SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(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, 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 Number 0-9997
UNITED HERITAGE CORPORATION
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(Exact name of registrant as specified in its charter)
UTAH 87-0372864
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(State of Incorporation) (IRS Employer Identification No.)
2 North Caddo Street, P. O. Box 1956, Cleburne, Texas 76033-1956
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(Address of principal executive offices)
(817) 641-3681
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(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. [X]
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
May 28, 1999, was $14,823,792 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 28, 1999, 97,572,654 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
1999 Annual Meeting of Shareholders of United Heritage
Corporation are incorporated by reference into Part III.
<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 plus/minus acres (the "Field"). 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.
Services was formed to act as the operating company for the
Petroleum leases and became the operator on September 1, 1997.
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<PAGE>
Sovereign was formed in anticipation of a possible
foreclosure by the Company of certain radio broadcasting assets
of which it was a lienholder, and which it foreclosed on and
sold during the fiscal year ended March 31, 1998. It is not
currently conducting business.
Products and Operations.
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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, 1999 was 90 head per week. A
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, 1999 one (1)
customer accounted for 10% or more of the Company's sales.
American Stores Company accounted for 86.1% of the Company's
sales.
Oil and Gas. The Company had little production during the
year ended March 31, 1999. Total revenues from oil and gas,
consisting of sales from test wells, were $24,202. The Company
is currently testing existing wells with the Klaeger Oil
Retrieval System, a mobile swabbing unit. "Swabbing" is defined
as a process using a rubber and wire tool that contracts going
down the well and expands as it is pulled upward by the swab
line and lifts fluid out of the well casing or tubing. A swab,
when pulled rapidly, exerts a suction that draws oil into the
hole. It is doing all necessary "re-work" to put all wells
capable of production into production. "Re-work" is defined as
work performed on a well after its completion, in an effort to
secure production where there has been none, restore production
that has ceased, or increase production. Additionally, the
Company has drilled and completed 13 wells that will be used in
the A-S-P flood pilot. It has built the building that will
house the facilities necessary for injecting the A-S-P fluid.
The Company is also working with engineers to complete final
plans for the A-S-P injection facilities and is buying the
necessary equipment for the A-S-P flooding.
The Company anticipates increasing production 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.
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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, 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.
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<PAGE>
Employees.
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The Company currently employs eleven (11) 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.
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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 partnerships 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.
Financial Information by Segment
Revenues, net income and identifiable assets are presented
below for the fiscal years ended March 31, 1999, 1998 and 1997.
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<PAGE>
1999 1998 1997
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Revenue:
Beef Products $4,347,944 $2,906,167 $2,737,489
Corporate 45,233 6,033 12,874
Oil and Gas 24,202 24,443 -0-
Net Income (Loss):
Beef Products 542,373 185,101 197,221
Corporate (381,290) (595,846)* (389,723)
Oil and Gas 22,374 23,515 -0-
Identifiable Assets:
Beef Products 229,075 192,472 171,070
Corporate 452,056 1,468,639 1,354,981
Oil and Gas 26,066,974 24,774,389 24,316,111
* Includes an impairment loss of $217,016 from the write-
down of the uncollectible portion of the basis of a note after
the proceeds of the sale of foreclosed property were applied.
For a more detailed explanation, see the financial statements
and related footnotes.
The Company operated two business segments for the most
recent fiscal year, the sale of processed "lite" beef products
and the oil and gas segment, however, the operations from the
oil and gas segment have been immaterial. For the fiscal year
ended March 31, 1997, the oil and gas segment only existed for
seven weeks.
Adjustments were made to the 1998 and 1997 financial
information by segments to conform with the adoption by the
Company of SFAS No. 131 for the 1999 fiscal year. See Note 1 to
the Financial Statements.
ITEM 2. PROPERTIES
The Company operates out of offices provided by Walter G.
Mize, Chairman of the Board, President and Chief Executive
Officer of the Company. Mr. Mize provides the office space and
equipment without charge to the Company. The value of the
office space and services provided is estimated to be $18,000
annually.
The Company owns leases of an oil field in Edwards County,
Texas consisting of approximately 10,502 acres. Although there
have been estimates of the oil in place, the reserves have not
yet been proved. The Company intends that these reserves will
be proved during the fiscal year ending March 31, 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are not a party to any
material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the shareholders of
the Company during the fourth quarter of its fiscal year ended
March 31, 1999.
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<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, each elected to
serve at the pleasure of the Board of Directors until the next
annual meeting of the Board of Directors, their respective ages
and their present position with the Company are as follows:
Name Age Position with Company Position Held Since
- ----------------- --- ------------------------ -------------------
Walter G. Mize 61 Chairman of the Board, 1987
President and Chief
Executive Officer
Harold L. Gilliam 52 Secretary, Treasurer and 1990
Chief Financial Officer
The business experience of each of these executive officers
during the past five (5) years is set forth below:
Mr. Walter G. Mize has served as Chairman of the Board,
President and Chief Executive Officer of the Company since
September 1987. He has also served as President, Chairman of
the Board and Chief Executive Officer of UHC Petroleum
Corporation and National Heritage Sales Corporation since
September 1987, and UHC Petroleum Services Corporation and
Sovereign Communications Corporation since January 1997. He has
been engaged in oil and gas exploration and development, cattle
ranching, real estate development, banking, and various other
investment activities for over thirty years.
Mr. Harold L. Gilliam has served as Secretary, Treasurer
and Chief Financial Officer of the Company since November 1990.
He has also served as Secretary, Treasurer and Director of
National Heritage Sales Corporation since November 1990, UHC
Petroleum Corporation since May 1995, and UHC Petroleum Services
Corporation since January 1997. He has been a partner in the
firm of Gilliam, Wharram & Co., P.C., Certified Public
Accountants, located in Cleburne, Texas, since August 1987, and
has been a Certified Public Accountant in the state of Texas
since 1972.
