<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
AMENDMENT NO. 3
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, 1997
--- 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:
Name of each exchange
Title of each class 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, 1997, was $22,568,203.
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 June 25, 1997, 96,121,542 shares of Common Stock were
outstanding.
Documents Incorporated by Reference: Portions of the Company's
Information 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 1997 Annual Meeting of
Shareholders of United Heritage Corporation are incorporated by
reference into Part III.
PAGE
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
United Heritage Corporation (the "Company") is a Utah
corporation formed in 1981. The Company has its principal office
in Cleburne, Texas and operates its business through its wholly-
owned subsidiaries, National Heritage Sales Corporation
("National"), UHC Petroleum Corporation ("Petroleum") UHC
Petroleum Services Corporation ("Services") and Sovereign
Communications Corporation ("Sovereign"), (collectively, the
"Subsidiaries").
DESCRIPTION OF BUSINESS
General
- -------
Through its wholly-owned subsidiary, National, the Company
engages in operations in the beef industry, involved in fresh beef
sales, ultimately supplying beef products to suppliers of such
products for retail sale to consumers. An emerging segment of the
beef industry deals with beef products which contain, due to
natural causes, less fat than typical choice beef. Typical choice
beef has been the object of criticism by health authorities due to
its high fat content, resulting in a portion of beef purchasers
selecting alternate food choices, such as poultry or fish. The
"lite" beef concept has been a response to health-conscious
consumers' demand for beef with reduced levels of fat. The
Company produces its "lite" beef product under the United States
Department of Agriculture ("USDA") Food Safety and Inspection
Service's Final Rule on Nutrition Labeling of Meat and Poultry
Products, wherein "lite" beef is defined as having at least 50%
less fat and one-third less calories than typical choice beef, as
defined by USDA Handbook 8-13.
Through its wholly owned subsidiary, Petroleum, the Company
is engaging in the oil and gas business since its acquisition of
the membership interests of Apex Petroleum, L.L.C. ("Apex") on
February 11, 1997 and the subsequent merger of Apex with and into
Petroleum on February 27, 1997. Through the Apex transaction, the
Company acquired the assets of Apex (by virtue of the merger after
the interests were acquired), which consisted primarily of leases
of an oil field in South Texas consisting of 10,502 + or - acres. The
transaction was completed based on a report received from Surtek,
Inc., a Golden, Colorado petroleum engineering firm ("Surtek")
that did extensive testing of the leases. It is the intent of the
Company to develop these leases. Because of the nature of the
formation containing the oil, it has been determined that using an
Alkaline-Surfactant-Polymer flood method of recovery could produce at
least 60% of the oil-in-place. The Alkaline-Surfactant-Polymer
flood method of recovery ("A-S-P")is a technique that combines three
methods to achieve a synergistic effect. The proper combination
and injection of these chemicals has been used to optimize the pH
of the oil reservoirs, lower the interfacial tensions allowing the
oil to flow more easily, reverse the wettability of the formation
rock to make the oil more susceptible to migration to the
producing wellbores, and provide a means to literally push the oil
to the producing wells. Surtek's experience in other fields and
the results of the laboratory testing of the formation rock, oil,
and water from the Field indicate that the A-S-P method has the
potential to allow oil recovery greater than any other proven
method presently available to the Company.
PAGE
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Services was formed to act as the operating company for the
Petroleum leases at such time as the current operator's agreement
is either terminated or assigned. The present operator is Pruitt
Engineering & Petroleum Co. ("PEPCO"). PEPCO has agreed to assign
all of its rights and obligations under its current operating
agreement to Services. The assignment has not yet occurred, and
Services is not currently operating. Sovereign was formed in
anticipation of a possible foreclosure by the Company of certain
radio broadcasting assets of which it is a lienholder, and is not
currently operating.
PRODUCTS AND OPERATIONS
Beef. The Company has produced to its specifications and
sells "lite" beef products. Such "lite" beef products come from
heavy, grain-fed beef animals that have the necessary carcass
specifications to meet the Company's standards and thereby qualify
for the USDA's definition of "lite." The basic raw material,
carcass beef, is acquired by the Company through a network of
independent producers and/or slaughter houses. To insure
continued compliance of and consistency in its products, the
Company's quality control agent is present each time the beef
products are fabricated, and all fabrication is done in USDA
inspected facilities.
The Company has fabricated for it only the amount of beef
products which it has sold prior to fabrication, and does not
maintain an excess inventory due to limited product life.
Approximate production capacity is currently 2,000 head of beef
per week, and the Company's average weekly production during the
fiscal year ended March 31, 1997 was 56 head per week. Another
limiting factor is the number of head of cattle available which
meet the carcass specifications required by the Company's
standards. Management, based on its contacts with various feed
yards throughout the country, estimates the supply available to
the Company at approximately 175,000 head per year.
During the fiscal year ended March 31, 1997 two (2) customers
each accounted for 10% or more of the Company's sales, as follows:
Lucky Stores, Inc. 71%; and Tri-State Wholesale Associated
Grocers, Inc. 22%.
