<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
Amendment No. 2
Mark One
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended March
31, 1998 --- Commission File Number 0-9997; OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From
____________ to _____________.
UNITED HERITAGE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
UTAH 87-0372864
- ------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
2 North Caddo Street, P. O. Box 1956, Cleburne, Texas 76033-1956
-----------------------------------------------------------------
(Address of principal executive offices)
(817) 641-3681
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
------------------------------ ---------------------
Common Stock, $0.001 par value Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
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 such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates
of the registrant, based on the average of the bid and asked prices of
the Common Stock quoted on the National Association of Securities
Dealers Automated Quotation System on April 30, 1998, was $18,357,483.
For purposes of this computation, all officers, directors and 5%
beneficial owners of the Registrant are deemed to be affiliates. Such
determination should not be deemed an admission that such officers,
directors or 5% beneficial owners are, in fact, affiliates of the
Registrant. As of May 22, 1998, 97,400,512 shares of Common Stock were
outstanding.
Documents Incorporated by Reference: Portions of the Company's
Proxy Statement dated not later than 120 days after the end of the
Company's most recent fiscal year, filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934 for the 1998 Annual Meeting of
Shareholders of United Heritage Corporation are incorporated by
reference into Part III.
PAGE
<PAGE>
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of Report.
1. Financial Statements Page
The following financial statements of the
Company required to be included in Item 8 are
filed under Item 14 at the page indicated:
Independent Auditor's Report F-1
Consolidated Balance Sheets at March 31, 1998
and 1997 F-2
Consolidated Statements of Operations for the
years ended March 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
March 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the
years ended March 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-9
2. Financial Statement Schedules.
No schedules are required because they are inapplicable
or the information is otherwise shown in the financial
statements or notes thereto.
3. Exhibits.
3.01 Articles of Incorporation, as amended on December
5, 1997. (1) (3.01)
3.02 Bylaws. (2) (3.2)
4.01 Registration Rights Agreement between the Company
and Augustine Fund, L.P., dated December 11, 1997.
(1)
4.02 Registration Rights Agreement between the Company
and Black Sea Investments, Ltd., dated December 10,
1997. (1)
-2-
PAGE
<PAGE>
4.03 Registration Rights Agreement between the Company
and Triton Private Equities Fund, L.P., dated
December 9, 1997. (1)
4.04 Warrant Agreement between the Company and
Augustine Fund, L.P., dated December 11, 1997. (1)
4.05 Warrant Agreement between the Company and Black
Sea Investments, Ltd., dated December 10, 1997. (1)
4.06 Warrant Agreement between the Company and Triton
Private Equities Fund, L.P., dated December 9, 1997.
(1)
4.07 Warrant Agreement between the Company and Sands
Brothers & Co., Ltd. dated December 11, 1997. (1)
10.01 Letter Agreement between the Company and Apex
Petroleum, L.L.C., dated April 30, 1997. pertaining to
the Definitive Stock Purchase Agreement between the
Company and Apex Petroleum, L.L.C., dated September
28, 1995. (3) (10.1)
10.02 Subscription Agreement between the Company and
Augustine Fund, L.P., dated December 11, 1997. (1)
(10.01)
10.03 Subscription Agreement between the Company and
Black Sea Investments, Ltd., dated December 10, 1997.
(1) (10.02)
10.04 Subscription Agreement between the Company and
Triton Private Equities Fund, L.P., dated December 9,
1997. (1) (10.03)
21 Subsidiaries of the Company. (4)
23 Consent of Weaver and Tidwell, L.L.P.*
24 Power of Attorney. (4)
27 Financial Data Schedule. (4)
- -------------------------
* Filed herewith.
(1) Filed with the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1997 and
incorporated by reference herein.
(2) Filed with the Company's Registration Statement No. 33-
43564 on Form S-1 and incorporated by reference herein.
(3) Filed with the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1997 and
incorporated by reference herein.
(4) Filed with the Company's Annual Report on Form 10-K for
the year ended March 31, 1998.
-3-
PAGE
<PAGE>
(b) Reports on Form 8-K.
