<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 June 30, 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 No. 0-9997
UNITED HERITAGE CORPORATION
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(Exact name of registrant as specified in charter)
UTAH 87-0372826
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2 NORTH CADDO STREET, CLEBURNE, TEXAS 76031
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(Address of principal executive offices)
(817) 641-3681
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(Registrant's telephone number, including area code)
NO CHANGE
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(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES ___X___ NO ______
The number of shares of common stock, $0.001 par value, outstanding
at August 4, 2000, was 10,152,835 shares.
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Page 1
UNITED HERITAGE CORPORATION
INDEX
<TABLE>
<S> <C>
Part I - Financial Information Page Number
Item 1 - Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
at June 30, 2000 and March 31, 2000 2
Consolidated Condensed Statements of Income
for the Three Months ended June 30, 2000
and June 30, 1999 4
Consolidated Condensed Statements of Cash
Flows for the Three Months ended June 30,
2000 and June 30, 1999 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 12
Forward-Looking Statements 12
Part II - Other Information
Item 1 -Legal Proceedings 13
Item 2- Changes in Securities 13
Item 3 - Defaults upon Senior Securities 13
Item 4- Submission of Matters to a Vote
of Security Holders 13
Item 5- Other Information 13
Item 6- Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
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UNITED HERITAGE CORPORATION
Part I, Item 1. Financial Statements
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
-------------------- ---------------------
UNAUDITED
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalent $16,821 $116,421
Accounts receivable - trade 66,638 65,206
Inventory 72,036 67,297
Note receivable 185,074 --
Other current assets 116,393 67,373
-------------------- ---------------------
Total Current Assets 456,962 316,297
-------------------- ---------------------
PROPERTY AND EQUIPMENT, at cost 217,932 168,756
Less accumulated depreciation (97,545) (90,161)
-------------------- ---------------------
Net Property and Equipment 120,387 78,595
-------------------- ---------------------
OIL AND GAS PROPERTIES 28,099,990 27,707,069
Less accumulated depletion (8,233) (7,290)
-------------------- ---------------------
Net Oil and Gas Properties 28,091,757 27,699,779
-------------------- ---------------------
TOTAL ASSETS $28,669,106 $28,094,671
==================== =====================
</TABLE>
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UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
-------------------- --------------------
UNAUDITED
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $187,071 $150,457
Notes payable 746,000 --
-------------------- --------------------
Total Current Liabilities 933,071 150,457
-------------------- --------------------
SHAREHOLDERS' EQUITY
Common stock, $0.001 par value;
125,000,000 shares authorized;
shares issued and outstanding:
10,152,835 shares at June 30, 2000 10,153 --
10,111,543 shares at March 31, 2000 -- 10,112
Additional paid-in capital 35,215,999 35,216,040
Accumulated deficit (7,214,686) (6,966,138)
Deferred compensation and consulting (275,431) (315,800)
-------------------- --------------------
Total Shareholders' Equity 27,736,035 27,944,214
-------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,669,106 $28,094,671
==================== ====================
</TABLE>
See notes to consolidated condensed financial statements
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UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
June 30
2000 1999
------------------- ----------------
<S> <C> <C>
REVENUES
Processed beef products $252,465 $1,263,076
Oil sales 14,818 14,070
------------------- ----------------
TOTAL REVENUE 267,283 1,277,146
------------------- ----------------
COSTS AND EXPENSES
Processed beef products 238,786 1,000,210
Oil production costs 12,667 5,814
Selling 61,867 22,697
General and administrative 205,146 91,285
------------------- ----------------
TOTAL COSTS AND EXPENSES 518,466 1,120,006
------------------- ----------------
INCOME (LOSS) from Operations (251,183) 157,140
OTHER INCOME
Interest income 2,639 4,032
------------------- ----------------
NET INCOME (LOSS) ($248,544) $161,172
=================== ================
Net Income (Loss) Per Common Share ($0.02) $0.02
=================== ================
Weighted average number of common shares 10,148,904 9,771,471
=================== ================
</TABLE>
