<PAGE>
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, 2000, 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
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 87-0372864
---------------------------------- --------------------------------------
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
2 North Caddo Street, P. O. Box 1956, Cleburne, Texas 76033-1956
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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:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
<S> <C>
Common Stock, $0.001 par value Boston Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $.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 June 15, 2000, was $7,260,957. For purposes of
this computation, all officers, directors and 10% beneficial owners of the
Registrant are deemed to be affiliates. Such determination should not be
deemed an admission that such officers, directors or 10% beneficial owners
are, in fact, affiliates of the Registrant. As of June 15, 2000, 10,152,869
shares of Common Stock were outstanding.
Documents Incorporated by Reference: Portions of the Company's Proxy
Statement to be 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 2000 Annual Meeting of Shareholders of United
Heritage Corporation are incorporated by reference into Part III.
<PAGE>
FORWARD-LOOKING STATEMENTS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS OF MANAGEMENT OF
UNITED HERITAGE CORPORATION (THE "COMPANY"). CERTAIN IMPORTANT RISKS COULD
CAUSE RESULTS TO DIFFER MATERIALLY THAN THOSE ANTICIPATED BY SOME OF THE
FORWARD-LOOKING STATEMENTS. SOME, BUT NOT ALL, OF THE IMPORTANT RISKS WHICH
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE SUGGESTED BY THE
FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHER THINGS,
- CHANGES IN PRICES OR THE AVAILABLE SUPPLY OF SUITABLE BEEF FOR USE IN
THE COMPANY'S BEEF PRODUCTS.
- REDUCTIONS IN PURCHASES BY THE COMPANY'S PRINCIPAL CUSTOMER FOR ITS
BEEF PRODUCTS.
- SHIFTS IN CONSUMER BUYING HABITS TO OTHER MEAT PRODUCTS OR TO
VEGETABLE SUBSTITUTES.
- ADVERSE CHANGES IN THE PRICES FOR OIL AND GAS, INCLUDING CHANGES
BROUGHT ABOUT BY GOVERNMENTAL ENTITIES.
- INACCURACY OF ESTIMATES OF THE COMPANY'S OIL AND GAS RESERVES.
- INEFFECTIVENESS OF THE RECOVERY METHODS THAT THE COMPANY PLANS TO USE
IN ITS OIL AND GAS OPERATIONS.
- OTHER UNCERTAINTIES, ALL OF WHICH ARE DIFFICULT TO PREDICT AND MANY OF
WHICH ARE BEYOND THE CONTROL OF THE COMPANY.
THE COMPANY DOES NOT INTEND TO UPDATE FORWARD-LOOKING STATEMENTS.
2
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
United Heritage Corporation (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 UHC New Mexico Corporation ("New Mexico") (collectively, the
"Subsidiaries"). The Company is a Utah corporation formed in 1981. The
Company currently has eleven employees.
DESCRIPTION OF BUSINESS
The Company's subsidiaries conduct business in two segments. Through
National, the Company engages in operations in the beef industry, involved in
fresh beef sales, ultimately supplying beef products to grocery store chains
for retail sale to consumers. The Company's other subsidiaries are engaged in
activities related to the oil and gas industry. Petroleum is the holder of
oil and gas interests in South Texas that produce from the Val Verde Basin.
New Mexico holds properties in the southeastern New Mexico portion of the
Permian Basin oil field.
PRODUCTS AND OPERATIONS.
BEEF. The Company sells "lite" beef products that have been produced
to its specifications. These "lite" beef products come from heavy, grain-fed
beef animals that meet the USDA's definition of "lite." The basic raw
material, carcass beef, is acquired by the Company through a network of
independent producers or slaughterhouses. 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.
An emerging segment of the beef industry deals with beef products
that naturally contain 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. "Lite" beef is
defined there as having at least 50% less fat and one-third less calories
than typical choice beef, as defined by USDA Handbook 8-13.
Because of limited product life, the Company's policy is not to
maintain an inventory of beef products, and the Company only produces beef
products as orders are received from grocery chains. After production, beef
products are frozen and shipped via refrigerated carriers to grocery chains.
Approximate production capacity is currently 2,000 head of beef per week. A
factor that may limit the Company's ability to produce these beef products is
the number of head of cattle available which meet the carcass specifications
required by the Company's standards. Based on its contacts with various feed
yards throughout the country, management estimates that the current supply of
these cattle available to the Company at approximately 175,000 head per year.
1
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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.
The Company employs a quality control and procurement agent who is
always present in the plant when the "lite" beef products are produced.
During the fiscal year ended March 31, 2000, Albertson's, Inc.
accounted for 86.9% of the Company's sales of its beef products.
OIL AND GAS. The Company's oil and gas operations were conducted
through three of the Subsidiaries-Petroleum, New Mexico and Services.
The Company's total revenues from its South Texas oil field were
$87,421 during the year ended March 31, 2000. The Company acquired these
properties (consisting of 10,502+/- acres (gross)) in a series of
transactions completed in February 1997. The field has 120 wells in various
stages of drilling or completion. The Company is currently producing from
wells in this field using 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.
Because of the nature of the formation containing the oil, the
Company's consulting engineers have advised that using an
Alkaline-Surfactant-Polymer flood method of recovery could produce at least
60% of the oil-in-place. The Alkaline-Surfactant-Polymer 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. The consultant'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 of the proven methods presently available to the Company.
The Company continued the A-S-P pilot flood, proceeding as directed by the
engineering firm that designed the project. The engineering firm will report
on the project as sufficient data is collected. As anticipated, production
from the pilot was not a significant factor.
