<PAGE>
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 December 31, 1998; 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 87-0372864
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 February 3, 1998 was 97,400,512 shares.
PAGE
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PAGE 2
Part I - Financial Information
Item 1 - Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
at December 31, 1998 and March 31, 1998 3
Consolidated Condensed Statements of Income
for the nine months ending December 31, 1998 and
December 31, 1997 5
Consolidated Condensed Statements of Cash Flows
for the Three Months ended December 31, 1998
and December 31, 1997 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operation 10
Part II - Other Information
Item 1 - Legal Proceedings 13
Item 2 - Changes in Securities 13
Item 3 - Defaults upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of
Security Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 14
PAGE
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PAGE 3
Part I, Item 1. Financial Statements
UNITED HERITAGE CORPORATION
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, March 31,
1998 1998
------------ ------------
UNAUDITED
ASSETS
CURRENT ASSETS
Cash and cash equivalent $ 426,685 $ 1,390,416
Interest receivable 2,000
Accounts receivable - trade 216,291 95,202
Other accounts receivable 53,183
Inventory 26,847
Other current assets 26,835 36,783
------------ ------------
Total Current Assets 671,811 1,602,431
------------ ------------
PROPERTY AND EQUIPMENT, at cost 339,619 92,495
Less accumulated depreciation (68,400) (61,192)
------------ ------------
Net Property and Equipment 271,219 31,303
------------ ------------
OTHER ASSETS 30,000
OIL AND GAS PROPERTIES 25,726,648 24,771,766
------------ ------------
TOTAL ASSETS $26,669,678 $26,435,500
============ ============
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PAGE 4
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS - CONTINUED
December 31, March 31,
1998 1998
------------ ------------
UNAUDITED
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 166,472 $ 67,276
------------ ------------
Total Current Liabilities 166,472 67,276
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $0.001 par value;
125,000,000 shares authorized;
shares issued and outstanding:
97,400,512 shares at December 31, 1998 97,400
96,121,542 shares at March 31, 1998 97,395
Additional paid-in capital 33,374,877 33,399,630
Accumulated deficit (6,968,411) (7,102,037)
Deferred compensation (660) (26,764)
------------ ------------
Total Shareholders' Equity 26,503,206 26,368,224
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $26,669,678 $26,435,500
============ ============
See notes to consolidated condensed financial statements
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PAGE 5
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
December 31 December 31
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Processed beef products 1,064,438 645,446 3,299,758 1,978,771
Oil sales 11,274 20,158 23,794 20,158
---------- ---------- ---------- ----------
TOTAL REVENUE 1,075,712 665,604 3,323,552 1,998,929
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Processed beef products 859,642 542,847 2,659,017 1,676,265
Selling 32,443 22,782 76,249 89,196
General and administrative 161,738 111,434 493,538 349,140
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 1,053,823 677,063 3,228,804 2,114,601
---------- ---------- ---------- ----------
NET INCOME (LOSS) from Operations 21,889 (11,459) 94,748 (115,672)
OTHER INCOME (EXPENSES)
Interest income 7,985 1,433 38,876 2,231
Interest expense
---------- ---------- ---------- ----------
NET INCOME (LOSS) 29,874 (10,026) 133,624 (113,441)
========== ========== ========== ==========
Net Income (Loss) Per Common Share $0.00 $0.00 $0.00 $0.00
========== ========== ========== ==========
Weighted average number of common shares 97,400,512 96,453,492 97,400,367 96,243,848
========== ========== ========== ==========
</TABLE>
See notes to consolidated condensed financial statements
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PAGE 6
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) 133,624 (113,441)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 7,210 7,757
Deferred compensation 26,104 46,188
Stock grants as compensation 5,315
Changes in assets and liabilities:
(Increase) decrease in interest receivable (2,000)
(Increase) decrease in accounts receivable (121,089) 25,365
(Increase) decrease in inventory 26,847 (37,221)
(Increase) decrease in other current assets 9,948 11,245
Increase (decrease) in accounts payable
and accrued expenses 99,196 (20,211)
------------ ------------
Net cash provided by (used in) operating activities 185,155 (80,318)
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Additions to oil and gas properties (954,882) (162,179)
Additions to property and equipment (247,124) (195,908)
Proceeds from sale of property and equipment 53,183
Collections of proceeds from sale of building 30,000
------------ ------------
Net cash (used in) provided by investing activities (1,118,823) (358,087)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES
Costs for new stock capitalized to paid in capital (30,063)
Proceeds from issuance of common stock 999,998
------------ ------------
Net cash provided by (used in) financing activities (30,063) 999,998
------------ ------------
Increase (decrease) in cash and cash equivalents (963,731) 561,593
Cash and cash equivalents at beginning of period 1,390,416 80,722
------------ ------------
Cash and cash equivalents at end of period $ 426,685 $ 642,315
============ ============
</TABLE>
See notes to consolidated condensed financial statements
PAGE
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PAGE 7
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 nine-month
period ended December 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending March 31, 1999. 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, 1998.