None filed during the last quarter of this report.
(c) Exhibits Required by Item 601 of Regulation S-K.
The exhibits listed in Part IV, Item 14(a)(3) of this
report, and not incorporated by reference to a separate
file, are included after "Signature," below.
(d) Financial Statement Schedules Required by Regulation S-X.
All schedules are omitted because they are not required,
inapplicable or the information is otherwise shown in the
financial statements or notes thereto.
-4-
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNITED HERITAGE CORPORATION
Date: June 26, 1998 By: /s/ Walter G. Mize
------------------------
Walter G. Mize, Chairman
of the Board, President and
Chief 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 on this
26th day of June, 1998.
SIGNATURE TITLE
/s/ Walter G. Mize Chairman of the Board and
- ------------------ Chief Executive Officer
Walter G. Mize (Principal Executive Officer)
* Secretary, Treasurer, Chief
- ---------------- Financial Officer and Director
Harold L. Gilliam (Principal Accounting Officer)
* Director
- --------------
Dr. Joe Martin
* Director
- ------------
C. Dean Boyd
* Director
- -----------------
Theresa D. Turner
*By:/s/ Walter G. Mize
-------------------
Walter G. Mize, as Attorney-in-
Fact for each of the persons
indicated
-5-
PAGE
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
United Heritage Corporation
We have audited the accompanying consolidated balance
sheets of United Heritage Corporation and subsidiaries
as of March 31, 1998 and 1997, and the related
consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the
three years in the period ended March 31, 1998. These
consolidated financial statements are the responsibility
of the company's management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing
the accounting principles used and significant estimates
made by management, as well as evaluating the overall
consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material
respects, the financial position of United Heritage
Corporation and subsidiaries as of March 31, 1998 and
1997, and the consolidated results of their operations
and their cash flows for each of the three years in the
period ended March 31, 1998 in conformity with generally
accepted accounting principles.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
April 24, 1998
F-1
PAGE
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
1998 1997
------------ -----------
ASSETS
CURRENT ASSETS
Cash $ 1,390,416 $ 80,722
Trade accounts receivable 95,202 134,940
Other accounts receivable 53,183 -
Inventories 26,847 750
Other current assets 36,783 51,999
------------ -----------
Total current assets 1,602,431 268,411
NOTE RECEIVABLE - 1,245,766
OIL AND GAS PROPERTIES 24,771,766 24,293,613
PROPERTY AND EQUIPMENT, at cost
Equipment, furniture and fixtures 35,775 29,149
Vehicles 56,720 56,720
------------ -----------
92,495 85,869
Less accumulated depreciation 61,192 51,497
------------ -----------
31,303 34,372
OTHER ASSETS
Property held for sale 30,000 -
------------ -----------
TOTAL ASSETS $ 26,435,500 $25,842,162
============ ===========
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-2
PAGE
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
1998 1997
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 45,565 $ 61,876
Accrued expenses 21,711 57,527
----------- ------------
Total current liabilities 67,276 119,403
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value,
5,000,000 shares authorized,
none issued
Common stock, $.001 par value,
125,000,000 shares authorized,
issued and outstanding
1998 - 97,395,512
1997 - 96,021,542 97,395 96,021
Additional paid-in capital 33,399,630 32,425,853
Accumulated deficit (7,102,037) (6,714,807)
----------- ------------
26,394,988 25,807,067
Deferred compensation and consulting (26,764) (84,308)
----------- ------------
26,368,224 25,722,759
----------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $26,435,500 $ 25,842,162
=========== ============
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-3
PAGE
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
1998 1997 1996
----------- ----------- -----------
OPERATING REVENUES
Processed beef products $ 2,906,167 $ 2,737,489 $ 1,087,229
Other 27,443 - -
----------- ----------- -----------
Total operating revenues 2,933,610 2,737,489 1,087,229
OPERATING COSTS AND EXPENSES
Processed beef products 2,439,252 2,269,259 989,153
General and administrative 530,200 565,511 398,833
Selling expenses 136,980 108,095 49,667
----------- ----------- -----------
Total operating expenses 3,106,432 2,942,865 1,437,653
