Glen Rose Petroleum (GLRP) 10QSB/A 2008 Q2 Quarterly report (small business) (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-QSB/A

Mark One

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2007; or

o 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)

1310 W. Wall Street, Suite A, Midland, Texas 79701

(Address of principal executive offices)

(432) 687-113 1

(Registrant's telephone number, including area code)

200 North Loraine, Suite 400, Midland, Texas 79701

(Former name, former address and former fiscal year if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. x Yes  o No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes   x No

The number of shares of common stock, $0.001 par value, outstanding at November 14, 2007, was 6,446,850 shares.

Transitional Small Business Format (Check one) Yes o   No x

EXPLANATORY NOTE

United Heritage Corporation filed its quarterly report on Form 10-QSB for the period ended September 30, 2007 (the “Original Filing”) on November 14, 2007. On November 27, 2007 we raised funds through an offering of our securities. The purpose of this Amendment No. 1 to the Original Filing is to include a subsequent event footnote to our financial statements disclosing our receipt of the offering proceeds and their effect on our cash and shareholders’ equity. We have also corrected the weighted average exercise price of our stock warrants at Note 12, which appears on page 17 of this Amendment No. 1.

The other portions of the Original Filing are unaffected by the changes described above and have not been amended. Except as set forth above, all information included in this Amendment No. 1 is as of the date of the Original Filing and does not reflect any subsequent information or events occurring after the date of the Original Filing. Accordingly, this amendment should be read in conjunction with our filings made with the Securities and Exchange Commission subsequent to the filing of the Original Filing. The filing of this Amendment No. 1 to the Original Filing shall not be deemed an admission that the Original Filing or any subsequent amendment, when made, included any untrue statement of a material fact or omitted to state a material fact necessary to make a statement not misleading.

1

Part I, Item 1. Financial Statements

UNITED HERITAGE CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

	September 30, 2007			March 31, 2007
	(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash	$	5,463		$	1,671,672
Accounts receivable		37,862			470,670
Inventory		29,057			31,417
Prepaid expenses		17,226			34,909
Total current assets		89,608			2,208,668
INVESTMENT in Cano Petroleum common stock, at fair value (restricted)		—			1,827,000
OIL AND GAS PROPERTIES, accounted for Using the full cost method, net of accumulated depletion and depreciation of $0 at September 30 and March 31, 2007
Proved		—			—
Unproved		5,864,587			5,864,587
		5,864,587			5,864,587
PROPERTY AND EQUIPMENT, at cost Equipment, furniture and fixtures		2,699			74,244
Vehicles		6,752			158,452
		9,451			232,696
Less accumulated depreciation		(4,803	)		(149,392	)
		4,648			83,304
TOTAL ASSETS	$	5,958,843		$	9,983,559

See notes to consolidated condensed financial statements.

2

Part I, Item 1. Financial Statements—Continued

UNITED HERITAGE CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

	September 30, 2007			March 31, 2007
	(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	284,254		$	1,835,148
Accounts payable, related party		124,323			797,088
Accrued expenses		343,750			343,750
Accrued interest, related party		-			451,485
Accrued put option liability		2,866,642			—
Total current liabilities		3,618,969			3,427,471
LONG-TERM LIABILITIES
Asset retirement obligation		85,430			82,942
Note payable, related parties		-			2,941,983
Accrued put option liability		-			2,727,186
Deferred tax liability		-			—
Total liabilities		3,704,399			9,179,582
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value, 5,000,000 shares authorized, none issued		-			—
Common stock, $.001 par value, 125,000,000 shares authorized; 6,446,850 shares issued and outstanding:		6,447			6,447
Additional paid-in capital		43,987,910			43,796,676
Accumulated deficit		(41,739,913	)		(42,999,146	)
Total Shareholders’ Equity		2,254,444			803,977
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	5,958,843		$	9,983,559

See notes to consolidated condensed financial statements.

