable operations.
The Registrant's capital requirements in connection with its VisionQuest
development activities have been and will continue to be significant. To date,
it has been dependent upon the proceeds of sales of its securities to private
investors to fund its development activities. The Registrant anticipates that
its available cash will be sufficient to satisfy its contemplated cash
requirements for at least the period ending December 31, 1999. After such
time, the completion of the Registrant's development activities relating to its
products and the commencement of marketing activities in connection with such
products will require continued funding. The Registrant has no current
arrangements other than those described above with respect to sources of
additional financing and there is no assurance that other additional financing
will be available to the Registrant in the future on commercially reasonable
terms, or at all. The inability to obtain additional financing, when needed,
would have a material adverse effect on the Registrant, including possibly
requiring the Registrant to curtail or cease operations. To the extent that any
future financing involves the sale of the Registrant's equity securities, the
Registrant's then existing stockholders could be substantially diluted.
The Registrant does not contemplate that it will directly manufacture any of
its products. It intends to contract with third party developers and
manufacturers to supply its products. Although management believes it will be
able to negotiate satisfactory manufacturing and supply agreements, the failure
to do so would have a material adverse effect on the Registrant. Furthermore,
there can be no assurance that such manufacturers will dedicate sufficient
production capacity to satisfy the Registrant's requirements within scheduled
delivery times or at all. Failure or delay by the Registrant's suppliers in
fulfilling its anticipated needs would adversely affect the Registrant's
ability to develop and market its products. While management believes that it
has or will be making satisfactory arrangement for supply of its products it
anticipates that the Registrant will obtain certain of them from a single
source, or limited number of sources, of supply. In the event that certain of
such suppliers are unable or unwilling to provide the Registrant with the
products on commercially reasonable terms, or at all, delays in securing
alternative sources of supply would result and could have a material adverse
effect on the Registrant's operations.
The markets that the Registrant intends to enter are characterized by intense
competition. The Registrant's products will directly compete with similar
products of numerous well- established companies. Certain of the competitors
dominate their industries and have the necessary financial resources to enable
them to withstand substantial price competition or downturns in the market for
the products, which the Registrant may not be able to withstand.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
10.10 Form of $200,000 Promissory Note of Registrant dated May 27, 1999
delivered to Investors.
10.11 Security Agreement dated May 27, 1999 among Registant, VisionQuest
Worldwide, Inc. and Gerald M. Holland, as agent.
27. Financial Data Schedule (for SEC use only)
Reports of Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchanges Act of 1934, the Registrant has duly caused this Quarterly Report on
Form 10-QSB to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: June 30, 1999.
CONTINENTAL HERITAGE CORPORATION
BY: /s/Steve Gould
Steve Gould, President, Chief Executive
Officer, Treasurer, Chief Financial
Officer and Director
PROMISSORY NOTE
$200,000 May 27, 1999
FOR VALUE RECEIVED, Continental Heritage Corporation, a Delaware corporation,
having its principal business office at 7674 West Lake Mead Blvd., Las Vegas,
NV 89128 (Maker), promises to pay the order of Gerald Holland (Disbursement
Agent), 4860 N.E. 12th Avenue, Fort Lauderdale, Florida 33334, the principal
sum of Two Hundred Thousand Dollars ($200,000) lawful money of the United
States of America, or so much of that sum as may be advanced under this Note,
together with interest at the annual rate of ten percent (10%) per annum from
the date or dates of the outstanding balance thereof, on the terms set forth
herein, as follows:
1. Pursuant to the terms and provisions of a certain Loan Agreement (Loan
Agreement) dated February 9, 1999 by and among the Maker, Jules Ross, Richard
A. Hahner, Case Holdings, Inc., Peter Casoria, Jr., Peter Casoria, Sr., Dennis
Lopez and Gerald M. Holland (the Payees) and Robert Bray, Steve Gould, Gerald
Holland and Lee Kaplan, the beneficial owners of 4,978,264 shares of Common
Stock, $.10 par value, of Maker (Shareholders). The Payees have loaned to
the Maker the sum of $200,000, which is deemed to be the Additional Loan as
defined in the Loan Agreement. All of the agreements, conditions, covenants,
provisions and stipulations contained in the Loan Agreement which are to be
kept and performed by Maker or the Shareholders with respect to the Additional
Loan, as defined therein, and this Note are hereby made a part of this Note to
the same extent and with the same force and effect as if they were fully set
forth herein, and Maker covenants and agrees to keep and perform them, or cause
them to be kept and performed, strictly in accordance with their terms.