In June 1999, the Company acquired approximately 20,000 leasehold
acres (gross) in southeastern New Mexico in exchange for 197,500 shares of
common stock issued through a private placement. The Company is seeking to
implement a program to obtain access to more than 200 of the 294 existing
wells for increased production of oil and gas. In certain cases, roads to
well sites will have to be rebuilt. Once the Company has access to the well
sites, it can rework many of the wells and thereby increase production. Also,
the Company is laying new gas lines in parts of the field for the purpose of
tying in some of the existing wells. Further, the Company may drill
additional wells in the field. Pending further engineering study, at March
31, 2000, a determination cannot be made about the extent of oil reserves
that should be classified as proved reserves as a result of this project. The
project evaluation is expected to be completed before March 31, 2001.
2
<PAGE>
In March 2000, the Company negotiated a $2.0 million revolving
credit facility from First Savings Bank of Arlington, Texas. The credit
facility has a term of one year from April 25, 2000 and is evidenced by
promissory note. Interest accrues at 1.0% above the prime rate published in
THE WALL ST. JOURNAL. The Company's largest shareholder has provided
collateral for this loan.
The Company plans to use funds drawn on this facility to fund costs
of re-working and developing the South Texas and New Mexico oil fields and to
purchase two additional swabbing units for use in the South Texas Field.
Services was formed to act as the operating company for Petroleum's
South Texas leases and became the operator on September 1, 1997. Its
operations are not expected to contribute significantly to the Company's
consolidated earnings.
COMPETITION.
BEEF. The beef market is dominated by large, well-established
companies that have large 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 funds the
Company can devote to advertising.
OIL AND GAS. The oil and gas business is highly competitive and has
few barriers to entry. The Company competes with other oil and gas companies
and investors in searching for, and obtaining, 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. Also, many of the Company's competitors
are capable of making a greater investment in a given area than is the
Company.
3
<PAGE>
FINANCIAL INFORMATION BY SEGMENT.
Revenues, net income, and identifiable assets are presented below for
the last three fiscal years:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AND AS OF MARCH 31,
2000 1999 1998
----- ---- ----
<S> <C> <C> <C>
Revenue:
Beef Products $3,164,627 $4,347,944 $2,906,167
Corporate (Parent) 9,012 45,233 9,033
Oil and Gas 87,421 24,202 24,443
Net Income (Loss):
Beef Products 239,650 542,373 185,101
Corporate (Parent) (303,253) (381,290) (595,846)*
Oil and Gas 16,045 22,374 23,515
Identifiable Assets:
Beef Products 138,265 229,075 192,472
Corporate (Parent) 154,061 452,056 1,468,639
Oil and Gas 27,802,345 26,066,974 24,774,389
</TABLE>
--------------------------
*Includes an impairment loss of $217,016 from the write-down of the
uncollectable 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.
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 Company owns leases of an oil field in Edwards County, Texas,
consisting of approximately 10,502 acres (gross) producing from the Val Verde
Basin. TEC Engineering Group, Tyler, Texas, independent petroleum engineers
have estimated the Company's proved oil and gas reserves of 22,465,635
barrels at March 31, 2000, for this field. Proved developed reserves at March
31, 2000, were 912,666 barrels.
The Company's New Mexico fields consist of approximately 20,000
leasehold acres (gross) in southeastern New Mexico in the Permian Basin
field. Although currently under evaluation, a determination has not been made
regarding the proved reserves of these fields.
ITEM 3. LEGAL PROCEEDING
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, 2000.
4
<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. The table reflects the
one-for-ten reverse stock split effected October 1, 1999. Previously reported
amounts have been retroactively restated.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDING MARCH 31, 2000:
----------------------------------
First Quarter $ 9.38 $ 4.69
Second Quarter 5.00 3.75
Third Quarter 8.13 3.06
Fourth Quarter 8.25 3.13
FISCAL YEAR ENDING MARCH 31, 1999:
----------------------------------
First Quarter $12.50 $ 6.90
Second Quarter 9.40 3.80
Third Quarter 12.50 5.60
Fourth Quarter 10.90 7.20
</TABLE>
SHAREHOLDERS
As of June 15, 2000, there were approximately 2,298 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.
5
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
The Company issued 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.
<TABLE>
<CAPTION>
DATE PURCHASER AMOUNT CONSIDERATION EXEMPTION
---- --------- ------ ------------- ---------
<S> <C> <C> <C> <C>
2/03/00 Atlantis Capital 60,000 Financial Services Section4(2) of the '33
Group, LLC Act
2/25/00 Sierra Blanca 11,000 Exchange for Oil and Section4(2) of the '33
Petroleum Energy, Inc. Gas Properties Act
John A. Fanning 2,993 Exchange for Oil and Section4(2) of the '33
Gas Properties Act
Vann J. Maldonado 787 Exchange for Oil and Section4(2) of the '33
Gas Properties Act
Dick Glover 17,220 Exchange for Oil and Section4(2) of the '33
Company, Inc. Gas Properties Act
</TABLE>
The Company also granted 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.
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
DATE PURCHASER CONSIDERATION EXERCISABLE PER SHARE EXEMPTION
---- --------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
9/7/99 Magnum Financial Financial 100,000 25,000 @ $10.00 Section4(2) of 33
Group, LLC Services 25,000 @ $15.00 Act
25,000 @ $17.50
25,000 @ $20.00
2/2/00 Atlantis Capital Financial 60,000 30,000 @ $ 7.50 Section4(2) of 33
Group, LLC Services 30,000 @ $10.00 Act
</TABLE>
6
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended March 31,
2000, 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. The Company had a one-for-ten reverse stock split on October 1, 1999.