3

Part I, Item 1. Financial Statements—Continued

UNITED HERITAGE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)

	THREE MONTHS ENDED September 30,						SIX MONTHS ENDED September 30,
	2007			2006			2007			2006
OPERATING REVENUES
Oil and gas sales	$	455		$	347,626		$	4,315		$	656,091
TOTAL OPERATING REVENUES		455			347,626			4,315			656,091
OPERATING COSTS AND EXPENSES
Production and operating		30,477			468,478			63,039			634,184
Depreciation and depletion		338			175,298			676			346,672
Accretion of asset retirement obligation		1,244			-			2,488			-
General and administrative		164,159			286,897			361,335			907,892
Bad debt expense		59,812			-			202,408			-
Put option expense		69,728			-			139,456			-
TOTAL OPERATING COSTS AND EXPENSES		325,758			930,673			769,402			1,888,748
LOSS FROM OPERATIONS		(325,303	)		(583,047	)		(765,087	)		(1,232,657	)
OTHER INCOME (EXPENSE)
Gain on forgiveness of debt		1,466,838			-			1,780,710			-
Gain on sale of investments		-			-			303,155			-
Gain on sale of property and equipment		8,351			-			8,351			-
Interest expense		(9,519	)		(99,518	)		(67,896	)		(150,607	)
Gain (Loss) before income tax		1,140,367			(682,565	)		1,259,233			(1,383,264	)
INCOME TAX BENEFIT		-			-			-			-
NET INCOME (LOSS)	$	1,140,367		$	(682,565	)	$	1,259,233		$	(1,383,264	)
Income (Loss) per share (basic)	$	0.18		$	(0.11	)	$	0.20		$	(0.22	)
Weighted average number of shares (basic)		6,446,850			6,446,850			6,446,850			6,446,850

See notes to consolidated condensed financial statements.

4

Part I, Item 1. Financial Statements—Continued

UNITED HERITAGE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

	SIX MONTHS ENDED September 30,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	1,259,233		$	(1,383,264	)
Adjustments to reconcile net loss
To net cash provided by (used in) operating activities:
Depreciation and depletion		676			346,672
Accretion of asset retirement obligation		2,488			-
Gain on sale of investments		(303,155	)		-
Gain on forgiveness of debt		(1,780,710	)
Gain on sale of property and equipment		(8,351	)		-
Realization of stock options issued		191,234			276,474
Put option expense		139,456			-
Changes in assets and liabilities:
Accounts receivable		432,808			(54,534	)
Inventory		2,360			(4,533	)
Other current assets		17,683			29,175
Deferred tax		-			-
Accounts payable and accrued expenses		(1,438,461	)		1,702,523
Net cash (used in) provided by operating activities		(1,484,739	)		912,513
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to oil and gas properties		-			(4,155,783	)
Additions to equipment		(2,699	)		(182,845	)
Net cash used in investing activities		(2,699	)		(4,338,628	)

5

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings, related party		153,218			3,371,113
Payments on note payable, related party		(331,989	)		-
Net cash provided by (used in) financing activities		(178,771	)		3,371,113
(Decrease) increase in cash and cash equivalents		(1,666,209	)		(55,002	)
Cash at beginning of period		1,671,672			76,366
Cash at end of period	$	5,463		$	21,364
Non-cash Investing and Financing Activities
Investment applied to note payable and accrued interest-related party		2,130,155			—
Proceeds from sale of equipment applied to accounts payable-related party		94,030			—

See notes to consolidated condensed financial statements.

6

Part I, Item 1. Financial Statements—Continued

UNITED HERITAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)

SIX MONTHS ENDED SEPTEMBER 30, 2007

	Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive
	Shares		Amount		Capital		Deficit			Income			Total
Balance March 31, 2007		6,446,850	$	6,447	$	43,796,676	$	(42,999,146	)		—		$	803,977
Stock options for services		—		—		191,234		—			—			191,234
Comprehensive income:		—		—		—		—			—			—
Net income		—		—		—		1,259,233			—
Unrealized holding gain on available-for-sale security		—		—		—		—			303,155
Realized gain recognized		—		—		—		—			(303,155	)
Comprehensive income		—		—		—		—			—			1,259,233
Balance September 30, 2007		6,446,850	$	6,447	$	43,987,910	$	(41,739,913	)	$	—		$	2,254,444

See notes to consolidated condensed financial statements.

7

UNITED HERITAGE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated 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 and six month period ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending March 31, 2008. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-KSB for the year ended March 31, 2007.

Our financial statements have been prepared on a going concern basis which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. We have incurred substantial losses from operations and we have a working capital deficit which raises substantial doubt about our ability to continue as a going concern. We had net income of $1,259,233 for the six month period ended September 30, 2007 and a net loss of $11,435,134 for the fiscal year ended March 31, 2007 and, as of the same periods, we had an accumulated deficit of $41,739,913 and $42,999,146, respectively. We are not certain that we will be able to obtain the financing we need to develop our properties and alleviate doubt about our ability to continue as a going concern.

