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, 1998;
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 87-0372864
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 July 10, 1998, was 97,400,512 shares.
PAGE
Page 1
UNITED HERITAGE CORPORATION
INDEX
Page Number
Part I - Financial Information
Item 1 - Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
at June 30, 1998 and March 31, 1998 2
Consolidated Condensed Statements of Income
for the three months ending June 30, 1998 and
June 30, 1997 4
Consolidated Condensed Statements of Cash
Flows for the Three Months ended June 30,
1998 and June 30, 1997 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operation 9
Part II - Other Information
Item 1 - Legal Proceedings 11
Item 2 - Changes in Securities 11
Item 3 - Defaults upon Senior Securities 11
Item 4 - Submission of Matters to a Vote of
Security Holders 11
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
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Page 2
Part I, Item 1. Financial Statements
UNITED HERITAGE CORPORATION
UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, 1998 March 31, 1998
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UNAUDITED
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,260,092 $1,390,416
Accounts receivable - trade 176,793 95,202
Other accounts receivable 53,183
Inventory 48,784 26,847
Other current assets 37,288 36,783
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Total Current Assets 1,522,957 1,602,431
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PROPERTY AND EQUIPMENT, at cost 99,730 92,495
Less accumulated depreciation (61,585) (61,192)
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Net Property and Equipment 38,145 31,303
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OTHER ASSETS 30,000
OIL AND GAS PROPERTIES 25,005,980 24,771,766
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TOTAL ASSETS $26,567,082 $26,435,500
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UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS - CONTINUED
June 30, 1998 March 31, 1998
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UNAUDITED
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 124,854 $ 67,276
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Total Current Liabilities 124,854 67,276
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SHAREHOLDERS' EQUITY
Common stock, $0.001 par value;
125,000,000 shares authorized;
shares issued and outstanding:
97,400,512 shares at June 30, 1998 97,400
96,121,542 shares at March 31, 1998 97,395
Additional paid-in capital 33,404,940 33,399,630
Accumulated deficit (7,049,868) (7,102,037)
Deferred compensation (10,244) (26,764)
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26,442,228 26,368,224
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 26,567,082 $26,435,500
============ ===========
See notes to consolidated condensed financial statements
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UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED
June 30, 1998 June 30, 1997
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REVENUES
Processed beef products $ 1,148,875 $ 644,144
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TOTAL REVENUE 1,148,875 644,144
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COSTS AND EXPENSES
Processed beef products 937,404 557,065
Selling 22,039 41,830
General and administrative 150,603 113,686
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TOTAL COSTS AND EXPENSES 1,110,046 712,581
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NET INCOME (LOSS) from Operations 38,829 (68,437)
OTHER INCOME (EXPENSES)
Interest income 13,337 758
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NET INCOME (LOSS) $ 52,166 $ (67,679)
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Net Income (Loss) Per Common Share $0.00 $0.00
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Weighted average number of common shares 97,400,072 96,090,773
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See notes to consolidated condensed financial statements
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UNITED HERITAGE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
June 30, 1998 June 30, 1997
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CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ 52,166 $ (67,679)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation 393 2,368
Deferred compensation 16,520 15,396
Stock grants as compensation 5,315
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable (81,591) 21,000
(Increase) decrease in inventory (21,937)
(Increase) decrease in other
current assets (505) 6,180
Increase (decrease) in accounts
payable and accrued expenses 57,581 (18,452)
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Net cash provided by (used in) operating
activities 27,942 (41,187)
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CASH FLOW FROM INVESTING ACTIVITIES
Additions to oil and gas properties (234,214) (58,338)
Additions to property and equipment (7,235)
Proceeds from sale of building 30,000
Collections of notes receivable 53,183
Net cash (used in) provided by investing
activities (158,266) (58,338)
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CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 74,998
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Net cash provided by (used in) financing
activities 74,998
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Increase (decrease) in cash and cash
equivalents (130,324) (24,527)
Cash and cash equivalents at beginning of
period 1,390,416 80,722
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,260,092 $ 56,195
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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, 1998 are not necessarily indicative of the
results that may be expected for the year ending March 31, 1999. 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, 1998.
NOTE 2 - INVENTORY
Inventory consists of the following:
June 30, 1998 March 31, 1998
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Lite beef $ 48,784 $ 26,847
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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 Edwards County, Texas. The
agreement was contingent on the Company having certain testing and
development performed and a valuation being obtained which was
acceptable to the Company. Apex was related to the Company through
members who were also shareholders of the Company including Mr. Mize,
who had a controlling interest in Apex. Pursuant to the agreement,
the Company incurred exploration costs necessary to obtain an
evaluation of reserves. Costs incurred have been capitalized as oil
and gas properties.