Common stock shares and per-share amounts have been retroactively restated to
reflect the reverse stock split.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
3/31/00 3/31/99 3/31/98 3/32/97 3/31/96
<S> <C> <C> <C> <C> <C>
INCOME DATA:
Revenues $3,252,048 $4,372,146 $2,933,610 $2,737,489 $1,087,229
Income (Loss) ($47,558) $183,457 ($387,230) ($192,502) ($337,330)
Income (Loss) Per
Share ($.00) $.02 ($.04) ($.07) ($.20)
Weighted Average
Number of Shares 9,905,048 9,743,118 9,652,442 2,858,473 1,648,099
BALANCE SHEET DATA:
Working Capital $165,840 $468,107 $1,535,155 $149,008 $508,708
Total Assets $28,094,671 $28,748,105 $26,435,500 $25,842,162 $1,921,285
Current Liabilities $150,457 $194,408 $67,276 $119,403 $25,939
Long-Term Debt --- --- --- --- ---
Shareholders' Equity $27,944,214 $26,553,697 $26,368,224 $25,722,759 $1,895,346
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
supermarket chain with stores in California and Nevada.
RESULTS OF OPERATIONS
Revenues for the year ended March 31, 2000 ("Fiscal 2000") were
$3,252,048, compared to revenues of $4,372,146 for the fiscal year ended
March 31, 1999 ("Fiscal 1999") and $2,933,610 for the fiscal year ended March
31, 1998 ("Fiscal 1998"). The decrease in sales revenues for Fiscal 2000 is
due primarily to decreased sales of beef products.
Total operating expenses of $3,308,618 reflect a decrease in Fiscal
2000 as compared to $4,233,922 in Fiscal 1999 due to the decreased volume of
beef sales. The increase of total operating expenses in Fiscal 1999 from
$3,106,432 in Fiscal 1998 is due to increased beef sales.
The net loss for Fiscal 2000 was $47,558, compared to the Fiscal
1999 profit of $183,457 and the Fiscal 1998 loss of $387,230. The Fiscal 2000
decline was the result of a decreased volume of beef sales and was due
primarily to change in ownership of the Company's largest customer. The
increase in the Fiscal 1999 profit over that of Fiscal 1998 was due primarily
to increased beef sales during Fiscal 1999.
7
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BEEF PRODUCTS SEGMENT: Revenues generated by National (the "Beef
Products Segment") were $3,164,627 for Fiscal 2000, representing 97.3% of
total Company revenues and reflecting a decrease from Fiscal 1999 amounts.
Revenue for Fiscal 2000 reflects primarily a volume decline as compared to
Fiscal 1999. Beef product revenues for Fiscal 1999 of $4,347,944 showed an
increase from Fiscal 1998 revenues of $2,906,167, which was due to increased
sales of beef products.
The cost of processed beef products as a percentage of revenues of
84% for Fiscal 2000 shows an increase as compared to the Fiscal 1999
percentage of 81% and is the same as the Fiscal 1998 percentage of 84%. The
increase for Fiscal 2000 over that of Fiscal 1999 is due primarily to a
lesser cost efficiency associated with the lower volume of beef sold.
Selling expenses for Fiscal 2000 of $111,284 were comparable to
those in Fiscal 1999. Selling expenses for Fiscal 1999 of $111,250 were less
than Fiscal 1998 selling expenses of $136,980 due to the decreased use of
outside sales representation for 1999.
The Beef Products Segment reported a profit of $239,650 for Fiscal
2000, which reflects a decrease from the Fiscal 1999 profit of $542,373. The
Fiscal 1999 profit had increased significantly over the Fiscal 1998 profit of
$185,101. The profit changes from year to year are directly affected by the
changes in beef volume during each fiscal period.
OIL AND GAS SEGMENT: During the 2000 fiscal year, the Company began
production and sales of oil and gas from proved, developed reserves. Sales
during the current fiscal year were $87,421. Sales for prior years were
minimal.
Production and operating expenses were $63,474 for Fiscal 2000. No
such expenses were recorded during the prior fiscal years since production
had not begun until the current fiscal year. Depletion expense for Fiscal
2000 was $7,290.
The oil and gas segment reported a profit of $16,045 for Fiscal 2000.
IMPACT OF INFLATION: Beef 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. Oil and gas prices may or may not
change with inflation pressures due to other influencing factors, such as
OPEC and domestic exploration policies.
CORPORATE: General and administrative expenses of $444,630 for
Fiscal 2000 were lower as compared to $575,274 as a result of decreased
professional fees. General and administrative expenses for Fiscal 1999
increased from the Fiscal 1998 amount of $520,505, due to the higher
professional fees of Fiscal 1999.
Interest income of $9,012 in Fiscal 2000 decreased as compared to
the interest income of $45,233 in Fiscal 1999 due to lower levels of cash and
cash equivalents being maintained during the year.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY: Current assets of the Company decreased from $662,515 at
March 31, 1999, to $316,297 at March 31, 2000, and current liabilities
decreased from $194,408 at March 31, 1999, to $150,457 at March 31, 2000,
resulting in a decrease in overall working capital position. The working
capital of the Company
8
<PAGE>
was $165,840 at March 31, 2000, a decrease in working capital from the
$468,107 reported at March 31, 1999. The reduction in working capital results
from the capital expenditures made in Fiscal 2000, primarily in oil and gas
activities.
Equity capital increased by $1,390,517 during Fiscal 2000.
Stockholders' equity was $27,944,214 at March 31, 2000, as compared to
$26,553,697 at March 31, 1999. The increase was due primarily to stock issued
in connection with oil and gas acquisitions.
The total assets of the Company were $28,094,671 at March 31, 2000,
as compared to $26,748,105 for the previous year end. The increase in total
assets results primarily from the increased investment in oil and gas
activities.
CASH FLOW: The Company's continuing operations used $1,414 of cash
flow in Fiscal 2000, as compared to the generation of $367,981 in cash flow
in Fiscal 1999. The decline in cash flow in Fiscal 2000 is primarily the
result of the lower sales volume and the resulting change in profits as
compared to Fiscal 1999. In Fiscal 1998, the cash used in continuing
operations was $121,928 and was affected by increased marketing and public
relations costs incurred to hire consultants to provide those services.
