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 June 30,
1999; or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
_____________________ to ___________________.
Commission File No. 0-9997
United Heritage Corporation
--------------------------------------------------
(Exact name of registrant as specified in charter)
Utah 87-0372864
- ------------------------------- ------------------------------------
(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
August 3, 1999 was 99,372,654 shares.
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PAGE 2
Part I - Financial Information
Item 1 - Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
at June 30, 1999 and March 31, 1999 3
Consolidated Condensed Statements of Income for the
three months ended June 30, 1999 and June 30, 1998 5
Consolidated Condensed Statements of Cash Flows
for the three months ended June 30, 1999 and
June 30, 1998 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 12
Item 2 - Changes in Securities 13
Item 3 - Defaults upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of
Security Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 15
Index to Exhibits 16
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PAGE 3
Part I, Item 1. Financial Statements
UNITED HERITAGE CORPORATION
---------------------------
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, 1999 March 31, 1999
------------- --------------
UNAUDITED
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 347,373 $ 440,805
Accounts receivable - trade 196,007 60,809
Inventory 127,629 126,326
Prepaids and other current assets 89,496 34,575
----------- -----------
Total Current Assets 760,505 662,515
----------- -----------
PROPERTY AND EQUIPMENT, at cost 132,464 114,649
Less accumulated depreciation (74,929) (71,515)
----------- -----------
Net Property and Equipment 57,535 43,134
----------- -----------
OIL AND GAS PROPERTIES, at cost 27,344,033 26,042,456
Less accumulated depletion (1,703) ---
----------- -----------
Net Oil and Gas Properties 27,342,330 26,042,456
----------- -----------
TOTAL ASSETS $28,160,370 $26,748,105
=========== ===========
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PAGE 4
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS - CONTINUED
June 30, 1999 March 31, 1999
------------- --------------
UNAUDITED
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $300,709 $194,408
----------- -----------
Total Current Liabilities 300,709 194,408
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $0.001 par value;
125,000,000 shares authorized;
shares issued and outstanding:
99,372,654 shares at June 30, 1999 99,373
97,470,617 shares at March 31, 1999 97,470
Additional paid-in capital 34,517,701 33,374,807
Accumulated deficit (6,757,413) (6,918,580)
----------- -----------
Total Shareholders' Equity 27,859,661 26,553,697
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,160,370 $26,748,105
=========== ===========
See notes to consolidated condensed financial statements
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PAGE 5
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
June 30, 1999 June 30, 1998
------------- -------------
REVENUES
Processed beef products $1,263,076 $1,148,875
Oil sales 14,070 ---
---------- ----------
TOTAL REVENUE 1,277,146 1,148,875
---------- ----------
COSTS AND EXPENSES
Processed beef products 1,000,210 937,404
Oil production costs 5,814 ---
Selling 22,697 22,039
General and administrative 91,285 150,603
---------- ----------
TOTAL COSTS AND EXPENSES 1,120,006 1,110,046
---------- ----------
NET INCOME FROM OPERATIONS 157,140 38,829
OTHER INCOME
Interest income 4,032 13,337
---------- ----------
NET INCOME $ 161,172 $ 52,166
========== ==========
Net Income Per Common Share $ 0.00 $ 0.00
========== ==========
Weighted average number of common shares 97,714,705 97,400,072
========== ==========
See notes to consolidated condensed financial statements
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PAGE 6
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
June 30, June 30,
1999 1998
-------- ----------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $161,172 $ 52,166
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and depletion 5,116 393
Deferred compensation 26,104 16,520
Stock grants as compensation 5,315 5,315
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (135,198) (81,591)
(Increase) decrease in inventory (1,303) (21,937)
(Increase) decrease in other current assets (54,921) (505)
Increase (decrease) in accounts payable
and accrued expenses 106,301 57,581
-------- ----------
Net cash provided by operating activities 81,167 27,942
-------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Additions to oil and gas properties (156,784) (234,214)
Additions to property and equipment (17,815) (7,235)
Collections of notes receivable --- 53,183
Proceeds from sale of building 30,000
-------- ----------
Net cash (used in) investing activities (174,599) (158,266)
-------- ----------
Increase (decrease) in cash and cash equivalents (93,432) (130,324)
Cash and cash equivalents at beginning of period 440,805 1,390,416
-------- ----------
Cash and cash equivalents at end of period $347,373 $1,260,092
======== ==========
See notes to consolidated condensed financial statements
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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 three-month period ended June 30, 1999
are not necessarily indicative of the results that may be expected for the
year ending March 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended March 31, 1999.