See notes to consolidated condensed financial statements
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UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
June 30, 2000 June 30, 1999
-------------------- ---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ($248,544) $161,172
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating activities:
Depreciation and depletion 8,327 5,116
Deferred compensation and consulting 40,369 --
Changes in assets and liabilities:
In accounts receivable (1,432) (135,198)
In inventory (4,739) (1,303)
In other current assets (49,020) (54,921)
In accounts payable and accrued expenses 36,614 106,301
-------------------- ---------------------
NET CASH (used in) provided by operating activities (218,425) 81,167
-------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to oil and gas properties (392,921) (156,784)
Additions to property and equipment (49,180) (17,815)
Issuance of note receivable (185,074) --
-------------------- ---------------------
NET CASH used in investing activities (627,175) (174,599)
-------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing 746,000 --
-------------------- ---------------------
NET CASH provided by financing activities 746,000 --
-------------------- ---------------------
Decrease in cash and cash equivalents (99,600) (93,432)
Cash and cash equivalents at beginning of period 116,421 440,805
-------------------- ---------------------
Cash and cash equivalents at end of period $16,821 $347,373
==================== =====================
</TABLE>
See notes to consolidated condensed financial statements
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UNITED HERITAGE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended June 30, 2000
are not necessarily indicative of the results that may be expected for the
year ending March 31, 2001. 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, 2000.
NOTE 2 - INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
-------------------- ---------------------
<S> <C> <C>
Lite Beef $ 41,120 $ 35,912
Oil in Tanks 30,916 31,385
-------------------- ---------------------
$ 72,036 $ 67,297
==================== =====================
</TABLE>
NOTE 3 - OIL AND GAS PROPERTIES
The Company participates in oil and gas exploration activities in
Texas and New Mexico.
Capitalized costs related to oil and gas producing activities and
related accumulated depletion, depreciation and amortization are as follows:
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
-------------------- ---------------------
<S> <C> <C>
Capitalized costs of oil and gas properties:
Proved $ 26,695,570 $ 26,484,381
Unproved 1,404,420 1,222,688
-------------------- ---------------------
28,099,990 27,707,069
Less accumulated depletion, depreciation,
and amortization 8,233 7,290
-------------------- ---------------------
$ 28,091,757 $ 27,699,779
==================== =====================
</TABLE>
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UNITED HERITAGE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 3 - OIL AND GAS PROPERTIES (CONTINUED)
<TABLE>
<CAPTION>
Proved Reserves
Oil (Bbls) Gas (Mcf)
-------------------- ---------------------
<S> <C> <C>
March 31, 2000 22,465,635
Extensions, additions and discoveries -- --
Less production (779) --
-------------------- ---------------------
June 30, 2000 22,464,856 --
==================== =====================
Proved Developed Reserves
June 30, 2000 911,887 --
==================== =====================
Standardized Measure of Discounted Future
Net Cash Flows Relating to Proved Reserves
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
=====================
</TABLE>
NOTE 4 - NOTE RECEIVABLE
During May 2000, the Company advanced $370,074 to CVR, Inc. under a
loan agreement with a one-year term. The loan is secured by a first lien on a
refrigerated warehouse and bears interest at 12% or 3% over prime, whichever
is greater. In June 2000, Almac Financial Corporation, a company controlled
by Walter G. Mize, purchased 50% of the note receivable, reducing the
Company's portion to $185,074.
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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, 2000 and the three months ended
June 30, 2000, 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 June 30, 2000 comprised
approximately 68% of the trade receivables balance. No allowance for doubtful
accounts has been provided, because the recorded amounts were determined to
be fully collectible.
NOTE 6 - NOTE PAYABLE
The note payable represents amounts drawn under a $2,000,000
revolving credit facility with a financial institution. The credit line
matures on April 25, 2001 and bears interest at one percent above the Wall
Street Journal prime rate. The Company's largest shareholder provided
collateral for this loan.