No family relationships exist among the executive officers
and directors of the Company. No director of the Company is a
director of any company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934,
as amended, or subject to the requirements of Section 15(d) of
that Act or of any company registered as an investment company
under the Investment Corporation Act of 1940, as amended.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The principal market for the Company's Common Stock is the
over-the-counter market on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"),
trading under the symbol "UHCP." The Company's Common Stock is
also listed on the Boston Stock Exchange ("BSE"), trading under
the symbol "UHC."
The following table sets forth, for the periods indicated,
the high and low bid price per share of the Company's Common
Stock as reported on NASDAQ. The NASDAQ quotations reflect
prices quoted by market makers of the Company's Common Stock,
without retail markup, markdown or commissions, and may not
necessarily represent actual transactions.
High Low
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Fiscal Year Ended March 31, 1999:
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First Quarter $1.25 .69
Second Quarter .94 .38
Third Quarter 1.25 .56
Fourth Quarter 1.09 .72
Fiscal Year Ended March 31, 1998:
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First Quarter $1.56 $.97
Second Quarter 1.78 .63
Third Quarter 1.41 .91
Fourth Quarter 1.75 .81
Shareholders
As of May 31, 1999 there were approximately 2,928 record
holders of the Company's Common Stock.
Dividends
The Company has never declared any dividends and does not
anticipate declaring a cash dividend in the foreseeable future.
Pursuant to Section 16-10a-640 of the Utah Business
Corporation Act, the Company may not pay dividends if, after
giving effect to the distribution, (a) the Company would not be
able to pay its debts as they become due in the usual course of
business, or (b) the Company's total assets would be less than
the sum of its total liabilities plus, unless the articles of
incorporation permit otherwise, the amount that would be needed,
if the Company were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are
superior to those receiving the distribution.
Recent Sales of Unregistered Securities
The Company has sold, within the past three years, the
following shares of common stock not registered under the
Securities Act of 1933, as amended ("33 Act"), to the persons,
on the dates, for the aggregate consideration, and pursuant to
the registration exemption listed. No underwriters were used,
and no underwriting discounts or commissions were paid in any of
the sales.
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<PAGE>
<TABLE>
<CAPTION>
Date Purchaser Amount Consideration Exemption
- ------- -------------------- ---------- ------------------- -------------------
<S> <C> <C> <C> <C>
2/11/97 Walter G. Mize 72,900,000 94.064516% of Apex ss.4(2) of 33 Act (1)
Petroleum, L.L.C.
2/11/97 Adam Lee Mize 1,550,000 2% of Apex Petroleum, ss.4(2) of 33 Act (2)
L.L.C.
2/11/97 Mary Catherine Hicks 1,550,000 2% of Apex Petroleum, ss.4(2) of 33 Act (2)
L.L.C.
2/11/97 Gail T. Pruitt 1,500,000 1.935484% of Apex ss.4(2) of 33 Act (3)
Petroleum, L.L.C.
12/11/97 Augustine Fund LP 588,235 $500,000 Rule 506 under
33 Act or ss.4(6) of
33 Act (4)
12/11/97 Black Sea 352,941 $300,000 Rule 506 under 33 Act
Investments, Ltd. or ss.4(6) of 33 Act (4)
12/11/97 Triton Private 235,294 $200,000 Rule 506 under 33 Act or
Equities Fund, L.P. ss.4(6) of 33 Act (4)
10/21/98 Augustine Fund LP 70,010 (5) Rule 506 under 33 Act or
ss.4(6) of 33 Act (4)
4/28/99 Brothers Oil & 50,000 (7) ss.4(2) of 33 Act (3)
Equipment Company, Inc.
5/05/99 Augustine Fund LP 52,037 (5) Rule 506 under 33 Act or
ss.4(6) of 33 Act (4)
</TABLE>
(1) Relying on the fact that there was no public offering to a
small number of sophisticated offerees and the purchaser, who is
president and chairman of the Company bought for investment
purposes.
(2) Relying on the fact that there was no public offering to a
small number of sophisticated offerees and the purchaser, who is
a family member of the president of the Company bought for
investment purposes.
(3) Relying on the fact that there was no public offering to a
small number of sophisticated offerees and the purchaser, who
has a pre-existing business relationship with the president of
the Company, bought for investment purposes.
(4) Relying on the fact that the shares were sold in a private
placement to accredited investors only. The aggregate offering
price was $5,000,000 and there was no advertising or public
solicitation and a Form D was filed with the Commission. The
total number of purchasers was three (3).
(5) No cash consideration was paid at issuance. These shares were
issued pursuant to provisions in the Subscription Agreement
between the Company and Augustine Fund LP dated December 11,
1997 as part of the transaction disclosed in footnote 4.
(7) The shares were sold for property consisting of oil and gas
interests in Rusk County, Texas.
The Company has also sold, within the past three years,
warrants exercisable for shares of common stock not registered
under the 33 Act, to the persons, on the dates, for the
aggregate consideration, on the exercise terms, and pursuant to
the registration exemption listed. No underwriters were used,
and no underwriting discounts or commissions were paid in any of
the sales.