Cash of $509,186 and $1,292,844 was used by investing activities
during Fiscal 2000 and 1999, respectively, 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 $186,216 was provided by financing activities in Fiscal 2000
from the issuance of common stock in connection with exercise of stock
options. $24,748 was used by these activities during Fiscal 1999 due to
offering costs. 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 from the exercise of stock options.
CAPITAL RESOURCES: In Fiscal 2001, it is anticipated that funds will
again be utilized towards the development of the oil and gas properties. 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.
In March 2000, the Company negotiated a $2.0 million revolving
credit facility from First Savings Bank of Arlington, Texas. This loan
matures on April 25, 2001, if not sooner demanded. As described in Item 1
above, the Company will use the proceeds of this facility to fund reworking
and development of its oil and gas properties and for related equipment. The
Company anticipates repaying this loan from its operating revenues.
There are no additional material commitments for capital
expenditures as of March 31, 2000.
YEAR 2000
The Year 2000 issue is the result of computer programs that were
written using two digits rather than four to define the applicable year. The
Company had not experienced interruptions from the Year 2000 issue and is not
aware of any material interruptions to any of its significant suppliers or
customers.
9
<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 and no disagreements with
its accountants on accounting and disclosure to report under this Item 9.
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 2000 annual meeting for the fiscal
year ended March 31, 2000, to be filed no later than July 29, 2000.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Company's
definitive Proxy Statement for the Company's 2000 annual meeting for the fiscal
year ended March 31, 2000, to be filed no later than July 29, 2000.
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 2000 annual meeting for the fiscal
year ended March 31, 2000, to be filed no later than July 29, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference from the Company's
definitive Proxy Statement for the Company's 2000 annual meeting for the fiscal
year ended March 31, 2000, to be filed no later than July 29, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) DOCUMENTS FILED AS PART OF REPORT.
<TABLE>
<S> <C>
1. FINANCIAL STATEMENTS PAGE
The following financial statements of the Company required to be
10
<PAGE>
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, 2000 and 1999 F-2
Consolidated Statements of Operations for the years ended
March 31, 2000, 1999, and 1998 F-4
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 2000, 1999, and 1998 F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 2000, 1999, and 1998 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
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
21 Subsidiaries of the Company.
23 Consent of Weaver and Tidwell, L.L.P.
24 Power of Attorney
27 Financial Data Schedule.
--------------------------------
(b) REPORTS ON FORM 8-K.
None filed during the last quarter of this report.
(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
previously filed are included after "Signatures," 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.
11
<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.
Date: June 28, 2000 UNITED HERITAGE CORPORATION
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 and on this 28th day of June, 2000.
SIGNATURE, TITLE
/s/ Walter G. Mize
--------------------------------------------
Walter G. Mize
Chairman of the Board and Executive Officer
(Principal Executive Officer)
* /s/ Harold L. Gilliam
--------------------------------------------
Harold L. Gilliam
Secretary, Treasurer, Chief Financial Officer
(Principal Accounting Officer)
* /s/ Joe Martin
--------------------------------------------
Dr. Joe Martin
Director
* /s/ C. Dean Boyd
--------------------------------------------
C. Dean Boyd
Director
* /s/ Theresa D. Turner
--------------------------------------------
Theresa D. Turner
Director
*By: /s/ Walter G. Mize
--------------------------
Walter G. Mize, as Attorney-in-Fact
for each of the persons indicated
12
<PAGE>
CONTENTS
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>
UNITED HERITAGE CORPORATION
AND SUBSIDIARIES
FINANCIAL REPORT
MARCH 31, 2000
<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, 2000 and 1999, 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, 2000. 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, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 2000 in conformity with generally
accepted accounting principles.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
June 6, 2000
F-1
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------------------- ---------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 116,421 $ 440,805
Trade accounts receivable 65,206 60,809
Inventories 67,297 126,326
Other current assets 67,373 34,575
--------------------- ---------------------
Total current assets 316,297 662,515
OIL AND GAS PROPERTIES, accounted for
using the full cost method, net of accumulated
depletion of $7,290 for 2000 and $0 for 1999
Proved 26,477,091 -
Unproved 1,222,688 26,042,456
--------------------- ---------------------
27,699,779 26,042,456
PROPERTY AND EQUIPMENT, at cost
Equipment, furniture and fixtures 112,036 57,929
Vehicles 56,720 56,720
--------------------- ---------------------
168,756 114,649
Less accumulated depreciation 90,161 71,515
--------------------- ---------------------
78,595 43,134
--------------------- ---------------------
TOTAL ASSETS $ 28,094,671 $ 26,748,105
===================== =====================
</TABLE>
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, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------------------- ---------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 137,312 $ 181,004
Accrued expenses 13,145 13,404
--------------------- ---------------------
Total current liabilities 150,457 194,408
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
2000 - 10,111,543
1999 - 9,747,062 10,112 9,747
Additional paid-in capital 35,216,040 33,462,530
Accumulated deficit (6,966,138) (6,918,580)
--------------------- ---------------------
28,260,014 26,553,697
Deferred compensation and consulting (315,800) -
--------------------- ---------------------
27,944,214 26,553,697
--------------------- ---------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 28,094,671 $ 26,748,105
===================== =====================
</TABLE>
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
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES
Processed beef products $ 3,164,627 $ 4,347,944 $ 2,906,167
Oil and natural gas sales 87,421 24,202 24,443
Other - - 3,000