----------- ----------- -----------
Loss from operations (172,822) (205,376) (350,424)
OTHER INCOME (EXPENSE)
Interest income 6,033 12,874 14,585
Interest expense (3,425) - (1,491)
Impairment loss (217,016) - -
----------- ----------- -----------
Net loss ($387,230) ($192,502) ($337,330)
=========== =========== ===========
Net loss per share ($0.00) ($0.00) ($0.02)
=========== =========== ===========
Weighted average
number of common shares 96,524,423 28,584,726 16,480,990
=========== =========== ===========
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-4
PAGE
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Other
---------- ---------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1995 15,204,542 $ 15,204 $ 7,753,561 ($ 6,184,975) ($ 48,432)
Stock issed upon exercise
of stock options 120,000 120 82,380 - ( 52,500)
Realization of stock issued
in exchange for future
services - - - - 42,318
Stock issued pursuant to
private placement 2,500,000 2,500 622,500 - -
Net loss - - - ( 337,330) -
---------- ---------- ------------- ------------- ------------
Balance, March 31, 1996 17,824,542 17,824 8,458,441 ( 6,522,305) ( 58,614)
Stock issued for assets 77,500,000 77,500 122,303,130 - -
Difference between market
value of stock issued
for assets and fair
value of assets [See Note 1] (98,704,380)
Stock issed upon exercise
of stock options 697,000 697 198,555 - -
Realization of stock issued
in exchange for future
services - - - - 52,500
Stock options granted for
consulting - - 170,107 - ( 170,107)
Realization of deferred
consulting costs - - - - 85,799
Write-off of subscription
receivable - - - - 6,114
Net loss - - - ( 192,502) -
---------- ---------- ------------- ------------- ------------
Balance, March 31, 1997 96,021,542 96,021 32,425,853 ( 6,714,807) ( 84,308)
Stock issued upon exercise
of stock options 197,500 198 104,802 - -
Stock issued pursuant to
private placement 1,176,470 1,176 868,975 - -
Realization of deferred
consulting costs - - - - 57,544
Net loss - - - ( 387,230) -
---------- ---------- ------------- ------------- ------------
Balance, March 31, 1998 97,395,512 $ 97,395 $ 33,399,630 ($ 7,102,037) ($ 26,764)
========== ========== ============= ============= ============
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-5
PAGE
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($387,230) ($192,502) ($337,330)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 9,695 14,460 8,252
Amortization - 314 -
Deferred compensation and consulting
recognized in current year 57,544 138,299 42,318
Stock issued for compensation 7,500 - -
Impairment loss 217,016 - -
Write-off of note receivable - 6,114 -
Changes in assets and liabilities:
Accounts receivable 36,555 (106,848) 163,570
Inventory (26,097) 25,112 (24,122)
Other current assets 15,216 (8,962) 1,418
Accounts payable and
accrued expenses (52,127) 93,464 (39,021)
---------- ---------- ----------
Net cash used in
operating activities (121,928) (30,549) (184,915)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (484,779)# (541,635) # (113,264)
Collections of notes receivable 948,750 # 16,000 # 69,120
---------- ---------- ----------
Net cash provided by
(used in) investing activities 463,971 (525,635) (44,144)
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-6
PAGE
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
(continued)
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings ($243,000) $ - ($ 520,000)
Proceeds from loans 243,000 - 520,000
Proceeds from issuance
of common stock 967,651 199,250 655,000
---------- --------- -----------
Net cash provided by
financing activities 967,651 199,250 655,000
---------- --------- -----------
Net increase (decrease) in
cash and cash equivalents 1,309,694 (356,934) 425,941
Cash and cash equivalents,
beginning of year 80,722 437,656 11,715
---------- --------- -----------
Cash and cash equivalents,
end of year $1,390,416 $ 80,722 $ 437,656
=========== ========= ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest $ 3,425 $ - $ -
=========== ========= ===========
Taxes $ - $ - $ -
=========== ========= ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
On February 11, 1997, the Company issued 77,500,000 shares of common
stock in exchange for 100% of the membership interests of APEX
Petroleum, LLC in a transaction accounted for as an acquisition
of assets. The unproved properties acquired were recorded at their
estimated fair value of $23,676,250. The fair value of the common
stock issued was $122,380,630, resulting in a difference between the
market value of the stock issued for the assets and the fair value
of the assets of $98,704,380.