NOTE 2 - INVENTORY
Inventory consists of the following:
December 31, 1998 March 31, 1998
----------------- --------------
Lite beef $ 0 $ 26,847
======== ========
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 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 of December 31, 1998, a determination cannot be made about
the extent of proved reserves for this project. No amortization has
been computed on the exploration costs. The Company will begin to
amortize these costs when testing of the project is complete and
production commences. All costs capitalized as of December 31, 1998
were incurred to acquire and evaluate the project and are considered
exploration costs.
As exploration and development progresses the capitalized costs
are periodically assessed for impairment. At December 31, 1998, no
impairment has been required to be recorded. A small amount of oil
has been produced as a part of the testing and development.
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PAGE 8
NOTE 4 - OTHER ASSETS
At March 31, 1998, the Company retained certain radio station
related assets from foreclosure of its lien position pertaining to
the radio stations in Canyon and Amarillo, Texas. These assets
included an office building in Canyon, Texas, valued at $30,000, and
miscellaneous furniture, fixtures, and equipment that had negligible
value. These assets were sold for $30,000, and such proceeds were
collected May 7, 1998.
NOTE 5 - CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash equivalents and trade
receivables. During the year ended March 31, 1998 and the nine months
ended December 31, 1998, 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, 1998 and December
31, 1998 comprised approximately 76% and 100%, respectively, of the
trade receivables balance. No allowance for doubtful accounts has
been provided, since recorded amounts are determined to be fully
collectible.
NOTE 6 - INCOME (LOSS) PER COMMON SHARE
Income (loss) per share of common stock is based on the weighted
average number of shares outstanding during the periods ended December
31, 1998 and December 31, 1997.
NOTE 7 - INCOME TAXES
As of March 31, 1998, the Company had net operating loss
carryovers of approximately $4,930,474 available to offset future
income for income tax reporting purposes, which will ultimately expire
in 2013 if not previously utilized.
NOTE 8 - DEFERRED COMPENSATION
The Company has issued various stock options and warrants.
Deferred compensation costs resulting from the options and warrants
are recorded as a reduction of shareholders' equity and are being
amortized over their expected lives.
NOTE 9 - CONTINGENCIES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
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PAGE 9
NOTE 10 - SUBSEQUENT EVENTS - OPTIONS TO PURCHASE OIL PROPERTIES
On January 12, 1999, the Company acquired an option to purchase
in excess of 3,200 leasehold acres in Milam County, Texas. The
property currently has about 200 well bores with 33 wells in
production and an estimated 56 million barrels of oil in place. The
agreement is contingent on the Company having independent evaluations
of oil in place made to establish proven reserves quantities which are
acceptable to the Company.
On January 26, 1999, the Company acquired an option to purchase
in excess of 32,000 leasehold acres in southern New Mexico. The
property currently has about 386 well bores with 70 wells in
production and an estimated 117 million barrels of oil in place. The
agreement is contingent on the Company having independent evaluations
of oil in place made to establish proven reserves quantities which are
acceptable to the Company.
NOTE 11 -STOCKHOLDER'S EQUITY
The Company's common stock has a par value $0.01 per share.
Proceeds from the sale of common stock in excess of par value is
reflected in the paid-in-capital account on the Company's books.
Generally accepted accounting principles require that the costs of
preparation and issuance of any form of solicitation for the sale of
securities of a company be treated as a reduction in the net proceeds
derived from the sale of securities. During the three months ended
December 31, 1998, $30,063 was recorded as a reduction of paid-in-
capital as issuance costs related to a private placement of stock in
December 1997.
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PAGE 10
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
UNITED HERITAGE CORPORATION
General
On February 11, 1997 the Company acquired all of the membership
interests of Apex Petroleum, L.L.C. ("Apex"), a Texas limited
liability company, in consideration of 77,500,000 shares of the
Company's $0.001 par value common stock ("Common Stock") issued to the
members of Apex. On February 27, 1997, Apex was merged with and into
UHC Petroleum Corporation, a newly formed Texas corporation, which is
a wholly-owned subsidiary of the Company. The transaction was based
on an independent valuation of Apex by Surtek, Inc. ("Surtek"), a
petroleum engineering company, which performed certain tests on the
primary assets of Apex, leases of an oil field in South Texas
consisting of approximately 10,502 acres, to determine the value of
the Apex assets. Based on the Surtek report, the Company's board of
directors unanimously accepted the valuation and elected to close the
transaction to purchase the Apex interests.
The Company continues to purvey Heritage Lifestyle Lite Beef (r),
the lower-fat beef product marketed by the Company to 111 stores of
a major West Coast supermarket chain located in California, Nevada,
and New Mexico.
The Company is addressing 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 will be 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 has not completed its
assessment, but currently believes that the cost of addressing this
issue will not have a material adverse impact on the Company's
operating results.
