SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Mark One
[ X ] Quarterly report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 for the
quarterly period ended September 30, 1999; or
[ ] Transition report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 for the
transition period from ________________ to
___________________.
Commission File No. 0-9997
United Heritage Corporation
--------------------------------------------------
(Exact name of registrant as specified in charter)
Utah 87-0372826
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 North Caddo Street, Cleburne, Texas 76031
-------------------------------------------
(Address of principal executive offices)
(817) 641-3681
----------------------------------------------------
(Registrant's telephone number, including area code)
No Change
--------------------------------------------------------------
(Former name, former address and former fiscal year if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES [X] NO [ ]
The number of shares of common stock, $0.001 par value, outstanding at
November 3, 1999 was 9,959,765 shares.
<PAGE>
Page 1
UNITED HERITAGE CORPORATION
INDEX
Page Number
Part I - Financial Information
Item 1 - Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
at September 30, 1999 and March 31, 1999 2
Consolidated Condensed Statements of Income
for the Three Months and Six Months ending
September 30, 1999 and September 30, 1998 4
Consolidated Condensed Statements of Cash
Flows for the Six Months ended September 30,
1999 and September 30, 1998 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operation 9
Part II - Other Information
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of
Security Holders 12
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
Page 2
Part I, Item 1. Financial Statements
UNITED HERITAGE CORPORATION
- ---------------------------
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, March 31,
1999 1999
------------- -----------
UNAUDITED
ASSETS
CURRENT ASSETS
Cash and cash equivalent $ 150,138 $ 440,805
Accounts receivable - trade 246,452 60,809
Inventory 98,764 126,326
Other current assets 59,659 34,575
----------- -----------
Total Current Assets 555,013 662,515
----------- -----------
PROPERTY AND EQUIPMENT, at cost 149,088 114,649
Less accumulated depreciation (78,891) (71,515)
----------- -----------
Net Property and Equipment 70,197 43,134
----------- -----------
OTHER ASSETS
OIL AND GAS PROPERTIES 27,492,811 26,042,456
Less accumulated depletion (3,930)
----------- -----------
Net Oil and Gas Properties 27,488,881 26,042,456
----------- -----------
TOTAL ASSETS $28,114,091 $26,748,105
=========== ===========
<PAGE>
Page 3
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS - CONTINUED
September 30, March 31,
1999 1999
------------- -----------
UNAUDITED
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 217,703 $ 194,408
----------- -----------
Total Current Liabilities 217,703 194,408
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $0.001 par value;
125,000,000 shares authorized;
shares issued and outstanding:
9,959,765 shares at September
30, 1999 9,959
9,747,062 shares at March 31,
1999 9,747
Additional paid-in capital 34,712,638 33,462,530
Accumulated deficit (6,724,372) (6,918,580)
Deferred compensation (101,837)
----------- -----------
Total Shareholders' Equity 27,896,388 26,553,697
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,114,091 $26,748,105
=========== ===========
See notes to consolidated condensed financial statements
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Page 4
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
September 30 September 30
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Processed beef products $1,045,948 $1,086,444 $2,309,024 $2,235,319
Oil sales 25,697 12,519 39,767 12,519
---------- ---------- ---------- ----------
TOTAL REVENUE 1,071,645 1,098,963 2,348,791 2,247,838
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Processed beef products 882,908 861,971 1,883,118 1,799,375
Oil production costs 21,206 27,020
Selling 37,505 21,766 60,202 43,806
General and administrative 101,137 181,197 192,422 331,799
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 1,042,756 1,064,934 2,162,762 2,174,980
---------- ---------- ---------- ----------
INCOME from Operations 28,889 34,029 186,029 72,858
OTHER INCOME
Interest income 4,147 17,554 8,179 30,891
---------- ---------- ---------- ----------
NET INCOME $33,036 $51,583 $194,208 $103,749
========== ========== ========== ==========
Net Income Per Common Share $0.00 $0.00 $0.02 $0.01
========== ========== ========== ==========
Weighted average number of common shares 9,946,559 9,740,051 9,854,493 9,740,029
========== ========== ========== ==========
</TABLE>
See notes to consolidated condensed financial statements
<PAGE>
Page 5
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $194,208 $103,749
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and depletion 11,306 4,800
Deferred compensation 3,688 24,976
Stock grants as compensation 5,315
Changes in assets and liabilities:
(Increase) decrease in interest receivable (2,959)
(Increase) decrease in accounts receivable (185,643) (64,326)
(Increase) decrease in inventory 27,562 (12,245)
(Increase) decrease in other current assets (25,084) 8,117
Increase (decrease) in accounts payable
and accrued expenses 23,295 138,816
--------- ---------
NET CASH provided by operating activities 49,332 206,243
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Additions to oil and gas properties (305,560) (781,873)
Additions to property and equipment (34,439) (246,335)
Collections of proceeds from sale of building 30,000
--------- ---------
NET CASH provided by (used in) investing activities (339,999) (998,208)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from note receivable 53,183
--------- ---------
NET CASH provided by (used in) financing activities 53,183
--------- ---------
Increase (decrease) in cash and cash equivalents 290,667 (738,782)
Cash and cash equivalents at beginning of period 440,805 1,390,416
--------- ---------
Cash and cash equivalents at end of period $150,138 $651,634
========= =========
</TABLE>
See notes to consolidated condensed financial statements
<PAGE>
Page 6
UNITED HERITAGE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six-month
period ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending March 31, 2000. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form
10-K for the year ended March 31, 1999.