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-7
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, National
Heritage Sales Corporation, UHC Petroleum Corporation, UHC
Petroleum Services Corporation and Sovereign Communications
Corporation. UHC Petroleum Services Corporation and
Sovereign Communications Corporation, formed January 21,
1997, had no operations for the years ended March 31, 1998
and 1997.
All intercompany transactions and balances have been
eliminated upon consolidation.
Nature of Operations
United Heritage Corporation distributes "lite" beef
products. During the year ended March 31, 1996, the Company
entered into an agreement with Apex Petroleum, L.L.C.,
wherein the Company had the right to acquire certain
unproved oil and gas leases. The results of testing and
evaluations were favorable and the acquisition was finalized
on February 11, 1997. The Company continues to explore and
develop its oil and gas properties.
Acquisition
Effective February 11, 1997, United Heritage Corporation
(UHC) issued 77,500,000 shares of common stock to Walter G.
Mize, Mary Catherine Hicks, Adam Mize and Gail Pruitt in
exchange for 100% of the membership interests in Apex
Petroleum, L.L.C. Walter G. Mize is President and Chairman
of the Board of UHC. After the issuance of the shares the
former Apex members hold approximately 90% of the
outstanding shares of UHC and the transaction has been
accounted for as an acquisition of assets. The assets of
Apex consist of unproved oil and gas leases. The unproved
properties were recorded at their estimated fair value
of $23,676,250. The market value of common stock issued was
$122,380,630 resulting in a difference between the market value
of the stock issued and the fair value of the assets of
$98,704,380. The reason for this difference is that the
contract to purchase the assets was based on a $0.25 per
share conversion price agreed in the September 28, 1995
purchase agreement between the Company and the members of Apex,
modified on April 30, 1996 to limit the number of shares to
be received to 77,500,000 shares. When the transaction was
closed on February 11, 1997, the stock price was $1.75. This
$98,704,380 was treated as a reduction in shareholder's equity.
Apex has had no operations since its inception on
September 5, 1995. Subsequent to the acquisition, Apex was
merged into UHC Petroleum Corporation.
F-8
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Revenue
Revenue from the sale of "lite" beef products is recognized
when products are delivered to customers. When oil and gas
production commences revenue from oil and gas operations
will be recognized at the point of sale.
Inventory
Inventory consists of "lite" beef purchased for resale and
is valued at the lower of cost (first-in, first-out) or
market.
Oil and Gas Properties
The Company follows the full cost method of accounting for
oil and gas properties. Accordingly, all costs associated
with acquisition, exploration and development of oil and gas
reserves are capitalized.
When production commences all capitalized costs, including
the estimated future costs to develop proved reserves will
be amortized on the unit-of-production method using
estimates of proved reserves. Investments in unproved
properties and major development projects will not be
amortized until proved reserves associated with the projects
can be determined or until impairment occurs. At March 31,
1998 all of the Company's oil and gas properties are
considered unproved. The unproved properties are
periodically assessed for impairment. If the assessment
indicates that the properties are impaired, the amount of
the impairment will be added to the capitalized costs to be
amortized.
In addition, the capitalized costs are subject to a "ceiling
test", which limits such costs to the aggregate of the
estimated present value, using a 10% discount rate, of
future net revenues from proved reserves, based on current
economic and operating conditions, plus the lower of cost or
fair market value of unproved properties.
F-9
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Property and Equipment
Property and equipment are stated at cost. Depreciation is
provided over the estimated useful lives of the assets
primarily by the straight-line method as follows:
Equipment, furniture and fixtures 3-7 years
Vehicles 3-5 years
Loss Per Share
The loss per common share has been computed by dividing the
net loss by the weighted average number of shares of common
stock outstanding throughout the year. Calculation of loss
per common share - assuming dilution is not presented
because the effects of shares issuable upon exercise of
various stock options and stock warrants outstanding would
be antidilutive.