----------- ----------- -----------
Total operating revenues 3,252,048 4,372,146 2,933,610
OPERATING COSTS AND EXPENSES
Processed beef products 2,663,295 3,537,075 2,439,252
Production and operating 63,474 - -
Depreciation and depletion 25,935 10,323 9,695
General and administrative 444,630 575,274 520,505
Selling 111,284 111,250 136,980
----------- ----------- -----------
Total operating costs and expenses 3,308,618 4,233,922 3,106,432
----------- ----------- -----------
Income (loss) from operations (56,570) 138,224 (172,822)
OTHER INCOME (EXPENSE)
Interest income 9,012 45,233 6,033
Interest expense - - (3,425)
Impairment loss - - (217,016)
----------- ----------- -----------
Income (loss) before income tax (47,558) 183,457 (387,230)
INCOME TAX - - -
----------- ----------- -----------
Net income (loss) $ (47,558) $ 183,457 $ (387,230)
=========== =========== ===========
Earnings (loss) per share:
Basic $ (0.00) $ 0.02 $ (0.04)
=========== =========== ===========
Diluted $ (0.00) $ 0.02 $ (0.04)
=========== =========== ===========
Weighted average number
of shares outstanding
Basic 9,905,048 9,743,118 9,652,442
=========== =========== ===========
Diluted 9,905,048 9,806,987 9,652,442
=========== =========== ===========
</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
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-in Accumulated
Shares Amount Capital Deficit Other
---------- -------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1997 9,602,154 $ 9,602 $ 32,512,272 $ (6,714,807) $ (84,308)
Stock issued upon exercise
of stock options 19,750 20 104,980 - -
Stock issued pursuant to
private placement 117,647 118 870,033 - -
Realization of deferred
consulting costs - - - - 57,544
Net loss - - - (387,230) -
---------- -------- ------------ ------------ ---------
Balance, March 31, 1998 9,739,551 9,740 33,487,285 (7,102,037) (26,764)
Stock issued upon exercise
of stock options 500 1 5,314 - -
Stock issued pursuant to
contingent shares 7,001 7 (7) - -
Rounding adjustment 10 (1) - - -
Offering costs - - (30,062) - -
Realization of deferred
consulting costs - - - - 26,764
Net income - - - 183,457 -
---------- -------- ------------ ------------ ---------
Balance, March 31, 1999 9,747,062 9,747 33,462,530 (6,918,580) -
Stock issued upon exercise
of stock options 74,500 75 186,175 - -
Stock issued pursuant to
contingent shares 5,204 5 (5) - -
Stock issued for assets 202,500 203 1,209,332 - -
Rounding adjustment (257) (1) - - -
Repurchase of fractional
shares 34 - (34) - -
Stock issued in exchange
for future services 82,500 83 358,042 - (358,125)
Realization of deferred
consulting costs - - - - 42,325
Net loss - - - ( 47,558) -
---------- -------- ------------ ------------ ---------
Balance, March 31, 2000 10,111,543 $ 10,112 $ 35,216,040 $ (6,966,138) $(315,800)
========== ======== ============ ============ =========
</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
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
--------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss) $ (47,558) $ 183,457 $(387,230)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and depletion 25,935 10,323 9,695
Deferred compensation and consulting
recognized in current year 42,325 26,764 57,544
Stock issued for compensation - - 7,500
Impairment loss - - 217,016
Changes in assets and liabilities:
Accounts receivable (4,397) 87,576 36,555
Inventory 59,029 (99,479) (26,097)
Other current assets (32,798) 32,208 15,216
Accounts payable and
accrued expenses (43,950) 127,132 (52,127)
--------- ----------- ---------
Net cash provided by
(used in) operating activities (1,414) 367,981 (121,928)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures (509,186) (1,292,844) (484,779)
Payments from issuance of note receivable (173,135) - -
Collections of notes receivable 173,135 - 948,750
--------- ----------- ---------
Net cash provided by
(used in) investing activities (509,186) (1,292,844) 463,971
</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
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
(continued)
<TABLE>
<CAPTION>
2000 1999 1998
--------- ----------- ----------
<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) -
Repurchase of fractional shares (34) - -
Proceeds from issuance
of common stock 186,250 5,315 967,651
--------- ----------- ----------
Net cash provided by
(used in) financing activities 186,216 (24,748) 967,651
--------- ----------- ----------
Net increase (decrease) in
cash and cash equivalents (324,384) (949,611) 1,309,694
Cash and cash equivalents, beginning of year 440,805 1,390,416 80,722
--------- ----------- ----------
Cash and cash equivalents, end of year $ 116,421 $ 440,805 $1,390,416
========= =========== ==========
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 and May 10, 1999, the Company issued 7,001 and 5,204
shares of common stock, respectively, pursuant to contingent provisions of
a private placement in December 1997.
On June 30, 1999, the Company issued 202,500 shares of common stock in
exchange for the assignment of all interest in oil and gas properties and
equipment. The properties were recorded at their estimated fair value of
the common stock issued of $1,209,535.
During the year ended March 31, 2000, the Company issued 82,500 shares of
common stock in exchange for future services valued at $358,125.
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 UHC New Mexico Corporation. Sovereign Communications
Corporation was dissolved on December 31, 1999 and had no activity
through the date of dissolution.
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. The Company also owns various oil and gas properties
located in Texas and New Mexico. The Company began production of the
Texas properties during the March 31, 2000 fiscal year. The Company
continues to explore and develop its oil and gas properties.
REVENUE
Revenue from the sale of "lite" beef products is recognized when
products are delivered to customers. Oil and gas production revenues
are recognized at the point of sale.
INVENTORY
Inventory consists of "lite" beef purchased for resale and oil in
tanks, 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, which are located in the southwestern United States.
Accordingly, all costs associated with acquisition, exploration and
development of oil and gas reserves are capitalized.
F-8
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
All capitalized costs, including the estimated future costs to develop
proved reserves are 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. Oil and gas reserves and production are converted into
equivalent units based upon estimated relative energy content.
The Company is currently participating in oil and gas exploration and
development activities in New Mexico. At March 31, 2000, a
determination cannot be made about the extent of oil reserves that
should be classified as proved reserves as a result of this project.