NOTE 2 - INVENTORY
Inventory consists of the following:
June 30, 1999 March 31, 1999
------------- --------------
Lite beef $107,449 $101,953
Oil in tanks 20,180 24,373
-------- --------
$127,629 $126,326
======== ========
NOTE 3 - OIL AND GAS PROPERTIES
In September 1995, the Company entered into an agreement to acquire
100% of Apex Petroleum, L.L.C., ("Apex") owner of certain unproved oil and
gas leases located in South Texas. The agreement was contingent on the
Company having certain testing and development performed and a valuation
being obtained which was acceptable to the Company. Apex was related to the
Company through members who were also shareholders of the Company, including
Mr. Mize, who had a controlling interest in Apex. Pursuant to the agreement,
the Company incurred exploration costs necessary to obtain an evaluation of
reserves. Costs incurred have been capitalized as oil and gas properties.
A favorable valuation report was received and the transaction was
closed on February 11, 1997. The unproven properties were recorded at their
estimated fair value of $23,676,250. As exploration and development
progresses the capitalized costs are periodically assessed for impairment.
During the quarter ended June 30, 1999, the Company completed an
evaluation of estimated recoverable reserves of the South Texas property
using existing recovery techniques (see Note 4).
In June 1999, the Company acquired approximately 20,000 leasehold
acres in Southeastern New Mexico through the issuance of 1,800,000 shares of
common stock. Pending further engineering study, this property is considered
unproved as of June 30, 1999.
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PAGE 8
NOTE 4 - OIL AND GAS PRODUCING ACTIVITIES
During the quarter ended June 30, 1999, the Company completed an
evaluation of estimated recoverable reserves from existing wells using
existing recovery techniques for the South Texas property. The results of
this evaluation has proved the following estimates of recoverable quantities
of oil:
PROVED RESERVES
Beginning of period 0
Extensions and discoveries 25,398,000 barrels
Production (1,407) barrels
----------
June 30, 1999 Reserves 25,396,593 barrels
==========
The present value of the estimated future cash inflows from proved
reserves discounted at 10% is estimated to be $72,861,000 as follows:
Future cash inflows $247,534,000
Future production costs (85,286,000)
Future development costs (4,652,000)
Future income tax expense (51,167,000)
------------
Future Net Cash Flow $106,429,000
Less 10% annual discount for
estimated timing of cash flows (33,568,000)
------------
Standardized Measure $ 72,861,000
============
NOTE 5 - CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents and trade
receivables. During the year ended March 31, 1999 and the three months ended
June 30, 1999, the Company maintained money market accounts with a bank
which, at times, exceeded federally insured limits.
Concentrations of credit risk with respect to trade receivables
consist principally of food industry customers operating in the United
States. Receivables from one customer at March 31, 1999 and June 30, 1999
comprised approximately 86% and 96%, 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 PER COMMON SHARE
Income per share of common stock is based on the weighted average
number of shares outstanding during the periods ended June 30, 1999 and
June 30, 1998.
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PAGE 9
NOTE 7 - INCOME TAXES
As of March 31, 1999, the Company had net operating loss carryovers
of approximately $4,740,000 available to offset future income for income tax
reporting purposes, which will ultimately expire in 2018 if not previously
utilized.