Oil and Gas. The Company just completed the acquisition of
Apex on February 11, 1997, and had no production since the mid-
fourth quarter acquisition. The Company anticipates activity in
this area upon the raising of additional capital needed for the
recovery operation. The Company estimates a total of $15,000,000
in additional capital will be needed for the recovery operation
over a period of 24 months, and anticipates raising it through a
combination of private and public securities offerings. There are
no assurances that this capital can be raised.
MARKETING AND DISTRIBUTION. The Company primarily uses its own
sales personnel to market its products. The Company utilizes
newspaper advertising and point-of-sale information materials in
connection with retail sales in grocery stores. When necessary,
-2-
PAGE
<PAGE>
the Company also utilizes the services of food brokers in certain
areas of the United States to act as brokers for the Company in
sales of its "lite" beef product.
EMPLOYEES. The Company currently employs nine (9) full-time
employees, including a quality control and procurement agent who
is always present in the plant when the "lite" beef products are
fabricated.
COMPETITION
Beef. The Company has found the beef market to be dominated
by large, well-established companies which have large-scale
consumer recognition, large sales forces and extensive marketing
budgets. The Company must continue to offer specialty products
such as its "lite" beef products to compete with these companies.
The Company intends to be competitive in the market by offering a
high quality healthier alternative to other beef products and to
appeal to a more health conscious consumer who would like to eat
beef, but wants a lower fat alternative. The Company is at a
competitive disadvantage with regard to the price of its product
in comparison to regular beef and the limited resources it has for
advertising.
Oil and Gas. The oil and gas business is highly competitive
and has few barriers to entry. Although the Company owns all of
the rights to produce oil from the Field, the Company will be
competing with other oil and gas companies and investment partner-
ships in search for, and obtaining of, future desirable prospects,
the securing of contracts with third parties for the development
of oil and gas properties, the contracting for the purchase or
rental of drilling rigs and other equipment necessary for drilling
operations, and the purchase of equipment necessary for the
completion of wells, as well as in the marketing of any oil and
gas which may be discovered. Many of the Company's competitors
are larger than the Company and have substantially greater access
to capital and technical resources than does the Company and may
therefore have a significant competitive advantage. Many of the
Company's competitors are capable of making a greater investment
in a given area than is the Company, although large and small
companies alike are subject to the economics of cost
effectiveness. The prices at which the Company will be able to
sell any oil or gas production will have a substantial effect on
its earnings, if any.
ACQUISITIONS
On February 11, 1997 the Company acquired all of the member-
ship interests of Apex Petroleum, L.L.C. ("Apex"), a Texas limited
liability company, in consideration of 77,500,000 shares of the
Company's $0.001 par value common stock ("Common Stock") issued to
the members of Apex. The acquisition was completed in a private
transaction which was exempt from registration under the Federal
Securities Laws. On February 27, 1997, Apex was merged with and
into Petroleum, a newly formed Texas corporation. The transaction
was approved by the Company based on an independent valuation of
Apex by Surtek, Inc. ("Surtek"), a petroleum engineering company,
which performed certain tests on the primary assets of Apex,
leases of an oil field in South Texas consisting of approximately
10,502 acres, to determine the value of the Apex assets. Based on
the Surtek report, the Company's board of directors unanimously
accepted the valuation and elected to close the transaction to
purchase the Apex interests. Although the Surtek valuation would
have resulted in over three billion shares being issued, based on
the conversion price of $0.25 per share agreed in the September
28, 1995 purchase agreement between the Company and the members of
Apex; pursuant to an April 30, 1996 modification to the agreement
to purchase the Apex interests, the Apex members agreed to limit
the number of shares to be received to 77,500,000 shares.
For accounting purposes, the value placed on the Apex
interests acquired by the Company is $23,676,250, a difference of
$98,704,380 from the $122,303,130 market value of the stock at the
date of issuance. The $23,676,250 value placed on the Apex
interests acquired by the Company, although far below the Surtek
valuation, was determined by the Company to be the estimated fair
value of the assets. The Surtek valuation was not used based on
the following factors: (1) the reserves attributable to the
properties are unproved; (2) there are inherent limitations in the
valuation of unproved oil and gas properties; and (3) the Surtek
method to recover the reserves has been successfully used in
similar situations, but for these properties the tests to date had
been limited to laboratory simulations. It is yet to be
determined if these reserves can be produced in commercial
quantities using the Surtek method. The $23,676,250 used for
accounting purposes is estimated to be in the range that the
members of Apex could have received in a cash transaction from an
unrelated third party. The $98,704,380 difference between the
estimated fair value of the assets of $23,676,250 and the market
value of the stock at the date of issuance of $122,303,130 was
treated as a reduction in shareholders' equity. See Notes 1 and 3
to the Financial Statements.