The outstanding stock options and warrants described in
Notes 8 and 9 respectively, could potentially have a
dilutive effect on earnings per share should the Company
generate income from operations or net income in the future.
Cash Flows Presentation
For purposes of the statement of cash flows, the Company
considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Use of Estimates
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-10
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Financial Instruments
Financial instruments of the Company consist of cash and
cash equivalents, accounts receivable, and accounts payable.
Recorded values of cash, receivables and payables
approximate fair values due to short maturities of the
instruments.
Stock-based Employee Compensation
The Company accounts for stock based compensation
arrangements under the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees", which requires compensation cost to be measured
at the date of grant based on the intrinsic value of the
options granted. The intrinsic value of an option is equal
to the difference between the market price of the common
stock on the date of grant and the exercise price of the
option.
The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation", which provides
for an alternative measure of compensation cost based on the
fair value of the options granted. The fair value of an
option is based on the intrinsic value as well as the time
value of the option. See Note 8 for the additional
disclosures required by SFAS No. 123.
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued
Financial Accounting Standards (SFAS) No. 130 "Reporting
Comprehensive Income". This statement requires an
enterprise to display total comprehensive income (total
nonowner changes in equity) in a full set of financial
statements. Currently the Company has no items to be
reported as "other comprehensive income".
F-11
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
New Accounting Pronouncements - continued
In addition, FASB has issued SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information". This
statement requires a "management approach" as opposed to an
industry approach in defining operations to be shown as
separate segments.
The Company must initially apply SFAS No. 130 and No. 131
for its fiscal year beginning April 1, 1998. The Company
anticipates no significant changes in financial statement
presentation as a result of implementing these new
accounting standards.
NOTE 2. NOTE RECEIVABLE
In February 1998 the Company foreclosed on its note receivable
from Madison Radio Group, Inc. At the date of the foreclosure
the Company recorded an impairment loss of $217,016. A
majority of the assets obtained in foreclosure were sold for
$1,000,000 less closing costs of $1,250. The Company received
$948,750 in cash and a short term receivable of $50,000. The
short term receivable has subsequently been collected.
At March 31, 1998 the Company retained an office building
which is recorded as "property held for sale". The office
building was subsequently sold for $30,000 resulting in no
additional gain or loss.
NOTE 3. OIL AND GAS PROPERTIES
In September 1995, the Company entered into an agreement to
acquire 100% of Apex Petroleum, L.L.C. (Apex) owner of certain
unproved oil and gas leases located in Edwards County, Texas.
The agreement was contingent on the Company having certain
testing and development performed and a valuation being
obtained which was acceptable to the Company. Apex is related
to the Company through members who are also shareholders of
the Company including Mr. Mize, who has a controlling interest
in Apex. Pursuant to the agreement, the Company has incurred
exploration costs necessary to obtain an evaluation of
reserves. Costs incurred have been capitalized as oil and gas
properties.
F-12
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. OIL AND GAS PROPERTIES - continued
A favorable valuation report was received and the transaction
was closed on February 11, 1997. The unproved properties were
recorded at their estimated fair value of $23,676,250.
As of March 31, 1998, a determination cannot be made about the
extent of proved reserves for this project and no significant
oil or gas has been produced. Consequently, no amortization
has been computed on the acquisition and exploration costs.
The Company will begin to amortize these costs when evaluation
of the project is complete and production commences. All
costs capitalized as of March 31, 1998 were incurred to
acquire and evaluate the project.
As exploration and development progresses the capitalized
costs are periodically assessed for impairment. At March 31,
1998 no impairment has been required to be recorded. A small
amount of oil has been produced as a part of the testing and
development. The Company is currently putting equipment in
place to begin production.
NOTE 4. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the company to
concentrations of credit risk consist of cash equivalents, and
trade receivables. During the year ended March 31, 1998, the
Company maintained money market accounts with a bank which, at
times, exceeded federally insured limits. Cash equivalents
held in money market accounts at March 31, 1998 and 1997 were
$1,344,391 and $69,947, respectively.