NOTE 2 – NEW ACCOUNTING PRINCIPLES

FASB Staff Position (FSP) FAS 19-1 amends SFAS Statement No. 19 to provide revised guidance concerning the criteria for continued capitalization of exploratory costs when wells have found reserves that cannot yet be classified as proved.  FAS 19-1 provides circumstances that would permit the continued capitalization of exploratory well costs beyond one year, other than when additional exploration wells are necessary to justify major capital expenditures and those wells are under way or firmly planned for the near future. Generally, the statement allows exploratory well costs to continue to be capitalized when the well has found a sufficient quantity of reserves to justify its completion as a producing well and the enterprise is making sufficient progress assessing the reserves and the economic and operating viability of the project. The Company utilizes the full cost method to account for its oil and gas properties. As a result, the impact of FSP FAS 19-1 is expected to be minimal.

8

UNITED HERITAGE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 – CHANGE IN ACCOUNTING PRINCIPLES (continued)

Effective April 1, 2006, the Company adopted Statement of Financial Accounting Standard No. 123(R), Share-Based Payment, (“SFAS No. 123(R)”), using the modified prospective transition method. SFAS No. 123(R) requires equity-classified share-based payments to employees, including grants of employee stock options, to be valued at fair value on the date of grant and to be expensed over the applicable vesting period. Under the modified prospective transition method, share-based awards granted or modified on or after April 1, 2006 are recognized in compensation expense over the applicable vesting period. Also, any previously granted awards that are not fully vested as of April 1, 2006 are recognized as compensation expense over the remaining vesting period. No retroactive or cumulative effect adjustments were required upon the Company’s adoption of SFAS No. 123(R).

Prior to adopting SFAS No. 123(R), the Company accounted for its employee stock options using the intrinsic-value based method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (“APB No. 25”) and related interpretations. This method required compensation expense to be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - An interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation provides guidance for recognizing and measuring uncertain tax positions, as defined in SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a threshold condition that a tax position must meet for any of the benefit of the uncertain tax position to be recognized in the financial statements. Guidance is also provided regarding derecognition, classification and disclosure of these uncertain tax positions. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of this Interpretation on April 1, 2007 did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows due to the significant net operating loss carryforwards of the Company.

9

UNITED HERITAGE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 – CHANGE IN ACCOUNTING PRINCIPLES (continued)

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), which establishes an approach requiring the quantification of financial statement errors based on the effect of the error on each of the company’s financial statements and the related financial statement disclosures.  This model is commonly referred to as a “dual approach” because it requires quantification of errors under both the “iron curtain” and “roll-over” methods.  The roll-over method focuses primarily on the impact of a misstatement on the income statement, including the reversing effect of prior year misstatements; however, its use can lead to the accumulation of misstatements in the balance sheet. The iron curtain method focuses primarily on the effect of correcting the period end balance sheet with less emphasis on the reversing effects of prior year errors on the income statement. The Company applied the provisions of SAB 108 in connection with the preparation of the Company’s annual financial statements for the year ending March 31, 2007. The use of the dual approach did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements”, which addresses how companies should measure fair value when companies are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles (“GAAP”). As a result of SFAS 157, there is now a common definition of fair value to be used throughout GAAP. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. Although the disclosure requirements may be expanded where certain assets or liabilities are fair valued such as those related to stock compensation expense and hedging activities, the Company does not expect the adoption of SFAS 157 to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” which provides entities with an option to report selected financial assets and liabilities at fair value. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective as of the beginning of the first fiscal year that begins after November 15, 2007. The Company is currently evaluating the impact that SFAS No. 159 will have on its consolidated financial statements

10

UNITED HERITAGE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 3 — SECURITIES

At March 31, 2007, securities consisted of the following:

	Amortized Cost		Gross Unrealized Gain	Gross Unrealized (Loss)	Estimated Fair Value
Restricted Common Stock	$	1,827,000			$	1,827,000
Total	$	1,827,000			$	1,827,000

These securities were restricted shares of Cano Petroleum, Inc. common stock with an estimated fair value that approximated cost. On June 6, 2007 these securities were exchanged for forgiveness of the balance of principal and interest due to Lothian Oil Inc. for the Cato Unit Loan, as discussed in greater detail in Note 7. A gain of $303,155 was recognized upon the transfer to Lothian Oil Inc.