-3-
PAGE
<PAGE>
FINANCIAL INFORMATION BY SEGMENT
Revenues, net income and identifiable assets are presented
below for the fiscal years ended March 31, 1997, 1996 and 1995.
1997 1996 1995
---------- -------------- --------------
Revenue:
Beef Products $2,737,489 $ 1,087,229 $ 3,500,116
Corporate -0- -0- 580
Oil and Gas -0- Not Applicable Not Applicable
Net Income (Loss):
Beef Products 197,535 (138,214) (106,580)
Corporate (390,037) (199,115) (879,181)
Oil and Gas -0- Not Applicable Not Applicable
Identifiable Assets:
Beef Products 171,384 123,766 233,670
Corporate 1,377,165 1,797,519 1,366,648
Oil and Gas 24,293,613 Not Applicable Not Applicable
The Company operated only one business segment for the entire
fiscal year, the sale of processed "lite" beef products. The
Company has operated the oil and gas segment only since the
acquisition of Apex on February 11, 1997, however, the operations
from that time until the end of the fiscal year have been
immaterial. For revenue, net income (loss) and identifiable
assets of the Company's discontinued operations, see the financial
statements and related footnotes.
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PAGE
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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, 1997
and 1996 F-2
Consolidated Statements of Operations for the
years ended March 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
March 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the
years ended March 31, 1997, 1996 and 1995 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 April
20, 1995. (1) (3.01)
3.02 Bylaws. (2) (3.2)
10.01 Letter Agreement between the Company and Apex
Petroleum, L.L.C., dated April 30, 1996. pertaining to
the Definitive Stock Purchase Agreement between the
Company and Apex Petroleum, L.L.C., dated September
28, 1995. (3) (10.1)
21 Subsidiaries of the Company. (4) (21)
23 Consent of Weaver and Tidwell, L.L.P.*
24 Power of Attorney. (4) (24)
27 Financial Data Schedule. (5) (27)
-5-
PAGE
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* Filed herewith.
(1) Filed with the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995 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, 1996 and
incorporated by reference herein.
(4) Filed with the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1997 and incorporated
by reference herein.
(5) Filed with the Company's Annual Report on Form 10-K/A,
Amendment No. 2 for the fiscal year ended March 31, 1997 and
incorporated by reference herein.
(b) Reports on Form 8-K.
On February 24, 1997 the Company filed a Current Report on
Form 8-K with the Securities and Exchange Commission to
report that on February 11, 1997 the Company acquired all of
the membership interests of Apex Petroleum, L.L.C. (Apex"),
a Texas limited liability company, in consideration for the
issuance of 77,500,000 shares of the Company's common stock,
$0.001 par value, to the members of Apex. This filing was
amended on April 28, 1997.
(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.
-6-
PAGE
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SIGNATURE
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 24, 1998 By:/s/Walter G. Mize
------------------------
Walter G. Mize, Chairman
of the Board, President and
Chief Executive Officer
-7-
PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
23 Consent of Weaver & Tidwell, L.L.P.
-8-
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, 1997 and 1996, 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, 1997. 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, 1997 and
1996, and the consolidated results of their operations
and their cash flows for each of the three years in the
period ended March 31, 1997 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated
financial statements, certain conditions exist which
raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial
statements do not include any adjustments that might
result from the outcome of this uncertainty.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
June 2, 1997
F-1
PAGE
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UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
1997 1996
----------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 80,722 437,656
Trade accounts receivable 134,940 28,092
Inventories 750 25,862
Other current assets 51,999 43,037
----------- ----------
Total current assets 268,411 534,647
NOTE RECEIVABLE 1,245,766 1,261,766
OIL AND GAS PROPERTIES 24,293,613 110,731
PROPERTY AND EQUIPMENT, at cost
Equipment, furniture and fixtures 29,149 28,820
Vehicles 56,720 22,046
----------- ----------
85,869 50,866
Less accumulated depreciation 51,497 37,039
----------- ----------
34,372 13,827
INVESTMENTS AND OTHER ASSETS
Intangible assets, net 314
----------- ----------
TOTAL ASSETS $25,842,162 $1,921,285
=========== ==========
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, 1997 AND 1996
1997 1996
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 61,876 $ 23,108
Accrued expenses 57,527 2,831
----------- -----------
Total current liabilities 119,403 25,939
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value,
5,000,000 shares authorized,
none issued
Common stock, $.001 par value,
100,000,000 shares authorized,
shares issued and outstanding
1997 - 96,021,542
1996 - 17,824,542 96,021 17,824
Additional paid-in capital 32,425,853 8,458,441
Accumulated deficit (6,714,807) (6,522,305)
----------- -----------
25,807,067 1,953,960
Deferred compensation and consulting (84,308) (52,500)
Stock subscriptions receivable (6,114)
----------- -----------