2. (a) Subject to the terms of the Loan Agreement, interest shall accrue,
in arrears, without setoff or deduction, from the date of the first advance
hereunder and continuing until the Maturity Date (as hereinafter defined).
Payment of accrued interest prior to the Maturity Date, as defined below, shall
be made on the last day of each month commencing with the month of March 2000
and on the Maturity Date.
(b) Commencing on the last day of March, 2000, and on the last day of each
month thereafter to and including the Maturity Date, Maker shall make six (6)
consecutive principal payments of one-sixth (1/6) of the amounts advanced under
this Note, each of which principal payments shall be accompanied by a payment
of interest as provided in Section 2(a) above on the unpaid principal balance
of this Note at the rate provided.
(c) The entire unpaid principal balance of this Note and all interest
accrued thereon but not previously paid and all other sums payable hereunder,
shall be due and payable in full on August 31, 2000 (the "Maturity Date").
3. The principal and interest shall be payable to the Disbursing Agent at
his address set forth above, or at such other place as Payees, from time to
time, may designate in writing. The Disbursing Agent shall, upon his receipt
of payment of interest or principal and collection of such amount distribute to
each of the Payees his or its proportionate share of the interest and principal
of each such payment on account of this Note as provided in the Loan Agreement.
4. Maker shall have the privilege of prepaying this Note in full but not
in part without penalty, at any time, provided not less than twenty (20) days
written notice of such election is given by Maker to the Payees.
5. It is further understood, however, that should any default be made in
the payment of any installment of principal and interest or any other payment
due under this Note on the date such payment is due, or in the performance of
any of the agreements, conditions, covenants, provisions or stipulations
contained in this Note, in the Loan Agreement or in any of the Loan Documents,
as herein defined, or should the employment by the Company of Steve Gould be
terminated for any reason whatsoever, then the Disbursement Agent, acting
pursuant to instructions of the Payees, at their option and without notice to
Maker unless expressly required elsewhere in this Note or the Loan Agreement,
may declare due and payable immediately the entire unpaid balance of principal
and all other sums due by Maker under this Note, with interest accrued on it at
the applicable rate specified above to the date of default and after that date
at a "default rate" which shall be highest rate of interest permitted under the
laws of Florida, notwithstanding anything to the contrary in this Note or in
the Loan Agreement; and payment may be enforced and recovered in whole or in
part at any time by one or more of the remedies provided to Payees in this
Note. In such a case Payees may also recover all costs of suit and other
expenses in connection with it, together with reasonable attorneys' fees for
collection, together with interest on any judgment obtained by Payees at the
default rate (defined above), including interest at the default rate from and
after the date of any execution, judicial or foreclosure sale until actual
payment is made to Payees of the full amount due Payees. This Note, the Loan
Agreement, the $1,000,000 Promissory Note dated February 12, 1999, and the
Security Agreement, each of which are referred to herein, shall sometimes be
hereinafter referred to herein as the "Loan Documents."
6. Payment of this Note is secured by a Security Agreement among the
Maker, VisionQuest Worldwide, Inc., a wholly owned subsidiary of the Maker
(VisionQuest) and the Disbursement Agent, as agent for the Payees, pursuant
to which VisionQuest has granted to the Payees a lien against products held by
it for resale as security for payment of this Note by the Maker.