NOTE 4 – INVENTORY

Inventory consists of oil in tanks of $29,057 and $31,417 at September 30, 2007 and March 31, 2007, respectively.

NOTE 5 – OIL AND GAS PROPERTIES

Capitalized costs related to oil and gas producing activities and related accumulated depletion, depreciation and amortization are as follows:

	September 30, 2007		March 31, 2007
Capitalized costs of oil and gas properties:
Proved	$	0	$	0
Unproved		5,864,587		5,864,587
		5,864,587		5,864,587
Less accumulated depletion, depreciation, and amortization		0		0
	$	5,864,587	$	5,864,587

11

UNITED HERITAGE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 – CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. Concentrations of credit risk with respect to accounts receivable consist principally of oil and gas purchasers. The majority of the accounts receivable balance relates to the post-closing adjustments from the sale of the New Mexico properties. No allowance for doubtful accounts has been provided because management has determined the recorded amounts were fully collectible.

NOTE 7 – NOTE PAYABLE TO RELATED PARTY

Loans from Lothian Oil Inc.

The Company had a $4,000,000 loan agreement with Lothian Oil Inc., previously its majority shareholder (the “Cato Unit Loan”). The Cato Unit Loan was subsequently increased to $8,000,000 during the 2007 fiscal year. Advances to the Company under this agreement were $2,182,843 as of March 31, 2007. The agreement, dated October 7, 2005, provided for draws as needed for the development of the Cato San Andres Unit in New Mexico. The note bore interest at 1% over the Citibank prime rate (8.25% at March 31, 2007) and was secured by a deed of trust and assignment of production, among other provisions. Loan advances were repayable monthly from 70% of the oil and gas proceeds produced by the Cato San Andres Unit. The note was due and payable on October 7, 2015 and was subordinated to the Sterling Bank agreement discussed below. The loan was reduced by $4,397,760 from the proceeds of the sale of the Cato San Andres Unit and the Tom Tom and Tomahawk Field on March 30, 2007. After the sale of these properties, the Cato Unit Loan was then secured by 404,204 shares of restricted Cano Petroleum common stock. Effective June 6, 2007, Lothian accepted the restricted Cano Petroleum common stock as full payment of the loan and accrued interest which resulted in a gain of $303,155 on the extinguishment of the debt.

The Company also had an additional $2,500,000 loan agreement with Lothian (the “Wardlaw Loan”). Advances to the Company under this agreement were $0 and $759,140 as of September 30, 2007 and March 31, 2007, respectively. The agreement, dated as of March 31, 2006, provided for draws as needed for the development of the Wardlaw Field in Texas. The note bore interest at 1% over the Citibank prime rate (8.25% at March 31, 2007) and was secured by a deed of trust and assignment of production, among other provisions. Loan advances are repayable monthly from 70% of the oil and gas proceeds produced by the Wardlaw Field. The note was due and payable on March 31, 2016. On July 31, 2007 we entered into an agreement with our largest shareholder, Lothian Oil Inc. (“Lothian”). Pursuant to the terms of this agreement, Lothian forgave $1,800,000 that it asserted we owed to it, which amount included $753,296 in principal and $71,254 in accrued interest associated with the Wardlaw Loan. (See Note 15 - Transfer of Securities Owned by Lothian Oil Inc., below.) In exchange for the debt forgiveness, we agreed to deliver to Lothian any funds in excess of $100,000 that we receive from Cano Petroleum, Inc. in connection with the sale of the assets of UHC New Mexico Corporation. We do not anticipate that we will receive any funds in excess of $100,000 from Cano Petroleum, Inc. in connection with that sale.

12

UNITED HERITAGE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7 – NOTE PAYABLE TO RELATED PARTY (continued)

Reducing Revolving Line of Credit Agreement

The Company, as a co-borrower with Lothian, entered into an amended and restated reducing revolving line of credit agreement for up to $20 million (“Credit Agreement”) with Sterling Bank as of March 31, 2006. The line was substantially repaid on March 30, 2007. The Company was thereafter released by Sterling Bank as a co-borrower under the Credit Agreement.