A favorable valuation report was received and the transaction
was closed on February 11, 1997. The unproven properties were
recorded at their estimated fair value of $23,676,250.
As of June 30, 1998, a determination cannot be made about the
extent of proved reserves for this project. Consequently, no
amortization has been computed on the exploration costs. The Company
will begin to amortize these costs when testing of the project is
complete and production commences. All costs capitalized as of June
30, 1998 were incurred to acquire and evaluate the project and are
considered exploration costs.
As exploration and development progresses the capitalized costs
are periodically assessed for impairment. At June 30, 1998 no
impairment has been required to be recorded. A small amount of oil
has been produced as a part of the testing and development.
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UNITED HERITAGE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 4 - OTHER ASSETS
At March 31, 1998, the Company retained certain radio station
related assets from foreclosure of the its lien position pertaining
to the radio stations in Canyon and Amarillo, Texas. These assets
included an office building in Canyon, Texas valued at $30,000, and
miscellaneous furniture, fixtures, and equipment that had
negligible value. These assets were sold for $30,000 and such
proceeds were collected May 7, 1998.
NOTE 5 - CONCENTRATION 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, 1998 and the
quarter ended June 30, 1998, 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 consists principally of food industry customers
operating in the United States. Receivables from one customer at
March 31, 1998 and June 30, 1998 comprised approximately 76% and
83%, respectively, of the trade receivables balance. No allowance
for doubtful accounts has been provided since recorded amounts are
determined to be fully collectible.
NOTE 6 - NET INCOME (LOSS) PER COMMON SHARE
Income (loss) per share of common stock is based on the
weighted average number of shares outstanding during the periods
ended June 30, 1998 and June 30, 1997.
NOTE 7 - INCOME TAXES
As of March 31, 1998, the Company had net operating loss
carryovers of approximately $4,930,474 available to offset future
income for income tax reporting purposes which will ultimately
expire in 2013 if not previously utilized.
NOTE 8 - DEFERRED COMPENSATION
The Company has issued various stock options and warrants.
Deferred compensation costs resulting from the options and
warrants, are recorded as a reduction of shareholder's equity and
are being amortized over their expected lives.
PAGE
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UNITED HERITAGE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 9 - ADJUSTMENT TO ACQUISITION
Subsequent to the issuance of the Company's 1997 financial
statements, it was determined that the transaction with APEX (See Note
3) should be accounted for as an acquisition of assets for stock
instead of a reverse acquisition as previously reported. Therefore,
the 1997 balances of oil and gas properties, paid-in capital and
accumulated deficit have been retroactively adjusted to reflect this
change in accounting. The effect of the adjustment on March 31, 1997
balances is as follows:
Oil and Gas Additional Accumulated
Properties Paid-in Capital Deficit
------------ --------------- ------------
As previously reported $ 2,118,797 $ 3,572,698 $ (36,468)
Adjustment 22,174,816 28,853,155 (6,678,339)
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As restated $24,293,613 $32,425,853 $(6,714,807)
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Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
UNITED HERITAGE CORPORATION
General
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On February 11, 1997 the Company acquired all of the membership
interests of Apex Petroleum, L.L.C. ("Apex"), a Texas limited
liability company, in consideration of 77,500,000 shares of the
Company's $0.001 par value common stock ("Common Stock") issued to the
members of Apex. On February 27, 1997, Apex was merged with and into
UHC Petroleum Corporation, a newly formed Texas corporation, which is
a wholly-owned subsidiary of the Company. The transaction was based
on an independent valuation of Apex by Surtek, Inc. ("Surtek"), a
petroleum engineering company, which performed certain tests on the
primary assets of Apex, leases of an oil field in South Texas
consisting of approximately 10,502 acres, to determine the value of
the Apex assets. Based on the Surtek report, the Company's board of
directors unanimously accepted the valuation and elected to close the
transaction to purchase the Apex interests.
The Company continues to purvey Heritage Lifestyle Lite Beef (R),
the lower-fat beef product marketed by the Company to 111 stores of
a major West Coast supermarket chain located in California, Nevada,
and New Mexico.
Material Changes in Results of Operations
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Revenues for the Company's beef products were $1,148,875 for the
quarter ended June 30, 1998. The results for the quarter are
significantly higher than that reported in the prior year quarter of
$644,144. The increase for the current quarter is due primarily to
an increased number of stores selling Heritage Lifestyle Lite Beef (R)
than for the prior year quarter. Gross profit from beef products was
$211,471 for the three-month period ended June 30, 1998, as compared
with $87,079 gross profit for the same period last year. The cost of
beef products as a percentage of sales was 81.59% for the three months
ended June 30, 1998, as compared to 86.48% for the three months ended
June 30, 1997. The decrease in the cost of beef product percentage is
due primarily to efficiencies incurred with transportation and packaging
costs as volume increased for the current period as compared with the
previous year's period.