7. Payees, or the Disbursing Agent on their behalf, shall not exercise any
right or remedy provided for herein because of any default of Maker unless (i)
in the event of a monetary default, Maker shall have failed to pay the
outstanding sums within a period of five (5) business days after the date of
the notice of default has been given by the Disbursing Agent or the Payees; or
(ii) in the event of a non-monetary default, Maker shall have failed within a
period of thirty (30) days after the date Payees or the Disbursing Agent, as
the case may be, has given Maker written notice of such default to cure the
non-monetary default; provided, however, Payee shall not be required to give
any such notice or to allow any part of the grace period if Maker shall have
filed a petition in bankruptcy or reorganization or a bill in equity or
otherwise initiated proceedings for the appointment of a receiver of its
assets, or if Maker shall have made an assignment for the benefit of creditors,
or if a receiver or trustee is appointed for Maker and such appointment or such
receivership is not terminated within thirty (30) days.
8. Payees' failure to exercise their option to accelerate the indebtedness
evidenced by this Note shall not constitute a waiver of the right to exercise
that option at any other time so long as that event of default remains
outstanding and uncured, or to exercise it upon the occurrence of another
default.
9. The remedies of Payees as provided in this Note shall be cumulative and
concurrent; may be pursued singly, successively, or together at the sole
discretion of Payees, may be exercised as often as occasion for their exercise
shall occur; and in no event shall the failure to exercise any such right or
remedy be construed as a waiver or release of it.
10. Maker waives presentment for payment, demand, notice of demand, notice
of nonpayment or dishonor, protest and notice of protest of this note, and all
other notices in connection with the delivery, acceptance, performance,
default, or enforcement of the payment of this Note, and it agrees that its
liability shall be unconditional, without regard to the liability of any other
party, and shall not be affected in any manner by any indulgence, extension of
time, renewal, waiver, or modification granted or consented to by Payees.
11. If any provision of this Note is held to be invalid or unenforceable
by a Court of competent jurisdiction, the other provisions of this Note shall
remain in full force and effect and shall be construed liberally in favor of
Payees in order to effectuate the provisions of this Note. In no event shall
the rate of interest payable under this Note exceed the maximum rate of
interest permitted to be charged by the laws of Florida (including the choice
of law rules) and any interest paid in excess of the permitted rate shall be
refunded to Maker. That refund shall be made by application of the excessive
amount of interest paid against any sums outstanding and shall be applied in
such order as Payee may determine. If the excessive amount of interest paid
exceeds the sums the outstanding, the portion exceeding the sums outstanding
shall be refunded in cash by Payees. Any crediting or refund shall not cure or
waive any default by Maker under this Note. Maker agrees, however, that in
determining whether or not any interest payable under this Note exceeds the
highest rate permitted by law, any non-principal payment including, without
limitation, prepayment fees and late charges shall be deemed, to the extent
permitted by law, to be an expense, fee, premium or penalty rather than
interest.
12. Payees shall not be deemed, by any act or omission or commission, to
have waived any of their rights or remedies under this Note unless the waiver
is in writing and signed by Payees, and then only to the extent specifically
set forth in the writing. A waiver on one event shall not be construed as
continuing or as a bar to or waiver of any right or remedy to a subsequent
event.
13. This instrument shall be governed by and construed according to the laws of
the State of Florida.
14. Whenever used, the singular number shall include the plural, the
plural the singular, the use of any gender shall be applicable to all genders,
and the words Payees and Maker shall be deemed to include the respective
heirs, personal representatives, successors and assigns of Payee and Maker. If
Maker consists of more than one person, corporation or other entity, the
obligations and liabilities of such persons, corporations or other entities
under this Note shall be joint and several, and the word Maker shall mean all
or some or any of them.
15. As provided in the Loan Agreement, the Disbursement Agent has been
authorized to act on behalf of the Payees with respect to this Note as and to
the extent instructed by the Payees.
16. All payments under this Note shall be made in such coin or currency of
the United States of America as at the time of payment shall be legal tender
for the payment of public or private debts.