25,722,759 1,895,346
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $25,842,162 $ 1,921,285
=========== ===========
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, 1997, 1996 AND 1995
<TABLE>
<CAPTIOM>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
OPERATING REVENUES
Processed beef products $2,737,489 $1,087,229 $ 3,500,116
Other 580
---------- ---------- -----------
Total operating revenues 2,737,489 1,087,229 3,500,696
OPERATING COSTS AND EXPENSES
Processed beef products 2,269,259 989,153 3,126,108
General and administrative 565,511 398,833 410,322
Selling expenses 108,095 49,667 254,895
---------- ---------- -----------
Total operating expenses 2,942,865 1,437,653 3,791,325
---------- ---------- -----------
Loss from operations (205,376) (350,424) (290,629)
OTHER INCOME (EXPENSE)
Interest income 12,874 14,585 9,298
Interest expense (1,491) (17,540)
Bad debt expense (686,890)
---------- ---------- -----------
Loss from continuing operations (192,502) (337,330) (985,761)
DISCONTINUED OPERATIONS
Loss form operations of discon-
tinued broadcasting affiliate (169,379)
Loss from operations of discon-
tinued cattle segment (204,293)
Loss on disposal of discontinued
cattle business (44,634)
---------- ---------- -----------
Net loss ($192,502) ($337,330) ($1,404,067)
========== ========== ===========
Loss per share -
continuing operations $ 0.00 $ (0.02) $ (0.06)
========== ========== ===========
Net loss per share $ 0.00 $ (0.02) $ (0.09)
========== ========== ===========
Weighted average
number of common shares 28,584,726 16,480,990 15,204,542
========== ========== ===========
</TABLE>
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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock
------------------------- Additional
Paid-in Accumulated
Shares Amount Capital Deficit Other
---------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1994 15,204,279 $ 15,204 $ 7,753,561 ($ 4,780,908) ($ 109,046)
Rounding adjustment 263
Realization of services
received for stock
issued in prior year 60,614
Net loss ( 1,404,067)
---------- ---------- ------------ ------------- -----------
Balance, March 31, 1995 15,204,542 15,204 7,753,561 ( 6,184,975) ( 48,432)
Stock issued 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 issued 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)
========== ========== ============ ============= ===========
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Loss from continuing operations ($ 192,502) ($ 337,330) ($ 985,761)
Adjustments to reconcile loss from
continuing operations to net cash
used in continuing operations:
Depreciation 14,460 8,252 8,246
Amortization 314
Interest rolled into note receivable (8,937)
Deferred compensation and consulting
recognized in current year 138,299 42,318 60,614
Write-off of note receivable 6,114 686,890
Changes in assets and liabilities:
(Increase) decrease in trade
accounts receivable (106,848) 163,570 (76,268)
(Increase) decrease in inventory 25,112 (24,122) 28,083
(Increase) decrease in other
current assets (8,962) 1,418 10,890
Increase (decrease) in accounts
payable and accrued expenses 93,464 (39,021) 11,823
------------ ----------- -----------
Net cash used in continuing operations (30,549) (184,915) (264,420)
Loss from discontinued operations (418,306)
Adjustments to reconcile loss from
discontinued operations to net cash
used in discontinued operations:
Equity in losses of
discontinued operations 373,672
Loss on disposal of discontinued
cattle business 44,634
Cash advances to discontinued operations (176,291)
------------ ----------- -----------
Net cash used in discontinued operations (176,291)
------------ ----------- -----------
Net cash used in operating activities (30,549) (184,915) ($440,711)
</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, 1997, 1996 AND 1995
(continued)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of
property and equipment $ $ $ 626,008
Capital expenditures (541,635) (113,264) (129,302)
Collections of notes receivable 16,000 69,120 22,245
----------- ----------- ------------
Net cash (used in) provided
by investing activities (525,635) (44,144) 518,951
----------- ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Principal payments on borrowings (520,000) (1,060,597)
Proceeds from loans 520,000 912,097
Proceeds from issuance
of common stock 199,250 655,000
----------- ----------- ------------
Net cash provided by (used in)
financing activities 199,250 655,000 (148,500)
----------- ----------- ------------
Net increase (decrease) in
cash and cash equivalents (356,934) 425,941 (70,260)
Cash and cash equivalents,
beginning of year 437,656 11,715 81,975
----------- ----------- ------------
Cash and cash equivalents, end of year $ 80,722 $ 437,656 $ 11,715
=========== =========== ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest
Continuing operations $ 1,491 $ 17,540
Discontinued operations 1
----------- ----------- ------------
$ - $ 1,491 $ 17,541
=========== =========== ============
Taxes $ $ $
=========== =========== ============
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-7
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997, 1996 and 1995
(continued)
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 in
Apex Petroleum, L.L.C. in a transaction accounted for as an
acquisition of assets. 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.
During the year ended March 31, 1995, the Company sold the
assets of the discontinued broadcasting operations. In exchange
for the assets which had a net book value of $1,328,766, the
Company received a note receivable for $2,500,000.
