-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SqGQiWpr7/O6l8oR9tr0JjiV5/BHWvBhOpE5oJ+Vc9ilHDh1TXeNzYHsPebiwV2/ TEpUYhIMRU610UGZpgjDjQ== 0001144204-08-023902.txt : 20080609 0001144204-08-023902.hdr.sgml : 20080609 20080423180445 ACCESSION NUMBER: 0001144204-08-023902 CONFORMED SUBMISSION TYPE: PRER14C PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20080424 DATE AS OF CHANGE: 20080428 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED HERITAGE CORP CENTRAL INDEX KEY: 0000354567 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 870372826 STATE OF INCORPORATION: UT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: PRER14C SEC ACT: 1934 Act SEC FILE NUMBER: 001-10179 FILM NUMBER: 08772629 BUSINESS ADDRESS: STREET 1: SUITE 200,4925 GREENVILLE AVENUE STREET 2: ONE ENERGY SQUARE CITY: DALLAS, STATE: TX ZIP: 75206 BUSINESS PHONE: (214) 800-2663 MAIL ADDRESS: STREET 1: SUITE 200,4925 GREENVILLE AVENUE STREET 2: ONE ENERGY SQUARE CITY: DALLAS, STATE: TX ZIP: 75206 FORMER COMPANY: FORMER CONFORMED NAME: DNA MEDICAL INC DATE OF NAME CHANGE: 19881025 PRER14C 1 v111516_prer14c.htm Unassociated Document
SCHEDULE 14C INFORMATION

Information Statement Pursuant to Section 14(c) of the Securities Exchange Act of 1934
(Amendment No. 2)
Check the appropriate box:

[x] Preliminary Information Statement

[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2))

[ ] Definitive Information Statement

 
United Heritage Corporation 

(Name of Registrant As Specified In Charter)

Payment of Filing Fee (Check the appropriate box):

[x] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.

1) Title of each class of securities to which transaction applies:
 


2) Aggregate number of securities to which transaction applies:



3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):


 
4) Proposed maximum aggregate value of transaction:


 
5) Total fee paid:


 
[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:
 

 
2) Form, Schedule or Registration Statement No.:
 

 
3) Filing Party:


 
4) Date Filed:


 

Where any item, other than Item 4, calls for information with respect to any matter to be acted upon at the meeting or, if no meeting is being held, by written authorization or consent, such item need be answered only with respect to proposals to be made by the registrant. Registrants and acquirees that meet the definition of "small business issuer" under Rule 12b-2 of the Exchange Act shall refer to the disclosure items in Regulation S-B and not Regulation S-K . If there is no comparable disclosure item in Regulation S-B, small business issuers need not provide the information requested. Small business issuers shall provide the financial information in Item 310 of Regulation S-B in lieu of any financial statements required by Item 1 of Rule 14c-101.
 
 

Suite 200, One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
Telephone (214) 800-2663
 
April ____, 2008
 
To our shareholders:
 
Enclosed please find an information statement providing information to you regarding certain corporate actions taken by our board of directors and a shareholder holding a majority of the votes necessary to approve the actions taken. These actions include the following:

 
an approval of the issuance of warrants to DK True Energy Development and RTP Secure Energy Corp.;

 
an approval of the issuance of warrants to Applewood Energy, Inc. and GWB Petroleum Consultants Ltd.;

 
an approval of the issuance of warrants to Richardson & Patel LLP as partial compensation for legal services rendered to us;

 
an approval of the issuance of common stock and warrants to a placement agent as compensation for services to be rendered to us;

 
an approval of the issuance of warrants to Blackwood Capital Limited as compensation for services rendered and to be rendered to us;

 
an approval of the United Heritage Corporation 2008 Equity Incentive Plan;

 
an approval of the issuance of warrants included in an offering of units consisting of common stock and warrants which was made by us in November 2007;

 
an approval of the issuance of units consisting of shares of our common stock and warrants to purchase our common stock in a private offering of our securities to accredited investors;

 
an approval of the issuance of common stock and warrants to Blackwood Ventures LLC pursuant to an agreement to convert debt;

 
an approval of the issuance of 666,667 shares of common stock subscribed for by accredited investors in a private offering undertaken in January 2008;

 
an approval of the issuance of common stock and warrants to the estate of Walter G. Mize in exchange for the relinquishment of a put right; and

 
an approval to change the company’s domicile from Utah to Delaware, which will include changing the company’s name to Glen Rose Petroleum Corporation.
 
The written consent of a shareholder holding a majority of the votes necessary to approve the actions taken assures that such actions will occur without your vote. Your vote is not required to approve any of these actions, and the enclosed information statement is not a request for your vote or a proxy statement. This information statement is being provided only to inform you of the actions that have been taken.

Very truly yours, 
UNITED HERITAGE CORPORATION
By: 
/s/ Joseph F. Langston Jr.
  Joseph F. Langston Jr., President and Chief Financial Officer


 
INDEX

Information about the Voting Rights of our Shareholders and Information About the Consenting Shareholder    
 
2
No Rights of Appraisal    
 
2
Interests of Certain Persons in Matters Discussed in this Information Statement    
 
2
Change of Control    
 
2
Non-Compliance with Nasdaq Rules    
 
3
Security Ownership of Certain Beneficial Owners and Management    
 
4
Notice to Shareholders of Actions Approved    
 
5
Introduction to Items 1 through 11    
 
5
Item 1. Warrants to be Issued Pursuant to a Consulting Agreement with DK True Energy Development Ltd. and RTP Secure Energy Corp.    
 
8
Item 2. Common Stock and Warrants to be Issued Pursuant to Consulting Agreements with Applewood Energy, Inc. and GWB Petroleum Consultants    
 
9
Item 3. Issuance of a Warrant to Richardson & Patel LLP in Exchange for Legal Services    
 
11
Item 4. Issuance of Securities to a Placement Agent in Exchange for Placement Agent Services    
 
11
Item 5. Issuance of Warrants to Blackwood Capital Limited in Exchange for Services    
 
12
Item 6. Approval of the United Heritage Corporation 2008 Equity Incentive Plan    
 
13
Item 7. Approval of the Issuance of Shares and Warrants Included in an Offering Made in November 2007    
 
17
Item 8. Approval of the Issuance of Units Consisting of Common Stock and Warrants to Accredited Investors    
 
17
Item 9. Approval of the Issuance of Common Stock and Warrants to Blackwood Ventures LLC Pursuant to an Agreement to Convert Debt    
 
18
Item 10. Approval of the Issuance of 666,667 Shares of Common Stock to Accredited Investors    
 
18
Item 11. Approval of the Issuance of Common Stock and Warrants to the Estate of Walter G. Mize in Exchange for the Relinquishment of A Put Right    
 
19
Item 12. Approval of a Change of the Company’s Domicile from Utah to Delaware    
 
19
Management’s Discussion and Analysis or Plan of Operation
 
28
Index to Financial Statements    
 
F-1
Annex 1 — Written Consent of the Majority Shareholder of United Heritage Corporation    
  38
Annex 2 — United Heritage Corporation 2008 Equity Incentive Plan    
  40
Annex 3 — Agreement and Plan of Merger    
  50
Annex 4 — Articles of Merger (Utah)    
  54
Annex 5 — Certificate of Merger (Delaware)    
  60
 

 
INFORMATION STATEMENT OF
UNITED HERITAGE CORPORATION
Suite 200, One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
Telephone (214) 800-2663
 
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
 
This information statement is first being furnished on or about April ___, 2008 to the holders of record as of the close of business on March 7, 2008 (the “Notice Date”) of the common stock of United Heritage Corporation (referred to in this information statement as “we”, “us”, “our” or “United Heritage”).
 
Our Board of Directors and the holder of a majority of our common stock consented in writing to the actions described in this information statement. Together, such approval and consent constitutes the approval and consent of a majority of the total number of shares of outstanding common stock required by the Utah Revised Business Corporation Act and our articles of incorporation to approve the actions described in this information statement. Accordingly, the actions will not be submitted to our remaining shareholders for a vote. This information statement is being furnished to shareholders to provide them with certain information concerning the actions in accordance with the requirements of the Securities Exchange Act of 1934 and the regulations promulgated thereunder, including Regulation 14C.
 
The date of this information statement is April ____, 2008.
 
We will pay all costs associated with the distribution of this information statement, including the costs of printing and mailing. We will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending this information statement to the beneficial owners of our common stock.
 
We will only deliver one information statement to multiple shareholders sharing an address unless we have received contrary instructions from one or more of the shareholders. We will promptly deliver a separate copy of this information statement to a shareholder at a shared address to which a single copy of the document was delivered upon oral or written request to:
 
United Heritage Corporation
Attn: Corporate Secretary
Suite 200, One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
Telephone (214) 800-2663


 
 
We are a “controlled company” as that term is defined by section 4350(c)(5) of the Nasdaq Marketplace Rules. A controlled company is a company of which more than 50% of the voting power is held by an individual, a group or another company. As of the Notice Date, approximately 53.7% of our outstanding common stock is owned by Blackwood Ventures LLC, sometimes referred to in this information statement as “Blackwood” or the “consenting shareholder”.
 
Pursuant to our bylaws and the Utah Revised Business Corporation Act, a vote by the holders of at least a majority of our outstanding capital stock is required to effect the actions described below. Each share of common stock is entitled to one vote.
 
As of the Notice Date, we had 7,246,850 shares of common stock issued and outstanding. Therefore, as of the Notice Date, 3,623,426 shares were required to pass the actions that required the approval of the holders of our common stock.
 
Pursuant to section 16-10a-704 of the Utah Revised Business Corporation Act, the consenting shareholder voted in favor of the actions described below in a written consent dated February 29, 2008. On February 29, 2008, the consenting shareholder was entitled to vote 3,887,999 shares of our 7,246,850 shares of common stock issued and outstanding on that date, which represented approximately 53.7% of the common stock that was issued and outstanding on that date.
 
 
Shareholders do not have the right to dissent or to seek appraisal of their shares of common stock in conjunction with any of the items discussed in this information statement.
 
 
By approving the items in this information statement, Blackwood has approved the issuance of securities to itself, as discussed at item 9 below, and to DK True Energy Development Ltd. and Blackwood Capital Limited, both of which are managing members of Blackwood. These transactions are discussed at item 1 and item 5 below. Blackwood has also approved the issuance of securities to Applewood Energy, Inc. and GWB Petroleum Consultants. These entities are controlled, respectively, by Mr. Paul D. Watson, our chief executive officer and chairman of our board of directors, and by Mr. Geoffrey W. Beatson, our vice president of engineering and production and chief operating officer.
 
 
On September 26, 2007 Mr. Walter G. Mize, formerly our largest shareholder, entered into a Restated Stock Sale Agreement which was effective as of September 18, 2007 with Blackwood, 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. The funds transferred to Mr. Mize from Blackwood to purchase the securities were Blackwood’s personal funds. The members of Blackwood are Blackwood Capital Ltd., DK True Energy Development Ltd., Emes Capital Partners LLC, Rabbi Tzvi Eichen, Berg Family Trust, Howard Berg Defined Benefit Plan, Howard Berg and Avi Masliansky. The managing members of Blackwood are DK True Energy Development Ltd., Emes Capital Partners LLC and Blackwood Capital Limited. Dr. David Kahn controls DK True Energy Development Ltd. On November 28, 2007 we entered into a consulting agreement with DK True Energy Development Ltd., as discussed at item 1 below. Messrs. Walter Reissman and Frank Magliato control Emes Capital Partners LLC. Blackwood Capital Ltd. is owned by a family trust the beneficiaries of which are the members of the Taylor-Kimmins family and is managed by Mr. Andrew Taylor-Kimmins. Blackwood Capital Ltd. has entered into a Consulting Agreement with United Heritage Corporation, as discussed in item 5 below and, in the past, was a consultant to Lothian Oil Inc. Other than the foregoing, neither Blackwood nor any of its affiliates has, or had within the past two years, a prior relationship with United Heritage Corporation, our affiliates, Lothian Oil Inc. or its affiliates.

2

 
On March 11, 2008, Blackwood purchased an additional 566,038 shares of our common stock. As of April 16, 2008, we had 7,812,888 shares of common stock outstanding. If all of the shares of common stock, including those represented by warrants or options, were issued as a result of the approval of items 1 through 11 by the consenting shareholder, we would have a total of 30,455,969 shares of common stock outstanding. Of this amount, Blackwood would own 7,655,028 shares, or approximately 25.1%, of our common stock, DK True Energy Development Ltd. would own 5,250,000 shares, or approximately 17.2% of our common stock and Blackwood Capital Limited would own 1,500,000 shares, or approximately 5% of our common stock. Collectively, then, these entities would own a total of 14,405,028 shares, or approximately 47.3% of our outstanding common stock.
 
Non-Compliance with Nasdaq Rules
 
On July 19, 2007 we received a letter from the Nasdaq Stock Market (“Nasdaq”) which indicated that we did not comply with Marketplace Rule 4310(c)(3) which requires us to have a minimum of $2,500,000 in shareholders’ equity or $35,000,000 market value of listed securities or $500,000 of net income from continuing operations for the most recently completed fiscal year or two of the three most recently completed fiscal years.
 
We had until August 3, 2007 to provide Nasdaq with a specific plan to achieve and sustain compliance with The Nasdaq Capital Market Listing Requirements. We submitted a plan on August 2, 2007 and Nasdaq granted us an extension of time to regain compliance. We were required to evidence compliance on the filing of our next periodic report or be subject to delisting.
 
On November 14, 2007 we filed our quarterly report on Form 10-QSB for the quarter ended September 30, 2007, which showed that we were not in compliance with Marketplace Rule 4310(c)(3).
 
On November 30, 2007 we received a letter from Nasdaq noting our failure to regain compliance by September 30, 2007 and indicating that trading of our common stock was to be suspended at the opening of business on December 11, 2007 unless we appealed the determination. We appealed the determination and a hearing took place before the Nasdaq Hearings Panel (the “Panel”) on January 17, 2008. As of December 31, 2007, as reported in our Quarterly Report on Form 10-QSB for the quarter then ended, our shareholders’ equity amount complies with Marketplace Rule 4310(c)(3) and we believe that we now have the capacity to maintain compliance with this requirement. On March 17, 2008 we received a letter from the Panel indicating that the Panel has determined to continue the listing of our common stock, subject to the condition that our Annual Report on Form 10-K for the fiscal year ended March 31, 2008 demonstrates compliance with the $2.5 million minimum shareholders’ equity requirement. If we fail to demonstrate shareholders’ equity of $2.5 million or greater, the Panel will promptly conduct a hearing with respect to the failure and our securities may be immediately delisted from The Nasdaq Stock Market. If we fail to comply with any requirement for continued listing other than shareholders’ equity, we will be provided with written notice of the deficiency and an opportunity to present a definitive plan to regain compliance. The Panel will thereafter render a determination with respect to our continued listing.
 
On January 31, 2008 we received a letter from Nasdaq indicating that, for a period of 30 consecutive business days, the bid price of our common stock closed below the minimum $1.00 per share requirement for continued inclusion under Marketplace Rule 4310(c)(4). According to the letter, we have until July 29, 2008 to regain compliance.
 
If we cannot demonstrate compliance by July 29, 2008, Nasdaq staff will determine whether we meet The Nasdaq Capital Market initial listing criteria as set forth in Marketplace Rule 4310(c), except for the bid price requirement. If we meet the initial listing criteria, we will be granted an additional 180 calendar day compliance period. If we are not eligible for an additional compliance period, our securities will be delisted. We may appeal this determination.
 
We believe, although we cannot guarantee, that during the next 12 months our operating results should improve and that this improvement may generate interest in our common stock, which may have an appreciative effect on our stock price.
 
We do not believe that any of the items discussed in this information statement will affect our ability to achieve compliance with Marketplace Rule 4310(c)(4).

3

 
 
The following table shows beneficial ownership as of April 16,, 2008 of shares of our common stock by all five percent shareholders, executive officers and directors.
 
We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. Under these rules, beneficial ownership generally includes voting or investment power over securities. The number of shares shown as beneficially owned in the tables below are calculated pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934. Under Rule 13d-3(d)(1), shares not outstanding that are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but not deemed outstanding for the purpose of calculating the percentage owned by each other person listed. Except as otherwise indicated, we believe that the beneficial owners listed below, based on the information furnished by these owners, have sole investment and voting power with respect to the securities indicated as beneficially owned by them, subject to applicable community property laws. As of April 16, 2008, there were 7,812,888 shares of common stock issued and outstanding.

Name and Address of Beneficial Owner  
 
Amount and Nature of Beneficial Owner
 
Percent of Class (1)
 
Blackwood Ventures LLC
230 Park Avenue, 10th Floor
New York, New York 10169
  
   
7,360,703(2
)
 
67.4
%
Paul D. Watson, chief executive officer and director  
   
0(3
)
     
Joseph F. Langston Jr., president,
chief financial officer and director
  
   
45,000(4
)
 
*
 
All officers and directors as a group
(5 persons)
  
   
45,000
   
*
 

* Less than 1%.
 