Concentrations of credit risk with respect to trade
receivables consist principally of food industry customers
operating within the United States. Receivables from one
customer at March 31, 1998, and two customers at March 31,
1997 comprised approximately 76% and 77%, respectively, of the
trade receivable balance. No allowance for doubtful accounts
has been provided since recorded amounts are determined to be
fully collectible.
F-13
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INVENTORY
Inventory consist of the following:
1998 1997
------- -------
Lite beef held for resale $26,847 $ 750
======= =======
NOTE 6. RELATED PARTY TRANSACTIONS
The Company has a $300,000 unsecured revolving line of credit,
bearing interest at 6%, from ALMAC Financial Corporation, a
corporation owned by Mr. Mize. At March 31, 1998, and 1997,
no amounts were outstanding under the line of credit.
Included in interest expense for the years ended March 31,
1998, 1997, and 1996, is $3,425, $-0- and $1,491,
respectively, for interest expense incurred under this
agreement. The weighted average interest rate under this
agreement was 8.5% for 1998 and 6% for 1996.
On September 29, 1995, Mr. Mize bought 2,500,000 shares of the
Company's common stock for $625,000 to provide working capital
for the Company.
On February 22, 1996, the Company granted stock options for
120,000 shares to Lavaca Mortgage Investors, Inc., a
corporation owned by Mr. Mize's brother. Options were
exercised on the grant date at $0.25 per share when the market
value was $.69 per share. Deferred consulting costs of
$52,500 were recorded as a reduction of shareholder's equity
and were expensed in 1997 as the services were rendered.
On June 28, 1996 Mr. Mize exercised stock options and bought
400,000 shares of the Company's common stock for $100,000.
On February 11, 1997, the Company acquired 100% of Apex
Petroleum, L.L.C. The Company issued 77,500,000 shares of
common stock to the members of Apex. Mr. Mize, President and
Chairman of the Board of the Company, has a controlling
interest in Apex.
F-14
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. BUSINESS SEGMENTS AND MAJOR CUSTOMERS
At March 31, 1998, 1997 and 1996 the Company operates in two
business segments, the sale of processed lite beef products
and oil and gas producing activities. During the years ended
March 31, 1998, 1997 and 1996 the Company has been initiating
oil and gas exploration and development. At March 31, 1998
and 1997 the Company has invested $24,771,766 and $24,293,613,
respectively, in oil and gas properties which are separately
identified on the balance sheets. No significant revenues or
expenses have been recognized from these activities. (See
Note 3) The components of the capitalized costs are as
follows:
1998 1997
----------- -----------
Acquisition $23,676,250 $23,676,250
Exploration 1,095,516 617,363
----------- -----------
$24,771,766 $24,293,613
=========== ===========
The Company recorded Lite Beef sales to the following major
customers for the years ended March 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- --------------------
Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Customer A $2,018,937 69.5 $1,933,904 71 $ - -
Customer B 661,004 22.7 615,841 22 559,578 51
Customer C - - - - 119,846 11
Customer D - - - - 400,917 37
---------- ------- ---------- ------- ---------- -------
$2,679,941 92.2% $2,549,745 93% $1,080,341 99%
========== ======= ========== ======= ========== =======
</TABLE>
F-15
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. STOCK OPTION PLANS
Directors of the Company adopted the 1995 Stock Option Plan
effective September 11, 1995. This Plan set aside 2,000,000
shares of the authorized but unissued common stock of the
Company for issuance under the Plan. Options may be granted
to directors, officers, consultants, and/or employees of the
Company and/or its subsidiaries. Options granted under the
Plan must be exercised within five years after the date of
grant, but may be affected by the termination of employment.
