<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Mark One
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 31,
1999; or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
________________ to ___________________.
Commission File No. 0-9997
United Heritage Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Utah 87-0372826
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer 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
December 31, 1999, was 9,966,265 shares.
<PAGE>
Page 1
UNITED HERITAGE CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page Number
<S> <C> <C>
Item 1 - Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
at December 31, 1999 and March 31, 1999 2
Consolidated Condensed Statements of Income
for the Three Months and Nine Months ending
December 31, 1999 and December 31, 1998 4
Consolidated Condensed Statements of Cash
Flows for the Nine Months ended December 31,
1999 and December 31, 1998 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 11
Forward-Looking Statements 11
Part II - Other Information
Item 1 -Legal Proceedings 12
Item 2- Changes in Securities 12
Item 3 - Defaults upon Senior Securities 12
Item 4- Submission of Matters to a Vote
of Security Holders 12
Item 5- Other Information 12
Item 6- Exhibits and Reports on Form 8-K 12
Signatures 14
</TABLE>
<PAGE>
Page 2
UNITED HERITAGE CORPORATION
Part I, Item 1. Financial Statements
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
-------------------- ---------------------
UNAUDITED
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalent $ 61,472 $ 440,805
Accounts receivable - trade 158,180 60,809
Inventory 103,317 126,326
Other current assets 66,580 34,575
-------------------- ---------------------
Total Current Assets 389,549 662,515
-------------------- ---------------------
PROPERTY AND EQUIPMENT, at cost 168,710 114,649
Less accumulated depreciation (83,471) (71,515)
-------------------- ---------------------
Net Property and Equipment 85,239 43,134
-------------------- ---------------------
OIL AND GAS PROPERTIES 27,573,611 26,042,456
Less accumulated (5,807) --
-------------------- ---------------------
Net Oil and Gas Properties 27,567,804 26,042,456
-------------------- ---------------------
TOTAL ASSETS $28,042,592 $26,748,105
==================== =====================
</TABLE>
<PAGE>
Page 3
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
-------------------- --------------------
UNAUDITED
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 221,690 $ 194,408
-------------------- --------------------
Total Current Liabilities 221,690 194,408
-------------------- --------------------
SHAREHOLDERS' EQUITY
Common stock, $0.001 par value;
125,000,000 shares authorized;
shares issued and outstanding:
9,966,265 shares at December 31, 1999 9,966 --
9,747,062 shares at March 31, 1999 -- 9,747
Additional paid-in capital 34,736,779 33,462,530
Accumulated deficit (6,832,799) (6,918,580)
Deferred compensation (93,044) --
-------------------- --------------------
Total Shareholders' Equity 27,820,902 26,553,697
-------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,042,592 $26,748,105
==================== ====================
</TABLE>
See notes to consolidated condensed financial statements
<PAGE>
Page 4
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
December 31 December 31
1999 1998 1999 1998
-------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
REVENUES
Processed beef products $ 589,348 $1,064,438 $2,898,372 $3,299,758
Oil sales 26,152 11,274 65,919 23,794
-------------- -------------- ---------------- ---------------
TOTAL REVENUE 615,500 1,075,712 2,964,291 3,323,552
-------------- -------------- ---------------- ---------------
COSTS AND EXPENSES
Processed beef products 524,075 859,642 2,407,193 2,659,017
Oil production costs 13,550 -- 40,570 --
Selling 45,071 32,443 105,273 76,249
General and administrative 141,887 161,738 334,309 493,538
-------------- -------------- ---------------- ---------------
TOTAL COSTS AND EXPENSES 724,583 1,053,823 2,887,345 3,228,804
-------------- -------------- ---------------- ---------------
INCOME (LOSS) from Operations (109,083) 21,889 76,946 94,748
OTHER INCOME
Interest income 660 7,985 8,839 38,876
-------------- -------------- ---------------- ---------------
NET INCOME (LOSS) $ (108,423) $ 29,874 $ 85,785 $ 133,624
============== ============== ================ ===============
Net Income (Loss) Per Common Share $ (0.01) $ 0.00 $ 0.01 $ 0.01
============== ============== ================ ===============
Weighted average number of common shares 9,962,520 9,740,051 9,888,961 9,740,036
============== ============== ================ ===============
</TABLE>
See notes to consolidated condensed financial statements
<PAGE>
Page 5
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
December 31, December 31,
1999 1998
-------------------- ---------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 85,785 $ 133,624