 
(1)
Based on 7,812,888 shares of common stock issued and outstanding as of April 16, 2008.

 
(2)
Blackwood Ventures LLC owns 4,454,037 shares of our common stock and warrants that allow it to purchase a total of 2,906,666 shares of common stock. The warrants were acquired from Mr. Walter Mize, who acquired them from Lothian Oil Inc. The warrants were issued on October 7, 2005, are immediately exercisable and have five year terms. This number also includes 128,000 shares of common stock issued to Blackwood Ventures LLC as a result of its agreement to accept units comprised of 128,000 shares of common stock and a warrant to purchase 209,012 shares of common stock at an exercise price of $1.40 per share in exchange for debt totaling $96,000. This number does not include the warrant included in the units or an additional 48,750 shares of common stock and a warrant to purchase 36,563 shares of common stock at an exercise price of $1.40 per share in exchange for debt totaling $39,000. These securities will not be issued until 20 days following the date we mail this information statement to our shareholders. Voting and investment control over the shares held by Blackwood Ventures LLC is exercised by Mr. Andrew Taylor-Kimmins, Dr. David Kahn and Mr. Walter Reissman, collectively.

 
(3)
In November 2007 we entered into a Consulting Agreement with Applewood Energy, Inc., an entity controlled by Mr. Watson. Pursuant to that agreement, we agreed to issue to Applewood Energy, Inc. shares of our common stock having a value of $60,000. We have not yet issued these shares.

 
(4)
In October 2007 Mr. Langston agreed to be interim president and director for $7,500 per month, payable $2,500 in cash and the balance in common stock at an agreed-upon value of $0.75 per share. We are required to issue 20,000 shares of our common stock to Mr. Langston in exchange for the services he rendered pursuant to this agreement, although the shares have not yet been issued. As of January 1, 2008, Mr. Langston agreed to be president, chief financial officer and a director in exchange for compensation consisting of cash, common stock and options to purchase common stock. None of the compensation to be paid with common stock or options has yet been paid. The 45,000 shares included in the table above were purchased in the market by Mr. Langston. 17,000 shares were purchased for his adult child and 28,000 shares were purchased for a retirement account. Mr. Langston disclaims ownership in the securities purchased for his child.
 
4

 
Notice to Shareholders of Actions Approved
 
The following actions are based upon the unanimous consent of our board of directors and upon the consent of the consenting shareholder. A copy of the resolution executed by the consenting shareholder is attached to this information statement as Annex 1.
 
 
We are required by Nasdaq Marketplace Rule 4350(i)(1)(A) to obtain shareholder approval of any equity compensation arrangement pursuant to which an employee or consultant will acquire our securities. We are required by Nasdaq Marketplace Rule 4350(i)(1)(D) to obtain shareholder approval in connection with a transaction other than a public offering involving the sale, issuance or potential issuance of our common stock (or securities convertible into or exercisable into our common stock) equal to 20% or more of our common stock or 20% or more of the voting power outstanding before the issuance if the securities are sold for less than the greater of book or market value of our common stock.
 
Items 1 through 6 required approval under Nasdaq Marketplace Rule 4350(i)(1)(A) and items 7 through 11 required approval under Nasdaq Marketplace Rule 4310(i)(1)(D).
 
The following table provides you with information regarding the number of shares of common stock or warrants to purchase common stock that will or may be issued as a result of the approval of items 1 through 11 by the consenting shareholder.

 
Name
 
Type of
Security
 
Number of
Shares That
May Be Issued
 
Purpose of
Issuance
 
Total of All Shares
of Common Stock
That May Be Issued
 
1  
 
DK True Energy Development Ltd./RTP Secure Energy Corp.  
 
Warrant to purchase
common stock  
 
0
(1)  
Compensation for services rendered/compensation for meeting milestones  
 
0
 
2  
 
Applewood Energy, Inc. (2)  
 
Common stock  
 
97,827
(5)
Signing inducement/annual bonus compensation  
 
  
 
    
 
    
 
Warrant to purchase
common stock  
 
1,600,000
  
Compensation for meeting milestones  
 
1,697,827
 
2  
 
GWB Petroleum Consultants Ltd. (3)  
 
Common stock  
 
160,000
(5) 
Annual bonus
compensation  
 
  
 
    
 
    
 
Warrant to purchase
common stock  
 
1,000,000
 
Compensation for meeting milestones  
 
1,160,000
 
3  
 
Richardson & Patel LLP (4)   
 
Common stock  
 
296,856
 
Payment for legal services rendered  
 
  
 
    
 
    
 
Warrant to purchase
common stock  
 
222,642
 
Payment for legal services rendered  
 
519,498
 
4  
 
Placement Agent  
 
Common stock  
 
482,800
(6)
Payment for placement agent services  
 
  
 
    
 
    
 
    
 
115,338
(7)
Monthly retainer in the amount of $15,000
(six months)  
 
598,138
 
5  
 
Blackwood Capital
Limited (8)  
 
Warrant to purchase
common stock  
 
1,500,000
 
Payment for services rendered  
 
1,500,000
 
6  
 
United Heritage Corporation 2008 Equity Incentive Plan  
 
Common stock and options to purchase
common stock  
 
5,000,000
 
Awards to employees and others for services (9)  
 
5,000,000
 
 
5

 
7  
 
Warrants to be issued to investors  
 
Warrants to purchase common stock  
 
1,306,325
 
Capital raising transaction  
 
1,306,325
 
8  
 
Common stock and warrants to be issued to investors  
 
Common stock  
 
8,998,200
(10) 
    
 
8,998,200
(9)
9  
 
Blackwood Ventures LLC  
 
Common stock  
 
48,750
 
Payment of debt  
 
  
 
    
 
    
 
Warrant to purchase
common stock  
 
36,563
 
    
 
85,313
 
10  
 
Common stock to be issued to investors  
 
Common stock  
 
666,667
 
Capital raising transaction  
 
666,667
 
11  
 
Estate of Walter G. Mize (11)  
 
Common stock  
 
1,111,113
 
Cancellation of put right  
 
1,111,113
 
Total number of additional shares issuable  
 
22,643,081
 

 
(1)
The warrant granted to DK True Energy Development Ltd. and RTP Secure Energy Corp. may be exercised only on a cashless basis. By exercising on a cashless basis the warrantholder authorizes us to withhold from issuance the number of shares of common stock that would otherwise be issuable upon the exercise of the warrant which, when multiplied by the fair market value of the common stock as of the date of exercise, is equal to the aggregate exercise price. According to the warrant agreements, the fair market value of the common stock on the date of exercise is computed by averaging the last reported sale price of the common stock over the 30 trading day period preceding the exercise date. The following example is for illustrative purposes only: assuming that all vesting conditions were met and that DK True Energy Development Ltd. and RTP Secure Energy Corp. exercised all of the warrants on February 19, 2008, using the 30-day trading average of the last sale price of the common stock for the period from January 4, 2008 through February 15, 2008 (which would be $0.835), we would not be required to issue any shares of common stock to the warrantholders. Instead, in order to pay the exercise price, DK True Energy Development Ltd. would be required to transfer to us 6,601,796 shares of our common stock (all 5,250,000 shares of common stock represented by the warrant plus an additional 1,351,796 shares) and RTP Secure Energy Corp. would be required to transfer to us 4,715,569 shares of common stock (all 3,750,000 shares of common stock represented by the warrant plus an additional 965,569 shares). We will not be required to issue any shares of common stock in exchange for exercise of the warrant until the fair market value of our common stock exceeds $1.05 per share, the exercise price of the warrant shares. The person with voting and investment control over the securities issued to DK True Energy Development Ltd., and the beneficial owner of the securities, is Dr. David Kahn. The person with voting and investment control over the securities issued to RTP Secure Energy Corp., and the beneficial owner of the securities, is Mr. Raymond T. Pirraglia.

 
(2)
Applewood Energy, Inc. is a personal services corporation. Our chief executive officer, Paul D. Watson, is the sole shareholder and officer. Mr. Watson has voting and investment control over the securities issued to Applewood Energy, Inc. and is the beneficial owner of the securities.
 
(3)
GWB Petroleum Consultants Ltd. is a personal services corporation. Our vice president of engineering and production and chief operating officer, Geoffrey Beatson, is the sole shareholder and officer. Mr. Beatson has voting and investment control over the securities issued to GWB Petroleum Consultants Ltd. and is the beneficial owner of the securities.
 
(4)
Erick Richardson has voting and investment control over the securities issued to Richardson & Patel LLP. The securities are beneficially owned by the partners of Richardson & Patel LLP.

 
(5)
The number of shares has been computed using the per share price of $1.84, the closing price of our common stock on November 28, 2007, the date on which the agreements were signed. We have included in this computation the number of shares of common stock that we will be required to issue (using the closing price on November 28, 2007 for purposes of this illustration) at the conclusion of the first and second years of the consulting agreements we entered into with Applewood Energy, Inc. and GWB Petroleum Consultants Ltd. These agreements are more fully discussed in the section titled “Item 2 – Common Stock and Warrants to be Issued Pursuant to Consulting Agreements with Applewood Energy, Inc. and GWB Petroleum Consultants Ltd.”

 
(6)
This example is for illustrative purposes only. If the offering discussed in proposal 10 had closed on February 13, 2008, the placement agent would receive 482,800 shares of our common stock as a portion of its fee. Please see the discussions of item 4 and item 8 for further information on the fee to be paid to the placement agent and the manner in which it would be computed.
 
6

 
 
(7)
This example is for illustrative purposes only. A description of our proposed agreement with a placement agent to be identified and approved by our board of directors is included in the discussion of item 4. For purposes of this table, we have assumed that the monthly retainer fee over the term of the agreement would be paid with our common stock having a volume weighted average price of $0.7803.

 
(8)
Blackwood Capital Limited, DK True Energy Development Ltd. and Emes Capital Partners LLC are the managing members of Blackwood Ventures LLC. Blackwood Ventures LLC is our largest shareholder. Andrew Taylor-Kimmins has voting and investment control over the securities issued to Blackwood Capital Limited, and a family trust, the beneficiaries of which are the members of the Taylor-Kimmins family, are the beneficial owners of the securities.

 
(9)
We intend to issue an option from the United Heritage Corporation 2008 Equity Incentive Plan to our president and chief financial officer, Joseph F. Langston Jr., to purchase 1,500,000 shares of our common stock upon the attainment of certain milestones. We also intend to issue to Mr. Langston 80,000 shares of our common stock from the United Heritage Corporation 2008 Equity Incentive Plan as an inducement to enter into an employment agreement and we are entitled to pay Mr. Langston his annual salary of $60,000 with shares of our common stock, which we would issue from the United Heritage Corporation 2008 Equity Incentive Plan. If we chose to pay Mr. Langston with our common stock, based on the per share price of our common stock on January 15, 2008, the date of our agreement with him, we would be required to issue to him an additional 73,170 shares of common stock.
 
(10)
This example is for illustrative purposes only. If the offering had closed on February 15, 2008, we would have been required to issue 5,998,800 shares of common stock and warrants for the purchase of 2,999,400 shares of common stock based on the terms of the offering. This is more fully explained in the discussion of item 8 below. As of the date of this information statement, the offering had not yet closed.
 
(11)
Mary Ann Mize is the representative of the Estate of Walter Mize and has voting and investment control over the securities issued to the Estate of Walter Mize. The securities are beneficially owned by the beneficiaries of the Estate of Walter Mize.
 
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ITEMS 1 THROUGH 6 — APPROVAL OF THE ISSUANCE OF SECURITIES AS REQUIRED BY NASDAQ MARKETPLACE RULE SECTION 4350(i)(1)(A).
 
Reason for Obtaining Shareholder Approval
 
As discussed in more detail below, we propose to issue our common stock or warrants to purchase our common stock to certain consultants in exchange for services to be rendered to us. Because of the dilution that these compensation arrangements will cause to existing shareholders, Nasdaq Marketplace Rule 4350(i)(1)(A) requires us to obtain shareholder approval of any equity compensation arrangement pursuant to which an employee or consultant will acquire our securities. One of the consultants who will receive our securities is DK True Energy Development Ltd. DK True Energy Development Ltd. is a member of Blackwood Ventures LLC, a shareholder that controls approximately 53.7% of our issued and outstanding common stock.
 
The last sale price of our common stock on the trading day immediately prior to the Notice Date was $0.63.
 
Securities Issuances That Have Been Approved:

 
Warrants to be Issued Pursuant to a Consulting Agreement with DK True Energy Development Ltd. and RTP Secure Energy Corp.
 
The discussion that follows is only a brief description of the transaction and is qualified in its entirety by reference to the Consulting Agreement between us and DK True Energy Development Ltd. and RTP Secure Energy Corp. and the warrants issued pursuant to that agreement, which are attached as exhibits to our Current Report on Form 8-K filed with the Securities and Exchange Commission on December 3, 2007 and available for review at www.sec.gov.
 
On November 27, 2007 our board of directors approved, and on November 28, 2007 we entered into, a 12 month Consulting Agreement (the “DK/RTP Consulting Agreement”) with DK True Energy Development Ltd. and RTP Secure Energy Corp. (the “Consultants”). The Consultants are to provide services to us which include, but are not limited to, reservoir analysis and geological and engineering expertise.
 
DK True Energy Development Ltd. is a company controlled by Dr. David Kahn. Dr. Kahn is a reservoir engineer with 20 years experience in heavy oil projects with Texaco and Baker Hughes and, more recently, was a principal in development stage heavy oil companies that engaged in merger and acquisition transactions with Megawest Energy Inc. and Pearl Exploration and Production Ltd., a Canadian-based oil and gas company.
 
RTP Secure Energy is a consulting company controlled by Mr. Raymond T. Pirraglia. Mr. Pirraglia, a business attorney with over 25 years experience, has worked with oil and gas companies in mergers, acquisitions and other transactions in recent years. He has been a principal with Dr. Kahn in the development, acquisition and disposition of certain heavy oil assets and companies.
 
In lieu of cash compensation, the Consultants have agreed to accept warrants to purchase up to a total of 9,000,000 shares of our common stock at an exercise price of $1.05 per share, exercisable after December 31, 2007 and only on a cashless basis. In order to determine the number of shares that would be issued, the warrant holder must multiply the difference between the fair market value of the common stock and the warrant exercise price times the number of shares to be purchased and divide the product by the fair market value of the common stock. The fair market value of the common stock is computed by taking the average of the closing bid and asked prices of the common stock quoted in the Over-The-Counter Market or the last reported sale price of the common stock or the closing price quoted on the Nasdaq Capital Market or on any exchange on which the common stock is listed for the 30 trading days prior to the date of the company’s receipt of the warrant. The warrants will have a term of 5 years. The parties have allocated the warrants so that DK True Energy Development Ltd. will have the right to purchase 5,250,000 shares of our common stock and RTP Secure Energy will have the right to purchase 3,750,000 shares of our common stock. Blackwood Ventures LLC, has executed a voting agreement to approve the Consultants’ warrants. The right to purchase 1,147,500 shares of our common stock will vest 20 days following the date that this information statement is sent to our shareholders; the right to purchase 2,452,500 shares of common stock will vest when we announce that we are implementing a development program based on the results of a pilot program completed for the Wardlaw field; and the right to purchase 5,400,000 shares of our common stock will vest at the rate of 675,000 shares when we produce an average of 250 barrels of oil per day over 30 days (“bopd30av”), 500 bopd30av, 750 bopd30av, 1,000 bopd30av, 1,250 bopd30av, 1,500 bopd30av, 1750 bopd30av and 2,000 bopd30av. The warrant will be fully vested when production reaches 2,000 bopd30av.

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Notwithstanding the foregoing, the Consultants’ warrants will vest entirely upon a change of control transaction, including an agreement for the sale or disposition of more than 50% of our interest in the Wardlaw field.

The DK/RTP Consulting Agreement requires the Consultants to undertake the risk of performing services for us in exchange solely for warrants for the purchase of restricted shares of our common stock. Because the agreement does not require any cash payment be made to the Consultants and because the majority of the warrants will vest only upon the attainment of certain performance targets, our board of directors believed that the agreement was fair to us and, on that basis, approved it. Our board of directors believes that the terms of the DK/RTP Consulting Agreement are more favorable to us than any agreement we would have made with an unaffiliated third party, since it is unlikely that we would be able to obtain comparable services on these terms. The DK/RTP Consulting Agreement was unanimously approved on November 27, 2007 by the members of our board of directors, none of whom was interested in the transaction.
 
 
Common Stock and Warrants to be Issued Pursuant to Consulting Agreements with Applewood Energy, Inc. and GWB Petroleum Consultants.
 