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- -------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Outstanding Price Outstanding Price Outstanding Price
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 900,000 $ .25 1,872,000 $ .42 - $ -
Granted 100,000 .25 - - 2,027,000 .41
Exercised (90,000) .25 (647,000) .25 (120,000) .25
Forfeited - - (325,000) 1.28 (35,000) .25
Expired - - - - - -
----------- -------- ----------- -------- ----------- --------
End of year 910,000 $ .25 900,000 $ .25 1,872,000 $ .42
=========== ======== =========== ======== =========== ========
Exercisable 880,000 $ .25 870,000 $ .25 1,602,000 $ .25
=========== ======== =========== ======== =========== ========
Weighted average
fair value of
options granted: $ 0.11 $ - $ 0.20
=========== =========== ===========
</TABLE>
Stock options outstanding under the 1995 Plan are all
exercisable at $0.25 per share and weighted average remaining
contractual life is 2.77 years.
Directors of the Company adopted the 1996 Stock Option Plan
effective March 13, 1996. This Plan and its subsequent
amendment set aside 1,450,000 shares of the authorized but
unissued common stock of the Company for issuance under the
Plan. Options may be granted to directors, officers,
consultants, and/or employees of the company and/or its
subsidiaries. Options granted under the Plan must be
exercised over periods of 180 days to five years after the
date of grant, but may be affected by the termination of
employment.
F-16
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. STOCK OPTION PLANS - continued
The following schedule summarizes pertinent information with
regard to the 1996 Plan for the years ended March 31, 1998,
1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- -------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Outstanding Price Outstanding Price Outstanding Price
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 520,000 $ .82 500,000 $ .30 - $ -
Granted 112,500 .54 1,170,000 .70 500,000 .30
Exercised (107,500) 1.00 (50,000) .75 - -
Forfeited (120,000) 3.38 (500,000) .30 - -
Expired (100,000) .75 (600,000) 1.06 - -
----------- -------- ----------- -------- ----------- --------
End of year 305,000 $ .64 520,000 $ .82 500,000 $ .30
=========== ======== =========== ======== =========== ========
Exercisable 305,000 $ .64 520,000 $ .82 500,000 $ .30
=========== ======== =========== ======== =========== ========
Weighted average
fair value of
options granted: $ 0.51 $ 0.28 $ 0.00
=========== =========== ===========
</TABLE>
The following table summarizes information about the stock
options outstanding under the 1996 Plan at March 31, 1998:
Weighted
Average Weighted
Range of Number Remaining Average
Exercise of Shares Contractual Exercise
Prices at 3/31/98 Life Price
-------------- ---------- ----------- --------
$ .25 - $ .375 5,000 2.00 years $ .25
$1.25 - $1.875 225,000 .29 years 1.26
$2.00 - $3.00 50,000 .625 years 2.25
$3.25 25,000 1.00 years 3.25
----------
305,000
==========
F-17
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. STOCK OPTION PLANS - continued
Options granted under the two plans for the years ended March 31,
1998 and 1997 were to nonemployees and $57,544 and $85,799,
respectively, was expensed as payment for services. During the
years ended March 31, 1996, the Company recorded no compensation
expense for options granted to employees under the two plans.
If the Company had elected to record compensation expense
using the fair value method prescribed by SFAS No. 123, the
compensation cost related to options granted to employees in
1996 would have been $82,705. Since there were no options
granted to employees in 1998 and 1997, there is no pro forma
effect to disclose for those years. Pro forma net loss and
loss per share for 1996 would have been:
1996
----------
Pro forma net loss ($420,035)
Pro forma basic net loss per share ($ 0.03)
Pro forma diluted net loss per share ($ 0.03)
NOTE 9. STOCK WARRANTS
Directors of the Company entered into a stock warrant
agreement effective August 16, 1996. Pursuant to the agreement,
the Company issued 1,300,000 warrants to purchase common stock as
consideration for consulting services to be performed.
Warrants issued under the agreement must be exercised within
five years after the date of grant.