NOTE 8 – NET LOSS PER COMMON SHARE

Basic earnings (loss) per share of common stock is based on the weighted average number of shares outstanding during the periods ended September 30, 2007 and September 30, 2006. Diluted earnings per share have not been presented since the inclusion of potential common shares would be antidilutive.

NOTE 9 – INCOME TAXES

As of March 31, 2007, the Company had net operating loss carryovers of approximately $15,300,000 available to offset future income for income tax reporting purposes, which will ultimately expire in 2026, if not previously utilized.

NOTE 10 – ESTIMATES

The preparation of interim consolidated financial statements as of September 30, 2007 in conformity with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that effect 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 11 – STOCK OPTIONS

Directors of the Company adopted the 1995 Stock Option Plan effective September 11, 1995. This Plan set aside 66,667 shares of the authorized but unissued common stock for issuance under the Plan. Options may be granted to directors, officers, consultants, and/or employees of the Company and/or its subsidiaries.

13

UNITED HERITAGE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 11 – STOCK OPTIONS (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. No options have been granted since 1998 and none are outstanding.

Directors of the Company adopted the 1998 Stock Option Plan effective July 1, 1998. This Plan and its subsequent amendment set aside 66,667 shares of authorized but unissued common stock 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. As a result of a grant in January 2006 to the Company’s then chief executive officer, discussed in more detail below, options to purchase 66,667 shares are outstanding under this plan.

The 2000 Stock Option Plan of United Heritage Corporation was effective on June 5, 2000 and included 1,666,667 shares of authorized but unissued common stock. 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. On September 30, 2007, there were 19 awards outstanding under the plan for the right to purchase a total of 1,658,333 shares.

On May 30, 2003 the Company granted 1,051,667 options under the 2000 Stock Option Plan. The options were granted to directors, employees and others. The options vest over a two-year period with terms of three to five years. The exercise price is $1.50 per share. During fiscal year 2006, the Company granted an option for 40,000 shares to a member of the Board of Directors for and in consideration of services provided to the Company. The option was issued at $2.91 per share for a term of five years with vesting over a three-year period.

On May 24, 2005, the Company granted options to certain members of the Board of Directors for and in consideration of services provided to the Company, as shown in the table below. The options were issued at $1.50 for a term of three years.

On January 3, 2006, the Company granted options to purchase 500,000 shares to the Company’s then chief executive officer for and in consideration of services provided to the Company. The options were issued at $1.05 per share for a term of three years with one-third of the options being exercisable immediately and one-third exercisable in each of the following two years. The fair value of each option was determined to be $2.50. All of the options vested on the date that the chief executive officer separated from service.

There were no options granted during the six months ended September 30, 2007.

14

UNITED HERITAGE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 11 – STOCK OPTIONS (continued)

The following table summarizes pertinent information with regard to the Plans for the six months ended September 30, 2007:

			Weighted
			Average
	Options and		Exercise
	Rights		Price
Outstanding at beginning of year, April 1, 2007		1,725,000	$	1.40
Granted		-		-
Exercised		-		-
Forfeited		-		-
Expired		-		-
Outstanding at September 30, 2007		1,725,000	$	1.40
Exercisable at September 30, 2007		1,558,333	$	1.44

The weighted average contractual life of options outstanding at September 30, 2007 was 3.58 years. The weighted average contractual life of exercisable options was 3.09 at September 30, 2007.

The following is a summary of the Company’s nonvested options for 2007:

Nonvested, at April 1, 2007	180,000
Granted	-
Vested	13,333
Forfeited	-
Nonvested, at September 30, 2007	166,667

As of September 30, 2007, there is approximately $123,000 of total unrecognized compensation cost related to non-vested share based compensation arrangements. This expense will be recognized in the third quarter as the remaining unvested options vested upon the option holder’s separation from service in October 2007. The weighted average grant date fair value of non-vested options outstanding at September 30, 2007 is $2.50, and of options that vested during the six months ended September 30, 2007 was $1.68. The weighted average grant date fair value of unvested options outstanding at April 1, 2006 was $2.44.

The option agreements related to the options with $1.50 and $2.91 exercise prices were modified to extend the expiration date to March 31, 2009, add a put feature where the option holder can put the option back to the Company for the difference between $4.00 per share and the purchase price between April 1, 2008 and April 10, 2008 and add a call feature whereby the Company can call the option for the difference between $7.50 and the purchase price. Since the put feature does not subject the holder to the normal risks of share ownership, the options are classified as liability awards and recorded at fair value. A liability of $2,866,642 is recorded at September 30, 2007 and corresponding expense of $69,728 and $139,456 has been recorded for the three and six months ended September 30, 2007, respectively.