The discussion that follows is only a brief description of the transactions and is qualified in its entirety by reference to the Independent Consulting Services Agreement between us and Applewood Energy, Inc. (“Applewood”) and the Independent Consulting Services Agreement between us and GWB Petroleum Consultants ltd. (“GWB”), which are attached as exhibits to our Current Report on Form 8-K filed with the Securities and Exchange Commission on December 4, 2007 and available for review at www.sec.gov.
 
On November 27, 2007 our board of directors approved, and on November 28, 2007 we entered into, an Independent Consulting Services Agreement with Applewood (the “Applewood Consulting Agreement”). The effective date of the Applewood Consulting Agreement was November 1, 2007.
 
Pursuant to the Applewood Consulting Agreement, Applewood, a personal services corporation, agreed to provide to us the services of Mr. Paul D. Watson, its sole shareholder. We entered into this agreement with Applewood rather than with Mr. Watson individually at the request of Mr. Watson. Mr. Watson currently provides services to us as our chief executive officer and as the chairman of our board of directors.
 
Mr. Watson, age 56, was appointed to our board of directors and as our chief operating officer on November 27, 2007. On January 14, 2008, Mr. Watson relinquished his position as chief operating officer and was appointed as our chief executive officer and as chairman of the board of directors. Mr. Watson provides services to us on a full time basis, although he devotes approximately one hour per month to Applewood Energy, Inc. Mr. Watson is an oil and gas consultant, developer, acquirer and financier with 34 years experience at public and private natural resources and energy companies worldwide. From May 2004 through October 2007 he was the vice president of exploration and a member of the board of directors at Energy 51 Ltd./Watch Resources Ltd., a Canadian energy corporation. Prior to joining Energy 51 Ltd./Watch Resources Ltd., Mr. Watson was the vice president of exploration at Trafina Energy from July 2000 to May 2004. Mr. Watson has also served as a consultant to numerous energy companies, including Kelman Technologies, Inc., of which he is a director, Reliance Engineering Group, Inc. and Reflect Technology, Inc. Mr. Watson began his career as a junior geologist in 1973 after earning his Bachelor of Science degree in geology at the University of Alberta, Edmonton, Alberta, Canada.
 
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As compensation for Mr. Watson’s services, we agreed to issue to Applewood shares of our common stock having a value of $60,000 and to pay cash compensation of $5,000 per month. We began paying the monthly cash compensation in December 2007. We have not yet issued the shares of common stock. The Applewood Consulting Agreement requires us to use the closing price of our common stock on the date the agreement was executed to compute the number of shares to be issued. On November 28, 2007 the closing price of our common stock was $1.84, therefore we are required to issue to Applewood 32,609 shares of our common stock. Upon completion of the first and second years of the Applewood Consulting Agreement and provided it is not terminated in accordance with its terms, we have agreed to pay Applewood a bonus equal to the amount of the annual compensation. The bonus will be paid with our common stock. Furthermore, upon the achievement of certain milestones related to the development of oil production on the Wardlaw field, Applewood will also receive a warrant to purchase a total of 1,600,000 shares of our common stock. The warrant will have a term of five years and will vest as follows: (i) the right to purchase 400,000 shares of common stock at an exercise price of $2.00 per share will vest upon completion of a successful pilot; (ii) the right to purchase 400,000 shares of common stock at an exercise price of $2.00 per share will vest when the 30 day average for production reaches 1,000 barrels of oil equivalent per day (“boe/d”); (iii) the right to purchase 400,000 shares of common stock at an exercise price of $2.50 per share will vest when the 30 day average for production reaches 2,000 boe/d; and (iv) the right to purchase 400,000 shares of common stock having an exercise price of $3.00 per share will vest when the 30 day average for production reaches 3,000 boe/d. The warrant was issued on December 31, 2007. The value of the warrant is $1,176,000. The value of the warrant was computed using the Black Scholes Option Pricing Model using the following assumptions: market price of $1.65; strike price from $2.00 to $3.00; risk free rate between 3.37% and 3.05%; no dividend rate; an expected term of nine months to 25 months; and a volatility rate of 148.1% to 93.6%.
 
Also approved on November 27, 2007 and entered into on November 28, 2007 was an Independent Consulting Services Agreement with GWB (the “GWB Consulting Agreement”).
 
Pursuant to the GWB Consulting Agreement, GWB, which is also a personal services corporation, agreed to provide to us the services of Mr. Geoffrey W. Beatson, its sole shareholder. We entered into this agreement with GWB rather than with Mr. Beatson individually at the request of Mr. Beatson. Mr. Beatson will provide services as our vice president of engineering and production.
 
Mr. Beatson, aged 48, has more than two decades’ experience in the oil and gas industry. From August 2005 to December 2007, Mr. Beatson was the vice president of engineering and operations at Energy 51/Watch Resources Ltd. where he developed innovative techniques to produce heavy oil and presented his findings at the Lloydminster heavy oil conference in 2007. Prior to accepting the position at Energy 51/Watch Resources Ltd., Mr. Beatson was the vice president of engineering with Bunker Energy, Inc. where, between December 2003 and August 2005, he performed reservoir studies, production optimization, drilling and completion program design and implementation. From 1996 to December 2003, Mr. Beatson was the British Columbia team leader, then chief reservoir engineer then director of engineering and economics, at Encal Energy Ltd. From November 1994 until December 1995, Mr. Beatson was the senior business development engineer at Anderson Exploration Ltd., where he evaluated potential properties and corporate acquisition targets. Mr. Beatson earned his A.P.E.G.G.A. Management Development Certificate, his Certified Administrative Manager Certificate and his Bachelor of Science degree in mechanical engineering at the University of Calgary, Alberta in 1983.
 
As compensation for Mr. Beatson’s services, and because GWB did not elect to accept our common stock as a portion of the compensation it receives for Mr. Beatson’s services, we agreed to pay GWB $550 per day until January 1, 2008 at which time the compensation was increased to $12,000 per month. We began paying the monthly cash compensation in December 2007. Upon completion of the first and second years of the GWB Consulting Agreement and provided it is not terminated in accordance with the terms thereof, we have agreed to pay GWB a bonus. The bonus will be paid with our common stock. The bonus will equal the amount of GWB’s annual cash compensation. Like the Applewood Consulting Agreement, upon the achievement of certain milestones related to the development of oil production on the Wardlaw field, GWB will also receive a warrant to purchase a total of 1,000,000 shares of our common stock. The warrant will have a term of five years and will vest as follows: (i) the right to purchase 250,000 shares of common stock at an exercise price of $2.00 per share will vest upon completion of a successful pilot; (ii) the right to purchase 250,000 shares of common stock at an exercise price of $2.00 per share will vest when the 30 day average for production reaches 1,000 boe/d; (iii) the right to purchase 250,000 shares of common stock at an exercise price of $2.50 per share will vest when the 30 day average for production reaches 2,000 boe/d; and (iv) the right to purchase 250,000 shares of common stock having an exercise price of $3.00 per share will vest when the 30 day average for production reaches 3,000 boe/d. The value of the warrant is $735,000. The value of the warrant was computed using the Black Scholes Option Pricing model using the following assumptions: market price of $1.65; strike price from $2.00 to $3.00; risk free rate between 3.49% and 3.05%; no dividend rate; an expected term of nine months to 25 months; and a volatility rate of 148.1% to 93.6%.
 
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The terms of the Applewood Consulting Agreement and the GWB Consulting Agreement were negotiated between us and Messrs. Watson and Beatson at arms length. Messrs. Watson and Beatson were not affiliated with us when we entered into these agreements.
 
Overall Effects of Items 1 and 2
 
By issuing common stock and warrants to the consultants, we are able to obtain services that are critical to the development of the Wardlaw field without having to spend significant amounts of cash. Furthermore, we believe that ownership of our securities will align the interests of the consultants with our shareholders.
 
However, by issuing the common stock and the warrants to purchase our common stock, our remaining shareholders will be diluted by the issuance of a substantial number of additional shares.
 
As to the warrants issued to DK True Energy Development Ltd. and RTP Secure Energy Corp., which may be exercised only on a cashless basis, assuming that all vesting conditions were met and that DK True Energy Development Ltd. and RTP Secure Energy Corp. exercised all of the warrants on February 19, 2008, using the 30 trading-day average of the last sale price of the common stock for the period from January 4, 2008 through February 15, 2008 (which would be $0.835), we would not be required to issue any shares of common stock to these consultants. Instead, in order to pay the exercise price, DK True Energy Development Ltd. would be required to transfer to us 6,601,796 shares of our common stock (all 5,250,000 shares of common stock represented by the warrant plus an additional 1,351,796 shares) and RTP Secure Energy Corp. would be required to transfer to us 4,715,569 shares of common stock (all 3,750,000 shares of common stock represented by the warrant plus an additional 965,569 shares).
 
As to the shares of common stock and warrants issued to Applewood and GWB, assuming that all vesting conditions are met and that Applewood and GWB exercise all of the warrants, we would be required to issue a total of 1,632,609 shares of common stock pursuant to the Applewood Consulting Agreement and 1,000,000 shares of common stock pursuant to the GWB Consulting Agreement.

 
Issuance of a Warrant to Richardson & Patel LLP in Exchange for Legal Services.
 
On December 19, 2007, we entered into an Agreement to Convert Debt with Richardson & Patel, LLP pursuant to which Richardson & Patel LLP agreed to accept (i) 296,856 shares of our common stock and (ii) a warrant for the purchase of 222,642 shares of our common stock in full payment of $237,485.15 in legal services previously rendered. The warrant has an exercise price of $1.40 per share, a term of seven years and a cashless exercise provision, at the holders’ election, such that fewer than 222,642 shares may be issued upon full exercise. The debt was converted at the rate of $0.80 per share. On December 18, 2007, the closing price of our common stock was $0.92.
 
Overall Effect of Item 3
 
As a public company we rely heavily on services provided to us by our legal counsel. By issuing common stock and warrants to our attorneys, we are able to obtain these services while conserving our cash.
 
However, as indicated by the discussion of items 1 and 2 above, by issuing our common stock and/or warrants to purchase our common stock in exchange for services, the common stock of our remaining shareholders will be significantly diluted. If Richardson & Patel, LLP elects to exercise the warrant for cash, we will be required to issue an additional 222,642 shares of common stock although we will receive $311,699 in proceeds from the exercise.

 
Issuance of Securities to a Placement Agent in Exchange for Placement Agent Services.
 
We intend to engage the services of a placement agent to assist us with raising capital as and when we need it. Our board of directors has approved a term of such agreement not to exceed six months and that the engagement may be exclusive during this period. Our board of directors and our consenting shareholder have approved the issuance of common stock and warrants to purchase common stock to a placement agent to be determined by our board of directors on the terms described below.
 
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In the event that the placement agent is successful in placing our securities, we may pay up to 8% of the gross proceeds up to $5,000,000 and up to 4% of the gross proceeds in excess of $5,000,000 and to issue to the placement agent warrants to purchase shares of our common stock in an amount up to 8% of the number of shares of common stock actually issued in the offering, or in the case of convertible preferred stock, up to 8% of the number of shares of common stock into which the preferred stock so issued is initially convertible, or in the case of convertible debentures up to 8% of the number of shares of common stock into which the debentures are initially convertible. If we were to issue non-convertible subordinated debt during the term of the placement agent agreement, we may pay the placement agent up to 8% of the amount funded to us. Furthermore, if we issue equity interests along with the subordinated debt, the placement agent may also receive up to 8% of the equity securities issued to the holders of the subordinated debt. The warrants may include piggy-back registration rights covering the common stock to be issued upon their exercise. The per share exercise price of any warrants issued to the placement agent will be no less than equal 100% of the price of the common stock issued in the offering, or in the case of convertible preferred stock or convertible debentures, the initial conversion price of such convertible securities. The exercise price and the number of shares of common stock issuable upon exercise of the warrants would be subject to customary adjustment in the case of stock splits, combinations and recapitalizations. The warrants may also have a cashless exercise provision.
 
Our board of directors has also approved that we may pay a placement agent a monthly retainer in an amount up to $15,000. The placement agent may elect to have the retainer paid with shares of our common stock valued at the volume weighted average price of our common stock for the five trading days preceding the end of the applicable month of service. As an example, if the placement agent had provided services to us during January 2008 and had elected to receive the monthly retainer in shares of our common stock, we would have been required to issue 19,223 shares of common stock based on the volume weighted average price of $0.7803 for the five trading days preceding January 31, 2008.
 
Overall Effect of Item 4
 
Like items 1, 2 and 3, an agreement with a placement agent may require us to issue our common stock and warrants to the placement agent in exchange for placement agent services provided to us. Depending on the amount of the offerings that we undertake or the average volume weighted average price of our common stock, the number of shares and warrants we would be required to issue could be significant, which would have a dilutive effect on our shareholders.

 
Issuance of Warrants to Blackwood Capital Limited in Exchange for Services.
        
    On January 15, 2008 we entered into a Consulting Agreement with Blackwood Capital Limited, which is a managing member of our controlling shareholder. Blackwood Capital Limited began providing services to us beginning on September 1, 2007. The services provided to us by Blackwood Capital Limited include assisting us with preparing business plans and projections, analyzing our financial data, advising us on our capital structure and on alternative structures for raising capital, reviewing our managerial needs and advising us with respect to retaining the services of managerial candidates, advising us on public relations. We may, in the future, also receive services from Blackwood Capital Limited relating to acquisitions or mergers or undertaking a public offering. Blackwood Capital Limited introduced us to Paul Watson, our chief executive officer, Joseph F. Langston Jr., our chief financial officer, Geoffrey Beatson, who provides consulting services to us through GWB Petroleum Consultants, Dr. David Kahn, who provides consulting services to us through DK True Energy Development Ltd., and Raymond T. Pirraglia, who provides consulting services to us through RTP Secure Energy Corp. Our consulting agreement with Blackwood Capital Limited has a term of one year, but may be terminated by either party on 45 days notice. A termination will not release us from the payment of the compensation called for by the agreement. In payment for the services rendered to us, and as an inducement to render further services to us, we agreed to issue to Blackwood Capital Limited a warrant for the purchase of 1,500,000 shares of our common stock at an exercise price of $1.05 per share. The term of the warrant is four years and the warrant has a cashless exercise provision, at the holder’s election, such that fewer than 1,500,000 shares may be issued upon full exercise. On January 15, 2008, the closing price of our common stock was $0.82. The Consulting Agreement also requires us to pay to Blackwood Capital Limited, from September 1, 2007 through the term of the agreement, cash compensation of $15,000 per month.
 
 
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Our board of directors unanimously determined that the services provided to us by Blackwood Capital Limited constitute a significant contribution to our company and that it would be in the best interests of our shareholders that such services continue. Our board of directors determined that the compensation terms provided in our consulting agreement with Blackwood Capital Limited are as favorable as, or more favorable than, the terms we would have received from an unaffiliated third party providing similar services. The Consulting Agreement with Blackwood Capital Limited was unanimously approved on January 15, 2008 by the members of our board of directors, none of whom was interested in the transaction.
 
Overall Effect of Item 5
 
Our agreement with Blackwood Capital Limited will require us to issue a warrant for 1,500,000 shares of our common stock in exchange for services provided to us. If the warrant is fully exercised for cash, the common stock of our remaining shareholders will be diluted by that number of shares. However, if Blackwood Capital Limited fully exercises the warrant, we will receive $1,575,000 in proceeds.

 
Approval of the United Heritage Corporation 2008 Equity Incentive Plan.
 
In January 2008, our board of directors approved and adopted the United Heritage Corporation 2008 Equity Incentive Plan (the “Plan”). We have reserved 5,000,000 shares of common stock for awards that will be granted from the Plan. The awards are subject to adjustment in the event of stock dividends, recapitalizations, stock splits, reverse stock splits, subdivisions, combinations, reclassifications or similar changes in our capital structure. The Plan became effective upon adoption by the board, and, unless earlier terminated in accordance with the terms and provisions thereof, will remain in effect for a period of ten years from the date of adoption. As of March 6, 2008, the last trading day immediately prior to the Notice Date, the shares of common stock reserved for the Plan had a market value of $0.63 per share.
 
Purpose
 
The purpose of the Plan is to enable us to offer our officers, directors, employees, agents and consultants (each, individually, a “Participant” and, collectively the “Participants”), equity-based incentives in the company, thereby attracting, retaining and motivating highly qualified Participants and strengthening the mutuality of interests between these Participants and our shareholders. Generally, grants under the Plan are nontransferable and are exercisable during the lifetime of a Participant only by the Participant.
 
What follows is a summary of the material terms of the Plan. The Plan itself contains considerably more detail than the summary set forth below, which does not purport to be a complete description of the terms and conditions of the Plan, and which is qualified in its entirety by reference to the actual Plan, a copy of which is annexed to this information statement as Annex 2.
 