NOTE 8 - ESTIMATES
The preparation of interim financial statements as of June 30, 1999,
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities,
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
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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
The Company continues to purvey Heritage Lifestyle Lite Beef(r), the
lower-fat beef product marketed by the Company to 108 stores of a major West
Coast supermarket chain located in California, Nevada, and New Mexico.
During the current quarter the Company, through the services of an
independent engineer, completed an evaluation of estimated recoverable
reserves from existing wells using existing recovery methods for the oil
field in South Texas. Projected oil reserves are an estimated 25,398,000
bbls. for a total estimated present value of $107,000,000.
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 have been
secured as needed to be year 2000 compliant. The Company has contacted all of
its major vendors and service providers requesting assurance of their
compliance to year 2000 issues, as such issues relate to business conducted
between themselves and the Company. The Company 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 $1,263,076 for the
quarter ended June 30, 1999. The results for the quarter are greater than the
comparable quarter in the preceding fiscal year. Revenues from the sale of
beef products reported in the prior year quarter were $1,148,875. Gross
profit from beef products was $262,866 for the three-month period ended
June 30, 1999, as compared with $211,471 gross profit for the same period
last year. The cost of beef products as a percentage of sales was 79.18% for
the three months ended June 30, 1999, as compared to 81.59% for the three
months ended June 30, 1998. The decrease in the cost of beef product as a
percentage of sales is due primarily to the higher volume and an improved
pricing structure as compared with the previous year's period.
The Company is selling Heritage Lifestyle Lite Beef(r) in 108
selected stores out of the 268-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.
Revenue from the sale of oil was $14,070 for the quarter ended
June 30, 1999. There was no revenue from the sale of oil during the same
period last year. Production costs for the current quarter were $5,814.
Interest income for the current quarter ended June 30, 1999 is less
than the level during the same prior year period due to a higher level of
cash and cash equivalents being maintained in the prior year.
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PAGE 11
Selling expenses of $22,697 for the current quarter have remained
relatively level with the $22,039 shown in the prior year period. General
and administrative costs have decreased to $91,285 for the quarter ended
June 30, 1999, as compared to $150,603 for the same period last year. This
is a result of decreased costs for public relations, legal and other fees.
On a consolidated basis, the Company had a net profit for the current
quarter of $161,172. The comparable period result for the same period in the
prior fiscal year was a net profit of $52,166. The primary reasons for the
change are an increase in the volume of Heritage Lifestyle Lite Beef(r) and a
decrease in the general and administrative expenses as previously discussed.
The Company's equity capital has shown an increase of $1,305,964
since March 31, 1999, the previous fiscal year-end. This increase is
primarily the result of net income of $161,172 for the quarter ended June 30,
1999, and the issuance of common stock in connection with oil and gas
property acquisitions.
The working capital of the Company was $459,796 at June 30, 1999,
little changed from the working capital of $468,107 reported at March 31,
1999. Current assets increased $97,990 during the current period; and
current liabilities increased $106,301, resulting in a slight decrease in the
overall working capital position.
The total assets of the Company were $28,160,370 at June 30, 1999,
which is $1,412,265 greater than the total assets March 31, 1999. This
increase in total assets is primarily due to property acquisitions and the
capitalization of development costs related to the Company's oil and gas
activities.
The Company's operating activities provided $81,167 in cash flow for
the quarter ended June 30, 1999, as compared to $27,942 during the prior year
period. The cash provided in the current period was primarily from net
income. Investing activities used $174,599 of cash during the three months
ended June 30, 1999, due to additions to the oil and gas properties.
Investing activities used cash of $158,266 for the three months ended
June 30, 1998, also due to additions to oil and gas properties. No cash was
used or provided by financing activities in the current quarter or for the
same period last year.
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PAGE 12
Part II - Other Information
UNITED HERITAGE CORPORATION
---------------------------
Item 1. Legal Proceedings
The Company and its subsidiaries are not a party to any material
legal proceedings.