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-8
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
(formerly Heritage Cattle Corporation), UHC Petroleum
Services Corporation, formed January 21, 1997 and Sovereign
Communications Corporation, formed January 21, 1997. UHC
Petroleum Services Corporation and Sovereign Communications
Corporation had no operations for the year ended March 31,
1997.
Auldridge Broadcasting, Inc. was sold on April 30, 1991.
The results of operations of Auldridge have been presented
as discontinued operations in the accompanying consolidated
statements of operations for all applicable years.
All intercompany transactions and balances have been
eliminated upon consolidation.
Nature of Operations
United Heritage Corporation (the Company) distributes "lite"
beef products. On March 31, 1995, the Company discontinued
cattle operations and sold substantially all the assets of
Heritage Cattle Corporation. 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 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
F-9
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Acquisition - continued
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 the 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. Although the
agreement to limit the number of shares occurred on
April 30, 1996, it was subsequent to that date when the Surtek
valuation was completed and accepted by the Company and at
that time it was determined that the limit would be in effect
and 77,500,000 shares would be issued. 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.
Revenue
Revenue is recognized when products are delivered to
customers.
Inventories
Lite beef inventories represent lite beef purchased for
resale and is valued at the lower of cost (first-in, first-
out) or market.
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 share, continuing operations and the net loss
per share have been computed by dividing the respective
losses by the weighted average number of shares of common
stock outstanding throughout the year. Shares issuable upon
exercise of stock options have not been included in the per
share computations because the effect of their inclusion
would be antidilutive.
F-10
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Intangible Assets
Intangible assets are recorded at cost less accumulated
amortization of $12,728 and $12,414 at March 31, 1997 and
1996.
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.
Financial Instruments
Financial instruments of the Company consist of cash and
cash equivalents, trade accounts receivable, notes
receivable, and accounts payable. Recorded values of cash,
trade receivables and payables approximate fair values due
to short maturities of the instruments. The fair value of
the note receivable was estimated to approximate its
carrying amount based on an appraisal of the underlying
collateral.
Stock-based Employee Compensation
The Company accounts for the issuance of stock options 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.
F-11
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Stock-based Employee Compensation - continued
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 10 for the additional
disclosures required by SFAS No. 123.
NOTE 2. UNCERTAINTY
As shown in the accompanying financial statements, the Company
continues to generate net losses and has accumulated a
substantial deficit since inception, which has been eliminated
in recording the reverse acquisition. However, the Company
anticipates a continued increase in beef sales in the fiscal
year ending March 31, 1998, and management continues to
evaluate its unproved oil and gas properties. In management's
opinion, working capital available now as well as funds to be
derived from operations together with proceeds from equity or
debt financing, as necessary, should be sufficient to meet the
Company's capital and liquidity needs for the next twelve
months.
NOTE 3. DISCONTINUED OPERATIONS
The following net revenues, assets and liabilities have been
included in loss from discontinued operations and net assets
of discontinued operations in the accompanying consolidated
statements of operations and consolidated balance sheets:
1997 1996 1995
------ ------ --------
Net revenues $ - $ - $120,725
====== ====== ========
Total assets $ - $ - $ -
====== ====== ========
F-12
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 3. DISCONTINUED OPERATIONS - continued
1997 1996 1995
------ ------ --------
Total liabilities $ - $ - $ -
====== ====== ========
Depreciation, depletion
and amortization $ - $ - $ 46,791
====== ====== ========
Capital expenditures $ - $ - $ 950
====== ====== ========
On November 1, 1994, the Company sold its broadcasting
business to Madison Radio Group, Inc., a wholly-owned
subsidiary of Madison Group Associates, Inc., for $2,500,000.
The broadcasting business included AM/FM radio stations in
Canyon and Amarillo, Texas. The consideration of $2,500,000
is in the form of a three-year note bearing interest at 7%,
and pursuant to a modification of the note on August 31, 1995,
is payable in monthly payments of $5,000 for the first nine
months beginning December 1, 1994, through August 1, 1995,
when such payments increased to $6,500 principal per month for
three months beginning September 1, 1995, through November 1,
1995. Then payments increased to $7,500 per month for three
months beginning December 1, 1995 through February 1, 1996,
when such payments decreased to $5,000 principal per month
plus interest accrued thereon until November 1, 1997, when the
remaining principal balance will be due. Madison failed to
make the March 1, 1996 payment, and thus is in default.
Presently, the Company has filed suit to collect this note.
The $2,500,000 note is secured by a First Purchase Money
Security Interest Lien on all real and personal property
transferred pursuant to this transaction, one million
(1,000,000) shares of the common stock of Madison Group
Associates, Inc., and by all the outstanding stock of Madison
Radio Group, Inc., Madison's wholly-owned subsidiary. The
stock of Madison Radio Group, Inc. was foreclosed on in
November 1996 and subsequently sold to Heritage Communications
Corporation, a company related to United Heritage Corporation
through common stockholders. At March 31, 1997, Madison Radio
Group, Inc. is wholly owned by Heritage Communications
Corporation. In addition, Madison Group Associates, Inc., has
pledged a promissory note executed on September 20, 1992, in
the original amount of $1,000,000 payable to Canaveral
International Corp. (now known as Madison Group Associates,
Inc.) by First Capital Trust, Sam Podany and Ted Yashcheshen.