The Company is selling Heritage Lifestyle Lite Beef (R) in 111
selected stores out of the 261-store southern division of a major West
Coast supermarket chain. The southern and northern divisions of this
chain together contain 436 stores. While these prospects have the
potential for significantly increasing the Company's beef sales, there
can be no guarantee that such will be the case.
Interest and other income for the current quarter is above the
level of the prior year period. This results from having increased
cash available, from the sale of radio related assets, to invest in
interest-bearing accounts.
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Material Changes in Results of Operations (continued)
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Selling expenses of $22,039 for the current quarter have
decreased from that of the prior year period of $41,830. This
decrease results mainly from reducing costs associated with outside
sales representatives and lower costs for advertising supplies.
General and administrative costs have increased during the quarter
ended June 30, 1998, to $150,602, as compared to $113,686 for the same
period last year. This is a result of increases in compensation cost
and costs related to public relations and promotion of the Company.
On a consolidated basis, the Company had a net income for the
current three-month period of $52,166. The comparable quarter result
for the prior fiscal year was a net loss of $67,679. The primary
reasons for the change from net loss to a net income is an increase
in the sale of Heritage Lifestyle Lite Beef (R) while maintaining a
relatively stable fixed overhead cost.
Material Changes in Financial Position
- --------------------------------------
The Company's equity capital has shown an increase of $74,004
since March 31, 1998, the previous fiscal year-end. This increase is
primarily the result of net earnings for the three months ended June
30, 1998, of $52,166.
The working capital of the Company was $1,398,103 at June 30,
1998, a decrease from the working capital of $1,535,155 reported at
March 31, 1998. Current assets decreased $79,474 during the current
three-month period, and current liabilities increased $57,578,
resulting in a decrease in the overall working capital position.
The total assets of the Company were $26,567,082 at June 30,
1998, which is $131,582 greater than total assets at the previous
year end. This increase in total assets is primarily due to an
increase in oil and gas properties for this three months.
The Company's operating activities provided $27,942 in cash flow
for the three months ended June 30, 1998, as compared to using $41,187
in cash during the prior year period. The cash provided in the
current period was primarily due to the net profit. The cash used in
the prior year period was primarily from operating losses. Investing
activities used $158,266 and $58,338 during the three months ended
June 30, 1998, and 1997, respectively, due to oil and gas exploration
costs. Financing activities from the prior year period provided
$74,998 in funds from the issuance of common stock.
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Part II - Other Information
UNITED HERITAGE CORPORATION
Item 1. Legal Proceedings
On May 18, 1998, Kan-Tex Properties, Inc., Mark E. Schwartz,
Eugene W. Schwartz, and Margaret M. Schwartz, Plaintiffs,
filed suit in the District Court of Edwards County, Texas,
63rd Judicial District, against Walter G. Mize, Heritage
Petroleum Services Corporation, formerly known as Heritage
Petroleum Corporation, Heritage Petroleum Corporation,
Heritage West Corporation, United Heritage Corporation, and
UHC Petroleum Corporation as successor to Apex Petroleum,
L.L.C., Defendants. Plaintiffs had a four percent (4%)
working interest in the first 24 wells drilled in the South
Texas oil field from 1981 to 1984. However, Plaintiffs sold
and assigned all of their title to this interest in 1985.
Plaintiffs now contend that their sold and assigned interests
still exist and ask that this interest be reinstated. In
that (i) full disclosure was made at the time of Plaintiff's
assignment, (ii) over eight (8) years have passed since any
contact has been made by Plaintiffs to any of the Defendants,
and (iii) Plaintiffs have not paid any expenses nor costs to
drill for in excess of 12 years, United Heritage Corporation
management considers this claim to be completely without
merit. Defendants have filed a counterclaim, subject to their
motion to transfer venue, stating that Plaintiff's claims are
invalid and asking for damages of five hundred thousand
dollars, punitive damages equal to four times actual damages,
costs and reasonable attorney fees.
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
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Part II - Other Information, continued
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule *
(b) Reports on Form 8-K
None
* Financial Data Schedule filed herewith
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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
/s/ Walter G Mize
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Date: August 4, 1998 Walter G. Mize, President
PAGE
INDEX TO EXHIBITS
Exhibit Number Description
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27 Financial Data Schedule