NOTE 2 - INVENTORY
Inventory consists of the following:
September 30, 1999 March 31, 1999
------------------ --------------
Lite beef $ 33,545 $ 101,953
Oil in Tanks 65,219 24,373
--------- ---------
$ 98,764 $ 126,326
========= =========
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 South 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 was related to the Company through members who were
also shareholders of the Company, including Mr. Mize, who had a
controlling interest in Apex. Pursuant to the agreement, the Company
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 unproven properties were
recorded at their estimated fair value of $23,676,250. As exploration
and development progresses, the capitalized costs are periodically
assessed for impairment.
<PAGE>
Page 7
UNITED HERITAGE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 3 - OIL AND GAS PROPERTIES (CONTINUED)
During the quarter ended June 30, 1999, the Company completed an
evaluation of estimated recoverable reserves of the South Texas property
using existing recovery techniques (See Note 4).
In June, 1999, the Company acquired approximately 20,000
leasehold acres in southeastern New Mexico through the issuance of
1,800,000 shares of common stock. Pending further engineering study,
this property is considered unproved as of September 30, 1999.
NOTE 4 - OIL AND GAS PRODUCING ACTIVITIES
During the quarter ended June 30, 1999, the Company completed an
evaluation of estimated recoverable reserves from existing wells using
existing recovery techniques for the South Texas property. The
results of this evaluation has proved the following estimates of
recoverable quantities of oil:
PROVED RESERVES
Beginning of period 0
Extensions and discoveries 25,398,000 barrels
Production (Quarter ending June 30, 1999) (1,407) barrels
Production (Quarter ending September 30, 1999) (1,839) barrels
------------------
September 30, 1999 Reserves 25,394,754 barrels
==================
The present value of the estimated future cash inflows from
proved reserves discounted at 10% is estimated to be $115,488,000 as
follows:
Future cash inflows $ 346,124,000
Future production costs (90,761,000)
Future development costs (4,652,000)
Future income tax expense (82,826,000)
---------------
Future Net Cash Flow 167,885,000
Less 10% annual discount for
Estimated timing of cash flows (52,397,000)
---------------
Standardized Measure $ 115,488,000
===============
<PAGE>
Page 8
UNITED HERITAGE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 5 - CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents and
trade receivables. During the year ended March 31, 1999 and the six
months ended September 30, 1999, the Company maintained money market
accounts with a bank which, at times, exceeded federally insured
limits.
Concentrations of credit risk with respect to trade receivables
consist principally of food industry customers operating in the United
States. Receivables from one customer at March 31, 1999 and September
30, 1999 comprised approximately 86% of the trade receivables balance.
No allowance for doubtful accounts has been provided, since recorded
amounts are determined to be fully collectible.
NOTE 6 - NET INCOME PER COMMON SHARE
Income per share of common stock is based on the weighted
average number of shares outstanding during the periods ended
September 30, 1999 and September 30, 1998, after adjustment for the
reverse stock split (See Note 9).
NOTE 7 - INCOME TAXES
As of March 31, 1999, the Company had net operating loss
carryovers of approximately $4,740,000 available to offset future
income for income tax reporting purposes, which will ultimately expire
in 2013 if not previously utilized.
NOTE 8 - ESTIMATES
The preparation of interim financial statements as of September
30, 1999, in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 9 - REVERSE COMMON STOCK SPLIT
On November 1, 1999, the Company affected a ten-for-one reverse
common stock split as had been previously approved by the
shareholders. The data shown relating to common shares has been
retroactively adjusted to reflect the reverse stock split. Also, the
Company's Shareholders' Equity accounts have been retroactively
adjusted. There was no effect on total Shareholders' Equity as a
result of the reverse stock split.