Consequently, the associated property costs and exploration costs have
been excluded in computing amortization of the full cost pool. The
Company will begin to amortize these costs when the project evaluation
is complete, which is currently estimated to be during the fiscal year
ending March 31, 2001.
Potential impairment of producing properties and significant unproved
properties and other plant and equipment are assessed periodically. If
the assessment indicates that the properties are impaired, the amount
of the impairment will be added to the capitalized costs to be
amortized.
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 (based on prices and costs at the
balance sheet date), of future net revenues from proved reserves, based
on current economic and operating conditions, plus the lower of cost
(net of impairments) or fair market value of unproved properties.
Future well abandonment costs are not expected to be significant and,
accordingly, no provision has been recorded in the financial
statements.
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
F-9
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share is computed based on the
weighted average number of common shares outstanding for the period.
Diluted earnings per common share is computed assuming all dilutive
potential common shares were issued. Diluted earnings per share has not
been presented for 2000 and 1998 since the inclusion of potential
common shares 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. Expense for the
years ended March 31, 2000, 1999 and 1998 were $11,960, $14,477, and
$37,744, respectively.
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.
F-10
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
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.
RECLASSIFICATIONS
Certain 1999 and 1998 amounts have been reclassified to conform with
the 2000 classifications. Such reclassifications had no effect on net
income.
F-11
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
NOTE 3. 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, 2000, 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,
2000 and 1999 were $100,706 and $11,675, respectively.
Concentrations of credit risk with respect to trade receivables consist
principally of food industry customers operating within the United States
and oil and gas customers. Receivables from an oil and gas customer and a
food industry customer at March 31, 2000 comprised 52% and 31%,
respectively, of the trade receivable balance. At March 31, 1999,
receivables from one food service customer comprised approximately 100% of
the trade receivable balance. No allowance for doubtful accounts has been
provided since recorded amounts are determined to be fully collectible.
NOTE 4. INVENTORY
<TABLE>
<CAPTION>
Inventory consists of the following:
2000 1999
-------- -----------
<S> <C> <C>
"Lite" beef held for resale $35,911 $101,953
Oil in tanks 31,386 24,373
-------- ----------
$67,297 $126,326
======== ==========
</TABLE>
F-12
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. OIL AND GAS PROPERTIES AND OPERATIONS
Capitalized costs related to oil and gas producing activities and related
accumulated depletion, depreciation and amortization at March 31, 2000 and
1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Capitalized costs of oil and gas properties:
Proved $26,484,381 $ -
Unproved 1,222,688 26,042,456
----------- -----------
27,707,069 26,042,456
Less accumulated depletion, depreciation,
and amortization 7,290 -
----------- -----------
$27,699,779 $26,042,456
=========== ===========
</TABLE>
Costs incurred in oil and gas producing activities were as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ------------ -------------
<S> <C> <C> <C>
Property acquisitions
Unproved $1,209,535 $ - $ -
Exploration 57,250 1,270,690 478,153
Development 397,828 - -
---------- ------------ -------------
$1,664,613 $ 1,270,690 $ 478,153
========== ============ =============
</TABLE>
Results of operations of oil and gas producing activities for the year
ended March 31, 2000, the first year of production, are as follows:
<TABLE>
<S> <C>
Revenues from oil and gas producing activities:
Sales to unaffiliated parties $ 87,421
Expenses
Production and operating 63,474
General and administrative 612
Depreciation and depletion 7,290
--------------
Total expenses 71,376
--------------
Pretax income from producing activities 16,045
Income tax expense -
--------------
Results of oil and gas producing activities
(excluding corporate overhead) $ 16,045
==============
</TABLE>
F-13
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. 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 a
major shareholder. At March 31, 2000 and 1999, no amounts were outstanding
under the line of credit. Included in interest expense for the years ended
March 31, 2000, 1999 and 1998 is $0, $0, and $3,425, respectively, for
interest expense incurred under this agreement. The weighted average
interest rate under this agreement was 8.5% for 1998.
NOTE 7. BUSINESS SEGMENTS AND MAJOR CUSTOMERS
At March 31, 2000, 1999 and 1998, 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.
SEGMENT INFORMATION:
<TABLE>
<CAPTION>
2000 1999 1998
---------------------------------- ----------------------------------- ----------------------------------
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 $ 87,421 $3,164,627 $ 3,252,048 $ 24,202 $4,347,944 $ 4,372,146 $ 24,443 $2,906,167 $ 2,930,610
Interest revenue 8 8 2,696 1,940 4,636 - - -
Depletion, depreciation
and amortization 7,290 4,796 12,086 - 1,767 1,767 - 2,394 2,394
Segment profit 16,045 239,650 255,695 22,374 542,373 564,747 23,515 185,101 208,616
Segment assets 27,802,345 138,265 27,940,610 26,066,974 229,075 26,296,049 24,774,389 192,472 24,966,861
Expenditures for
segment assets 1,657,323 25,535 1,682,858 1,270,690 11,603 1,282,293 478,153 1,328 479,481
RECONCILIATIONS:
REVENUES 2000 1999 1998
----------- ----------- -----------
Total revenues for
reportable segments $ 3,252,048 $ 4,372,146 $ 2,930,610
Other revenues - - 3,000
----------- ----------- -----------
Total consolidated revenues $ 3,252,048 $ 4,372,146 $ 2,933,610
=========== =========== ===========
PROFIT OR LOSS
Total profit for
reportable segments $ 255,695 $ 564,747 $ 208,616
Other profit or loss (303,253) (381,290) (595,846)
----------- ----------- -----------
Income (loss) before income
taxes $ (47,558) $ 183,457 $ (387,230)
=========== =========== ===========
ASSETS
Total assets for
reportable segments $27,940,610 $26,296,049 $24,966,861
Other assets 154,061 452,056 1,468,639
----------- ----------- -----------
Consolidated total $28,094,671 $26,748,105 $26,435,500
=========== =========== ===========
</TABLE>
F-14
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. BUSINESS SEGMENTS AND MAJOR CUSTOMERS - CONTINUED
OTHER SIGNIFICANT ITEMS:
<TABLE>
<CAPTION>
2000 1999
-------------------------------------- -------------------------------------
Segment Consolidated Segment Consolidated
Totals Adjustments Totals Totals Adjustments Totals
---------- ----------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest revenue $ 8 $ 9,004 $ 9,012 $ 4,636 $ 40,597 $ 45,233
Interest expense - - - - - -
Expenditures for assets 1,682,858 28,572 1,711,430 1,282,293 10,551 1,292,844
Depletion, depreciation
and amortization 12,086 13,849 25,935 1,767 8,556 10,323
Impairment loss - - - - - -
1998
-------------------------------------
Segment Consolidated
Totals Adjustments Totals
---------- ----------- ------------
<S> <C> <C> <C>
Interest revenue $ - $ 6,033 $ 6,033
Interest expense - 3,425 3,425
Expenditures for assets 479,481 5,298 484,779
Depletion, depreciation
and amortization 2,394 7,301 9,695
Impairment loss - 217,016 217,016
</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.