17. Time is of the essence as to each provision of this Note which
requires Maker to take any action within a specified time period.
MAKER AND PAYEES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE
RIGHT EITHER MAY HAVE TO TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED
HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, VERBAL OR WRITTEN STATEMENTS OR ACTIONS OF EITHER
PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR PAYEES TO MAKE THE
LOAN EVIDENCED BY THIS NOTE. IN WITNESS WHEREOF, Maker, intending to be legally
bound, has duly executed and delivered this Note.
CONTINENTAL HERITAGE CORPORATION
By: Steve Gould, President
SECURITY AGREEMENT
THIS AGREEMENT, made as of the 27th day of May 1999, by and among
CONTINENTAL HERITAGE CORPORATION, herein called the Debtor, whose business
address is 7674 West Lake Mead Blvd., Las Vegas, NV 89128, VISIONQUEST
WORLDWIDE, INC. (VisionQuest), whose business address is 7674 West Lake Mead
Blvd., Las Vegas, NV 89128 and GERALD M. HOLLAND, as Disbursement Agent on
behalf of the Payees under a certain Promissory Note of Debtor dated May 27,
1999 in the principal amount of $200,000 (the Note), which Payees are herein
collectively called the Secured Party, whose address is c/o Gerald M.
Holland, 4860 N.E. 12th Avenue, Fort Lauderdale, Florida 33334.
WITNESSETH:
1. To secure the payment of the indebtedness of the Debtor in the amount
of TWO HUNDRED THOUSAND DOLLARS ($200,000) with interest at the rate of 10% per
annum, payable commencing March 31, 2000 to and including August 31, 2000 as
evidenced by the Note, VisionQuest, a wholly owned subsidiary of the Debtor,
hereby grants and conveys to the Secured Party a security interest in
(a) the Goods and Inventory of VisionQuest as such terms are defined
in the Uniform Commercial Code of each of Nevada and Texas, and as the same may
exist from time to time hereinafter (hereinafter collectively called the
Collateral),
(b) all increases, substitutions, replacements, additions and accessions
thereto.
2. VisionQuest agrees to:
(a) defend the title to the Collateral against all persons and against all
claims and demands whatsoever, which Collateral, except for the security
interest granted hereby, is lawfully owned by VisionQuest and is now and shall
hereafter be free and clear of any and all liens, security interests, claims,
charges, encumbrances, taxes and assessments except as may be set forth in this
Agreement.
(b) on demand of the Secured Party to do the following: furnish further
assurance of title, execute any written agreement or do any other acts
necessary to effectuate the purposes and provisions of this agreement, execute
any instrument or statement required by law or otherwise in order to perfect,
continue or terminate the security interest of the Secured Party in the
Collateral and pay all costs of filing in connection therewith.
(c) to keep the Collateral at one of the following locations:
(i) c/o ODC Integrated Logistics, 450 Lillard Drive, Sparks, NV 89434;
and
(ii) c/o Video Plus, 200 Swisher Road, Lake Dallas, TX 75065
and not to remove same except in the usual course of its business
including the sale of the same.
(d) to keep the Collateral free and clear of all liens, charges,
encumbrances, taxes and assessments.
(e) to pay, when due, all taxes, assessments and license fees relating to
the collateral.
(f) to keep the collateral insured against loss by fire (including
extended coverage), theft and other hazards as the Secured Party may require.
3. The Note executed in connection with this Agreement is a separate instrument
and may be negotiated by Secured Party without releasing Debtor, the
Collateral, or any guarantor or co-maker. Debtor and VisionQuest consent to
any extension of time of payment.
4. Waiver of or acquiescence in any default by the Debtor, or failure of
the Secured Party to insist upon strict performance by the Debtor or
VisionQuest of any warranties or agreements in this Agreement, shall not
constitute a waiver of any subsequent or other default or failure.
5. Notices to either party shall be in writing and shall be delivered
personally or by mail addressed to the party at the address herein set forth or
otherwise designated in writing.