F-18
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK WARRANTS - continued
The following schedule summarizes pertinent information with
regard to the stock warrants for the years ended March 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise
Outstanding Price Outstanding Price
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Beginning of year 1,300,000 $ .94 - $ -
Granted - - 1,300,000 .94
Exercised - - - -
Forfeited - - - -
Expired - - - -
----------- -------- ----------- --------
End of year 1,300,000 $ .94 1,300,000 $ .94
=========== ======== =========== ========
Exercisable 1,300,000 $ .94 1,300,000 $ .94
=========== ======== =========== ========
Weighted average
fair value of
options granted: $ 0.07 $ 0.07
=========== ===========
</TABLE>
The following table summarizes information about the stock
warrants outstanding at March 31, 1998:
Weighted
Average Weighted
Range of Number Remaining Average
Exercise of Shares Contractual Exercise
Prices at 3/31/98 Life Price
------------- ---------- ----------- --------
$0.75 - $1.00 1,023,000 3.3 years $0.77
$1.25 - $1.75 231,500 3.3 years 1.45
$2.00 45,500 3.3 years 2.00
----------
1,300,000
==========
F-19
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK WARRANTS - continued
During the year ended March 31, 1997, the Company recorded
$26,924 expense for services rendered related to warrants
issued under the agreement.
The fair value of warrants issued is estimated on the date of
issue using a Black-Sholes pricing model and the following
assumptions: a risk-free rate of return of 6.0%; an expected
life of one to two years; expected volatility of 116.8%; and
no expected dividends.
The Company has also issued warrants to purchase 117,646
shares of its common stock in connection with a private
placement in December 1997. The Company sold 1,176,470 common
shares and warrants to purchase 117,646 additional shares at
$1.20 per share for $1,000,000. The warrants expire in
December 1999. The selling agent for the private placement
was paid a commission of $100,000 plus warrants to purchase
1,824,000 shares of common stock at exercise prices ranging
from $.75 to $2.00 per share. The warrants issued to the
selling agent expire in August 2001.
NOTE 10. INCOME TAXES
Deferred income tax assets and liabilities are computed
annually for differences between financial statement and tax
bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to
the amount expected to be realized. Income tax expense is the
tax payable or refundable for the period plus or minus the
change during the period in deferred tax assets and
liabilities. At March 31, 1998, 1997, and 1996, there was no
current or deferred tax expense.
F-20
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. INCOME TAXES - continued
At March 31, the deferred tax asset and liability balances are
as follows:
1998 1997
---------- ----------
Deferred tax asset
Oil and gas properties $8,049,925 $8,049,925
Net operating loss 1,676,361 1,549,946
---------- ----------
9,726,286 9,599,871
Deferred tax liability - -
---------- ----------
Net deferred tax asset 9,726,286 9,599,871
Valuation allowance (9,726,286) (9,599,871)
---------- ----------
$ - $ -
========== ==========
The net change in the valuation allowance for 1998 and 1997 is
an increase of $126,415 and $8,114,453, respectively. The
deferred tax asset is due to the net operating loss carryover
and difference in the basis of oil and gas properties for tax
and financial reporting purposes.
The Company has a net operating loss carryover of
approximately $4,930,000 available to offset future income for
income tax reporting purposes which will ultimately expire in
2013 if not previously utilized.
NOTE 11. STOCK BONUS PLAN
The Company has a stock bonus plan which provides incentive
compensation for its directors, officers, and key employees.
The administration of the plan is done by the Company's stock
option committee. The Company has reserved 300,000 shares of
common stock for issuance under the plan. As of March 31,
1998, 278,000 shares had been issued in accordance with the
plan.
F-21
PAGE
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- ------------
23 Consents of Weaver & Tidwell, L.L.P.
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference to the
registration statement of United Heritage Corporation
on Form S-8 with the Securities and Exchange Commission
on November 15, 1993, September 14, 1995 and February
28, 1997, for the 1993 Stock Bonus Plan, 1995 and 1996
Stock Option Plans, respectively, of United Heritage
Corporation of our report dated April 24, 1998, on our
audits of the consolidated financial statements of
United Heritage Corporation as of March 31, 1998 and
1997, and for each of the three years in the period
ended March 31, 1998, which report is incorporated in
this Annual Report on Form 10-K/A of United Heritage
Corporation for the year ended March 31, 1998. We also
consent to the reference to our firm under the caption
"Experts."
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
June 26, 1998