The Company recorded "lite" beef sales to the following major customers for
the years ended March 31:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------- --------------------- ----------------------
Amount Percent Amount Percent Amount Percent
---------- ------- ----------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Customer A $2,748,581 86.9% $3,743,768 86.1% $2,018,937 69.5%
Customer B - - - - 661,004 22.7
--------------------- ----------- ------- ---------- -------
$2,748,581 86.9% $3,743,768 86.1% $2,679,941 92.2%
========== ======= =========== ======= ========== ========
</TABLE>
NOTE 8. STOCK OPTION PLANS
Directors of the Company adopted the 1995 Stock Option Plan effective
September 11, 1995. This Plan set aside 200,000 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.
F-15
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. STOCK OPTION PLANS - CONTINUED
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>
2000 1999 1998
------------------------ ----------------------- ------------------------
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 94,500 $ 2.50 94,500 $ 2.50 93,500 $ 2.50
Granted - - - - 10,000 2.50
Exercised (74,500) 2.50 - - (9,000) 2.50
Forfeited - - - - - -
Expired - - - - - -
----------- -------- ----------------------- ----------- --------
End of year 20,000 $ 2.50 94,500 $ 2.50 94,500 $ 2.50
=========== ======== =========== ========= =========== ========
Exercisable 20,000 $ 2.50 94,500 $ 2.50 91,500 $ 2.50
=========== ======== =========== ========= =========== ========
Weighted average
fair value of
options granted $ - $ - $ 1.10
========= ========= ========
</TABLE>
Stock options outstanding under the 1995 Plan are all exercisable at $2.50
per share and weighted average remaining contractual life is 0.66 years.
Directors of the Company adopted the 1996 Stock Option Plan effective March
13, 1996. This Plan and its subsequent amendment set aside 145,000 shares
of the authorized but unissued common stock of the Company for issuance
under the Plan. Options may be granted to directors, officers, consultants,
and/or employees of the company and/or its subsidiaries. Options granted
under the Plan must be exercised over periods of 180 days to five years
after the date of grant, but may be affected by the termination of
employment.
F-16
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. STOCK OPTION PLANS - CONTINUED
The following schedule summarizes pertinent information with regard to the
1996 Plan for the years ended March 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------ ----------------------- ------------------------
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 - $ - 30,500 $ 6.40 2,000 $ 8.20
Granted - - - - 11,250 5.40
Exercised - - (500) 2.50 (10,750) 10.00
Forfeited - - - - (12,000) 33.80
Expired - - (30,000) 6.30 (10,000) 7.50
----------- -------- ----------- -------- ----------- --------
End of year - - - $ - 30,500 $ 6.40
=========== ======== =========== ======== =========== ========
Exercisable - - - $ - 30,500 $ 6.40
=========== ======== =========== ======== =========== ========
Weighted average
fair value of
options granted $ - $ - $ 5.10
======== ======== ========
</TABLE>
Options granted under the two plans for the years ended March 31, 2000,
1999 and 1998 were to nonemployees and $42,325, $26,764 and $57,544,
respectively, were expensed as payment for services.
Since the Company did not grant options to employees in 2000, 1999 and
1998, 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.
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 200,000 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.
F-17
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK WARRANTS
Directors of the Company entered into a stock warrant agreement effective
August 16, 1996. Pursuant to the agreement, the Company issued 130,000
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 consulting agreement was cancelled but the warrants remain
outstanding.
The following schedule summarizes pertinent information with regard to the
stock warrants for the years ended March 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------- ------------------------ ------------------------
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 130,000 $ 9.40 130,000 $ 9.40 130,000 $ 9.40
Granted - - - - - -
Exercised - - - - - -
Forfeited - - - - - -
Expired - - - - - -
------- ------- ------- ------- ------- -------
End of year 130,000 $ 9.40 130,000 $ 9.40 130,000 $ 9.40
======= ======= ======= ======= ======= =======
Exercisable 130,000 $ 9.40 130,000 $ 9.40 130,000 $ 9.40
======= ======= ======= ======= ======= =======
Weighted average
fair value of
warrants issued $ - $ - $ -
======= ======= =======
</TABLE>
The following table summarizes information about the stock warrants
outstanding at March 31, 2000:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Range of Number Remaining Average
Exercise of Shares Contractual Exercise
Prices At 3/31/00 Life Price
-------------- ---------- ----------- ---------
<S> <C> <C> <C>
$7.50 - $10.00 102,300 1.3 years $ 7.70
$12.50 - $17.50 23,150 1.3 years 14.50
$20.00 4,550 1.3 years 20.00
----------
130,000
==========
</TABLE>
F-18
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK WARRANTS - CONTINUED
During the years ended March 31, 2000, 1999 and 1998, the Company recorded
no 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 11,765 shares of its
common stock in connection with a private placement in December 1997. The
Company sold 117,647 common shares and warrants to purchase 11,765
additional shares at $12.00 per share for $1,000,000. The warrants expired
in December 1999. The selling agent for the private placement was paid a
commission of $100,000 plus warrants to purchase 182,400 shares of common
stock at exercise prices ranging from $7.50 to $20.00 per share.