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and depletion 17,762 7,210
Deferred compensation 12,482 26,104
Stock grants as compensation -- 5,315
Changes in assets and liabilities:
(Increase) decrease in interest receivable -- (2,000)
(Increase) decrease in accounts receivable (97,371) (121,089)
(Increase) decrease in inventory 23,008 26,847
(Increase) decrease in other current assets (32,005) 9,948
Increase (decrease) in accounts payable
and accrued expenses 27,282 99,196
-------------------- ---------------------
NET CASH provided by operating activities 36,943 185,155
-------------------- ---------------------
CASH FLOW FROM INVESTING ACTIVITIES
Additions to oil and gas properties (362,215) (954,882)
Additions to property and equipment (54,061) (247,124)
Proceeds from sale of property and equipment -- 53,183
Collections of proceeds from sale of building -- 30,000
-------------------- ---------------------
NET CASH provided by (used in) investing activities (416,276) (1,118,823)
-------------------- ---------------------
CASH FLOW FROM FINANCING ACTIVITIES
Costs for new stock capitalized to paid in capital -- (30,063)
-------------------- ---------------------
NET CASH provided by (used in) financing activities -- (30,063)
-------------------- ---------------------
Increase (decrease) in cash and cash equivalents (379,333) (963,731)
Cash and cash equivalents at beginning of period 440,805 1,390,416
-------------------- ---------------------
Cash and cash equivalents at end of period $ 61,472 $ 426,685
==================== =====================
</TABLE>
See notes to consolidated condensed financial statements
<PAGE>
Page 6
UNITED HERITAGE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine-month period ended December 31, 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:
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
----------------- --------------
<S> <C> <C>
Lite beef $ 40,421 $ 101,953
Oil in Tanks 62,896 24,373
-------- ---------
$103,317 $ 126,326
======== =========
</TABLE>
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 closed
on February 11, 1997. The unproven properties were recorded at their estimated
fair value of $23,676,250. As exploration and development progresses, the
capitalized costs are periodically assessed for impairment.
<PAGE>
Page 7
UNITED HERITAGE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 3 - OIL AND GAS PROPERTIES (CONTINUED)
During the quarter ended June 30, 1999, the Company completed an
evaluation of estimated recoverable reserves of the South Texas property using
existing recovery techniques (See Note 4).
In June, 1999, the Company acquired approximately 20,000 leasehold
acres in southeastern New Mexico through the issuance of 1,800,000 shares of
common stock. Pending further engineering study, this property is considered
unproved as of December 31, 1999.
NOTE 4 - OIL AND GAS PRODUCING ACTIVITIES
During the quarter ended June 30, 1999, the Company completed an
evaluation of estimated recoverable reserves from existing wells using existing
recovery techniques for the South Texas property. The results of this evaluation
has proved the following estimates of recoverable quantities of oil:
PROVED RESERVES
<TABLE>
<S> <C>
Beginning of period 0 barrels
Extensions and discoveries 25,398,000 barrels
Production (Quarter ending June 30, 1999) (1,407) barrels
Production (Quarter ending September 30, 1999) (1,839) barrels
Production (Quarter ending December 31, 1999) (1,552) barrels
-------
December 31, 1999 Reserves 25,393,202 barrels
==========
</TABLE>
The present value of the estimated future cash inflows from proved
reserves discounted at 10% is estimated to be $115,488,000 as follows:
<TABLE>
<S> <C>
Future cash inflows $346,124,000
Future production costs (90,761,000)
Future development costs (4,652,000)
Future income tax expense (82,826,000)
-----------
Future Net Cash Flow 167,885,000
Less 10% annual discount for
Estimated timing of cash flows (52,397,000)
-----------
Standardized Measure $115,488,000
============
</TABLE>
<PAGE>
Page 8
UNITED HERITAGE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 5 - CONCENTRATION OF CREDIT RISK
Financial instruments that 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 nine months ended
December 31, 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 December 31, 1999 comprised approximately 75%
of the trade receivables balance. No allowance for doubtful accounts has been
provided, since recorded amounts are determined to be fully collectible.
NOTE 6 - NET INCOME PER COMMON SHARE
Income per share of common stock is based on the weighted average
number of shares outstanding during the periods ended December 31, 1999 and
December 31, 1998, after adjustment for the reverse stock split (See Note 9).
NOTE 7 - INCOME TAXES
As of March 31, 1999, the Company had net operating loss carryovers of
approximately $4,740,000 available to offset future income for income tax
reporting purposes, which will ultimately expire in 2013 if not previously
utilized.