Administration
 
The Plan will be administered by our board, or a committee made up of two or more members of our board, who will have full power to, among other things:

 
(i)
Construe and interpret the Plan and any agreement or instrument entered into pursuant to the Plan;

 
(ii)
amend or terminate the Plan, provided , however , the board will not amend the Plan in any manner that requires shareholder approval, without such approval;

 
(iii)
prescribe, amend, and rescind rules or regulations relating to the Plan or any awards granted under the Plan;

 
(iv)
select eligible Participants to receive awards under the Plan;

 
(v)
determine the form, terms and conditions of the awards to be granted under the Plan; and

 
(vi)
make all other determinations, or take such other actions, as may be necessary or advisable for the administration of the Plan.
 
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Eligibility
 
Among the Participants eligible to receive grants under the plan, only employees, including officers and directors who are also employees, are eligible to receive incentive stock options. As of February 19, 2008, we had two full-time and two part-time employees, three non-employee directors and various consultants who are retained on an as-needed basis.
 
Stock Option Awards
 
Under the terms of the Plan, the board may grant stock option awards qualifying as incentive stock options (“ISOs”) under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), and nonqualified stock options (“NQSO”) (each, individually, an “Option Award”, and, collectively, “Option Awards”). All Option Awards will be evidenced by an award agreement in such form and containing such terms and conditions as the board may approve from time to time in its discretion (an “Option Award Agreement”). The term of an Option Award will be fixed by the board, but will not exceed a period of ten years from the date of grant (or five years in the case of an ISO granted to a person beneficially owning shares representing 10% or more of the total combined voting power of all classes of our stock (a “10% Shareholder”). Notwithstanding the foregoing, the term of an Option Award is subject to adjustment on the basis of a Participant’s termination of service. The exercise price for any Option Award will not be less than 85% of the fair market value of our common stock on the date of grant (or not less than 100% of the fair market value of our common stock on the date of grant in the case of an ISO granted to a 10% Shareholder). The fair market value will be the closing price of our common stock on the applicable market on which it is listed or quoted on the date of grant.
 
Payment for shares of common stock purchased upon exercise of an Option Award must be made in full at the time of purchase. Payment may be made in cash or, where expressly approved by the board, by (i) cancellation of indebtedness owed by us to the Participant; (ii) surrender of shares owned for at least six months on the date of transfer; (iii) surrender of shares that were obtained in the public market; (iv) waiver of compensation due or accrued for services rendered; (v) under certain limited circumstances, through “same day sale” or “margin” commitments from the Participant and an NASD member broker-dealer, whereby the Participant irrevocably elects to exercise the Option Award and sell a portion of the underlying shares of common stock to pay the exercise price, and the broker-dealer irrevocably commits upon receipt of the shares of common stock to forward the exercise price to us; or (vi) by any combination of these payment methods.
 
Stock Awards
 
Under the terms of the Plan, the board may grant stock awards (each, individually, a “Stock Award”, and, collectively, “Stock Awards”). A Stock Award is an offer by the company to sell to eligible persons shares of our common stock that may or may not be subject to restrictions, such as completion of a specified number of years of service or of certain specified performance goals. The board will determine to whom such an offer will be made, the number of shares of common stock the person may purchase, the price to be paid, the restrictions to which the shares will be subject, if any, and all other terms and conditions as the board may impose. All Stock Awards will be evidenced by a Stock Award Agreement, and the purchase price for any Stock Award will not be less than 85% of the fair market value of our common stock on the date of grant (or not less than 100% of the fair market value of our common stock on the date of grant in the case of Stock Awards to 10% Shareholders).
 
Payment for shares of common stock purchased upon exercise of a Stock Award must be made in full at the time of purchase. Payment for Stock Awards may be made in the same manner as payment upon exercise of an Option Award.
 
Stock Bonuses
 
Under the terms of the Plan, the board may grant stock bonuses (each, individually, a “Stock Bonus” and, collectively, “Stock Bonuses”). A Stock Bonus is an award of shares of common stock for extraordinary services rendered to us. A Stock Bonus may be conditioned upon the satisfaction of certain specified performance goals. All Stock Bonuses will be evidenced by a Stock Bonus Award Agreement.
 
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The earned portion of any Stock Bonus may be paid currently or on a deferred basis, as agreed by the Participant and the company, and with interest or dividend equivalents, if any, being paid in cash, shares of common stock or a combination thereof, and either as a lump sum payment or in installments.
 
Federal Income Tax Consequences
 
What follows is a general discussion of material United States federal income tax consequences associated with our granting of Option Awards under the Plan. This discussion is based on the Code and Treasury Department regulations promulgated thereunder, any or all of which may materially change at any time, possibly on a retroactive basis. This discussion does not consider the potential effects, adverse or beneficial, of any proposed changes in the governing tax law. This discussion does not purport to be complete, and does not address the United States federal tax consequences that may apply upon the death of a Participant, nor does it address any state, local or non-United States tax consequences that may be associated with participation in the Plan.
 
Incentive Stock Options
 
Generally a Participant incurs no United States federal income tax liability upon the issuance, or, generally, upon the exercise of an ISO.
 
A Participant will incur United States federal income tax liability upon disposition of the shares of common stock acquired upon exercise of an ISO. This income will be taxed at the applicable capital gains rate if the disposition occurs after the expiration of the statutory holding periods (the “Statutory Holding Periods”). If the disposition occurs prior to the expiration of the Statutory Holding Periods, the Participant will generally recognize ordinary income in an amount equal to the difference between the exercise price and the lesser of (i) the fair market value of the common stock on the date of exercise, and (ii) the price at which the common stock is sold. Generally, the Statutory Holding Periods expire two years after the date of grant of the ISO and one year after the date of acquisition of the common stock pursuant to exercise of the ISO.
 
If the sale price of the common stock is greater than its fair market value on the date of exercise, the Participant will recognize a capital gain equal to the excess of the sale price over the exercise price and will be taxed at the applicable capital gains rate. If the sale price of the common stock is less than its fair market value on the date of exercise, the Participant will recognize a capital loss equal to the excess of the exercise price over the sale price. Such capital gain or loss will be treated as a long-term or short-term capital gain or loss depending upon whether the holding period applicable to long-term capital assets has been satisfied (the “Holding Period”).
 
A Participant may have United States federal income tax consequences upon exercise of an ISO if the aggregate fair market value of the shares of common stock subject to ISOs that first become exercisable by a Participant in any one calendar year exceeds $100,000. If this occurs, the excess shares will be treated as though they are a NQSO rather than ISOs. Upon exercise of an Award with respect to these shares, the Participant will have such tax consequences as are described below with respect to the exercise of NQSOs.
 
Nonqualified Stock Option
 
A Participant incurs no United States federal income tax liability upon the issuance of NQSOs. Generally, in the tax year in which a Participant exercises NQSOs, the Participant recognizes ordinary income in the amount by which the fair market value of the shares of common stock at the time of exercise exceeds the exercise price for such shares.
 
Depending upon whether a Participant satisfies the Holding Period, disposition of the common stock acquired through the exercise of a NQSO generally will result in a short-term or long-term capital gain or loss equal to the difference between the amount realized on such disposition and the fair market value of such shares when the NQSO was exercised.
 
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Tax Consequences to the Company
 
Generally, there will be no United States federal income tax consequences to the Company upon issuance of an ISO or NQSO. However, to the extent that a Participant recognizes ordinary income on an ISO, or NQSO, as described above, we generally will have a deduction in the same amount, provided , however , we satisfy applicable federal income tax reporting requirements or the Participant reports such income on their federal income tax return.
 
We are required to withhold Federal Insurance Contributions Act (FICA), Medicare and federal income taxes from Participants who dispose of shares of common stock acquired upon exercise of an ISO prior to the expiration of the Statutory Holding Periods. We are also subject to FUTA, FICA and Medicare taxes on amounts Participants recognize as ordinary income.
 
We are committed to making the following awards from the Plan to our executive officers, directors or director-nominees, associates of our executive officers, directors or director-nominees, any other person who is to receive at least 5% of the of the awards and all employees as a group. For purposes of completing the table below, unless otherwise stated, we have calculated awards that are to be given in the future at a per share price of $0.63, which was the last sale price on the trading day immediately prior to the Notice Date.
 
Name and Position
 
Dollar Value of Award
 
Number of Options or Shares (1)
Joseph F. Langston Jr., president, chief financial officer, secretary, and director-nominee
 
$60,000
 
Compensation of $60,000 per year to be paid in cash or stock, at the option of the company. Computed using January 14, 2008, the last sale price on the last trading day immediately prior to the date of our agreement with Mr. Langston, if we paid Mr. Langston only in common stock we would be required to issue 74,074 shares.
  
 
$60,000
 
80,000 shares to be issued as an inducement to enter into an employment agreement. On the date of the agreement, we used $0.75 per share as the value of the common stock.
  
 
$60,000
 
Renewal bonus (1) having a value equal to Mr. Langston’s annual compensation, payable with shares of the company’s common stock. Computed using the price of $0.81 per share, the last sale price on January 14, 2008, the last trading day immediately prior to the date of our agreement with Mr. Langston, we would be required to issue 74,074 shares.
  
 
$297,000 (2)
 
An option to purchase 1,500,000 shares of the company’s common stock, vesting in increments of 300,000 shares as certain performance targets are met.
Partners of Richardson & Patel LLP
 
$273,108 (3)
 
296,856 shares of common stock.
Current executive officers as a group
1
 
   
Current directors who are not executive officers, as a group
 
N/A
 
N/A
All employees who are not executive officers, as a group
 
N/A
 
N/A
 
(1)
If, at the end of the term of Mr. Langston’s employment agreement we ask him to continue to provide services, we will issue the common stock to him. We refer to this as a “renewal bonus”.

(2)
The value of these options was computed using the Black Scholes Option Pricing Model using the following assumptions: market price of $0.82; strike price from $1.50 to $3.00; risk free rate between 3.05% and 2.53%; no dividend rate; an expected term of five months to 24.5 months; and a volatility rate of 148.1% to 93.6%.
 
 
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(3) 
Based on the last sale price on December 18, 2007, the last trading date immediately prior to the date of the Agreement to Convert Debt discussed in item 3 above.
 
 
The discussion that follows is only a brief description of the transaction and the discussion of the warrants is qualified in its entirety by reference to the form of warrant issued to the investors, which is attached as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on December 3, 2007 and available for review at www.sec.gov.
 
We are in need of working capital to continue our business and, in particular, to develop the Wardlaw field. On November 27, 2007 we completed a sale of units having a total gross value of $600,000 in a private placement to accredited investors. Each unit was comprised of (i) 32,000 shares of our common stock and (ii) a 5 year callable warrant to purchase up to 52,253 shares of our common stock, subject to certain vesting requirements, at an exercise price of $1.40 per share. The warrant agreement has a cashless exercise provision, at the election of the holder, such that fewer shares than the face amount of the warrants may be issued upon full exercise. The warrant agreement provides that the warrant may not be exercised until the issuance of the warrants in the offering is approved by our shareholders. We sold a total of 21 units at a price of $24,000 per unit for net cash proceeds of approximately $503,909. We also converted debt in the amount of $96,000 owed to Blackwood Ventures LLC, our largest shareholder, into four units. We were indebted to Blackwood Ventures LLC because it advanced payment to certain of our vendors when we did not have cash available to pay them. The per share price of the common stock included in the units was less than the per share book or market value of our common stock on the date of sale. No underwriting discounts or commissions were paid in connection with the offering. We are obligated to register the shares underlying the warrants, subject to compliance with rule 415 promulgated under the Securities Act of 1933.
 
Overall Effect of Item 7
 
On November 27, 2007 we had a total of 6,446,850 shares of common stock outstanding. The total number of shares of common stock included within the units was 800,000 shares or approximately 12.4% of the number of shares of common stock outstanding on November 27, 2007. Because the number of shares of common stock included in the units was less than 20% of our outstanding common stock, those shares have been issued to the investors. However, the warrants represent an additional 1,306,325 shares of common stock, or approximately 20.2% of the common stock outstanding on November 27, 2007. Therefore, included in the warrants is a provision that the warrants may not be exercised until we receive shareholder approval of the issuance as required by Nasdaq Marketplace Rule 4350(i)(1)(D).
 
By issuing the common stock and warrants described above, we were able to raise a portion of the funds we need to begin the development of the Wardlaw field. However, the issuance of 800,000 shares of common stock had the immediate effect of diluting the stock ownership of our common shareholders and, assuming the exercise for cash of all the warrants we issued in this offering, the ownership of their common shares would be further diluted by the issuance of an additional 1,306,325 shares of common stock. We would receive $1,828,855 in proceeds if all of the warrants are exercised for cash.
 
 
The Following Discussion Does Not Constitute an Offer of the Securities To Be Sold.
 
In January 2008 our board of directors resolved to raise in a private placement up to $4 million in gross proceeds through the sale of units to accredited investors, as that term is defined in rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended. The units will consist of one share of our common stock and a warrant to purchase one-half share of our common stock. The price per unit will be set on the date of closing and will be computed as no less than 80% of the average closing price of the common stock over at least the 20 trading days prior to the closing. The warrants will have a term of up to 3 years. The warrant exercise price will be up to 200% of the offering price. By way of example, on February 15, 2008 we had 7,246,850 shares of common stock outstanding and the average sale price of our common stock over the 20 trading days prior to that date was $0.8335. If the offering had closed on February 15, 2008, we would have issued units totaling 5,998,800 shares of common stock and warrants for the purchase of 2,999,400 shares of common stock at a price of $0.6668 per unit.
 
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We intend to begin the offering 21 days after we mail this information statement to our shareholders. We intend to use the proceeds of the offering to develop the Wardlaw field and for other working capital purposes.
 
Overall Effect of Item 8
 
As noted elsewhere in this information statement, we are in need of working capital and we have decided to raise funds by selling our securities. The securities that we sell will have the effect of diluting the common stock ownership of our existing shareholders. We expect this dilution to be significant.
 
 
The discussion that follows is only a brief description of the transaction and is qualified in its entirety by reference to the Agreement to Convert Debt between us and Blackwood Ventures LLC and the form of warrant to be issued to Blackwood Ventures LLC pursuant to such agreement, which are attached as exhibits to our Current Report on Form 8-K filed with the Securities and Exchange Commission on December 26, 2007 and available for review at www.sec.gov.
 
On December 19, 2007, we entered into an Agreement to Convert Debt with Blackwood Ventures LLC, our largest shareholder, pursuant to which Blackwood Ventures LLC agreed to accept (i) 48,750 shares of our common stock, representing a price of $0.80 per share, and (ii) a warrant to purchase 36,563 shares of our common stock at an exercise price of $1.40 per share in return for the cancellation of $39,000 of debt owed by us to Blackwood resulting from its prior discharge of certain of our accounts payable. The warrant will have a term of seven years. On December 18, 2007, the last trading day immediately prior to the execution of the Agreement to Convert Debt, the last sale price of our common stock was $0.92. We believe that the terms of the Agreement to Convert Debt are as favorable to us as any agreement we would have entered into with an unaffiliated third party. The shares we will issue to Blackwood Ventures LLC will be restricted securities, so they will not be immediately available for resale. Due to the risk Blackwood Ventures LLC undertook in agreeing to accept the restricted common stock, we agreed to issue the common stock at a discount to the market price. These terms are consistent with terms we would offer to unaffiliated purchasers of our securities in private offerings. The Agreement to Convert Debt was unanimously approved on December 18, 2007 by the members of our board of directors, none of whom was interested in the transaction.
 
Reason for the Approval
 
Nasdaq Marketplace Rule 4350(i)(1)(D) requires us to obtain shareholder approval in connection with a transaction other than a public offering involving the sale, issuance or potential issuance of our common stock (or securities convertible into or exercisable into our common stock) equal to 20% or more of our common stock or 20% or more of the voting power outstanding before the issuance if the securities are sold for less than the greater of book or market value of our common stock.
 
Although the shares of common stock and warrants to be issued to Blackwood Ventures LLC pursuant to the Agreement to Convert Debt do not constitute 20% of our outstanding shares, we are seeking shareholder approval of this issuance in the event that The Nasdaq Stock Market determines that this transaction should be combined with the private offering that we completed on November 27, 2007.
 
Overall Effect of Item 9
 
By paying the debt we owed to Blackwood Ventures LLC with common stock and warrants, we were able to conserve our cash. However, this issuance, like the issuances of securities discussed above in items 7 and 8, has the effect of diluting the common stock ownership of our existing shareholders.
 
Item 10.
 Approval of the Issuance of 666,667 Shares of Common Stock to Accredited Investors.
 
 
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Overall Effect of Item 10
 
As noted elsewhere in this information statement, we are in need of working capital and we have decided to raise funds by selling our securities. The securities that we sell will have the effect of diluting the common stock ownership of our existing shareholders.