Material Changes in Results of Operations
Revenues for the Company's beef products were $1,064,438 and
$3,299,758 for the quarter and nine-month period ended December 31,
1998, respectively. The results for the quarter are greater than the
comparable quarter and nine month period totals in the preceding
fiscal year. Revenues from the sale of beef products reported in the
prior year quarter and nine-month period were $645,446 and $1,978,771
respectively. Gross profit from beef products was $640,741 for the
nine-month period ended December 31, 1998, as compared with $302,506
gross profit for the same period last year. The cost of beef products
as a percentage of sales was 80.58% for the nine months ended December
31, 1998, as compared to 84.71% for the nine months ended December 31,
1997. The decrease in the cost of beef product percentage is due
primarily to a decrease in the cost of beef purchased as a percentage
of sales and from reductions in transportation costs for the current
period as compared with the previous year's period.
The Company is selling Heritage Lifestyle Lite Beef (r) in 111
selected stores out of the 261 store southern division of a major West
Coast supermarket chain. The southern and northern divisions of this
chain together contain 436 stores. While these prospects have the
potential for significantly increasing the Company's beef sales, there
can be no guarantee that such will be the case.
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PAGE 11
A small amount of oil has been produced as a part of the testing
and development of the Company's oil and gas properties. Revenue
from the sale of oil was $11,274 for the quarter and $23,794 for the
nine-month period ended December 31, 1998, respectively. Revenue from
the sale of oil, during the same periods last year, was $20,158 for
the quarter and $20,158 for the nine-month period ended December 31,
1997, respectively.
Interest and other income for the current quarter and for the
nine-month period ended December 31, 1998 is greater than the level
during the same prior year periods. This results from having
increased cash available, from the sale of radio related assets,
invested in interest-bearing accounts.
Selling expenses of $32,442 for the current quarter have
increased from that of the prior year period of $22,782 due to an
increase in advertising and promotion costs. Selling expenses of
$76,249 for the current nine-month period have decreased from that of
the prior year period of $89,196 primarily due to a decrease in
outside sales representative's costs. General and administrative costs
have increased to $161,738 and $493,538 for the quarter and nine-
month period ended December 31, 1998, as compared to $111,434 and
$349,140 for the same periods last year. This is a result of
increased costs for public relations, accounting fees, legal fees and
fees and costs associated with maintenance of public company standing.
On a consolidated basis, the Company had a net profit for the
current nine-month period of $133,624. The comparable period result
for the same period in the prior fiscal year was a net loss of
$113,441. The primary reasons for the change from a net loss to a net
income is an increase in the volume of Heritage Lifestyle Lite Beef (r),
a decrease in the cost of production and selling expenses, as
previously discussed.
The Company's equity capital has shown an increase of $134,982
since March 31, 1998, the previous fiscal year-end. This increase is
primarily the result of net income of $133,624 for the nine months
ended December 31, 1998.
The working capital of the Company was $505,339 at December 31,
1998, a significant decrease from the working capital of $1,535,155
reported at March 31, 1998, due to expenditures for the development
of the Company's oil and gas properties. Current assets decreased
$930,620 during the current nine-month period due to cash expenditures
for additions to the oil and gas properties and equipment to be used
on the oil and gas properties; and current liabilities increased
$99,196, resulting in a decrease in the overall working capital
position.
The total assets of the Company were $26,669,678 at December 31,
1998, which is $234,178 greater than the total assets March 31, 1998.
This increase in total assets is primarily due the capitalization of
oil and gas development costs on the Company's oil and gas properties
during the current nine months.
The Company's operating activities provided $179,840 in cash flow
for the nine months ended December 31, 1998, as compared to using
$80,318 in cash during the prior year period. The cash provided in
the current period was primarily from net income and increased
liabilities. The cash used in the prior year period was primarily due
to a net loss. Investing activities used $1,118,823 during the nine
months ended December 31, 1998, due to additions to the oil and gas
PAGE
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PAGE 12
properties and to equipment for the oil and gas lease operations.
Investing activities used cash of $358,087 for the nine months ended
December 31, 1997, due to additions to property and equipment and
additions to oil and gas properties. Financing activities during the
current nine months, used $24,748 for costs associated with the
issuance of new issues of the Company's common stock. Financing
activities from the prior year provided $999,998 cash from the
issuance of common stock.
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PAGE 13
Part II - Other Information
UNITED HERITAGE CORPORATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule *
(b) Reports on Form 8-K
None
* Financial Data Schedule filed herewith
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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: February 4, 1999 By: /s/ Walter G. Mize
-------------------
Walter G. Mize,
President
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PAGE 15
INDEX TO EXHIBITS
Exhibit Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 426,685
<SECURITIES> 0
<RECEIVABLES> 216,291
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 671,811
<PP&E> 339,619
<DEPRECIATION> 68,400
<TOTAL-ASSETS> 26,669,678
<CURRENT-LIABILITIES> 166,472
<BONDS> 0
0
0
<COMMON> 97,400
<OTHER-SE> 26,405,806
<TOTAL-LIABILITY-AND-EQUITY> 26,669,678
<SALES> 3,323,552
<TOTAL-REVENUES> 3,362,428
<CGS> 2,659,017
<TOTAL-COSTS> 2,735,266
<OTHER-EXPENSES> 493,528
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 133,624
<INCOME-TAX> 0
<INCOME-CONTINUING> 133,624
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,624
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