NOTE 8 - ESTIMATES
The preparation of interim financial statements as of December 31,
1999, in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 9 - REVERSE COMMON STOCK SPLIT
On November 1, 1999, the Company effected a ten-for-one reverse common
stock split as had been previously approved by the shareholders. The data shown
for prior periods relating to common shares has been retroactively adjusted to
reflect the reverse stock split. Also, the Company's Shareholders' Equity
accounts have been retroactively adjusted. There was no effect on total
Shareholders' Equity as a result of the reverse stock split.
<PAGE>
Page 9
UNITED HERITAGE CORPORATION
Part I, Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
During the prior quarter ended September 30, 1999, the Company,
through the services of an independent engineer, completed an updated evaluation
of estimated recoverable reserves from existing wells using existing recovery
methods for the oil field in South Texas. Projected oil reserves are an
estimated 25,398,000 bbls. for a total estimated present value of approximately
$170,000,000.
The Company has experienced no adverse impact on operations, as a
result of change in the date to year 2000. All computer software used by the
Company are standard packages developed by major software companies. Software
updates were 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.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Revenues for the Company's beef products were $589,348 and $2,898,372
for the quarter and nine-month period ended December 31, 1999, respectively.
Sales levels have declined from prior year periods due primarily to a lower
volume of beef sold to the Company's largest customer. This was due to a change
in the customer's ownership; however, after the transition period, sales levels
are expected to equal or exceed prior amounts. Revenues for the quarter and
nine-month period in the prior year were $1,064,438 and $3,299,758,
respectively. Gross profit from beef products was $491,179 for the nine-month
period ended December 31, 1999, as compared with $640,741 gross profit for the
same period last year. The cost of beef products as a percentage of sales was
83% for the nine months ended December 31, 1999, as compared to 81% for the nine
months ended December 31, 1998. The increase in the cost of beef product over
the same period last year is due primarily to the costs of introducing a line of
preseasoned and marinated beef products during the nine months ended December
31, 1999. These increased costs can be expected to continue as the Company
continues its development of this product line.
The Company presently sells Heritage Lifestyle Lite Beef-Registered
Trademark- to a major supermarket chain. This chain stocks the Company's beef
in its southern California and Nevada divisions (approximately 108 stores).
While the Company is urging its customer to offer the Company's beef products
in some or all of its approximately 2,400 additional stores in other areas,
there can be no assurance that these efforts will succeed.
<PAGE>
Page 10
MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued)
Revenues from the sale of oil were $26,152 and $65,919 for the quarter
and nine months ended December 31, 1999, respectively. Revenues from oil sales
were $11,274 and $23,794 for the same prior year periods. Revenues have
increased for the current year due to greater production and higher prices.
Production costs were $13,550 and $40,570 for the quarter and nine-month periods
ended December 31, 1999. Oil revenues are expected to increase in future
periods, as more Company properties are placed in production.
Interest income for the current quarter and nine months ended December
31, 1999, is less than the level during the same prior year periods, due to a
higher level of cash and cash equivalents being maintained in the prior year.
Selling expenses of $45,071 for the current quarter have increased
from the prior year amount of $32,443. This increase results mainly from
increased outside sales costs. Selling expenses of $105,273 for the current
nine-month period have also increased from that of the prior year period of
$76,249. This increase results from the outside sales costs previously mentioned
and additional demonstration costs of marinated product. General and
administrative costs have decreased to $141,887 and $334,309 for the quarter and
nine-month period ended December 31, 1999, as compared to $161,738 and $493,538
for the same periods last year. This is a result of decreased professional fees
and public relations costs during the 1999 periods.
On a consolidated basis, the Company had a net income for the current
nine-month period of $85,785 or $.01 per share. The comparable result for the
prior fiscal year was a net income of $133,624 or $.01 per share. The primary
reason for the change from 1998 to 1999 was a decrease in Company beef sales,
offset partially by decreased general and administrative expenses.
MATERIAL CHANGES IN FINANCIAL POSITION
The Company's equity capital has shown an increase of $1,267,205 since
March 31, 1999, the previous fiscal year-end. This increase is primarily the
result of the net income of $85,785 for the nine months ended December 31, 1999,
and the issuance of common stock in connection with oil and gas property
acquisitions.
The working capital of the Company was $167,859 at December 31, 1999,
a decrease from the working capital of $468,107 reported at March 31, 1999.