Proposal 11. 
Approval of the Issuance of Common Stock and Warrants to the Estate of Walter G. Mize in Exchange for the Relinquishment of a Put Right.
 
 
We would like to eliminate the liability associated with the put right. Prior to his death, Mr. Mize agreed to accept units consisting of 1,111,113 shares of common stock and warrants to purchase a total of 555,556 shares of common stock in exchange for the put right. The warrants will have a term of three years and an exercise price of $1.50 per share. Based on the value of the put right, the conversion rate is $0.75 per unit. This agreement is conditioned upon the outcome of a hearing before the Nasdaq Listing Qualifications Panel regarding the continued listing of our common stock on the Nasdaq Capital Market. If we are successful in the hearing and our common stock continues to be listed on the Nasdaq Capital Market, then the put right will be converted into the units discussed above. However, if we are not able to maintain our listing as a result of the decision by the Nasdaq Listing Qualifications Panel, Mr. Mize’s estate will have the right, but not the obligation, to convert the put right into units. This right to convert will expire 90 days from the date that Mr. Mize’s estate is notified of decision of the Nasdaq Listing Qualifications Panel. We were successful in the hearing, therefore the put right will be converted into units. Mr. Mize was not an affiliate when this agreement was entered into.
 
Overall Effect of Item 11
 
While this transaction will have the effect of diluting the common stock ownership of our existing shareholders, it will also reduce our liabilities by the value of the put right. If Mr. Mize’s estate exercised the warrants, we would receive proceeds of $833,334.

Item 12.
Approval of a Change of the Company’s Domicile from Utah to Delaware and a Change of the Company’s Name from United Heritage Corporation to Glen Rose Petroleum Corporation.
 
In January 2008 our board of directors determined that it would be in the best interests of our company and our shareholders to reincorporate in Delaware. In order to accomplish this reincorporation, we intend to form a corporation in Delaware called Glen Rose Petroleum Corporation (“Glen Rose”). Once the reincorporation is complete, our name will change to Glen Rose Petroleum Corporation.
 
In conjunction with the reincorporation in Delaware our board of directors unanimously adopted and approved an Agreement and Plan of Merger of United Heritage Corporation, a Utah corporation, and Glen Rose Petroleum Corporation (the “Reincorporation Merger Agreement”). A copy of the Reincorporation Merger Agreement is attached to this information statement as Annex 3. The purpose of the Reincorporation Merger Agreement is to change the domicile of our company from Utah to Delaware. The Reincorporation Merger Agreement will be entered into as soon as practicable after the annual meeting of shareholders. A copy of the articles of merger to be filed by the company with the Secretary of State of Utah is attached as Annex 4. A copy of the certificate of merger to be filed by Glen Rose is attached as Annex 5.
 
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Reason for Reincorporation in Delaware
 
Delaware is recognized as a leader in adopting, construing and implementing comprehensive, flexible corporate laws that are responsive to the legal and business needs of the corporations organized there. The Delaware Court of Chancery and the Delaware Supreme Court regularly oversee complex corporate issues and, as a result, a well-established body of case law construing Delaware law has developed over the past several years, providing businesses with a greater degree of predictability than the corporate law of most other jurisdictions.
 
We also believe that as a Delaware corporation we would be better able to continue to attract and retain qualified directors and officers than we would be able to do as a Utah corporation. We expect that many such qualified individuals may already have experience providing services to companies incorporated in Delaware, since Delaware is the jurisdiction of choice for many corporations. Furthermore, Delaware’s extensive body of case law can provide officers and directors with a comprehensive guide to the potential risks and liabilities of serving in those capacities, which Utah law is not currently able to do.
 
Anti-Takeover Implications
 
Delaware, like many other states, permits a corporation to include in its certificate of incorporation or bylaws, or to otherwise adopt, measures designed to reduce a corporation’s vulnerability to unsolicited takeover attempts. Our board of directors is not proposing the reincorporation in Delaware to prevent a change in control and is not aware of any present attempt by any person to acquire control or to obtain representation on our board of directors that could be prevented by reincorporating in Delaware. Our board of directors has no current plans to implement any defensive strategies to enhance its ability to negotiate with an unsolicited bidder.
 
No Change in Business or Management
 
Our reincorporation in Delaware will only change our legal domicile. It will not result in any change to our business or management or to our assets, liabilities or net worth (other than as a result of costs incident to the reincorporation merger). While we may relocate our headquarters or change the number of our employees, we will not do so as a result of the reincorporation.
 
Regulatory Approval
 
Except for compliance with state and federal securities laws and the filing of the articles of merger with the Delaware Secretary of State and the certificate of merger with the Utah Secretary of State, we are not aware of any federal or state regulatory requirements that must be complied with or approvals that must be obtained in connection with the reincorporation merger.
 
Glen Rose Petroleum Corporation
 
Glen Rose will be incorporated in Delaware exclusively for the purpose of merging with us to effect our reincorporation in Delaware. Glen Rose will be our wholly-owned subsidiary prior to the reincorporation merger. The address and telephone number of Glen Rose’s principal executive office will be the same as our current address and telephone number. Before the reincorporation, Glen Rose will have no material assets or liabilities and will not have carried on any business. Upon completion of the reincorporation merger, your rights as a shareholder of Glen Rose will be governed by Delaware corporate law and the certificate of incorporation and the bylaws of Glen Rose will be its governing documents.
 
The Reincorporation Merger Agreement
 
The Reincorporation Merger Agreement provides that we will merge with and into Glen Rose, with Glen Rose being the surviving corporation. Under the Reincorporation Merger Agreement, Glen Rose will assume all of our assets and liabilities, including obligations under our outstanding indebtedness and contracts, and we will cease to exist as a corporate entity. Our board of directors and our officers will become the board of directors and officers of Glen Rose for identical terms of office. Our subsidiaries will become the subsidiaries of Glen Rose.
 
At the effective time of the reincorporation merger, each outstanding share of our common stock will automatically be converted into one share of common stock of Glen Rose. Shareholders will not have to exchange their existing stock certificates for stock certificates in Glen Rose, although if a shareholder so requests, Glen Rose will issue new certificates to anyone who holds our stock certificates, provided that the holder has surrendered the certificates representing our shares in accordance with the terms of the Reincorporation Merger Agreement. Any request for new certificates will be subject to normal requirements including proper endorsement, signature guarantee, if required, and payment of applicable fees or taxes, if any.
 
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Subject to the differences in the laws of Delaware and Utah, and except as may be otherwise discussed herein, the rights of our shareholders with respect to the particular class or series of securities held by such shareholder will remain the same following the reincorporation merger and will entitle the holder to voting rights, dividend rights and liquidation rights equivalent to the rights attached to the respective class or series of securities prior to the effective time of the reincorporation merger.
 
Following the reincorporation merger, our employee benefit plans, including any stock option and other equity-based plans, will be continued by Glen Rose. Each stock option or other equity-based award issued and outstanding pursuant to these plans will be converted automatically into a stock option or other equity-based award with respect to the same number of shares of common stock of Glen Rose, upon the same terms and subject to the same conditions as set forth in the applicable plan under which the award was granted and in the agreement reflecting the award.
 
Trading Glen Rose Common Stock
 
After the reincorporation merger, those persons who were formerly our shareholders may continue to sell or transfer stock certificates or securities bearing the name “United Heritage Corporation”. Glen Rose will issue new certificates representing shares of Glen Rose common stock for transfers occurring after the effective date of the reincorporation merger.
 
Shareholders whose shares of our common stock were freely tradable before the reincorporation merger will own shares of Glen Rose that are freely tradable after the reincorporation merger. Similarly, any shareholders holding securities with transfer restrictions before the reincorporation merger will hold shares of Glen Rose that have the same transfer restrictions after the reincorporation merger. For purposes of computing the holding period under Rule 144 of the Securities Act of 1933, as amended, shares issued pursuant to the reincorporation merger will be deemed to have been acquired on the date the holder thereof originally acquired our shares.
 
After the reincorporation merger, Glen Rose will be a publicly held corporation, with its common stock trading on the Nasdaq Capital Market or other inter-dealer quotation system or national securities exchange. Glen Rose will also file reports with the Securities and Exchange Commission.
 
Significant Differences Between the Corporate Laws of Utah and Delaware
 
The corporate laws of Utah and Delaware differ in many respects. Although all the differences are not set forth in this information statement, the differences that could materially affect the rights of shareholders are discussed below.
 
Shareholder Approval of Certain Business Combinations
 
In recent years, a number of states have adopted special laws designed to make certain kinds of “unfriendly” corporate takeovers, or other transactions involving a corporation and one or more of its significant shareholders, more difficult.
 
Under the Utah Control Shares Acquisitions Act, shares acquired in a “control share acquisition” by a single shareholder or group of shareholders that give the shareholder or group more than 20% of the voting power of certain public Utah corporations cease to have voting rights until a resolution allowing the shares to be voted is approved by a majority of the outstanding shares of the corporation (excluding shares held by officers, directors and the acquirer). The Utah Control Shares Acquisitions Act applies only to a corporation formed under the laws of the State of Utah that has all of the following:

 
100 or more shareholders;

 
its principal office or place of business, or substantial assets, located in Utah; and

 
any of (i) more than 10% of its shareholders resident in Utah, (ii) more than 10% of its shares owned by Utah residents or (iii) 10,000 shareholders that are Utah residents.
 
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We do not have our principal office, any place of business, or substantial assets in the State of Utah. Accordingly, the protections and restrictions of the Control Shares Acquisitions Act does not presently apply to us or to holders of our common stock.
 
Section 203 of the Delaware General Corporate Law prohibits a corporation from engaging in a “business combination” with an “interested shareholder” for three years following the date that the person becomes an interested shareholder. The three year moratorium imposed on business combinations by Section 203 does not apply if:

 
prior to the date on which the shareholder becomes an interested shareholder the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder;

 
the interested shareholder owns 85% of the corporation’s voting stock upon consummation of the transaction which made him an interested shareholder; or

 
the business combination is approved by the board of directors and approved at a shareholder meeting by the holders of two-thirds of the voting stock not owned by the interested shareholder.
 
Section 203 only applies to Delaware corporations that have a class of voting stock that is listed on a national securities exchange or held of record by more than 2,000 shareholders. However, a corporation may elect not to be governed by Section 203 by a provision in its certificate of incorporation or its bylaws. The certificate of incorporation of Glen Rose includes a provision electing not to be governed by Section 203. Accordingly, following consummation of the reincorporation merger, the board of directors will not have the power to reject certain business combinations with interested shareholders based on Section 203.
 
Indemnification and Limitation of Liability
 
Utah and Delaware have similar laws respecting indemnification by a corporation of its officers, directors, employees and other agents. The laws of both states also permit corporations to adopt a provision in the corporation’s charter eliminating the liability of a director to the corporation or its shareholders for monetary damages for breach of the director’s fiduciary duty of care. There are nonetheless differences between the laws of the two states respecting indemnification and limitation of liability. In general, Delaware law is somewhat broader in allowing corporations to indemnify and limit the liability of corporate agents.
 
Utah law does not permit the elimination of a director’s monetary liability where liability is based on:

 
a financial benefit received by a director to which the director is not entitled;

 
an intentional infliction of harm on the corporation or its shareholders;

 
an unlawful distribution; or

 
an intentional violation of criminal law.
 
Delaware law does not permit the elimination of a director’s monetary liability for:

 
breaches of the director’s duty of loyalty to the corporation or its shareholders;

 
acts or omissions not in good faith or involving intentional misconduct or knowing violations of law;

 
the payment of unlawful dividends or unlawful stock repurchases or redemptions; or

 
transactions in which the director received an improper personal benefit.
 
Utah law allows a corporation to indemnify a director or former director who is made a party to a proceeding against liability incurred in the proceeding if his conduct was in good faith, he reasonably believed that his conduct was in, or not opposed to, the corporation’s best interests and, in the case of a criminal proceeding, he had no reasonable cause to believe that his conduct was unlawful. A corporation may not indemnify a director in connection with a proceeding by or in the right of the corporation in which the director was judged liable to the corporation or in connection with any other proceeding charging that the director derived an improper personal benefit, whether or not involving action in his official capacity, in which proceeding he was judged liable on the basis that he derived an improper personal benefit. In Utah, unless limited by its articles of incorporation, a corporation must indemnify a director or an officer who was successful, on the merits or otherwise, in defense of any proceeding, to which he was a party because he is or was a director of the corporation, against reasonable expenses incurred by him in connection with the proceeding or claim with respect to which he has been successful. Utah law allows a corporation to advance reasonable expenses incurred by a director who is a party to a proceeding if the director furnishes the corporation with a written affirmation of his good faith belief that he has met the applicable standard of conduct described above, if he furnishes to the corporation a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet the standard of conduct and there are no facts then known that would preclude indemnification. The determination as to whether or not the director is entitled to indemnity or to an advance must be made by a majority vote of the directors at which a quorum is present, so long as no member of the quorum is a party to the proceeding, or if such a quorum cannot be obtained, by a majority vote of a committee of the board of directors, which committee shall consist of two or more directors who are not parties to the proceeding, or by special legal counsel or by the shareholders by a majority of the votes entitled to be cast at a meeting. A director or officer who is or was a party to a proceeding may apply for indemnification to the court conducting the proceeding or to any other court of competent jurisdiction. A corporation may indemnify and advance expenses to an officer, employee, fiduciary or agent of the corporation to the same extent as a director.
 
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Delaware law permits indemnification of any person who was or is a party or threatened to be made a party to any action, suit or proceeding so long as the person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. No person may be indemnified in an action brought on behalf of the corporation by a third party if that person is judged to be liable to the corporation unless the Court of Chancery or the court in which the action or suit was brought determines that, despite the adjudication of liability and in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity. A corporation must indemnify a present or former director or officer of a corporation who has been successful on the merits or otherwise in a defense of any action, suit or proceeding. Whether or not a person has acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the corporation will be determined by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or by a committee of such directors designated by a majority vote of the directors, even though less than a quorum, or by independent legal counsel in a written opinion or by the shareholders.
 
Utah law expressly states that provisions relating to the indemnification of, or advances for expenses to be made to, directors that are contained in a corporation’s articles of incorporation or bylaws, in a resolution of its shareholders or board, or in a contract other than an insurance policy, is valid only if and to the extent that the provisions are not inconsistent with Utah law.
 
In Delaware, indemnification and the advancement of expenses provided by or granted pursuant to Delaware law is not deemed to be exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise.
 
Both Utah law and Delaware law permit the purchase of insurance for the benefit of any person who is or was a director, officer, employee or agent of the corporation or is serving at the request of the corporation as a director, officer, employee or agent of another corporation.
 
Dividends and Repurchase of Shares
 
Utah law dispenses with the concepts of par value of shares as well as statutory definitions of capital and surplus. The concepts of par value, capital and surplus exist under Delaware law.
 
Under Utah law, a corporation may not make any distribution or repurchase its shares if, after giving effect to the distribution or repurchase:

 
the corporation would not be able to pay its debts as they become due in the normal course; or
 
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its total assets would be less than the sum of its total liabilities plus the amount, if any, payable upon liquidation to holders of any preferred stock with distribution rights superior to the rights of holders of common stock.
 
Delaware law permits a corporation to declare and pay dividends out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets. In addition, Delaware law generally provides that a corporation may redeem or repurchase its shares only if the capital of the corporation is not impaired and the redemption or repurchase would not impair the capital of the corporation.
 
To date, we have not paid any cash dividends on our outstanding shares of common stock and we do not anticipate doing so in the foreseeable future.
 
Voting and Shareholder Approval Requirements
 
In Utah, each share of voting stock is entitled to one vote and each fractional share is entitled to a fractional vote. Directors are elected by a plurality of the votes cast. Cumulative voting for directors is not permitted unless the articles of incorporation provide for cumulative voting. With the exception of action to be taken on a plan of merger or share exchange or voting on an amendment to the corporation’s articles of incorporation, Utah law generally requires the holders of a majority of the shares of voting stock to approve the action. Action to be taken on a plan of merger or share exchange must be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by the voting group. In general, a class or series of stock is entitled to vote separately (or together with similarly affected shares of different series of the same class) if the proposed transaction would change the rights, preferences or limitations of the respective class or series. If shareholder voting is required to approve an amendment to the articles of incorporation, then the holders of the outstanding shares of a class are entitled to vote as a separate voting group. If a proposed amendment would affect a series of a class of shares, the shares of that series are entitled to vote as a separate voting group on the proposed amendment. However, if a proposed amendment entitles two or more series of a class of shares to vote as separate voting groups, and the amendment would affect the two or more series in the same or a substantially similar way, then the shares of all the series so affected must instead vote together as a single voting group on the amendment.
 