<PAGE>
Page 9
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
UNITED HERITAGE CORPORATION
- ---------------------------
General
Subsequent to September 30, 1999, the Company effected a ten-
for-one reverse stock split which had been previously approved by
shareholders. Common share data has been retroactively adjusted to
reflect this change in shares outstanding.
During the current quarter the Company, through the services of
an independent engineer, completed an updated evaluation of estimated
recoverable reserves from existing wells using existing recovery
methods for the oil field in South Texas. Projected oil reserves are
an estimated 25,398,000 bbls. for a total estimated present value of
approximately $170,000,000.
The Company has addressed date-sensitive computerized
information issues that potentially could be adversely affected by the
change in the date to the year 2000. All computer software used by
the Company are standard packages developed by major software
companies. Software updates have been secured as needed to be year
2000 compliant. The Company has contacted all of its major vendors and
service providers requesting assurance of their compliance to year
2000 issues as such issues relate to business conducted between
themselves and the Company. The Company currently believes that the
year 2000 issue will not have a material adverse impact on the
Company's operating results, however, no assurance can be given since
the effect of third-party non-compliance cannot be fully determined.
Material Changes in Results of Operations
Revenues for the Company's beef products were $1,045,948 and
$2,309,024 for the quarter and six-month period ended September 30,
1999, respectively. Sales levels have not changed materially from
prior year periods. The results for the quarter and six-month period
in the prior year quarter and six-month period were $1,086,444 and
$2,235,319, respectively. Gross profit from beef products was
$425,906 for the six-month period ended September 30, 1999, as
compared with $435,944 gross profit for the same period last year.
The cost of beef products as a percentage of sales was 81.6% for the
six months ended September 30, 1999, as compared to 80.5% for the six
months ended September 30, 1998. The increase in the cost of beef
product percentage is due primarily to the introduction of marinated
beef products during the six months ended September 30, 1999, as
compared with the previous year's period.
The Company is selling Heritage Lifestyle Lite Beefr in 108
selected stores out of the southern California and Nevada divisions
of a major supermarket chain. In all divisions, the nationwide
supermarket chain has in excess of 2,000 stores. While these prospects
have the
<PAGE>
Page 10
Material Changes in Results of Operations (continued)
potential for significantly increasing the Company's beef sales, there
can be no guarantee that such will be the case.
Revenues from the sale of oil were $25,697 and $39,767 for the
quarter and six months ended September 30, 1999, respectively.
Revenue from oil sales was $12,519 for the same prior year periods.
Production costs were $21,206 and $27,020 for the same quarter and
six-month periods, respectively. Oil revenues are expected to
increase in future periods, as more Company properties are placed in
production.
Interest income for the current quarter and six months ended
September 30, 1999, is less than the level during the same prior year
periods, due to a higher level of cash and cash equivalents being
maintained in the prior year.
Selling expenses of $37,505 for the current quarter have
increased from the prior year amount of $21,766. This increase
results mainly from increased product demonstration costs. Selling
expenses of $60,202 for the current six-month period have also
increased from that of the prior year period of $43,806. This
increase results from the demonstration costs previously mentioned and
additional outside sales representation costs. General and
administrative costs have decreased to $101,137 and $192,422 for the
quarter and six-month period ended September 30, 1999, as compared to
$181,197 and $331,799 for the same periods last year. This is a
result of decreased professional fees and public relations costs
during the 1999 periods.
On a consolidated basis, the Company had a net income for the
current six-month period of $194,208 or $.02 per share. The
comparable result for the prior fiscal year was a net income of
$103,749 or $.01 per share. The primary reason for the change from
1998 to 1999 was a decrease in Company expenses together with the
effects of increased oil sales.
Material Changes in Financial Position
The Company's equity capital has shown an increase of $1,342,691
since March 31, 1999, the previous fiscal year-end. This increase is
primarily the result of the net income of $194,208 for the six
months ended September 30, 1999, and the issuance of common stock in
connection with oil and gas property acquisitions.
The working capital of the Company was $337,310 at September 30,
1999, a decrease from the working capital of $468,107 reported at
March 31, 1999. Current assets decreased $107,502 during the current
six-month period due to funds required for additions to the oil and
gas properties and equipment to be used on the oil and gas properties.
Current liabilities increased $23,295, resulting in a decrease in the
overall working capital position of $130,797 during the six months
ended September 30, 1999.