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<PAGE>
<TABLE>
<CAPTION>
Date Purchaser Consideration Shares Exercise Price Exemption
Exercisable per Share
- -------- ------------- --------------------------- ----------- --------------- ---------------------
<S> <C> <C> <C> <C> <C>
8/16/96 Mark G. Hollo Investment Banking Services 650,000 465,000 @ $0.75 ss.4(2) of 33 Act (1)
46,500 @ $1.00
46,500 @ $1.25
46,500 @ $1.50
22,750 @ $1.75
22,750 @ $2.00
8/16/96 Sands Brothers Investment Banking Services 650,000 465,000 @ $0.75 ss.4(2) of 33 Act (1)
& Co., Ltd 46,500 @ $1.00
46,500 @ $1.25
46,500 @ $1.50
22,750 @ $1.75
22,750 @ $2.00
12/11/97 Mark G. Hollo Broker-Dealer Services 912,000 656,000 @ $0.75 ss.4(2) of 33 Act (1)
64,800 @ $1.00
64,800 @ $1.25
64,800 @ $1.50
30,800 @ $1.75
30,800 @ $2.00
12/11/97 Sands Brothers Broker-Dealer Services 912,000 656,000 @ $0.75 ss.4(2) of 33 Act (1)
& Co., Ltd 64,800 @ $1.00
64,800 @ $1.25
64,800 @ $1.50
30,800 @ $1.75
30,800 @ $2.00
12/11/97 Augustine Fund LP No separate consideration; 58,823 $1.20 ss.4(2) or 4(6) of 33 Act (2)
Issued with Common Stock
purchase
12/11/97 Black Sea No separate consideration;
Investments, Ltd. Issued with Common Stock 35,294 $1.20 ss.4(2) or 4(6) of 33 Act (2)
purchase
12/11/97 Triton Private No separate consideration;
Equities Fund, Issued with Common Stock 23,529 $1.20 ss.4(2) or 4(6) of 33 Act (2)
L.P. purchase
</TABLE>
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<PAGE>
(1) Relying on the fact that there was no public offering to a
small number of sophisticated offerees and the purchaser bought
for investment purposes.
(2) Relying on the fact that the warrants were issued in a private
placement to accredited investors only. The aggregate offering
price was $5,000,000, there was no advertising or public
solicitation and a Form D was filed with the Commission.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years
ended March 31, 1999 is derived from the consolidated financial
statements of the Company. The data is qualified in its
entirety and should be read in conjunction with the consolidated
financial statements and related notes contained elsewhere
herein.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
3/31/99 3/31/98 3/31/97 3/31/96 3/31/95
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income Data:
Revenues $ 4,372,146 $ 2,933,610 $ 2,737,489 $ 1,087,229 $ 3,500,696
Income (Loss) 183,457 (387,230) (192,502) (337,330) (985,761)
Income (Loss)
Per Share (0.00) (0.00) (0.00) (0.02) (0.06)
Weighted Average
Number of Shares
Outstanding 97,431,176 96,524,423 28,584,726 16,480,990 15,204,542
Balance Sheet Data:(1)
Working Capital $ 468,107 $ 1,535,155 $ 149,008 $ 508,708 $ 184,612
Total Assets 26,748,105 26,435,500 25,842,162 1,921,285 1,600,318
Current Liabilities 194,408 67,276 119,403 25,939 64,960
Long-Term Debt --- --- --- --- ---
Shareholders' Equity 26,553,697 26,368,224 25,722,759 1,895,346 1,535,358
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
General
The main revenues of the Company continue to be from sales
of Heritage Lifestyle Lite Beef. The Company sells its lite
beef to a major West Coast supermarket chain with stores in
California, Nevada, and New Mexico.
On February 11, 1997, the Company acquired all of the
membership interests of Apex in consideration of 77,500,000
shares of the Company's Common Stock issued to the members of
Apex. See "Item 1. Business-General."
Results of Operation
Revenues for the year ended March 31, 1999 ("Fiscal 1999")
were $4,372,146 compared to revenues of $2,933,610 for the
fiscal year ended March 31, 1998 ("Fiscal 1998") and $2,737,489
for the fiscal year ended March 31, 1997 ("Fiscal 1997"). The
increases in sales revenues for Fiscal 1999 and 1998 are due
primarily to increased sales of beef product.
Total operating expenses of $4,233,922 reflect an increase
in Fiscal 1999 as compared to $3,106,432 in Fiscal 1998 due to
the increased volume of beef sales. The increase of total
operating expenses in fiscal 1998 from $2,942,865 in Fiscal 1997
is due to increased beef sales.
The net income for Fiscal 1999 was $183,457, a significant
turnaround compared to both the Fiscal 1998 loss of $387,230 and
the Fiscal 1997 loss of $192,502. The Fiscal 1999 improvement
was a result of the increased volume of beef sales. The
increase in the Fiscal 1998 loss over that of Fiscal 1997 was
due primarily to the impairment loss of $217,016 from the write-
down of the uncollectible portion of the basis of a note after
the proceeds of the sale of foreclosed property were applied, as
more fully explained in the financial statements and related
footnotes.
Beef Products Segment: Revenues generated by National (the
"Beef Products Segment") were $4,347,944 for Fiscal 1999,
representing 99.4% of total Company revenues and reflecting an
increase from Fiscal 1998 amounts. Revenue for Fiscal 1999
reflects both product mix and volume improvements realized in
the current year as compared to prior years. Beef product
revenues for Fiscal 1998 of $2,906,167 showed an increase from
Fiscal 1997 revenues of $2,737,489, which was due to increased
sales of the beef products.
The cost of processed beef products as a percentage of
revenues of 81% for Fiscal 1999 shows an improvement as compared
with the Fiscal 1998 percentage of 84% and 83% in Fiscal 1997.
The decrease for Fiscal 1999 from that of Fiscal 1998 is due
primarily to decreased costs associated with the higher volume
of beef sold and an improved pricing structure.
Selling expenses for Fiscal 1999 of $111,250 were lower
than those in Fiscal 1998 primarily due to reduced costs of
outside sales representation. Selling expenses for Fiscal 1998
of $136,980 were more than Fiscal 1997 selling expenses of
$108,095 due to the increased use of outside sales
representation for 1998.
The Beef Products Segment reported a profit of $542,373 for
Fiscal 1999, which reflects a significant increase over the
Fiscal 1998 and 1997 profits of $185,101 and $197,221,
respectively.