NOTE 7 - 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 June 30, 2000 and June
30, 1999, after adjustment for the reverse stock split (See Note 10).
NOTE 8 - INCOME TAXES
As of March 31, 2000, the Company had net operating loss carryovers
of approximately $4,781,000 available to offset future income for income tax
reporting purposes, which will ultimately expire in 2018 if not previously
utilized.
NOTE 9 - ESTIMATES
The preparation of interim financial statements as of June 30,
2000, in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities,
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
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Page 9
UNITED HERITAGE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 10 - REVERSE COMMON STOCK SPLIT
On November 1, 1999, the Company effected a one-for-ten 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.
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Page 10
UNITED HERITAGE CORPORATION
Part I, Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
During the quarter ended June 30, 2000, the Company began marketing
our new line of Heritage LIFESTYLE Products-TM-. The change in our product
line resulted in lower sales, which were expected, and increased costs.
Management believes the new line will meet with good customer acceptance.
Primary emphasis is put on the new product line, Heritage LIFESTYLE
Products-TM-, which consists of the products described below. The Company
continues to offer its fresh beef product line, Heritage LIFESTYLE Lite
Beef-Registered Trademark-.
Heritage LIFESTYLE offers a wide variety of prepackaged fully
seasoned products with full-bodied flavor to please the most discerning
tastes. The products are sold from the self-service meat counter in
supermarkets. The products are:
Lite Beef - 50% Less Fat & 1/3 Fewer Calories. Our flagship product,
Heritage LIFESTYLE Lite Beef-Registered Trademark- is "Beef the way
it should be!"-Registered Trademark- This trademarked line of beef is
specifically bred to be lean and rich in great beef taste. The Company
believes Heritage LIFESTYLE Lite Beef-Registered Trademark-will be a
preferred beef for individuals wanting less fat, fewer calories,
quicker cooking times and no compromise in flavor!
USDA Choice Beef - Heritage LIFESTYLE Choice Beef-TM- is for the
discriminating beef connoisseur. Hand selected for its superior
quality, Heritage Choice is designed to impress beef lovers with its
premium flavor, tenderness and well marbled cuts.
Chicken - Heritage LIFESTYLE Chicken-TM- is intended to be a gourmet,
low fat, high flavor choice for many recipes. Two boneless, skinless
breast selections are pre-seasoned for full bodied flavor....SANTA FE
BRAND GRILL, in southwestern style; and FOUR SEASONS for everyday
recipes. Oriental marinated thigh meat... CHINA WOK STIR FRY is perfect
for a quick and easy saute.
Pork - Heritage LIFESTYLE Pork-TM- contains marinated cuts that are
rich in flavor and ready for the grill, skillet or oven. CHOP HOUSE
SPECIAL PORK packs thick boneless chops with five-star restaurant
taste. Our BLUE RIBBON PORK ROAST is a signature fresh ham - oven or
smoker ready and seasoned to perfection. HUNAN BRAND PORK STIR FRY
turns any skillet into a tasty walk around China Town.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Revenues for the Company's beef products were $252,465 for the
quarter ended June 30, 2000. Sales levels have declined from prior year
periods due primarily to a lower volume of beef sold to the Company's largest
customer. This customer and others ordered
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Page 11
MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued)
reduced quantities while awaiting the introduction of the Company's new
product, as discussed above. We are optimistic that this decrease was only
temporary. Total revenue for the prior year quarter was $1,263,076. Gross
profit from beef products was $13,679 for the three-month period ended June
30, 2000, as compared with $262,866 gross profit for the same period last
year. The cost of beef products as a percentage of sales was 94% for the
three months ended June 30, 2000, as compared to 79% for the three months
ended June 30, 1999. The increase in the cost of beef products over the same
period last year is due primarily to the costs of introducing a line of
preseasoned and marinated beef products during the three months ended June
30, 2000. The Heritage Lifestyle Products-TM-line, including pork and
chicken, was not introduced until August 2, 2000. These increased costs can
be expected to continue as the Company continues its development of this
product line.