Madison Group Associates, Inc. has filed for bankruptcy. The
Company has had
F-13
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 3. DISCONTINUED OPERATIONS - continued
the collateral securing the note receivable appraised and has
determined that the value of the collateral exceeds the
Company's carrying amount of the note receivable.
The potential gain of $1,254,234 has been deferred due to the
lack of a significant initial investment by the buyer. This
accounting treatment will continue until the buyer's
cumulative payments are sufficient to qualify the transaction
for gain recognition under generally accepted accounting
principles. During the year ended March 31, 1997, the Company
received $16,000 of interest payments, which have been added
to and included in the deferred gain.
Also, on March 31, 1995, Heritage Cattle Corporation, now
known as UHC Petroleum Corporation, entered into an agreement
with Walter G. Mize to sell its cattle herd, fixed assets
(equipment, hay, supplies, etc.) and land leases to Mr. Mize
for the agreed upon value of $506,402. The cattle herd was
appraised by a qualified independent appraiser at $487,744,
the value of the fixed assets was $16,648, and the value of
the land leases was $2,010. The book value of these assets at
March 31, 1995 was $658,060. Also part of this transaction is
Mr. Mize's agreement to forego cattle maintenance fees and
land and equipment lease payments in the amount of $107,025.
The result of these transactions was a reduction in the
consolidated assets of UHC of approximately $658,000 and a
reduction in the consolidated liabilities of UHC of
approximately $613,000. The transaction effectively disposes
of the cattle segment of the Company and is reported as a loss
on disposal of discontinued operations.
The following net revenues, assets and liabilities disposed of
have been included in loss from discontinued operations and
net assets of discontinued operations in the accompanying
consolidated statements of operations and consolidated balance
sheets.
1997 1996 1995
------ ------ ---------
Net revenues $ - $ - $ 78,357
====== ====== =========
Total assets $ - $ - $ -
====== ====== =========
Total liabilities $ - $ - $ -
====== ====== =========
F-14
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 3. DISCONTINUED OPERATIONS - continued
1997 1996 1995
------ ------ ---------
Depreciation, depletion
and amortization $ - $ - $ 67,091
====== ====== =========
Capital expenditures $ - $ - $ 127,053
====== ====== =========
The statement of operations for the year ended March 31, 1995
has been restated to reflect the cattle operations as
discontinued.
NOTE 4. NOTES RECEIVABLE
Included in notes receivable at March 31, 1997, is the note
receivable from Madison Radio Group, Inc., recorded at
$1,245,766. The Madison note (see Note 3) for $2,500,000 is
recorded net of the initial deferred gain plus subsequent
interest payments totaling $1,254,234. The investment in the
Madison note is past due and considered impaired. However, no
valuation allowance is required because the fair value of the
collateral exceeds the recorded investment in the receivable.
In accordance with the cost recovery method of accounting, no
interest income has been recognized on this note receivable.
Principal and interest collected reduce the Company's recorded
investment in the note receivable.
In October 1990, the Company sold Heritage Marine Corporation,
a former wholly-owned subsidiary of the Company, for
$1,000,000. Consideration consisted of a cash payment of
$202,805 and an unsecured promissory note to the Company for
$797,195. Under the terms of the agreement between the two
companies, Banner paid principal of $211,113 in advance and
additional payments were not due until March 1994 when
interest of approximately $111,000 was due. Banner failed to
make the interest payment and at March 31, 1994 was in
default. On June 1, 1994, the Company renegotiated the note.
In accordance with the modification agreement, $8,937 of
accrued interest was rolled into the note balance on June 13,
1994. Thereafter, monthly installments of $13,601, including
principal and interest at 7%, were due over a period of sixty
months at which time all remaining principal and interest was
due.
F-15
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 4. NOTES RECEIVABLE - continued
As of March 31, 1995, the purchaser was in default on the
negotiated agreement and as a result, the principal and
accrued interest balance were written off resulting in a loss
from bad debt of $686,890 and a reduction of 1995 interest
income of $40,069.
Interest income for the year ended March 31, 1997 and 1996, is
a result of cash held in an interest-bearing account.
NOTE 5. INVENTORIES
Inventories consist of the following:
1997 1996
--------- -------
Lite beef $ 750 $25,862
========= =======
NOTE 6. 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.
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, 1997, a determination cannot be made about the
extent of proved reserves for this project and no oil or gas
has been produced. Consequently, no amortization has been
computed on the exploration costs. The Company will begin
F-16
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 6. OIL AND GAS PROPERTIES - continued
to amortize these costs when evaluation of the project is
complete and production commences, which is currently
estimated to be later in 1997. All costs capitalized as of
March 31, 1997 were incurred to acquire and evaluate the
project and are considered exploration costs.