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<PAGE>
Impact of Inflation: Sales prices are based on a multiple
of current cattle costs (raw materials) and are adjusted weekly
with the cattle market; therefore, the cost of raw materials
(cattle) has little impact on gross profit (percentage). Cattle
prices can have a significant impact on sales and consequently,
net profits. However, gross profits on a per head basis are not
significantly impacted by rising beef prices since the sales
prices are based on a multiple of the cost.
Corporate: General and administrative expenses of $585,597
for Fiscal 1999 were greater as compared to $530,200 for Fiscal
1998 as a result of increased professional fees. General and
administrative expenses for Fiscal 1998 decreased from the
Fiscal 1997 amount of $565,511, due primarily to a reduction in
NASDAQ and Boston Stock Exchange listing fees from the prior
year.
Interest income of $45,233 in Fiscal 1999 increased as
compared to the interest income of $6,033 in Fiscal 1998 and
$12,874 in Fiscal 1997 due to higher levels of cash and cash
equivalents being maintained during the year.
Liquidity and Capital Resources
Liquidity. Current assets of the Company decreased from
$1,602,431 at March 31, 1998 to $662,515 at March 31, 1999, and
current liabilities increased from $67,276 at March 31, 1998, to
$194,408 at March 31, 1999, resulting in a decrease in overall
working capital position. The working capital of the Company
was $468,107 at March 31, 1999, a decrease in the working
capital from the $1,535,155 reported at March 31, 1998. The
reduction in current assets and working capital results from the
capital expenditures made in Fiscal 1999, primarily in oil and
gas activities.
Equity capital increased by $185,473 during Fiscal 1999.
Stockholders' equity was $26,553,697 at March 31, 1999, as
compared to $26,368,224 at March 31, 1998. The increase was due
primarily to the Fiscal 1999 net income.
The total assets of the Company were $26,748,105 at March
31, 1999, as compared to $26,435,500 for the previous year end.
The increase in total assets results primarily from the
increased investment in oil and gas activities, offset by the
reduction in current assets as previously discussed.
Cash Flow. The Company's operations generated $367,981 of
cash flow in Fiscal 1999 as compared to the use of $121,928 and
$30,549 in cash flow in Fiscal 1998 and 1997, respectively. The
improvement in cash flow in Fiscal 1999 is primarily the result
of the Company's sales volume and net income increases. In
Fiscal 1998, the cash used in continuing operations increased as
compared to Fiscal 1997 due to increased marketing and public
relations costs incurred to hire consultants to provide those
services.
Cash of $1,292,844 was used by investing activities during
Fiscal 1999, primarily related to capital expenditures for the
oil and gas properties. Cash of $463,971 was provided by
investing activities during Fiscal 1998 from the collection of a
note receivable of $948,750 offset by capital expenditures of
$484,779 during that year. Cash of $525,635 was used by
investing activities during Fiscal 1997, and, like Fiscal 1998,
was related to capital expenditures for the oil and gas
properties.
-11-
<PAGE>
Cash of $24,748 was used by financing activities in Fiscal
1999, resulting from offering costs incurred. Cash of $967,651
was provided by financing activities in Fiscal 1998, with
$870,151 resulting from sale of common stock and warrants and
$97,500 resulting from the exercise of stock options. Cash of
$199,250 was provided by financing activities in Fiscal 1997,
resulting from the exercise of stock options.
Capital Resources. In Fiscal 2000 it is anticipated that
funds will be utilized towards the development of the oil and
gas property. In management's opinion, the anticipated 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. However, no assurance can be provided that such will be
the case.
There are no additional material commitments for capital
expenditures as of March 31, 1999.
Year 2000
The Year 2000 issue arose because many existing computer
programs use only the last two digits to refer to a year.
Therefore, these computer programs do not properly recognize a
year that begins with 20 instead of 19. If not corrected, many
computer applications could fail or create erroneous results.
In 1998, the Company instituted a program to review its
computer hardware and software for year 2000 compliance.
Although testing is not complete, no compliance problems are
anticipated. As a back-up plan, most of the internal Company
functions can be processed manually, if necessary. Amounts
expended or to be expended on information technology systems
exclusively to ensure Year 2000 compliance are not expected to
be material to the Company's consolidated results of operations
or financial position, nor does it expect any significant
interruption to its operations because of Year 2000 problems.
The Company's products do not have Year 2000 readiness issues
because they do not contain date-sensitive functions.
The Company has contacted all third parties with which it
has significant relationships, to determine the extent to which
the Company could be vulnerable to failure by any of them to
obtain Year 2000 compliance. The Company's major suppliers,
customers and financial institutions have confirmed that they
anticipate being Year 2000 compliant on or before December 31,
1999, although many have only indicated that they have Year 2000
readiness programs. However, the Company has no means of
ensuring that third parties will be Year 2000 ready and the
potential effect of third-party non-compliance is currently not
determinable.
The Company has devoted and will continue to devote the
resources necessary to ensure that all Year 2000 issues are
properly addressed. However, there can be no assurance that all
Year 2000 problems are detected. Further, there can be no
assurance that the Company's assessment of its third party
vendors and customers will be accurate. Some of the potential
worst-case scenarios that could occur include: (1) corruption
of data in the Company's internal systems; (2) failure of
infrastructure services provided by government agencies; and (3)
failure of major customers or vendor systems.
-12-
<PAGE>
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Item 305(e) of Regulation S-K, no disclosure is
required.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required to
be included in this Item 8 are set forth in Item 14 of this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has had no changes in accountants or
disagreements with its accountants on accounting and disclosure
to report under this Item 9.
-13-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is incorporated by reference from the
Company's definitive Proxy Statement for the Company's 1999
annual meeting for the fiscal year ended March 31, 1999, to be
filed no later than July 29, 1999, and from "Part 1. Item 4A.