15

UNITED HERITAGE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 12 – STOCK WARRANTS

The Company entered into a stock warrant agreement effective January 12, 2004. Pursuant to the agreement, the Company issued warrants to purchase 500,000 shares of common stock in connection with a private placement. Warrants issued under the agreement have a term of 10 years.

The Company entered into stock warrant agreements effective April 2004 in connection with the issuance of convertible promissory notes. Pursuant to the agreement, the Company issued warrants to purchase 1,766,667 shares of common stock. Warrants issued under the agreement have a term of 10 years.

On December 19, 2005, the Company’s shareholders approved the issuance of warrants to purchase 2,906,666 shares of common stock to Lothian Oil Inc. The warrants are exercisable upon issuance and have a term of five years and were issued as follows:

1)	Warrant for the purchase of 953,333 shares with an exercise price of $3.15 per share;
2)	Warrant for the purchase of 1,000,000 shares with an exercise price of $3.36 per share;

3) Warrant for the purchase of 953,333 shares with an exercise price of $3.75 per share.

Half of the 1,766,667 warrants issued during fiscal year 2005 are exercisable at $2.25 and $3.00, respectively, and have a remaining contractual life of 2 years. The warrants issued in fiscal 2006 include those issued to Lothian Oil Inc. and warrants for the purchase of 50,234 shares of common stock with an exercise price of $1.50 per share issued for legal services rendered to the Company.

The common stock and warrants owned by Lothian Oil Inc. were transferred to Walter Mize on July 31, 2007 and, thereafter, from Walter Mize to Blackwood Ventures LLC on September 26, 2007, as more fully described in Note 15.

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UNITED HERITAGE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 12 –  STOCK WARRANTS (continued)

The following schedule summarizes pertinent information with regard to the stock warrants for the six months ended September 30, 2007:

			Weighted
	Shares		Average
	Outstanding		Exercise Price
Outstanding at beginning of year, April 1, 2007		5,085,334	$	3.08
Granted		-		-
Exercised		-		-
Forfeited		-		-
Expired		-		-
Outstanding at September 30, 2007		5,085,334	$	3.08
Exercisable		5,085,334	$	3.08

NOTE 13 – PREFERRED STOCK

The Company’s Articles of Incorporation authorize the issuance of 5,000,000 shares of preferred stock, $0.0001 par value per share and allow the Board of Directors, without shareholder approval and by resolution, to designate the preferences and rights of the preferred stock. On February 22, 2006, the Company’s Board of Directors unanimously adopted and approved a “Certificate of Designation, Preferences and Rights of Series A Preferred Stock of United Heritage Corporation” and a “Certificate of Designation, Preferences and Rights of Series B Preferred Stock of United Heritage Corporation”.

The Certificates of Designation created 133,334 shares of Series A Preferred Stock, 30,303 shares of Series B-1 Preferred Stock and 45,455 shares of Series B-2 Preferred Stock. The Certificates of Designation were filed with the Secretary of State of Utah on May 17, 2006, however, no preferred shares have been issued as of September 30, 2007.

NOTE 14 - SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION

	SIX MONTHS ENDED September 30,
	2007		2006
Cash paid during the three months for:
Interest	$	—	$	26,698
Taxes	$	—	$	—

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UNITED HERITAGE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 15 – TRANSFER OF SECURITIES OWNED BY LOTHIAN OIL INC.

On July 31, 2007 the Company entered into an agreement with its largest shareholder, Lothian Oil Inc. (“Lothian”). The agreement is titled “Agreement to Settle Intercompany Debt and Other Claims” (the “Lothian Agreement”) and is dated July 26, 2007. Pursuant to the terms of the Lothian Agreement, Lothian forgave $1,800,000 that it asserted the Company owed to it. In exchange for the debt forgiveness, the Company agreed to deliver to Lothian any funds in excess of $100,000 that it receives from Cano Petroleum, Inc. in connection with the sale of the assets of UHC New Mexico Corporation. The buyer, Cano Petro of New Mexico, Inc., held back the amount of $800,000 from the cash portion of the purchase price (the “Holdback Amount”) to satisfy potential environmental and title claims and payables related to the purchased assets. The holdback period ended 120 days following the date of the sale, which was March 30, 2007. During the holdback period, Cano Petro of New Mexico, Inc. disbursed to the Company $258,000 which we used to satisfy payables related to the properties, and kept the balance of the Holdback Amount to satisfy title deficiencies and environmental remediation costs. The Company does not anticipate that it will receive any remaining portion of the Holdback Amount.