NOTE 7. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the company to
concentrations of credit risk consist of cash equivalents,
notes and trade receivables. During the year ended March 31,
1997, 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, 1997
were $69,947. The Company has a secured promissory note
receivable at March 31, 1997 and 1996, from Madison Radio
Group, Inc. for $2,500,000 (see Notes 3 and 4).
Concentrations of credit risk with respect to trade
receivables consist principally of food industry customers
operating within the United States. Receivables from two
customers at March 31, 1997 and one customer at March 31,
1996, comprised approximately 77% and 79%, respectively, of
the trade receivable balance. No allowance for doubtful
accounts has been provided since recorded amounts are
determined to be fully collectible.
NOTE 8. RELATED PARTY TRANSACTIONS
The Company previously had operating leases for ranch land and
equipment with Mr. Mize. Included in loss from operations of
discontinued cattle segment for the fiscal year ended March 31,
1995 is $55,050 of lease expense under the terms of these leases.
During fiscal 1994, the Company obtained 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, 1997, and 1996, no amounts were outstanding under
the line of credit. Included in interest expense for the
years ended March 31, 1997, 1996, and 1995, is $-0-, $1,491,
and $17,512, respectively, for interest expense incurred under
this agreement. The weighted average interest rate under this
agreement was 6% for 1996 and 1995.
F-17
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 8. RELATED PARTY TRANSACTIONS - continued
On March 31, 1995, Heritage Cattle Corporation, now known as
UHC Petroleum Corporation, sold its cattle herd, certain fixed
assets and land leases to Mr. Mize, effectively disposing of
the cattle segment (see Note 3).
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 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.
NOTE 9. BUSINESS SEGMENTS AND MAJOR CUSTOMERS
Subsequent to the sale of its cattle and broadcast segments,
the Company operated in only one business segment, the sale of
processed Lite Beef products. In the last quarter of the year
ended March 31, 1996, the Company began investigating oil and
gas exploration activities. As of March 31, 1996, this did
not constitute a significant business segment. During the
year ended March 31, 1997, the Company invested $506,632 and
acquired an additional $23,676,250 interest in oil and gas
properties. As of March 31, 1997, the $24,293,613 in oil and
gas activities constitutes a business segment and the assets
are separately identified on the balance sheet.
No revenues or expenses have been recognized from these
activities (see Note 6).
F-18
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 9. BUSINESS SEGMENTS AND MAJOR CUSTOMERS - continued
The Company recorded Lite Beef sales to the following major
customers for the years ended March 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- --------------------- -------------------
Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Customer A $ - -% $ - -% $ 855,881 24%
Customer B 1,933,904 71 - - - -
Customer C 187,319 7 - - 596,490 17
Customer D 615,841 22 559,578 51 - -
Customer E - - 119,846 11 652,190 19
Customer F - - 400,917 37 1,242,524 35
---------- ------- ---------- ------- ---------- -------
$2,737,064 100% $1,080,341 99% $3,347,085 95%
========== ======= ========== ======= ========== =======
</TABLE>
NOTE 10. 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.
F-19
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 10. STOCK OPTION PLANS- continued
The following schedule summarizes pertinent information with
regard to the 1995 Plan for the years ended March 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
Weighted Weighted
Average Average
Shares Exercise Shares Exercise
Outstanding Price Outstanding Price
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Beginning of year 1,872,000 $ .42 - $ -
Granted - - 2,027,000 .41
Exercised (647,000) .25 (120,000) .25
Forfeited (325,000) 1.28 (35,000) .25
Expired - - - -
----------- --------- ----------- ---------
End of year 900,000 $ .25 1,872,000 $ .42
=========== ========= =========== =========
Exercisable 870,000 $ .25 1,602,000 $ .25
=========== ========= =========== =========
Weighted average
fair value of
options granted: $ 0.00 $ 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 3.5 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-20
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 10. STOCK OPTION PLANS- continued
The following schedule summarizes pertinent information with
regard to the 1996 Plan for the years ended March 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---------------------- ---------------------
Weighted Weighted
Average Average
Shares Exercise Shares Exercise
Outstanding Price Outstanding Price
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Beginning of year 500,000 $ .30 - $ -
Granted 1,170,000 .70 500,000 .30
Exercised (50,000) .75 - -
Forfeited (500,000) .30 - -
Expired (600,000) 1.06 - -
----------- -------- ----------- --------
End of year 520,000 $ .82 500,000 $ .30
=========== ======== =========== ========
Exercisable 520,000 $ . 82 500,000 $ .30
=========== ======== =========== ========
Weighted average
fair value of
options granted: $ 0.28 $ 0.00
=========== ===========
</TABLE>
The following table summarizes information about the stock
options outstanding under the 1996 Plan at March 31, 1997:
Weighted
Average Weighted