Executive Officers of the Company" included in this report.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the
Company's definitive Proxy Statement for the Company's 1999
annual meeting for the fiscal year ended March 31, 1999, to be
filed no later than July 29, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from the
Company's definitive Proxy Statement for the Company's 1999
annual meeting for the fiscal year ended March 31, 1999, to be
filed no later than July 29, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference from the
Company's definitive Proxy Statement for the Company's 1999
annual meeting for the fiscal year ended March 31, 1999, to be
filed no later than July 29, 1999.
-14-
<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, 1999 and 1998 F-2
Consolidated Statements of Operations for the years
ended March 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Changes in Shareholders'
Equity for the years ended March 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the years
ended March 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-8
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)
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)
-15-
<PAGE>
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. *
23 Consent of Weaver and Tidwell, L.L.P. *
24 Power of Attorney. *
27 Financial Data Schedule. *
* 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.
(b) Reports on Form 8-K.
None filed during the last quarter of this report.
-16-
<PAGE>
(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.
-17-
<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 21, 1999 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 18th day of June, 1999.
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
-18-
<PAGE>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
FINANCIAL REPORT
MARCH 31, 1999
<PAGE>
C O N T E N T S
Page
INDEPENDENT AUDITOR'S REPORT F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
<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, 1999 and 1998, 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, 1999. 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, 1999 and
1998, and the consolidated results of their operations
and their cash flows for each of the three years in the
period ended March 31, 1999 in conformity with generally
accepted accounting principles.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
May 25, 1999
F-1
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND 1998
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 440,805 $ 1,390,416
Trade accounts receivable 60,809 95,202
Other accounts receivable - 53,183
Inventories 126,326 26,847
Other current assets 34,575 36,783
------------ ------------
Total current assets 662,515 1,602,431
OIL AND GAS PROPERTIES 26,042,456 24,771,766
PROPERTY AND EQUIPMENT, at cost
Equipment, furniture and fixtures 57,929 35,775
Vehicles 56,720 56,720
------------ ------------
114,649 92,495
Less accumulated depreciation 71,515 61,192
------------ ------------
43,134 31,303
OTHER ASSETS
Property held for sale - 30,000
------------ ------------
TOTAL ASSETS $ 26,748,105 $ 26,435,500
============ ============
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-2
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND 1998
1999 1998
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 181,004 $ 45,565
Accrued expenses 13,404 21,711
------------ -------------
Total current liabilities 194,408 67,276
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
1999 - 97,470,617
1998 - 97,395,512 97,470 97,395
Additional paid-in capital 33,374,807 33,399,630
Accumulated deficit (6,918,580) (7,102,037)
------------ -------------
26,553,697 26,394,988
Deferred compensation and consulting - (26,764)
------------ -------------
26,553,697 26,368,224
------------ -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 26,748,105 $ 26,435,500
============ =============
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-3
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
MARCH 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES
Processed beef products $ 4,347,944 $ 2,906,167 $ 2,737,489
Other 24,202 27,443 -
----------- ----------- -----------
Total operating revenues 4,372,146 2,933,610 2,737,489
OPERATING COSTS AND EXPENSES
Processed beef products 3,537,075 2,439,252 2,269,259
General and administrative 585,597 530,200 565,511
Selling expenses 111,250 136,980 108,095
----------- ----------- -----------
Total operating expenses 4,233,922 3,106,432 2,942,865
----------- ----------- -----------
Income (loss) from operations 138,224 (172,822) (205,376)
OTHER INCOME (EXPENSE)
Interest income 45,233 6,033 12,874
Interest expense - (3,425) -
Impairment loss - (217,016) -
----------- ----------- -----------
Income (loss) before income tax 183,457 (387,230) (192,502)
INCOME TAX - - -
----------- ----------- -----------
Net income (loss) $ 183,457 $ (387,230) $ (192,502)
=========== =========== ===========
Earnings (loss) per share:
Basic $ 0.00 - -
=========== =========== ===========
Diluted $ 0.00 $ (0.00) $ (0.00)
=========== =========== ===========
Basic weighted average
number of shares outstanding 97,431,176 96,524,423 28,584,726
=========== =========== ===========
Diluted weighted average
number of shares outstanding 98,069,872 - -
=========== =========== ===========
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-4
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
MARCH 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Other
---------- ---------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
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)
Stock issued upon exercise
of stock options 5,000 5 5,310 - -
Stock issued pursuant to
contingent shares 70,010 70 ( 70) - -
Rounding adjustment 95 - - - -
Offering costs - - ( 30,063) - -
Realization of deferred
consulting costs - - - - 26,764
Net income - - - 183,457 -
---------- ---------- ------------- ------------- ------------
Balance, March 31, 1999 97,470,617 $ 97,470 $ 33,374,807 ($ 6,918,580) $ -
========== ========== ============= ============= ============
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-5
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
MARCH 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 183,457 ($ 387,230) ($ 192,502)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation 10,323 9,695 14,460
Amortization - - 314
Deferred compensation and consulting
recognized in current year 26,764 57,544 138,299
Stock issued for compensation - 7,500 -
Impairment loss - 217,016 -
Write-off of note receivable - - 6,114
Changes in assets and liabilities:
Accounts receivable 87,576 36,555 (106,848)
Inventory (99,479) (26,097) 25,112
Other current assets 32,208 15,216 (8,962)
Accounts payable and
accrued expenses 127,132 (52,127) 93,464
---------- ----------- ------------
Net cash provided by
(used in) operating activities 367,981 (121,928) (30,549)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,292,844) (484,779) (541,635)
Collections of notes receivable - 948,750 16,000
---------- ----------- ------------
Net cash provided by
(used in) investing activities (1,292,844) 463,971 (525,635)
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-6
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
MARCH 31, 1999, 1998 AND 1997
(continued)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings $ - $ (243,000) $ -
Proceeds from loans - 243,000 -
Payments for offering costs (30,063) - -
Proceeds from issuance
of common stock 5,315 967,651 199,250
----------- ----------- ----------
Net cash provided by
(used in) financing activities (24,748) 967,651 199,250
----------- ----------- ----------
Net increase (decrease) in
cash and cash equivalents (949,611) 1,309,694 (356,934)
Cash and cash equivalents, beginning
of year 1,390,416 80,722 437,656
----------- ----------- ----------
Cash and cash equivalents, end of
year $ 440,805 $1,390,416 $ 80,722
=========== =========== ==========
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 October 21, 1998, the Company issued 70,010 shares of common stock
pursuant to contingent provisions of a private placement in December
1997.