The Company presently sells Heritage LIFESTYLE Products-TM- in
approximately 300 stores of a major supermarket's California and Nevada
divisions. While the Company is urging this 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. Also,
the Company sells Heritage LIFESTYLE Products-TM- to 48 stores of an 80 store
regional chain located in the Dallas/Fort Worth metroplex.
Revenues from the sale of oil were $14,818 and $14,070 for the
quarter ended June 30, 2000 and the quarter ended June 30, 1999,
respectively. Revenues have increased for the current year due to higher
prices. Production costs were $12,667 and $5,814 for the quarters ended June
30, 2000 and 1999, respectively. Although production difficulties were
encountered this quarter, oil revenues are expected to increase in future
periods, as more Company properties are placed in production.
Interest income for the current quarter ended June 30, 2000, is
less than the level during the same prior year period, due to a higher level
of cash and cash equivalents being maintained in the prior year.
Selling expenses of $61,867 for the current quarter have increased
from the prior year amount of $22,697. This increase results mainly from
introduction of new product lines. Selling expenses include the outside sales
costs and additional demonstration costs of new product line. General and
administrative costs have increased to $205,146 for the quarter. This is a
result of increased consulting and public relations costs.
On a consolidated basis, the Company had a net loss for the current
three-month period of ($248,544). The comparable result for the prior fiscal
year was a net income of $161,172. The primary reason for the change from
1999 to 2000 was a decrease in Company beef sales, increased selling
expenses, and increased general and administrative costs, most of which were
related to the introduction of the new product line. As noted above, the
additional costs of the new product line are expected to continue into the
second quarter.
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Page 12
MATERIAL CHANGES IN FINANCIAL POSITION
The Company's equity capital has shown a decrease of $208,179 since
March 31, 2000, the previous fiscal year-end. This decrease is primarily the
result of the net loss of $248,544 for the quarter.
The working capital of the Company was a $476,109 deficit for the
quarter ended June 30, 2000, a decrease from the working capital of $165,840
reported at March 31, 2000. Current assets increased $140,665 during the
current period due to the creation of a note receivable and other current
asset increases. Current liabilities increased $782,614, primarily due to the
advances under a credit line, resulting in a decrease in the overall working
capital position of $641,949 during the three months ended June 30, 2000.
The total assets of the Company were $28,669,106 for the quarter
ended June 30, 2000, which is $574,435 greater than total assets at the
previous year-end. This increase in total assets is primarily due to
equipment acquisitions and the capitalization of oil and gas development
costs on the Company's oil and gas properties for the current three months.
The Company's operating activities used $218,425 in cash flow for
the three months ended June 30, 2000, as compared to providing $81,167 of
cash flow during the three months ended June 30, 1999. Investing activities
used $627,175 of cash during the three months ended June 30, 2000, due
primarily to additions to the oil and gas properties. Investing activities
used cash of $174,599 for the three months ended June 30, 1999, also due to
additions to oil and gas properties. Advances under a credit facility
provided $746,000 during the quarter.
At the end of the quarter, the Company had $16,821 of cash and cash
equivalents compared with $347,373 a year ago. The Company believes that this
decrease in cash and cash equivalents is temporary and will improve when the
introduction of the new product line, Heritage LIFESTYLE Products-TM-, is
complete.
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, 2000.
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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
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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Page 14
UNITED HERITAGE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED HERITAGE CORPORATION
By: /s/ Walter G. Mize
--------------------------------------
Date: August 14, 2000 Walter G. Mize, President and
Chief Executive Officer
By: /s/ Harold L. Gilliam
--------------------------------------
Date: August 14, 2000 Harold L. Gilliam, Chief Financial
Officer and Secretary
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Page 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