<PAGE>
Page 11
Material Changes in Financial Position (continued)
The total assets of the Company were $28,114,091 at September
30, 1999, which is $1,365,986 greater than total assets at the
previous year end. This increase in total assets is primarily due to
property acquisitions and the capitalization of oil and gas
development costs on the Company's oil and gas properties for the
current six months.
The Company's operating activities provided $49,332 in cash flow
for the six months ended September 30, 1999, as compared to $206,243
during the prior year period. The cash provided in the current period
was primarily from net income. Investing activities used $339,999 of
cash during the six months ended September 30, 1999, due to additions
to the oil and gas properties. Investing activities used cash of
$998,208 for the six months ended September 30, 1998, also due to
additions to oil and gas properties. No cash was used or provided by
financing activities in the current six-month period. During the
prior year period $53,183 was provided from the collection of a note
receivable.
<PAGE>
Page 12
Part II - Other Information
UNITED HERITAGE CORPORATION
- ---------------------------
Item 1. Legal Proceedings
The Company and its subsidiaries are not a party to
any material legal proceedings.
Item 2. Change in Securities
On August 23, 1999, the Company sold 225,000 shares of
common stock not registered under the Securities Act of
1933, as amended, to Magnum Financial Corporation, L.L.C.
for a consideration of services to be rendered valued at
$105,525, pursuant to a registration exemption pursuant to
ss. 4(2) of the Securities Act of 1933, as amended, relying
on the fact that there was no public offering to a single
sophisticated offeree and the purchaser bought for
investment purposes.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was
held on August 23, 1999. The stockholders voted on the
following matters: (1) electing the directors of the
Company to serve for the ensuing year; (2) authorization
giving the Board the right to amend the Articles of
Incorporation to effect a reverse stock split; (3)
approving the appointment of Weaver and Tidwell, L.L.P., as
the independent auditors of the Company for the fiscal year
ending March 31, 2000; (4) approving other business issues
of the Company.
The results of the voting for the election of
directors was as follows:
Name of nominee For Withheld
--------------- ---------- --------
Walter G. Mize 94,118,211 908,346
Harold L. Gilliam 94,129,326 897,231
Joe Martin 94,128,926 897,631
C. Dean Boyd 94,123,526 903,031
Theresa D. Turner 94,121,826 904,731
<PAGE>
Page 13
Part II - Other Information
Item 4. (continued)
The results of the voting for giving discretion to the
Board to amend the Articles of Incorporation to effect a
reverse stock split were as follows:
For Against Abstain Broker Non-votes
92,659,260 1,697,578 71,921 597,798
The results of the voting for approving the
appointment of Weaver & Tidwell, L.L.P., or such other firm
appointed by the Board of Directors prior to the meeting,
as the independent auditors of the Company for the fiscal
year ending March 31, 2000, were as follows:
For Against Abstain Broker Non-votes
94,131,563 189,315 107,881 597,798
The results of the voting for approval of other
business of the Company were as follows:
For Against Abstain Broker Non-votes
94,011,591 247,250 169,918 597,798
All proposals were approved by the vote of the
shareholders.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule *
(b) Reports on Form 8-K
None
* Financial Data Schedule filed herewith
<PAGE>
Page 14
UNITED HERITAGE CORPORATION
- ---------------------------
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
UNITED HERITAGE CORPORATION
Date: November 10, 1999 /s/ Walter G. Mize
------------------
Walter G. Mize, President
Date: November 10, 1999 /s/ Harold L. Gilliam
---------------------
Harold L. Gilliam, Chief
Financial Officer
<PAGE>
Page 15
INDEX TO EXHIBITS
Exhibit Number Description
-------------- -----------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 150,138
<SECURITIES> 0
<RECEIVABLES> 246,452
<ALLOWANCES> 0
<INVENTORY> 98,764
<CURRENT-ASSETS> 555,013
<PP&E> 149,088
<DEPRECIATION> 78,891
<TOTAL-ASSETS> 28,114,091
<CURRENT-LIABILITIES> 217,703
<BONDS> 0
0
0
<COMMON> 9,959
<OTHER-SE> 27,886,429
<TOTAL-LIABILITY-AND-EQUITY> 28,114,091
<SALES> 2,348,791
<TOTAL-REVENUES> 2,356,970
<CGS> 1,910,138
<TOTAL-COSTS> 1,970,340
<OTHER-EXPENSES> 192,422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 194,208
<INCOME-TAX> 0
<INCOME-CONTINUING> 194,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 194,208
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