In Delaware, each share of voting stock is entitled to one vote, unless the certificate of incorporation provides for more or less than one vote per share. Like Utah, directors are elected by a plurality of the votes cast. Delaware law also allows cumulative voting for directors if the certificate of incorporation so provides. With the exception of voting on an amendment to the certificate of incorporation and voting on the election of directors, all shareholder actions, including the approval of a merger or consolidation, require the affirmative vote of the majority of shares present at the meeting and entitled to vote on the subject matter. In order to amend a certificate of incorporation, the holders of the outstanding shares of a class are entitled to vote as a class on a proposed amendment, whether or not they are entitled to vote thereon by the certificate of incorporation, if the amendment would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class, or alter or change the powers, preferences, or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences, or special rights of one or more series of any class so as to affect them adversely, but does not so affect the entire class, then only the shares of the series so affected by the amendment shall be considered a separate class for the purposes of voting.
 
Neither Utah law nor Delaware law requires a shareholder vote of the surviving corporation in a merger if:

 
the merger agreement does not amend the existing certificate of incorporation;

 
each share of the stock of the surviving corporation outstanding immediately before the merger is an identical outstanding share after the merger; and

 
either no shares of common stock of the surviving corporation and no securities convertible into common stock are to be delivered under the plan of merger, or the authorized unissued shares or the treasury shares of common stock of the surviving corporation to be delivered under the plan of merger plus those initially issuable upon conversion of any other securities to be delivered under the plan do not exceed 20% of the shares of common stock outstanding immediately prior to the merger.
 
24

 
Utah law and Delaware law are also substantially similar when the merger involves a parent owning at least 90% of a subsidiary. In that case, no vote of the shareholders of either corporation is required unless the subsidiary will be the surviving corporation, in which case the vote of the shareholders of the parent must be obtained.
 
Under Utah law, a sale of all or substantially all of the assets of a corporation must be approved by each voting group entitled to vote on the transaction.
 
Under Delaware law, a sale of all or substantially all of the assets of a corporation must be approved solely by the holders of a majority of the outstanding voting shares of the corporation.
 
Unless otherwise provided in the articles of incorporation or the Utah statutes, any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if one or more consents in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote thereon were present and voted. Unless the written consents of all shareholders entitled to vote have been obtained, notice of any shareholder approval without a meeting shall be given at least ten days before the consummation of the transaction, action, or event authorized by the shareholder action to those shareholders entitled to vote who have not consented in writing; and to those shareholders not entitled to vote but to whom Utah law requires that notice of the proposed action be given. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those shareholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the corporation. Under Utah law, a corporation in existence prior to July 1, 1992 may not take action by the written consent of fewer than all of the shareholders entitled to vote with respect to the subject matter of the action, until the date a resolution providing otherwise is approved either by a consent in writing, setting forth the proposed resolution, signed by all of the shareholders entitled to vote with respect to the subject matter of the resolution; or at a duly convened meeting of shareholders, by the vote of the same percentage of shareholders of each voting group as would be required to include the resolution in an amendment to the corporation's articles of incorporation. Delaware law does not have such a provision. We received shareholder approval to act by written consent at our annual meeting held on December 19, 2005.
 
Unless otherwise provided in the certificate of incorporation, shareholders in Delaware may take any action at any annual or special meeting of shareholders or any action which may be taken at any annual or special meeting of the shareholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. No written consent will be effective to take the corporate action unless, within 60 days of the earliest dated consent delivered to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation.
 
Dissenters’ or Appraisal Rights
 
Under Utah law, a shareholder has a right to dissent from and obtain payment of the fair value of shares held by him in the event of a consummation of a plan of merger to which the corporation is a party if shareholder approval is required for the merger (including if the corporation is a subsidiary that merged with its parent), consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, consummation of a sale, lease exchange or other disposition of all or substantially all of the property of the corporation for which a shareholder vote is required and consummation of a sale, lease, exchange or other disposition of all or substantially all of the property of an entity controlled by a corporation if the shareholders of the corporation were entitled to vote on the consent of the corporation to the disposition. A shareholder may also dissent and obtain payment of the fair value of his shares in the event of any other corporate action to the extent the articles of incorporation, bylaws or a resolution of the board of directors so provides. However, a shareholder may not dissent and obtain payment of the fair value of his shares if the shares are listed on a national securities exchange registered under the Securities Exchange Act of 1934 or on the National Market System of the National Association of Securities Dealers Automated Quotation System or were held of record by more than 2,000 shareholders. This limitation does not apply if the shareholders will receive for their shares anything other than shares of the corporation surviving the consummation of the plan of merger or share exchange, shares of a corporation which at the effective date of the merger or share exchange will be listed on a national securities exchange registered under the Securities Exchange Act of 1934 or on the National Market System of the National Association of Securities Dealers Automated Quotation System or if the shares will be held of record by more than 2,000 shareholders, cash in lieu of fractional shares or any combination of shares and cash. The shareholder who wishes to asset dissenters’ rights must cause the corporation to receive, before the vote is taken, written notice of his intent to demand payment for his shares if the proposed action is effectuated and may not vote any of his shares in favor of the proposed action. In order to be entitled to payment, the shareholder must have been a shareholder with respect to the shares for which payment is demanded as of the date the proposed corporate action creating dissenters’ rights is approved by the shareholders.
 
25

 
Under Delaware law, unless the certificate of incorporation provides for appraisal rights upon the sale of all or substantially all of its assets, a shareholder only has appraisal rights in the event of a merger or consolidation and only so long as the shares are not either listed on a national securities exchange or held of record by more than 2,000 shareholders. Like Utah, this limitation does not apply if the shareholder will receive for his shares anything other than shares of the corporation surviving the consummation of the merger or consolidation, shares of a corporation which at the effective date of the merger or consolidation will be listed on a national securities exchange or held of record by more than 2,000 shareholders, cash in lieu of fractional shares or any combination of shares and cash. The shareholder must hold his shares on the date that he makes a demand for appraisal, must continuously hold his shares through the effective date of the merger or consolidation and may not have voted in favor of, or consented to, the merger or consolidation. Any shareholder electing to demand appraisal must deliver to the corporation, before the vote is taken, a written demand for appraisal of his shares.
 
Delaware law and Utah law also provide an exemption to a corporation surviving a merger if no vote of the shareholders of the surviving corporation is required to approve the merger.
 
Directors
 
In Utah, before any shares are issued, a corporation's board of directors may consist of one or more individuals. After shares are issued and for as long as a corporation has fewer than three shareholders entitled to vote for the election of directors, its board of directors may consist of a number of individuals equal to or greater than the number of those shareholders. If a corporation has more than three shareholders, it must have at least three directors.
 
Delaware law requires a corporation to have at least one director who is a natural person.
 
Under Utah law, the articles of incorporation may provide for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing 1/2 or 1/3 of the total, as near as may be. In that event, the terms of directors in the first group expire at the first annual shareholders' meeting after their election, the terms of directors in the second group expire at the second annual shareholders' meeting after their election, and the terms of directors in the third group, if any, expire at the third annual shareholders' meeting after their election. Upon the expiration of the initial staggered terms directors shall be elected for terms of two years or three years, as the case may be, to succeed those whose terms expire.
 
Like Utah, Delaware law allows the directors of a corporation, by the certificate of incorporation or by an initial bylaw, or by a bylaw adopted by a vote of the shareholders, to be divided into one, two or three classes; the term of office of those of the first class expires at the first annual meeting held after such classification becomes effective; of the second class one year thereafter; of the third class two years thereafter; and at each annual election held after such classification becomes effective, directors will be chosen for a full term to succeed those whose terms expire.
 
26

 
Inspection of Records
 
Under Utah law, directors or shareholders may inspect certain corporate records for any purpose as long as the directors or shareholders give the corporation written notice five business days in advance. Other records, including the shareholder list and minutes from meetings of the board of directors may be inspected only for a purpose reasonably related to the shareholder’s or director’s interest.
 
In contrast, Delaware law allows shareholders and directors to inspect the corporation’s records and shareholder list for purposes reasonably related to the person’s interests as a shareholder or director upon written demand.
 
27

 
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
The following discussion and analysis of our financial condition, plan of operation and liquidity should be read in conjunction with our unaudited consolidated condensed financial statements and the notes thereto and our audited financial statements and the notes thereto.
 
Overview
 
We are an independent producer of natural gas and crude oil based in Midland, Texas. We produce from property we lease in the Wardlaw field in Edwards County, Texas (the “Wardlaw Field”). We acquired our Texas property, which includes 130 potentially productive wellbores (of which approximately 44 wells are capable of producing), in February 1997. Our plan has been to develop this property by reworking many of the existing wells and drilling additional wells, however, the revenues we earn do not presently provide us with sufficient capital to implement our development plan.
 
From November 2005 until it declared bankruptcy on June 13, 2007 (the “Lothian Bankruptcy”), Lothian Oil Inc. (“Lothian”), formerly our largest shareholder, provided us with the funds to operate. Lothian acquired its shares of our common stock on October 7, 2005, a portion of which were purchased from Walter G. Mize (“Mize”), our former chief executive officer and chairman of the board of directors, and persons associated or affiliated with Mize, in consideration of an aggregate principal amount of $10,651,000 evidenced by a promissory note (the “Lothian Note”).
 
Following a default under the terms of the Lothian Note, on July 31, 2007, Mize entered into a settlement agreement with Lothian, dated July 26, 2007 (the “Mize Agreement”), and pursuant to which, in exchange for a payment of $250,000 from Mize to Lothian and forgiveness by Mize of debt totaling $5,318,149.18, Lothian transferred to Mize 3,759,999 shares of common stock and warrants to purchase up to an additional 2,906,666 shares of common stock (collectively, the “Mize Securities”), constituting all of the shares of our common stock and warrants to purchase shares of our common stock then held by Lothian.
 
On July 31, 2007, we entered into an agreement, dated July 26, 2007, entitled “Agreement to Settle Intercompany Debt and other Claims” with Lothian (the “Lothian Agreement”), to which the execution of the Mize Agreement was a condition precedent, and pursuant to the terms of which Lothian agreed, among other things, to forgive a $1,800,000 claim asserted against us (the “Claim”). Included in the Claim amount was $753,296 in principal and approximately $71,254 in accrued interest related to a loan we received from Lothian for development of our Wardlaw Field.
 
In consideration of Lothian’s forgiveness of the Claim, we agreed to deliver to Lothian any funds in excess of $100,000 that we received from Cano Petroleum, Inc. (“Cano”) in connection with an asset purchase and sale agreement (the “Cano Agreement”), pursuant to which we agreed to sell all of the assets of UHC New Mexico Corporation, our wholly owned subsidiary (“UHC New Mexico”), to Cano Petro of New Mexico, Inc.(“Cano New Mexico”), in consideration of $7 million dollars in cash and 404,204 restricted shares of Cano common stock (the “Cano Securities”), and in accordance with the terms of which Cano New Mexico held back $800,000 from the cash proceeds of the purchase price (the “Holdback Amount”) to satisfy potential environmental and title claims and payables related to the purchased assets (the preceding transaction is hereinafter referred to as the “Asset Sale”). The holdback period ended 120 days following the date of the Asset Sale, which was March 30, 2007. During the holdback period, Cano New Mexico disbursed $258,000 to us, which we used to satisfy the payables related to the purchased assets. Cano New Mexico kept the remaining balance of the Holdback Amount to satisfy title deficiencies and environmental remediation costs. We do not anticipate the receipt of any of the remaining balance of the Holdback Amount.
 
Immediately following the Asset Sale, UHC New Mexico used $4,398,000 of the cash proceeds to repay a portion of the principal of a $6,554,000 loan outstanding and owed to Lothian (the “Lothian Loan”), and pledged the Cano Securities to secure the remaining balance thereof. On June 6, 2007 we entered into an agreement with UHC New Mexico and Lothian pursuant to which we transferred the Cano Securities to Lothian in full satisfaction of the remaining balance on the Lothian Loan.
 
28

 
On September 26, 2007 Mize, entered into a restated stock sale agreement (the “Blackwood Agreement”), effective as of September 18, 2007, with Blackwood, pursuant to which Blackwood purchased all of the Mize Securities for an aggregate purchase price of $5,017,000, consisting of $375,000 in cash and two promissory notes in the principal amount of $3,767,000 and $875,000, respectively. As a result of this transaction, Blackwood now owns approximately 66.9% of our voting securities on a fully diluted basis (the “Change in Control”).
 
Following the Change in Control, on October 8, 2007, Messrs. C. Scott Wilson, Thomas Kelly, Raoul Baxter and Kenneth Levy resigned from our board of directors and Messrs. Joseph F. Langston, Jr. (“Langston”), Theodore D. Williams and Paul K. Hickey were appointed in their place. Messrs. Williams and Hickey were also appointed as members of our Audit Committee in place of Messrs. Kelly and Baxter.
 
On October 8, 2007, Messrs. Wilson and Levy were also terminated from their positions as our chief executive officer and chief financial officer, respectively, and Langston was appointed as our interim chief executive officer, interim president and interim chairman of the board of directors and as our chief financial officer and treasurer.
 
On November 26, 2007, Messrs. Mize, C. Dean Boyd, Joe Martin, Charles Garrett and Bill Wilkins resigned from our board of directors.
 
On November 28, 2007 we entered into a 12 month consulting agreement (the “Consulting Agreement”) with DK True Energy Development Ltd., a member of Blackwood, our largest shareholder, and RTP Secure Energy Corp. (together, the “Consultants”). A discussion of the material terms of the Consulting Agreement is included in the discussion of item 1 at page 7.
 
On November 28, 2007, we entered into a consulting agreement with Applewood Energy, Inc., (“Applewood”), effective as of November 1, 2007 (the “Applewood Agreement”). A discussion of the material terms of the Applewood Agreement is included in the discussion of item 2 at page 8.
 
On November 28, 2007 we entered into a consulting agreement with GWB Petroleum Consultants Ltd. (“GWB”), effective as of November 1, 2007 (the “GWB Agreement”). A discussion of the material terms of the GWB Agreement is included in the discussion of item 2 at page 8.
 
On November 28, 2007 we completed the sale and issuance of units having a total gross value of $600,000 in a private placement to accredited investors. A discussion of the material terms of this offering is included in the discussion of item 7 at page 16.
 
On December 19, 2007, we entered into an agreement to convert debt with our legal counsel, Richardson & Patel, LLP. A discussion of the material terms of this agreement is included in the discussion of item 3 at page 10.
 
On December 19, 2007, we entered into an agreement to convert debt with Blackwood. A discussion of the material terms of this agreement is included in the discussion of item 5 at page 11.
 
Going Concern Status
 
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 our operations and we have a working capital deficit which raises substantial doubt as to our ability to continue as a going concern. We had net loss of $ 484,843 for the nine months ended December 31, 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 $43,483,989 and $42,999,146, respectively. Unless we are able to obtain the financing we need to develop our properties, there can be no assurance that we will be able to continue as a going concern.
 
Critical Accounting Policies and Estimates
 
Our critical accounting policies, including the assumptions and judgments underlying those policies, are more fully described in the notes to our audited financial statements contained in our annual report on Form 10-KSB for the fiscal years ended March 31, 2007 and 2006. We have consistently applied these policies in all material respects. These policies are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from the assumptions or estimates we use when applying these policies. Set forth below are the accounting policies that we believe most critical to an understanding of our financial condition and liquidity.
 
29

 
Oil and Gas Properties
 
Proved Reserves
 
Proved reserves are defined by the SEC as those volumes of crude oil, condensate, natural gas liquids and natural gas that geological and engineering data demonstrate with reasonable certainty are recoverable from known reservoirs under existing economic and operating conditions. Proved developed reserves are volumes expected to be recovered through existing wells with existing equipment and operating methods. Although our engineers are knowledgeable of and follow the guidelines for reserves established by the SEC, the estimation of reserves requires our engineers to make a significant number of assumptions based on professional judgment. Reserves estimates are updated at least annually and consider recent production levels and other technical information about each well. Estimated reserves are often subject to future revision, which could be substantial, based on the availability of additional information including reservoir performance, new geological and geophysical data, additional drilling, technological advancements, price changes and other economic factors. Changes in oil and gas prices can lead to a decision to start-up or shut-in production, which can lead to revisions to reserve quantities. Reserve revisions in turn cause adjustments in the depletion rates utilized by us. We cannot predict what reserve revisions may be required in future periods.
 
Depletion rates are determined based on reserve quantity estimates and the capitalized costs of producing properties. As the estimated reserves are adjusted, the depletion expense for a property will change, assuming no change in production volumes or the costs capitalized. Estimated reserves are used as the basis for calculating the expected future cash flows from a property, which are used to determine whether that property may be impaired. Reserves are also used to estimate the supplemental disclosure of the standardized measure of discounted future net cash flows relating to oil and gas producing activities and reserve quantities disclosure in Note 20 to our audited consolidated financial statements for the fiscal year ended March 31, 2007, which are included in our annual report on Form 10-KSB for that fiscal year. Changes in the estimated reserves are considered changes in estimates for accounting purposes and are reflected on a prospective basis.
 