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
market value of stock issued for assets and fair value of assets of
$98,704,380.
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-7
<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 year ended March 31, 1997.
All intercompany transactions and balances have been
eliminated upon consolidation.
Nature of Operations
United Heritage Corporation distributes "lite" beef products
primarily on the west coast. 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 in Texas. 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 held approximately 90% of the
outstanding shares of UHC and the transaction was accounted
for as an acquisition of assets. The assets of Apex
consisted 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. Although the
F-8
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Acquisition - continued
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 had no operations from its
inception on September 5, 1995, to February 11, 1997.
Subsequent to the acquisition, Apex was merged into UHC
Petroleum Corporation.
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 both "lite" beef purchased for resale
and oil and gas, both of which are 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,
1999 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.
F-9
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Oil and Gas Properties - continued
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.
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
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share was computed based on
the weighted average number of common shares outstanding for
the period. Diluted earnings per common share was computed
assuming all dilutive potential common shares were issued.
Diluted earnings per share have not been presented for 1998
and 1997 since the inclusion of potential common shares in
those years would be antidilutive.
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.
Advertising
The Company expenses all advertising costs as incurred.
Costs for the years ended March 31, 1999, 1998 and 1997 were
$14,477, $37,744 and $3,723, respectively.
F-10
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Use of Estimates
The preparation of consolidated 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 consolidated 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, 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. The Company has adopted the disclosure
provisions of SFAS No. 123.
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued
Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income". This statement requires an
enterprise display total comprehensive
F-11
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
New Accounting Pronouncements - continued
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".
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 has adopted SFAS No. 130 and 131 for its fiscal
year beginning April 1, 1998. There were no significant
changes in financial statement presentation as a result of
implementing these new accounting standards.
Long-lived Assets
Long-lived assets and certain identifiable intangibles to be
held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The
Company continuously evaluates the recoverability of its
long-lived assets based on estimated future cash flows and
the estimated liquidation value of such long-lived assets,
and provides for impairment if such undiscounted cash flows
are insufficient to recover the carrying amount of the long-
lived assets.
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 was collected during the year ended
March 31, 1999.
At March 31, 1998, the Company retained an office building
which was recorded as "property held for sale". The office
building was sold during the year ended March 31, 1999 for
$30,000, resulting in no additional gain or loss.
F-12
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
development 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, 1999, 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 development 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, 1999 were incurred to acquire
and evaluate the project.
As exploration and development progresses the capitalized
costs are periodically assessed for impairment. At March 31,
1999 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. OIL AND GAS PRODUCING ACTIVITIES
The Company's oil and gas producing activities to date consist
entirely of acquisition and exploration of unproved
properties, all of which are located in the United States.
Capitalized costs related to oil and gas producing activities
as of March 31 are as follows:
1999 1998
----------- -----------
Unproved properties $26,042,456 $24,771,766
=========== ===========
F-13
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. OIL AND GAS PRODUCING ACTIVITIES - continued
Costs incurred in oil and gas property acquisition,
exploration and development activities for the years ended
March 31 are as follows:
1999 1998 1997
----------- --------- -----------
Acquisition of unproved properties $ - $ - $23,676,250
Exploration costs 1,270,690 478,153 506,632
----------- --------- -----------
Total $ 1,270,690 $ 478,153 $24,182,882
=========== ========= ===========
The Company has had no significant revenues produced from its
pilot project and, therefore, has no production costs,
depreciation, depletion, amortization or other results of
operations related to oil and gas production.
As of March 31, 1999, the Company has no proved reserves and,
therefore, disclosures related to proved reserves and the
related standardized measures of discounted future net cash
flows are not applicable.
NOTE 5. 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, 1999,
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, 1999
and 1998 were $11,675 and $1,344,391, 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, 1999 and 1998 comprised approximately
100% and 76%, respectively, of the trade receivable balance.
No allowance for doubtful accounts has been provided since
recorded amounts are determined to be fully collectible.
F-14
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INVENTORY
Inventory consists of the following:
1999 1998
-------- --------
"Lite" beef held for resale $101,953 $ 26,847
Oil in tanks 24,373 -
-------- --------
$126,326 $ 26,847
======== ========
NOTE 7. 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, 1999 and 1998, no
amounts were outstanding under the line of credit. Included in
interest expense for the years ended March 31, 1999, 1998 and
1997 is $0, $3,425 and $0, respectively, for interest expense
incurred under this agreement. The weighted average interest
rate under this agreement was 8.5% for 1998.
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.
NOTE 8. BUSINESS SEGMENTS AND MAJOR CUSTOMERS
At March 31, 1999, 1998 and 1997, the Company operates in two
business segments, the sale of processed "lite" beef products
and oil and gas producing activities. Factors used by
management in determining reportable segments are by business
area. Revenue recognition and other accounting policies by
segment are consistent with those for the consolidated entity
disclosed in Note 1.