Current assets decreased $272,966 during the current nine-month period due to
funds required for additions to the oil and gas properties and equipment to be
used on the oil and gas properties. Current liabilities increased $27,282,
resulting in a decrease in the overall working capital position of $300,248
during the nine months ended December 31, 1999.
<PAGE>
Page 11
MATERIAL CHANGES IN FINANCIAL POSITION (continued)
The total assets of the Company were $28,042,592 at December 31, 1999,
which is $1,294,487 greater than total assets at the previous year-end. This
increase in total assets is primarily due to property acquisitions and the
capitalization of oil and gas development costs on the Company's oil and gas
properties for the current nine months.
The Company's operating activities provided $36,943 in cash flow for
the nine months ended December 31, 1999, as compared to $185,155 during the
prior year period. The cash provided in the current period was primarily from
net income. Investing activities used $416,276 of cash during the nine months
ended December 31, 1999, due to additions to the oil and gas properties.
Investing activities used cash of $1,118,823 for the nine months ended December
31, 1998, also due to additions to oil and gas properties. No cash was used or
provided by financing activities in the current nine-month period. During the
prior year period $30,063 was used for issuance costs of common stock.
Part I, Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Pursuant to the Instructions to Item 305(e) of Regulation S-K, no
disclosure is required.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements. Examples of
these statements include estimates of oil and gas reserves and the potential for
increased sales of beef products. Others may exist as well.
There can be no assurance that any forward-looking statements will
occur or that they will occur as anticipated. For additional information, see
the Company's Annual Report on Form 10-K for the year ended March 31, 1999.
<PAGE>
Page 12
UNITED HERITAGE CORPORATION
Part II - Other Information
Item 1. Legal Proceedings
The Company and its subsidiaries are not a party to any
material legal proceedings.
Item 2. Change in Securities
(a) Effective November 1, 1999, the Company filed Articles of
Amendment to the Articles of Incorporation with the Utah Division
of Corporations effectuating a one-for-ten reverse stock split on
the Company's Common Stock, par value $.001 per share. The
Company filed a report on Form 8-K with respect to this
amendment. See Part II, Item 6(b).
(c) On November 22, 1999, the Company issued to Sierra Blanca
Petroleum Energy, Inc. 6,500 shares of the Company's Common
Stock, par value $.001 per share. These shares were part of the
consideration given by the Company in exchange for oil and gas
leases in Chaves, Roosevelt, and Lea Counties, New Mexico and all
equipment associated with these leases.
The Company believes that this issuance was exempt from the
registration requirements of the Securities Act of 1993, as
amended, by reason of Section 4(2) of that act. Facts related to
this exemption include: (a) there was no public offering of these
securities, (b) the securities were sold to a small number of
investors, (c) some or all of whom were "accredited investors",
(d) some to the investors had a pre-existing business
relationship with the Company's president, and (e) all of the
investors represented that they were purchasing for investment
purposes and not with a view to the distribution of these
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
<PAGE>
Page 13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K
On November 2, 1999, the Company filed a report on
Form 8-K (Item 5), describing a one-for-ten reverse stock
split on its Company's Common Stock, par value $.001 per
share.
<PAGE>
Page 14
UNITED HERITAGE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED HERITAGE CORPORATION
By: /s/ Walter G. Mize
--------------------------------
Date: February 10, 2000 Walter G. Mize, President
By: /s/ Harold L. Gilliam
--------------------------------
Date: February 10, 2000 Harold L. Gilliam, Secretary
<PAGE>
Page 15
INDEX TO EXHIBITS
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 61,472
<SECURITIES> 0
<RECEIVABLES> 158,180
<ALLOWANCES> 0
<INVENTORY> 103,317
<CURRENT-ASSETS> 389,549
<PP&E> 168,710
<DEPRECIATION> 83,471
<TOTAL-ASSETS> 28,042,592
<CURRENT-LIABILITIES> 221,690
<BONDS> 0
0
0
<COMMON> 9,966
<OTHER-SE> 27,810,936
<TOTAL-LIABILITY-AND-EQUITY> 28,042,592
<SALES> 2,964,291
<TOTAL-REVENUES> 2,973,130
<CGS> 2,447,763
<TOTAL-COSTS> 2,553,036
<OTHER-EXPENSES> 334,309
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 85,785
<INCOME-TAX> 0
<INCOME-CONTINUING> 85,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,785
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