Item 2. Change in Securities
Recent Sales of Unregistered Securities
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 13
Part II, Item 2. Changes in Securities
UNITED HERITAGE CORPORATION
---------------------------
Recent Sales of Unregistered Securities
The Company has sold, during the period covered by this report, 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.
Consid-
Date Purchaser Amount eration Exemption
- ------- ------------------------- ------- ------- -------------------------
4/28/99 Brothers Oil & Equipment
Company, Inc. 50,000 (1) ss. 4(2) of 33 Act (2)
5/05/99 Augustine Fund LP 52,037 (3) Rule 506 under 33 Act
or ss. 4(6) of 33 Act (4)
6/21/99 Energy 2000, Inc. 100,000 (5) ss. 4(2) of 33 Act (6)
6/21/99 Sierra Blanca Outfitters,
Inc. 100,000 (5) ss. 4(2) of 33 Act (6)
6/21/99 Brothers Oil & Equipment
Company, Inc. 65,000 (5) ss. 4(2) of 33 Act (6)
6/21/99 Georganna Fox 50,000 (5) ss. 4(2) of 33 Act (6)
6/21/99 Ruben Aragon 360,000 (5) ss. 4(2) of 33 Act (6)
6/21/99 Dick Glover Company, Inc. 200,000 (5) ss. 4(2) of 33 Act (6)
6/21/99 John A. Fanning 237,500 (5) ss. 4(2) of 33 Act (6)
6/21/99 Vann J. Maldonado 62,500 (5) ss. 4(2) of 33 Act (6)
6/21/99 Sierra Blanca Petroleum
Energy, Inc. 325,000 (5) ss. 4(2) of 33 Act (6)
6/21/99 Delzon Elenberg 116,666 (5) ss. 4(2) of 33 Act (6)
6/21/99 Rexford K. Peterson 116,666 (5) ss. 4(2) of 33 Act (6)
6/21/99 Ryan Family Limited
Partnership 66,668 (5) ss. 4(2) of 33 Act (6)
<PAGE>
PAGE 14
(1) The Shares were sold for property consisting of oil and gas
interests in Rusk County, Texas.
(2) Relying on the fact that there was no public offering to a single
sophisticated offeree and the purchaser, who has a pre-existing
business relationship with the president of the Company, bought for
investment purposes.
(3) 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.
(4) Relying on the fact that the shares were sold in a private placement
to accredited investors only closed December 11, 1997. 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 in the private placement was three (3).
(5) The shares were sold for property consisting of oil and gas leases
in Chaves, Roosevelt and Lea Counties, New Mexico and all equipment
associated with these leases.
(6) Relying on the fact that there was no public offering to a small
number of accredited investors and the purchasers, some of whom had a
pre-existing business relationship with the president of the Company,
bought for investment purposes.
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PAGE 15
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.
Date: August 8, 1999 /s/ Walter G. Mize
------------------
Walter G. Mize, President
Date: August 8, 1999 /s/ Harold L. Gilliam
---------------------
Harold L. Gilliam, Secretary
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PAGE 16
INDEX TO EXHIBITS
Exhibit Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 347,373
<SECURITIES> 0
<RECEIVABLES> 196,007
<ALLOWANCES> 0
<INVENTORY> 127,629
<CURRENT-ASSETS> 760,505
<PP&E> 132,464
<DEPRECIATION> 74,929
<TOTAL-ASSETS> 28,160,370
<CURRENT-LIABILITIES> 300,709
<BONDS> 0
0
0
<COMMON> 99,373
<OTHER-SE> 27,760,289
<TOTAL-LIABILITY-AND-EQUITY> 28,160,370
<SALES> 1,277,146
<TOTAL-REVENUES> 1,281,178
<CGS> 1,006,024
<TOTAL-COSTS> 1,028,721
<OTHER-EXPENSES> 91,285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 161,172
<INCOME-TAX> 0
<INCOME-CONTINUING> 161,172
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,172
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