We employ the full cost method of accounting for our oil and gas production assets, which are located in the southwestern United States. Under the full cost method, all costs associated with the acquisition, exploration and development of oil and gas properties are capitalized and accumulated in cost centers on a country-by-country basis. The sum of net capitalized costs and estimated future development and dismantlement costs for each cost center is depleted on the equivalent unit-of-production basis using proved oil and gas reserves as determined by independent petroleum engineers.
 
Net capitalized costs are limited to the lower of unamortized cost net of related deferred tax or the cost center ceiling. The cost center ceiling is defined as the sum of: (i) estimated future net revenues, discounted at 10% per annum, from proved reserves, based on un-escalated year-end prices and costs; (ii) the cost of properties not being amortized; (iii) the lower of cost or market value of unproved properties included in the costs being amortized; and (iv) income tax effects related to differences between the book and tax basis of the oil and gas properties.
 
The ceiling test is affected by a decrease in net cash flow from reserves due to higher operating or finding costs or reduction in market prices for natural gas and crude oil. These changes can reduce the amount of economically producible reserves. If the cost center ceiling falls below the capitalized cost for the cost center, we would be required to report an impairment of the cost center’s oil and gas assets at the reporting date.
 
Impairment of Properties
 
We will continue to monitor our long-lived assets recorded in oil and gas properties in the consolidated balance sheet to ensure they are fairly presented. We must evaluate our properties for potential impairment when circumstances indicate that the carrying value of an asset could exceed its fair value. A significant amount of judgment is involved in performing these evaluations since the results are based on estimated future events. Such events include a projection of future oil and natural gas sales prices, an estimate of the ultimate amount of recoverable oil and gas reserves that will be produced from a field, the timing of future production, future production costs, and future inflation. The need to test a property for impairment can be based on several factors, including a significant reduction in sales prices for oil and/or gas, unfavorable adjustment to reserves, or other changes to contracts, environmental regulations or tax laws. All of these factors must be considered when testing a property’s carrying value for impairment. We cannot predict whether impairment charges may be required in the future.
 
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Revenue Recognition
 
Oil and gas production revenues are recognized at the point of sale. Production not sold at the end of the fiscal year is included as inventory.
 
Income Taxes
 
Included in our net deferred tax assets are approximately $15.3 million of future tax benefits from prior unused tax losses. Realization of these tax assets depends on our achieving sufficient future taxable income prior to the expiration of the future tax benefits, of which there can be no assurance. In addition, as a result of our Change in Control, our annual use of net operating losses will be limited, therefore, we have provided an allowance for the full amount of our net deferred tax asset.
 
Accounting Estimates
 
Our financial statements have been prepared in accordance with United States generally accepted accounting principles. These principles require our management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In particular, there is significant judgment required to estimate oil and gas reserves, asset retirement obligations and impairment of the unproved properties. These estimates are based on our historical experience and various other assumptions that we believe to be reasonable under the circumstances, and are evaluated on an on going basis. Actual results may differ materially from these estimates under different assumptions or conditions.
 
Off-Balance Sheet Arrangements
 
 
Results of Operations
 
Three and Nine Months Ended December 31, 2007 as Compared to the Three and Nine Months Ended December 31, 2006
 
The following selected financial data for the three and nine months ended December 31, 2007 as compared to the three and nine months ended December 31, 2006 are derived from our unaudited consolidated condensed financial statements and is qualified in its entirety by and should be read in conjunction with such financial statements and related notes contained therein.

   
Three Months Ended
December 31
 
Nine Months Ended
December 31
 
  
 
2007
 
2006
 
2007
 
2006
 
Income Data
   
   
   
   
 
Revenues
 
$
24,311
 
$
253,904
 
$
26,266
 
$
909,995
 
Depreciation and depletion
   
338
   
156,621
   
1,014
   
503,293
 
Total operating costs and expenses
   
1,771,166
   
735,914
   
2,538,208
   
2,624,662
 
Loss from operations
   
(1,746,855
)
 
(482,010
)
 
(2,511,942
)
 
(1,714,667
)
Income tax
   
   
   
   
 
Net income (loss)
 
$
(1,744,076
)
$
(627,150
)
$
(484,843
)
$
(2,010,414
)
Basic and diluted loss per share
 
$
(0.26
)
$
(0.10
)
$
(0.07
)
$
(0.32
)
Weighted average number of shares
   
6,778,886
   
6,446,850
   
6,557,931
   
6,446,850
 
 
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Oil and Gas Results
 
Our revenues decreased $229,593, or approximately 91%, from $253,904 for the three months ended December 31, 2006, to $24,311 for the three months ended December 31, 2007. Our revenues decreased $883,729, or approximately 97%, from $909,995 for the nine months ended December 31, 2006, to $26,266 for the nine months ended December 31, 2007. This decrease in revenues was primarily attributable to our sale of the assets of UHC New Mexico (the “UHC Sale”), which had previously accounted for a significant portion of our production and sale of oil and all of our production and sale of natural gas. Currently, the only remaining field owned by Company, the Wardlaw Field in Edwards County, Texas, is producing less than 10 barrels of oil per day.
 
Our total operating costs and expenses increased $1,035,252, or approximately 141%, from $735,914 for the three months ended December 31, 2006, to $1,771,166 for the three months ended December 31, 2007. Our total operating costs and expenses decreased $86,454, or approximately 3%, from $2,624,662 for the nine months ended December 31, 2006, to $2,538,208 for the nine months ended December 31, 2007. This decrease in our operating expenses was primarily attributable to decreases in production and operating costs, and depreciation and depletion expense as a result of the UHC Sale. Our remaining general and administrative expenses were primarily attributable to continued expenses from the Lothian Bankruptcy, as well as additional expenses incurred in relation to our Change in Control and our associated change in members of management and of our board of directors, offset by the approximate $1.2 million expense from the warrants issued during the three months ended December 31, 2007.
 
Our production and operating expenses decreased $385,064, or approximately 95%, from $406,736 for the three months ended December 31, 2006, to $21,672 for the three months ended December 31, 2007. Our production and operating expenses decreased $958,569, or approximately 92%, from $1,040,920 for the nine months ended December 31, 2006, to $82,351 for the nine months ended December 31, 2007. Our depreciation and depletion decreased by $156,283, or approximately 99%, from $156,621 for the three months ended December 31, 2006, to $338 for the three months ended December 31, 2007. Our depreciation and depletion decreased by $502,279, or approximately 99%, from $503,293 for the nine months ended December 31, 2006, to $1,014 for the nine months ended December 31, 2007. General and administrative expenses increased $1,464,221, or approximately 849%, from $172,557 for the three months ended December 31, 2006, to $1,636,778 for the three months ended December 31, 2007. General and administrative expenses increased $917,664, or approximately 46%, from $1,080,449 for the nine months ended December 31, 2006, to $1,998,113 for the nine months ended December 31, 2007, this increase is primarily attributable to stock compensation expenses. Our bad debt expense increased from $0 for the three and nine months ended December 31, 2006, to $41,406 and $243,814, respectively, for the three and nine months ended December 31, 2007. This increase in our bad debt expense was attributable to amounts owed to us from the UHC Sale that were ultimately not collected during the three and nine months ended December 31, 2007, and for which we had no comparable expense for the three and nine months ended December 31, 2006. Our option put rights expense increased from $0 for the three and nine months ended December 31, 2006, to $69,728 and $209,184, respectively, for the three and nine months ended December 31, 2007. This increase in our option put rights expense is attributable to the fact that we entered into amendments to option agreements with certain of our former employees and consultants during the three and nine months ended December 31, 2007, and we had no comparable expense for the three and nine months ended December 31, 2006.
 
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Our loss from operations increased $1,264,845, or approximately 260%, from $482,010 for the three months ended December 31, 2006, to $1,746,855 for the three months ended December 31, 2007. Our loss from operations increased $797,275, or approximately 47%, from $1,714,667 for the nine months ended December 31, 2006, to $2,511,942 for the nine months ended December 31, 2007. This change in our loss from operations is primarily attributable to an increase in legal and consulting expenses incurred in relation to our Change in Control, and more importantly the charge related to compensatory options awarded management and consultants.
 
Our other income (expense) included income from a gain on our forgiveness of a debt of $1,780,710 during the nine months ended December 31, 2007, which was attributable to Lothian’s forgiveness of the Claim pursuant to the terms of the Lothian Agreement, and for which there was no comparable income for the nine months ended December 31, 2006. We experienced income from a gain on the sale of investments of $303,155 for the nine months ended December 31, 2007, which was attributable to the transfer of the Cano Securities to Lothian as full payment for the Lothian Loan, and for which there was no comparable income for the nine months ended December 31, 2006. We also experienced income from a gain on the sale of property and equipment of $13,351 for the nine months ended December 31, 2007, for which there was no comparable income for the nine months ended December 31, 2007. Offsetting our other income was an interest expense, which decreased $142,919, or approximately 98%, from $145,140 for the three months ended December 31, 2006, to $2,221 for the three months ended December 31, 2007. Our interest expense decreased $225,630, or approximately 76%, from $295,747 for the nine months ended December 31, 2006, to $70,117 for the nine months ended December 31, 2007. This decrease in our interest expense is primarily attributable to our payment of the Lothian Loan.
 
Our net loss decreased $1,116,926 or approximately 178%, from $627,150 for the three months ended December 31, 2006, to $1,744,076 for the three months ended December 31, 2007. Our net loss decreased $1,525,571, or approximately 76%, from $2,010,414 for the nine months ended December 31, 2006, to a net loss of $484,843 for the nine months ended December 31, 2007. This decrease in our net loss is primarily attributable to Lothian’s forgiveness of the Claim pursuant to the terms of the Lothian Agreement, offset by an expense of approximately $1.2 million related to compensatory warrants issued.
 
Liquidity and Capital Resources
 
Liquidity
 
Our revenues have not been adequate to support our operations and we do not expect that this will change in the near future. In the past, we have relied primarily on loans from Lothian to finance our operations.
 
On November 28, 2007 we completed the sale and issuance of units having a total gross value of $600,000 in a private placement to accredited investors (the “November Offering”). Each unit was comprised of (i) 32,000 shares of our common stock, par value $0.001 per share, and (ii) a 5 year callable warrant to purchase up to 52,253 shares of our common stock, subject to certain vesting requirements, at an exercise price of $1.40 per share. The warrants may not be exercised until we obtain shareholder approval of their issuance. We sold and issued a total of 21 units at a price of $24,000 per unit, for net cash proceeds of approximately $504,000. We also converted debt in the amount of $96,000 owed to Blackwood, our largest shareholder, into 4 units. The per share price of the common stock included in the units was less than the per share book or market value of our common stock on the date of sale. No underwriting discounts or commissions were paid in connection with the November Offering. We are obligated to register the shares underlying the warrants, subject to compliance with rule 415 promulgated under the Securities Act.
 
In addition, on December 19, 2007, we issued 345,606 shares of common stock and 259,205 stock purchase warrants, exercisable at $1.05 per share, for the conversion of accounts payable totaling $276,139.
 
Our current assets decreased by $ 1,910,435 or approximately 86%, from $2,208,668 for March 31, 2007, to $298,233 at December 31, 2007. The decrease in our current assets was due primarily to a reduction of cash in the amount of $1,442,412, from $1,671,672 at March 31, 2007 to $229,260 at December 31, 2007, which occurred as a result of the repayment of a loan made to us by Lothian and the reduction of accounts receivable in the amount of $451,614, from $470,670 at March 31, 2007 to $19,056 at December 31, 2007, which occurred as a result of the sale of New Mexico’s assets. We also experienced an increase of $5,784 in inventory, from $31,417 at March 31, 2007 to $37,201 at December 31, 2007 and a reduction in the amount of $22,193 of prepaid expenses, from $34,909 at March 31, 2007 to $12,716 at December 31, 2007. The reduction in prepaid expenses resulted from amortization of our prepaid Nasdaq listing fee.
 
33

 
Current liabilities also increased from $3,427,471 at March 31, 2007 to $3,432,158 at December 31, 2007, an increase of $4,687 or approximately less than 1%. The increase in current liabilities was due primarily to the liability associated with certain options that included a put right. This liability was offset by a decrease in interest accrued on the debt owed to Lothian, which at March 31, 2007 was $451,485 and at December 31, 2007 was $0, a decrease of $797,088 in accounts payable to Lothian, which at March 31, 2007 were $797,088 and at December 31, 2007 were $0 and a decrease in payables of $1,693,110, from $1,835,148 at March 31, 2007 to $142,038 at December 31, 2007, that resulted from the sale of New Mexico’s assets and use of the sales proceeds to satisfy related payables. Working capital was a deficit of $3,133,925 at December 31, 2007 as compared to a working capital deficit of $1,218,803 at March 31, 2007, an increase of $1,915,122 or approximately 157%. The increase in our working capital deficit resulted primarily from the accrued put liability of $2,936,370 becoming current during the nine month period ended December 31, 2007.
 
Shareholders’ equity increased $1,900,569, from $803,977 at March 31, 2007, to $2,704,546 at December 31, 2007, as a result of the forgiveness of debt by Lothian Oil, as well as the $600,000 in gross proceeds we received from the November Offering and an accounts payable conversion concluded during the quarter.
 
There was a decline of $3,760,181 or approximately 37.6% in our total assets, from $9,983,559 at March 31, 2007 to $6,223,378 at December 31, 2007. Aside from the decrease in current assets, the decrease in total assets resulted from the transfer of our common stock in Cano Petroleum Inc., which had a fair value of $1,827,000 at March 31, 2007, to Lothian as a partial repayment of the Cato Unit Loan and we sold most of our property and equipment, which had a value of $83,304 at March 31, 2007 when we sold our New Mexico property. At December 31, 2007 our property and equipment had a value of $10,362.
 
Cash Flow
 
Our operations used $1,352,432 of cash in the nine months ended December 31, 2007. Cash was used primarily for accounts payable and accrued expenses, which totaled $875,568 offset, in part, by accounts receivable of $355,614.
 
Cash of $8,751 was used in investing activities during the nine months ended December 31, 2007. In comparison, during the nine months ended December 31, 2006 we used $5,873,242 in cash to improve our oil and gas properties and equipment.
 
During the three months ended December 31, 2007, we obtained loan proceeds from Lothian totaling $153,218, and we used cash in the amount of $331,989 to repay advances made to us by Lothian. For the three months ended December 31, 2006, we obtained loan proceeds from Lothian totaling $5,389,502. We also received cash proceeds of $504,360 from the November offering during the three months ended December 31, 2007.
 
At December 31, 2007 we had cash on hand in the amount of $229,260 as compared to $171,388 at December 31, 2006.
 
The sale price of oil produced by our Wardlaw Field increased by $1.53 a barrel, or approximately 4%, from $36.80 a barrel for the nine months ended December 31, 2006, to $38.33 a barrel for the nine months ended December 31, 2007. Production costs for the nine months ended December 31, 2007 increased $114.68, or approximately 381%, from $30.11 a barrel for the nine months ended December 31, 2006, to $144.79 a barrel for the year ended March 31, 2007.
 
Without activity in the Wardlaw Field, we believe that our expenses will decrease significantly, however, we have a funded plan to begin reworking the existing well bores, drill three test wells, and to commence a pilot flooding program consisting of four injection wells and nine producing well during the next twelve months. There can be no assurance of success, and unless production and sales of oil and gas significantly increase, we may not be able to attain profitability, or even be able to continue as a going concern.
 
34

 
Except as otherwise discussed above, we know of no trends, events or uncertainties that have, or are reasonably likely to have, a material impact on our short-term or long-term liquidity or on our net sales or revenues from continuing operations. We do not currently have any commitments for capital expenditures for the next twelve months.
 
Fiscal Year Ended March 31, 2007 as Compared to the Fiscal Year Ended March 31, 2006
 
The following selected financial data for the two years ended March 31, 2007 and March 31, 2006 is derived from our consolidated financial statements. The data is qualified in its entirety and should be read in conjunction with the consolidated financial statements and related notes contained elsewhere herein.

   
Year Ended
March 31, 2007
 
Year Ended
March 31, 2006
 
Income Data:
   
   
 
Revenues
 
$
1,014,734
 
$
601,685
 
Income Profit (Loss)
 
$
(11,435,134
)
 
(17,371,395
)
Income Profit (Loss)
   
   
 
Per Share
 
$
(1.77
)
$
(2.98
)
Weighted Average
   
   
 
Number of Shares
   
6,446,758
   
5,830,188
 
Balance Sheet Data:
   
   
 
Working Capital (deficit)
 
$
(1,218,803
)
$
(1,765,656
)
Total Assets
 
$
9,983,559
 
$
15,461,605
 
Current Liabilities
 
$
3,427,471
 
$
1,998,447
 
Long-Term Debt
 
$
2,941,983
 
$
1,413,003
 
Shareholders’ Equity
 
$
803,977
 
$
11,783,643
 
 
Combined Results
 
Our revenues for the 2007 fiscal year were $1,014,734, an increase of $413,049 or approximately 69%, as compared to revenues of $601,685 for the 2006 fiscal year. The increase in sales revenue for the 2007 fiscal year was due primarily to increased volume of oil sold.
 