The warrants issued to the selling agent expire in August 2001.
NOTE 10. 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 federal tax provision consists of the following:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Current $ - $ - $ -
Deferred - 64,665 -
Re-evaluation of beginning valuation
allowance on temporary differences (-) (64,665) -
-------- -------- --------
$ - $ - $ -
======== ======== =======
</TABLE>
F-19
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. INCOME TAXES - CONTINUED
At March 31, the deferred tax asset and liability balances are as follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Deferred tax asset
Oil and gas properties $ 8,049,925 $ 8,049,925
Net operating loss 1,625,640 1,611,696
----------- -----------
9,675,565 9,661,621
Deferred tax liability - -
----------- -----------
Net deferred tax asset 9,675,565 9,661,621
Valuation allowance (9,675,565) (9,661,621)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
The net change in the valuation allowance for 2000 and 1999 is an increase
of $13,944 and a decrease of $64,665, 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 $4,781,000
available to offset future income for income tax reporting purposes, which
will ultimately expire between 2011 and 2018, if not previously utilized.
NOTE 11. 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 30,000 shares of common stock for issuance under the plan. As of
March 31, 2000, 27,800 shares had been issued in accordance with the plan.
NOTE 12. ONE-FOR-TEN STOCK SPLIT
The Company effected a one-for-ten reverse common stock split on October 1,
1999. All common stock shares and per share amounts have been retroactively
restated to reflect this reverse stock split.
F-20
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. SUBSEQUENT EVENTS
In April 2000, the Company obtained a $2,000,000 revolving line of credit
from a banking institution. The credit facility bears interest at 1% above
the Wall Street Journal prime rate per annum and is due April 25, 2001. At
June 6, 2000 the Company had drawn $696,000 against the credit facility.
The Company's largest shareholder has provided collateral for this loan.
On May 10, 2000, the Company loaned $370,000 to CVR, Inc. The loan is
secured by a first lien on a refrigerated warehouse located in Oklahoma.
The note receivable bears interest at 12% or 3% over prime, whichever is
greater, and has a one year term.
In addition, subsequent to March 31, 2000, the Company has purchased a
truck mounted swabbing unit for $75,000 and has an option to purchase a
second unit for the same price.
NOTE 14. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED)
PROVED RESERVES
Independent petroleum engineers have estimated the Company's proved oil
and gas reserves, all of which are located in the United States. Proved
reserves are the estimated quantities that geologic and engineering
data demonstrate with reasonable certainty to be recoverable in future
years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are the quantities expected to be
recovered through existing wells with existing equipment and operating
methods. Due to the inherent uncertainties and the limited nature of
reservoir data, such estimates are subject to change as additional
information becomes available.
The reserves actually recovered and the timing of production of these
reserves may be substantially different from the original estimate.
Revisions result primarily from new information obtained from
development drilling and production history and from changes in
economic factors.
F-21
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) - CONTINUED
PROVED RESERVES - CONTINUED
<TABLE>
<CAPTION>
Oil (Bbls) Gas (Mcf)
---------- ---------
<S> <C> <C>
March 31, 1999 - -
Extensions, additions and discoveries 22,471,358 -
Production 5,723 -
---------- ---------
March 31, 2000 22,465,635 -
========== =========
PROVED DEVELOPED RESERVES
March 31, 2000 912,666 -
========== =========
</TABLE>
STANDARDIZED MEASURE
The standardized measure of discounted future net cash flows
("standardized measure") and changes in such cash flows are prepared
using assumptions required by the Financial Accounting Standards Board.
Such assumptions include the use of year-end prices for oil and gas and
year-end costs for estimated future development and production
expenditures to produce year-end estimated proved reserves. Discounted
future net cash flows are calculated using a 10% rate. Estimated future
income taxes are calculated by applying year-end statutory rates to
future pre-tax net cash flows, less the tax basis of related assets and
applicable tax credits.
The standardized measure does not represent management's estimate of
the Company's future cash flows or the value of proved oil and gas
reserves. Probable and possible reserves, which may become proved in
the future, are excluded from the calculations. Furthermore, year-end
prices used to determine the standardized measure of discounted cash
flows, are influenced by seasonal demand and other factors and may not
be the most representative in estimating future revenues or reserve
data.
F-22
<PAGE>
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS
PRODUCING ACTIVITIES (UNAUDITED) - CONTINUED
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS RELATING TO PROVED RESERVES
<TABLE>
<CAPTION>
March 31, 2000
--------------
<S> <C>
Future cash inflows $ 499,411,000
Future costs:
Production (141,028,000)
Development (5,138,000)
--------------
Future net cash flows before income tax 353,245,000
Future income tax (117,523,000)
--------------
Future net cash flows 235,722,000
10% annual discount (71,060,000)
--------------
Standardized measure $ 164,662,000
==============
CHANGES IN STANDARDIZED MEASURE OF
DISCOUNTED FUTURE NET CASH FLOWS
March 31, 2000
--------------
Standardized measure, April 1 $ -
Extensions, additions and discoveries 246,780,000
Production (24,000)
Income tax (82,094,000)
--------------
Standardized measure, March 31 $ 164,662,000
==============
</TABLE>
F-23