The Lothian Agreement was conditioned upon the execution of a Settlement Agreement between Lothian and Mr. Walter G. Mize, the Company’s former chief executive officer and former chairman of its board of directors (the “Mize Agreement”). The Mize Agreement was also dated July 26, 2007. Pursuant to the terms of the Mize Agreement, in exchange for a payment of $250,000 from Mr. Mize to Lothian and forgiveness by Mr. Mize of debt totaling $5,318,149, Lothian transferred to Mr. Mize all of its United Heritage Corporation common stock and warrants. Lothian owned 3,759,999 shares of the Company’s common stock and warrants to purchase a total of 2,906,666 shares of our common stock.

The Lothian Agreement and the Mize Agreement were subject to the approval of the bankruptcy court overseeing the bankruptcy of Lothian. The court approved the Lothian Agreement and the Mize Agreement on July 31, 2007.

On July 23, 2007 Lothian’s board of directors and the Company’s board of directors agreed to terminate the Merger Agreement and Plan of Reorganization that Lothian and the Company entered into on February 22, 2006. The parties determined that the merger was no longer in their best interests or in the best interests of their shareholders. According to its terms, the Merger Agreement and Plan of Reorganization could be terminated and the merger abandoned by the mutual agreement of the parties. There was no material termination penalty incurred by either party as a result of the termination.

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UNITED HERITAGE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 15 – TRANSFER OF SECURITIES OWNED BY LOTHIAN OIL INC. (continued)

On September 26, 2007 Mr. Mize, entered into a Restated Stock Sale Agreement which is effective as of September 18, 2007 with Blackwood Ventures LLC (“Blackwood”), a Delaware limited liability company, pursuant to which Blackwood purchased from Mr. Mize (i) 3,759,999 shares of our common stock, (ii) a warrant for the purchase of 953,333 shares of our common stock at an exercise price of $3.15 per share, (iii) a warrant for the purchase of 1,000,000 shares of our common stock at an exercise price of $3.36 per share, and (iv) a warrant for the purchase of 953,333 shares of our common stock at an exercise price of $3.75 per share. The purchase price for the securities was $5,017,000. Blackwood purchased the securities by transferring to Mr. Mize $375,000 in cash and two promissory notes, one in the face amount of $3,767,000 and the second in the face amount of $875,000.

NOTE 16 – SUBSEQUENT EVENTS

On October 17, 2007 the Company received a letter from The Nasdaq Stock Market indicating that, because the closing bid price of the Company’s common stock was at or above $1.00 per share for a period of at least 10 consecutive business days, the Company had regained compliance with Nasdaq Marketplace Rule 4310(c)(4). The Company was notified of its non-compliance with Nasdaq Marketplace Rule 4310(c)(4) on June 15, 2007.

On November 27, 2007 the Company completed the sale of units having a total gross value of $600,000. The units were comprised of (i) 32,000 shares of the Company’s common stock, par value $0.001 per share and (ii) a 5 year callable warrant to purchase up to 52,253 shares of the Company’s common stock, subject to certain vesting requirements, at an exercise price of $1.40 per share. The warrants may not be exercised until the Company’s shareholders approve the issuance. The Company sold a total of 25 units at a price of $24,000 per unit for net cash proceeds of approximately $503,909. The Company also converted debt in the amount of $96,000 into units. No underwriting discounts or commissions were paid in connection with the offering. The Company is obligated to register up to 1,306,325 of the shares underlying the warrants, subject to compliance with rule 415 promulgated under the Securities Act of 1933. The pro forma effect of the receipt of the net offering proceeds on the Company’s balance sheet is an increase to cash of $503,909, a decrease to debt of $96,000 and an increase to Shareholders’ Equity of $599,909. This financing raises Shareholders’ Equity to $2,854,353 as of November 27, 2007, the completion of the offering.

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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/ Joseph F. Langston Jr.
Date:  December 5, 2007		Joseph F. Langston Jr, Interim President, Interim Chief Executive Officer and Chief Financial Officer

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