6. The Uniform Commercial Code of Nevada or Texas, dependent upon where
the Goods and Inventory are located, shall govern the rights, duties and
remedies of the parties and any provisions herein declared invalid under any
law shall not invalidate any other provision of this Agreement.
7. The following shall constitute a default by Debtor or VisionQuest:
(a) A default under the Note.
(b) Failure by Debtor or VisionQuest to comply with or perform any
provision of this Agreement.
(c) False or misleading representations or warranties made or given by
Debtor or VisionQuest in connection with this Agreement.
(d) Subjection of the Collateral to levy of execution or other judicial
process.
8. (a) Upon any default of the Debtor or VisionQuest, and at the option of
the Secured Party, the obligations secured by this Agreement shall immediately
become due and payable in full without notice or demand and the Secured Party
shall have all the rights, remedies and privileges with respect to
repossession, retention and sale of collateral and disposition of the proceeds
as are accorded to a Secured Party by the applicable sections of the Uniform
Commercial Code of Nevada and Texas, dependent upon where the Goods and
Inventory are located, respecting "Default," in effect as of the date of this
Agreement.
(b) Upon any default, the Secured Party's reasonable attorney's fees and
the legal and other expenses for pursuing, searching for, receiving, taking,
keeping, storing, advertising and selling the Collateral shall be chargeable to
the Debtor.
(c) The Debtor shall remain liable for any deficiency resulting from a
sale of the Collateral and shall pay any such deficiency forthwith on demand.
(d) If the Debtor or VisionQuest shall default in the performance of any
of the provisions of this Agreement on their respective part to be performed,
Secured Party may perform same for the Debtor's or VisionQuest's account and
any monies expended in so doing shall be chargeable with interest to the Debtor
and added to the indebtedness secured hereby.
(e) In conjunction with, addition to or substitution for those rights,
Secured Party, at his discretion, may:
(i) enter upon VisionQuest's premises peaceably by Secured Party's own
means or with legal process and take possession of the Collateral, or render it
unusable, or dispose of the Collateral on the VisionQuest's premises and each
of the Debtor and VisionQuest agree not to resist or interfere;
(ii) require VisionQuest to assemble the Collateral and make it available
to the Secured Party at a place to be designated by the Secured Party,
reasonably convenient to both parties (VisionQuest agrees that the Secured
Party's address as set forth above is a place reasonably convenient to such
assembling); and
(iii) unless the Collateral is perishable or threatens to decline speedily
in value or is of a type customarily sold on a recognized market, Secured Party
will give Debtor and VisionQuest reasonable notice or the time and place of any
public sale thereof or of the time after which any private sale or any other
intended disposition thereof is to be made. The requirements of reasonable
notice will be met if such notice is mailed, postage prepaid, to the address of
the Debtor shown above, at least three days before the time of sale or
disposition.
9. Secured Party may assign this Agreement and if assigned, the assignee
shall be entitled, upon notifying the Debtor and VisionQuest, to performance of
all of Debtor's and VisionQuest's obligations and agreements hereunder and the
assignee shall be entitled to all of the rights and remedies of the Secured
Party hereunder.
10. The Secured Party is hereby authorized to file a Financing Statement.
11. The terms, warranties and agreements herein contained shall bind and
inure to the benefit of the respective parties hereto, and their respective
legal representatives, successors and assigns.
12. The gender and number used in this Agreement are used as a reference
term only and shall apply with the same effect whether the parties are of the
masculine or feminine gender, corporate or other form, and the singular shall
likewise include the plural.
13. This Agreement may not by changed orally.
IN WITNESS WHEREOF, the Parties have respectively signed and sealed these
presents the day and year first above written.
CONTINENTAL HERITAGE CORPORATION
By:
President
VISIONQUEST WORLDWIDE, INC.
By:
President
Gerald M. Holland, as agent for the Payees
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<PERIOD-END> APR-30-1999
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0
0
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