Range of Number Remaining Average
Exercise of Shares Contractual Exercise
Prices at 3/31/97 Life Price
------------- ---------- ----------- --------
$1.00 - $1.50 330,000 1.1 years $1.20
$1.63 - $2.44 80,000 .9 years 1.96
$2.75 - $4.13 80,000 1.0 years 3.38
$6.00 30,000 1.1 years 6.00
----------
520,000
==========
F-21
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 10. STOCK OPTION PLANS- continued
The options granted during the year ended March 31, 1997 were
to nonemployees and $85,799 was expensed as payment for
services. During the year 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 1997, there is no pro forma effect to disclose for
that year. Pro forma net loss and loss per share for 1996
would have been:
1996
----------
Pro forma net loss ($420,035)
Pro forma net loss per share ($0.03)
Pro forma fully diluted net loss per share ($0.03)
NOTE 11. 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-22
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 11. STOCK WARRANTS - continued
The following schedule summarizes pertinent information with
regard to the stock warrants for the year ended March 31,
1997:
Weighted
Average
Shares Exercise
Outstanding Price
----------- ---------
Beginning of year - $ -
Granted 1,300,000 .94
Exercised - -
Forfeited - -
Expired - -
----------- ---------
End of year 1,300,000 $ .94
=========== =========
Exercisable 1,300,000 $ . 94
=========== =========
Weighted average
fair value of
warrants issued: $ 0.07
===========
The following table summarizes information about the stock
warrants outstanding at March 31, 1997:
Weighted
Average Weighted
Range of Number Remaining Average
Exercise of Shares Contractual Exercise
Prices at 3/31/97 Life Price
------------- ---------- ----------- --------
$0.75 - $1.00 1,023,000 4.3 years $0.77
$1.25 - $1.75 231,500 4.3 years 1.45
$2.00 45,500 4.3 years 2.00
----------
1,300,000
==========
F-23
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 11. STOCK WARRANTS - continued
During the year ended March 31, 1997, the Company recorded
$26,924 as 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.
NOTE 12. 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, 1997, 1996, and 1995, there was no
current or deferred tax expense.
At March 31, the deferred tax asset and liability balances are
as follows:
1997 1996
---------- ----------
Deferred tax asset $9,599,871 $1,485,418
Deferred tax liability - -
---------- ----------
Net deferred tax asset 9,599,871 1,485,418
Valuation allowance (9,599,871) (1,485,418)
---------- ----------
$ - $ -
========== ==========
The net change in the valuation allowance for 1997 is an
increase of $8,080,715. The deferred tax asset is due to the
net operating loss carryover and difference in book, tax basis
in oil and gas properties.
The Company has a net operating loss carryover of
approximately $4,550,000 available to offset future income for
income tax reporting purposes which will ultimately expire in
2012 if not previously utilized.
F-24
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 13. 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,
1997, 278,000 shares had been issued in accordance with the
plan.
NOTE 14. EARNINGS PER SHARE
The FASB has issued Statement No. 128, Earnings Per Share, which
supersedes Accounting Principles Board Opinion No. 15, and
requires the presentation of earnings per share by all entities
that have common stock or potential common stock, such as
options, warrants, and convertible securities outstanding that
trade in a public market. The Company must initially apply
Statement No. 128 for annual and interim periods ending after
December 15, 1997. Earlier application is not permitted.
Because the Company has potential common stock outstanding
(stock options to employees, etc. as discussed in Note 10), the
Company is required to present basic and diluted earnings per
share amounts. If the Company had applied Statement No. 128 in
the accompanying financial statements, the following per share
amounts would have been reported.
Years Ended March 31
-----------------------------
1997 1996 1995
------ -------- --------
Basic earnings (loss) per share:
Loss from continuing operations $ 0.00 ($ 0.02) ($ 0.06)
Loss from discontinued operations 0.00 0.00 (0.03)
------ -------- --------
Net loss $ 0.00 ($ 0.02) ($ 0.09)
====== ======== ========
Diluted earnings (loss) per share:
Loss from continuing operations $ 0.00 ($ 0.02) ($ 0.06)
Loss from discontinued operations 0.00 0.00 (0.03)
------ -------- --------
Net loss $ 0.00 ($ 0.02) ($ 0.09)
====== ======== ========
F-25
PAGE
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 14. EARNINGS PER SHARE - continued
The calculation of diluted earnings (loss) per share is the same
as the basic earnings (loss) per share for the above years
because the calculation is not allowed to reduce a loss per
share from continuing operations. The exercise of the stock
options would have resulted in reducing the loss per share data
as compared to the amounts reported for the basic per share
data.
F-26
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 June 2, 1997, on our
audits of the consolidated financial statements of
United Heritage Corporation as of March 31, 1997 and
1996, and for each of the three years in the period
ended March 31, 1997, which report is incorporated in
this Annual Report on Form 10-K/A of United Heritage
Corporation for the year ended March 31, 1997. We also
consent to the reference to our firm under the caption
"Experts."
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
June 24, 1998