F-15
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. BUSINESS SEGMENTS AND MAJOR CUSTOMERS - continued
SEGMENT INFORMATION:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------- ----------------------------------- ----------------------------------
Oil and Gas Lite Beef Total Oil and Gas Lite Beef Total Oil and Gas Lite Beef Total
----------- ---------- ---------- ----------- ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from
external customers $ 24,202 $4,347,944 $4,372,146 $ 24,443 $2,906,167 $ 2,930,610 $ - $2,737,489 $2,737,489
Interest revenue 2,696 1,940 4,636 - - - - - -
Depreciation and
Amortization - 1,767 1,767 - 2,394 2,394 - 7,338 7,338
Segment profit 22,374 542,373 564,747 23,515 185,101 208,616 - 197,221 197,221
Segment assets 26,066,974 229,075 26,296,049 24,774,389 192,472 24,966,861 24,316,111 171,070 24,487,181
Expenditures for
segment assets 1,270,690 11,603 1,282,293 478,153 1,328 479,481 506,632 329 506,961
RECONCILIATIONS:
REVENUES 1999 1998 1997
---------- ----------- ----------
Total revenues for
reportable segments $4,372,146 $ 2,930,610 $2,737,489
Other revenues - 3,000 -
---------- ----------- ----------
Total consolidated
revenues $4,372,146 $ 2,933,610 $2,737,489
========== =========== ==========
PROFIT OR LOSS
Total profit for
reportable segments $ 564,747 $ 208,616 $ 197,221
Other profit or loss (381,290) (595,846) (389,723)
---------- ----------- ----------
Income (loss) before
income taxes $ 183,457 $ (387,230) $ (192,502)
========== =========== ==========
ASSETS
Total assets for
reportable segments $26,296,049 $24,966,861 $24,487,181
Other assets 452,056 1,468,639 1,354,981
---------- ----------- ----------
Consolidated total $26,748,105 $26,435,500 $25,842,162
========== =========== ==========
</TABLE>
OTHER SIGNIFICANT ITEMS:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------- ------------------------------------ -----------------------------------
Segment Consolidated Segment Consolidated Segment Consolidated
Totals Adjustments Totals Totals Adjustments Totals Totals Adjustments Totals
---------- ----------- ----------- ---------- ----------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest revenue $ 4,636 $ 40,597 $ 45,233 $ - $ 6,033 $ 6,033 $ - $ 12,874 $ 12,874
Interest expense - - - - 3,425 3,425 - - -
Expenditures for
assets 1,282,293 10,551 1,292,844 479,481 5,298 484,779 506,961 34,674 541,635
Depreciation and
Amortization 1,767 8,556 10,323 2,394 7,301 9,695 7,338 7,122 14,460
Impairment loss - - - - 271,016 217,016 - - -
</TABLE>
Adjustments to reconcile total segment interest revenue and
expense, and depreciation and amortization to consolidated
totals are attributed to corporate headquarters, which is not
included in segment information. The impairment loss of
$217,016 was due to foreclosure on a note receivable (see Note
2) and was not allocated to current operating segments.
F-16
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. 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>
1999 1998 1997
------------------- ------------------- -------------------
Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Customer A $3,743,768 86.1% $2,018,937 69.5% $1,933,904 71.0%
Customer B - - 661,004 22.7 615,841 22.0
---------- ------- ---------- ------- ---------- -------
$3,743,768 86.1% $2,679,941 92.2% $2,549,745 93.0%
========== ======= ========== ======= ========== =======
</TABLE>
NOTE 9. 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>
1999 1998 1997
-------------------- -------------------- --------------------
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 910,000 $ .25 900,000 $ .25 1,872,000 $ .42
Granted - - 100,000 .25 - -
Exercised - - (90,000) .25 (647,000) .25
Forfeited - - - - (325,000) 1.28
Expired - - - - - -
----------- -------- ----------- -------- ----------- --------
End of year 910,000 $ .25 910,000 $ .25 900,000 $ .25
=========== ======== =========== ======== =========== ========
Exercisable 910,000 $ .25 880,000 $ .25 870,000 $ .25
=========== ======== =========== ======== =========== ========
Weighted average
fair value of
options granted $ - $0.11 $ -
======== ======== ========
</TABLE>
F-17
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK OPTION PLANS - continued
Stock options outstanding under the 1995 Plan are all
exercisable at $0.25 per share and weighted average remaining
contractual life is 1.66 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.
The following schedule summarizes pertinent information with
regard to the 1996 Plan for the years ended March 31, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
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 305,000 $ .64 20,000 $ .82 500,000 $ .30
Granted - - 112,500 .54 1,170,000 .70
Exercised (5,000) .25 (107,500) 1.00 (50,000) .75
Forfeited - - (120,000) 3.38 (500,000) .30
Expired (300,000) .63 (100,000) .75 (600,000) 1.06
----------- -------- ----------- -------- ----------- --------
End of year - - 305,000 $ .64 520,000 $ .82
=========== ======== =========== ======== =========== ========
Exercisable - - 305,000 $ .64 520,000 $ .82
=========== ======== =========== ======== =========== ========
Weighted average
fair value of
options granted $ - $0.51 $0.28
======== ======== ========
</TABLE>
Options granted under the two plans for the years ended March
31, 1999, 1998 and 1997 were to nonemployees and $26,764,
$57,544 and $138,299, respectively, were expensed as payment
for services.
Since the Company did not grant options to employees in 1999,
1998 and 1997, there is no pro forma effect to disclose for
those years in relation to compensation expense using the fair
value method prescribed by SFAS No. 123.
F-18
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK OPTION PLANS - continued
The fair value of each option grant is estimated on the date
of grant using a Black-Sholes option 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.
Directors of the Company adopted the 1998 Stock Option Plan
effective July 1, 1998. This Plan and its subsequent amendment
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 are exercisable over a period
to be determined when granted, but may be affected by the
termination of employment.
NOTE 10. 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. During
the year ended March 31, 1999, the agreement was cancelled.
The following schedule summarizes pertinent information with
regard to the stock warrants for the years ended March 31,
1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
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 1,300,000 $ .94 1,300,000 $ .94 - $ -
Granted - - - - 1,300,000 .94
Exercised - - - - - -
Forfeited - - - - - -
Expired - - - - - -
----------- -------- ----------- -------- ----------- --------
End of year 1,300,000 $ .94 1,300,000 $ .94 1,300,000 $ .94
=========== ======== =========== ======== =========== ========
Exercisable 1,300,000 $ .94 1,300,000 $ .94 1,300,000 $ .94
=========== ======== =========== ======== =========== ========
Weighted average
fair value of
options granted $0.07 $0.07 $0.07
======== ======== ========
</TABLE>
F-19
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. STOCK WARRANTS - continued
The following table summarizes information about the stock
warrants outstanding at March 31, 1999:
Weighted
Average Weighted
Range of Number Remaining Average
Exercise of Shares Contractual Exercise
Prices at 3/31/99 Life Price
------------- ---------- ----------- --------
$0.75 - $1.00 1,023,000 2.3 years $0.77
$1.25 - $1.75 231,500 2.3 years 1.45
$2.00 45,500 2.3 years 2.00
----------
1,300,000
==========
During the years ended March 31, 1999, 1998 and 1997, the
Company recorded $0, $0 and $26,924, respectively, 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.
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.
F-20
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. 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.
The Company's federal tax provision consists of the following:
1999 1998 1997
-------- ------ --------
Current $ - $ - $ -
Deferred 64,665 - -
Re-evaluation of beginning valuation
allowance on temporary differences (64,665) - -
-------- ------ --------
$ - $ - $ -
======== ====== ========
The 1999 tax provision differs from the amount calculated by
applying statutory tax rates to pre-tax income as follows:
Tax at statutory rates $ 62,375
Re-evaluation of beginning valuation
allowance on temporary differences (64,665)
Other 2,290
---------
$ -
=========
At March 31, the deferred tax asset and liability balances are
as follows:
1999 1998
---------- ----------
Deferred tax asset
Oil and gas properties $8,049,925 $8,049,925
Net operating loss 1,611,696 1,676,361
---------- ----------
9,661,621 9,726,286
Deferred tax liability - -
---------- ----------
Net deferred tax asset 9,661,621 9,726,286
Valuation allowance (9,661,621) (9,726,286)
---------- ----------
$ - $ -
========== ==========
F-21
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. INCOME TAXES - continued
The net change in the valuation allowance for 1999 and 1998 is
a decrease of $64,665 and an increase of $126,415, 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 $4,740,000 available to offset future income for
income tax reporting purposes, which will ultimately expire
between 2011 and 2018, if not previously utilized.
NOTE 12. 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,
1999, 278,000 shares had been issued in accordance with the
plan.
F-22
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- ------------------------------------
21 Subsidiaries of the Company
23 Consents of Weaver & Tidwell, L.L.P.
24 Power of Attorney
27 Financial Data Schedule
EXHIBIT 21
SUBSIDIARIES OF UNITED HERITAGE CORPORATION
Jurisdiction
Subsidiary of Organization
- ------------------------------------ ---------------
National Heritage Sales Corporation Texas
Sovereign Communications Corporation Texas
UHC Petroleum Corporation Texas
UHC Petroleum Services Corporation Texas
EXHIBIT 23
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; February 28,
1997; and September 30, 1998, for the 1993 Stock Bonus
Plan and 1995, 1996 and 1998 Stock Option Plans,
respectively, of United Heritage Corporation of our
report dated May 25, 1998, on our audits of the
consolidated financial statements of United Heritage
Corporation as of March 31, 1999 and 1998, and for each
of the three years in the period ended March 31, 1999,
which report is incorporated in this Annual Report on
Form 10-K of United Heritage Corporation for the year
ended March 31, 1999. We also consent to the reference
to our firm under the caption "Experts."
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
June 21, 1999
EXHIBIT 24
SPECIAL POWER OF ATTORNEY
The undersigned hereby appoint Walter G. Mize and Harold L.
Gilliam, and each of them severally, as attorneys and agents for
the undersigned, with full power of substitution, for and in the
name, place and stead of the undersigned, to sign and file with
the Securities and Exchange Commission the Annual Report on Form
10-K of United Heritage Corporation (the "Form 10-K") for the
fiscal year ended March 31, 1999, with said attorneys and agents
to have full power and authority to do and perform in the name
of and on behalf of the undersigned, every act whatsoever
necessary or advisable to be done in the premises as fully and
to all intents and purposes as the undersigned might or could do
in person, such power to extend to the execution of any
amendment to the Form 10-K.
Executed this 18th day of June, 1999.
/s/ Walter G. Mize
------------------
Walter G. Mize
/s/ C. Dean Boyd
----------------
C. Dean Boyd
/s/ Harold L. Gilliam
---------------------
Harold L. Gilliam
/s/ Joe Martin
--------------
Joe Martin
/s/ Theresa D. Turner
---------------------
Theresa D. Turner
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 440,805
<SECURITIES> 0
<RECEIVABLES> 60,809
<ALLOWANCES> 0
<INVENTORY> 126,326
<CURRENT-ASSETS> 662,515
<PP&E> 114,649
<DEPRECIATION> 71,515
<TOTAL-ASSETS> 26,748,105
<CURRENT-LIABILITIES> 194,408
<BONDS> 0
0
0
<COMMON> 97,470
<OTHER-SE> 26,456,227
<TOTAL-LIABILITY-AND-EQUITY> 26,748,105
<SALES> 4,372,146
<TOTAL-REVENUES> 4,417,379
<CGS> 3,537,075
<TOTAL-COSTS> 3,648,325
<OTHER-EXPENSES> 585,597
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 183,457
<INCOME-TAX> 0
<INCOME-CONTINUING> 183,457
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 183,457
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