Total operating expenses of $5,867,952 reflects a decrease of $19,990,051, or approximately 77%, for the 2007 fiscal year as compared to operating expenses of $25,858,003 for the 2006 fiscal year. The significant operating expenses reported for the 2006 fiscal year resulted from the inclusion of $23,199,110 in impairment of our oil and gas properties, which was not taken in 2007. The impairment was taken in conjunction with the re-evaluation of our reserves. General and administrative expenses decreased slightly by $22,464, or approximately 2%, from $1,339,920 in the 2006 fiscal year to $1,317,456 in the 2007 fiscal year. We also incurred a put option expense of $2,727,186 during the fiscal year ended March 31, 2007. We had no similar expense during the fiscal year ended March 31, 2006. Interest expense was $456,683 in the 2007 fiscal year, as compared to $221,445 in the 2006 fiscal year. The increase during the 2007 fiscal year was due primarily to the increase in the amount of money loaned to us by Lothian for development of our properties.
 
Our net loss for the 2007 fiscal year was $11,435,134, a decrease of $5,936,261 or approximately 34%, as compared to a net loss of $17,371,395 for the 2006 fiscal year. We reported a significant decrease in net loss because we had no impairment charge in the 2007 fiscal year, as compared to the impairment charge of $23,199,110 we included in the 2006 fiscal year.
 
35

 
Food Products Activity
 
Our subsidiary, National Heritage Sales Corporation, had $0 product sales during the 2007 fiscal year, as compared to sales for the 2006 fiscal year of $8,694. National is no longer selling meat and poultry products and has sold its assets. We do not intend to re-enter this market and we will no longer have results related to this activity to report.
 
Oil and Gas Activity
 
Oil and gas sales during the 2007 fiscal year were $1,014,734, an increase of $421,743 or approximately 71%, as compared to sales of $592,991 during the 2006 fiscal year. The volume of production sold during the 2007 fiscal year was greater than the volume of production sold during the 2006 fiscal year, however, significantly higher production costs offset the increased volumes and slightly higher product prices. The increased costs from the 2006 fiscal year were primarily the result of higher field labor, salt water disposal and high service company costs related to increased activity on the Texas and New Mexico properties. Production is expected to remain limited on our Texas property, the only property we currently own, due to a lack of operating and investment capital that, prior to its bankruptcy, had been provided to us by Lothian. Receivables due to the Asset Sale comprised 99% of our total receivable balance at March 31, 2007. Receivables from a single oil and gas customer comprised 55% of our trade receivable balance at March 31, 2006. No allowance for doubtful accounts has been included in our financial statements since recorded amounts are determined to be fully collectible, based on management’s review of customer accounts, historical experience and other pertinent factors. During the fiscal year ended March 31, 2007, we recorded oil and gas sales to only two customers. Buyers of crude oil are plentiful and can be easily replaced.
 
Production and operating expenses were $1,320,401 during the 2007 fiscal year as compared to $259,290 in production and operating expenses during the 2006 fiscal year, an increase of $1,061,111 or approximately 401%. This significant increase in production and operating expenses was the result of higher salt water disposal charges and charges for field labor. Depreciation and depletion expense for the 2007 fiscal year was $490,507 as compared to depreciation and depletion expense of $1,027,155 for the 2006 fiscal year, a decrease of $536,648 or approximately 52%. The decreased depreciation and depletion expense resulted primarily from the reduction of proved properties due to the impairment of assets in the 2006 fiscal year.
 
Liquidity and Capital Resources
 
Liquidity
 
Our sales revenues have not been adequate to support our operations and we do not expect that this will change in the near future. In the past, we relied primarily on loans from Lothian to finance our operations. Lothian declared bankruptcy on June 13, 2007 and we do not believe that it is capable of providing additional funding to us. We currently have no other sources of capital. We are operating on a day-to-day basis and we will continue operating in this manner for as long as Lothian provides us with the funds to do so.
 
Our current assets increased by $1,975,877 or approximately 849%, from $232,791 at March 31, 2006 to $2,208,668 at March 31, 2007. The increase in our current assets was due primarily to cash and receivables related to the Asset Sale. Current liabilities increased from $1,998,447 at March 31, 2006, to $3,427,471 at March 31, 2007, an increase of $1,429,024 or approximately 72%. The increase in current liabilities was due to increased accounts payable and accrued interest on the related party notes payable. Working capital was a deficit of $1,218,803 at March 31, 2007 as compared to the March 31, 2006 deficit of $1,765,656, a decrease of $546,853 or approximately 31%. The decreased deficit was due primarily to the Asset Sale.
 
Due to the loss incurred on the sale of our New Mexico properties and the expense related to the put provision included in certain stock option agreements, equity capital decreased by $10,979,666, or approximately 93%, during the 2007 fiscal year. Shareholders’ equity was $11,783,643 at March 31, 2006, as compared to $803,977 at March 31, 2007.
 
36

 
Total assets were $9,983,559 at March 31, 2007, a decrease of $5,478,046 as compared to $15,461,605 for the 2006 fiscal year. The decrease in total assets resulted primarily from the sale of our New Mexico property.
 
Cash Flow
 
Our operations used $575,885 of cash in the 2007 fiscal year as compared to $67,729 used in the 2006 fiscal year. The cash flow deficits are due to the operating losses incurred.
 
Cash of $642,211 was provided by investing activities during the 2007 fiscal year and cash of $1,908,815 was used in investing activities for the 2006 fiscal year. Net cash provided from investing activities for the 2007 fiscal year consisted of the proceeds from the sale of our New Mexico properties, which totaled $6,613,947. Cash of $5,971,736 was used for capital expenditures for our oil and gas properties and for the purchase of equipment. During the 2006 fiscal year, cash flows used in investing activities related primarily to capital expenditures for our oil and gas properties.
 
In the 2007 fiscal year, cash of $6,338,904 was provided by borrowings from Lothian. Payments totaling $4,809,924 were made to Lothian from the proceeds we received when we sold New Mexico’s assets. During the 2006 fiscal year, cash in the amount of $5,249,753 from financing activities came from the exercise of warrants, the sale of our common stock to Lothian and loans from Lothian. Of this amount, $3,203,994 was used for the repayment of a loan from Almac Financial Corporation.
 
At March 31, 2007 we had cash of $1,671,672.
 
37

 
INDEX TO FINANCIAL STATEMENTS

Consolidated Condensed Balance Sheets at December 31, 2007 (Unaudited) and March 31, 2007 (Audited)
F-2
Consolidated Condensed Statements of Income (Unaudited) for the Three and Nine Months Ended December 31, 2007 and December 31, 2006
F-4
Consolidated Condensed Statements of Cash Flows (Unaudited) for the Nine Months Ended December 31, 2007 and December 31, 2006
F-5
Notes to Consolidated Condensed Financial Statements
F-7
Report of Independent Registered Public Accounting Firm
F-19
Consolidated Balance Sheets at March 31, 2007 and 2006
F-20
Consolidated Statements of Operations for the Years Ended March 31, 2007 and 2006
F-22
Consolidated Statements of Changes in Shareholders’ Equity or the Years Ended March 31, 2007 and 2006
F-23
Consolidated Statements of Cash Flows for the Years Ended March 31, 2007 and 2006
F-24
Notes to Consolidated Financial Statements
F-25
 
F-1

 
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED CONDENSED BALANCE SHEETS
 
   
December 31, 2007
 
March 31,
2007
 
  
 
(Unaudited)
     
ASSETS
   
   
 
CURRENT ASSETS
   
   
 
Cash
 
$
229,260
 
$
1,671,672
 
Accounts receivable
   
19,056
   
470,670
 
Inventory
   
37,201
   
31,417
 
Prepaid expenses
   
12,716
   
34,909
 
Total current assets
   
298,233
   
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 December 31 and March 31, 2007
   
Proved
   
   
 
Unproved
   
5,914,783
   
5,864,587
 
  
   
5,914,783
   
5,864,587
 
PROPERTY AND EQUIPMENT, at cost equipment, furniture and fixtures
   
8,751
   
74,244
 
Vehicles
   
6,752
   
158,452
 
  
   
15,503
   
232,696
 
Less accumulated depreciation
   
(5,141
)
 
(149,392
)
  
   
10,362
   
83,304
 
TOTAL ASSETS
 
$
6,223,378
 
$
9,983,559
 
See notes to the consolidated condensed financial statements.
 
F-2

UNITED HERITAGE CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED CONDENSED BALANCE SHEETS
(Continued)
 
   
December 31, 2007
 
March 31,
2007
 
  
 
(Unaudited)
     
LIABILITIES AND SHAREHOLDERS’ EQUITY
   
CURRENT LIABILITIES
   
   
 
Accounts payable
 
$
142,038
 
$
1,835,148
 
Accounts payable, related party
   
10,000
   
797,088
 
Accrued expenses
   
343,750
   
343,750
 
Accrued interest, related party
   
   
451,485
 
Accrued put option liability
   
2,936,370
   
 
Total current liabilities
   
3,432,158
   
3,427,471
 
LONG-TERM LIABILITIES
   
Asset retirement obligation
   
86,674
   
82,942
 
Note payable, related parties
   
   
2,941,983
 
Accrued put option liability
   
   
2,727,186
 
Total liabilities
   
3,518,832
   
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; 7,592,456 and 6,446,850 shares issued and outstanding, respectively:
   
7,593
   
6,447
 
Additional paid-in capital
   
46,180,942
   
43,796,676
 
Accumulated deficit
   
(43,483,989
)
 
(42,999,146
)
Total shareholders’ equity
   
2,704,546
   
803,977
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
6,223,378
 
$
9,983,559
 
 
See notes to the consolidated condensed financial statements.
 
 
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
 
   
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
 
  
 
2007
 
2006
 
2007
 
2006
 
OPERATING REVENUES
   
   
   
   
 
Oil and gas sales
 
$
24,311
   
253,904
 
$
26,266
 
$
909,995
 
TOTAL OPERATING REVENUES
   
24,311
   
253,904
   
26,266
   
909,995
 
OPERATING COSTS AND EXPENSES
   
   
   
   
 
Production and operating
   
21,672
   
406,736
   
82,351
   
1,040,920
 
Depreciation and depletion
   
338
   
156,621
   
1,014
   
503,293
 
Accretion of asset retirement obligation
   
1,244
   
   
3,732
   
 
General and administrative
   
1,636,778
   
172,557
   
1,998,113
   
1,080,449
 
Bad debt expense
   
41,406
   
   
243,814
   
 
Put option expense
   
69,728
   
   
209,184
   
 
TOTAL OPERATING COSTS AND EXPENSES
   
1,771,166
   
735,914
   
2,538,208
   
2,624,662
 
LOSS FROM OPERATIONS
   
(1,746,855
)
 
(482,010
)
 
(2,511,942
)
 
(1,714,667
)
   
   
   
   
 
Gain on forgiveness of debt
   
   
   
1,780,710
   
 
Gain on sale of investments
   
   
   
303,155
   
 
Gain on sale of property and equipment
   
5,000
   
   
13,351
   
 
Interest expense
   
(2,221
)
 
(145,140
)
 
(70,117
)
 
(295,747
)
Income (loss) before income tax
   
(1,744,076
)
 
(627,150
)
 
(484,843
)
 
(2,010,414
)
INCOME TAX BENEFIT
   
   
   
   
 
NET INCOME (LOSS)
 
$
(1,744,076
)
 
(627,150
)
$
(484,843
)
$
(2,010,414
)
Income (loss) per share (basic)
 
$
(0.26
)
 
(0.10
)
$
(0.07
)
$
(0.32
)
Weighted average number of shares (basic)
   
6,778,886
   
6,446,850
   
6,557,931
   
6,446,850
 
 
See notes to the consolidated condensed financial statements.
 
 
 
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
Nine Months Ended
December 31,
 
  
 
2007
 
2006
 
CASH FLOWS FROM OPERATING ACTIVITIES
   
   
 
Net income (loss)
 
$
(484,843
)
$
(2,010,414
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
   
   
 
Depreciation and depletion
   
1,014
   
503,293
 
Accretion of asset retirement obligation
   
3,732
   
 
Gain on sale of investments
   
(303,155
)
 
 
Gain on forgiveness of debt
   
(1,780,710
)
 
 
Gain on sale of property and equipment
   
(13,351
)
 
 
Realization of stock options and warrants issued
   
1,519,242
   
341,601
 
Put option expense
   
209,184
   
 
Changes in assets and liabilities:
   
   
 
Accounts receivable
   
355,614
   
(49,659
)
Inventory
   
(5,784
)
 
(14,659
)
Other current assets
   
22,193
   
39,467
 
Deferred tax
   
   
 
Accounts payable and accrued expenses
   
(875,568
)
 
1,768,769
 
Net cash (used in) provided by operating activities
   
(1,352,432
)
 
578,762
 
CASH FLOWS FROM INVESTING ACTIVITIES
   
   
 
Additions to oil and gas properties
   
   
(5,732,183
)
Additions to equipment
   
(8,751
)
 
(141,059
)
Net cash used in investing activities
   
(8,751
)
 
(5,873,242
)
CASH FLOWS FROM FINANCING ACTIVITIES
   
   
 
Proceeds from borrowings, related party
   
153,218
   
5,389,502
 
Issuance of common stock
   
504,360
   
 
Payments on note payable, related party
   
(331,989
)
 
 
Net cash provided by financing activities
   
325,589
   
5,389,502
 
(Decrease) increase in cash and cash equivalents
   
(1,035,594
)
 
95,002
 
Cash at beginning of period
   
1,671,672
   
76,366
 
Cash at end of period
 
$
229,260
 
$
171,388
 
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
   
 
Conversion of accounts payable to equity
   
361,464
   
 
 
See notes to the consolidated condensed financial statements.
 
 
 
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Nine Months Ended December 31, 2007
(Unaudited)
 
   
Common Stock
 
Additional Paid-in
 
Accumulated
 
 
 
  
 
Shares
 
Amount
 
Capital
 
Deficit
 
Total
 
Balance March 31, 2007
 
$
6,446,850
 
$
6,447
 
$
43,796,676
 
$
(42,999,146
)
$
803,977
 
Stock options for services
   
   
   
314,367
   
   
314,367
 
Issuance of common stock for conversion of debt
   
473,606
   
474
   
361,464
   
   
361,938
 
Issuance of common stock for cash
   
672,000
   
672
   
503,560
   
   
504,232
 
Warrants issued for service
   
   
   
1,204,875
   
   
1,204,875
 
Net loss
   
   
   
   
(484,843
)
 
 
 
Balance December 31, 2007
 
$
7,592,456
 
$
7,593
 
$
46,180,942
 
$
(43,483,989
)
$
2,704,546
 
 
See notes to the consolidated condensed financial statements.
 
 
 
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1 — Basis of Presentation
 
 
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 nine months ended December 31, 2007 are not necessarily indicative of the results that may be expected for the fiscal 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.
 
The Company’s 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. The Company has incurred substantial losses from operations and has a working capital deficit which raises substantial doubt as to its ability to continue as a going concern. The Company had a net loss of $484,843 for the nine months ended December 31, 2007 and a net loss of $11,435,134 for the fiscal year ended March 31, 2007 and, as of the same periods, the Company had an accumulated deficit of $43,483,989 and $42,999,146, respectively. During the quarter ended December 31, 2007, the Company raised gross proceeds of approximately $504,000 in cash in additional equity financings, and approximately $362,000 in debt conversion of debt to equity, however, there can be no assurance that the Company will be able to continue to obtain the financing it needs to develop its properties and alleviate doubt as to the Company’s ability to continue as a going concern.
 
Note 2 — New Accounting Standards
 
Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) No. FAS 19-1, Accounting for Suspended Well Costs, amends Statement of Financial Accounting Standards (“SFAS”) Statement No. 19, Financial Accounting and Reporting by Oil and Gas Producing Companies, 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. FSP FAS No. 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 No. 19-1 is expected to be minimal.
 
Effective April 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, 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).
 
 
 
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
 
Note 2 — New Accounting Standards  – (continued)
 
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 (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, 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 (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109. This interpretation provides guidance for recognizing and measuring uncertain tax positions, as defined in SFAS No. 109, Accounting for Income Taxes. FIN No. 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 No. 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN No. 48 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.
 
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, 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 No. 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 No. 157, there is now a common definition of fair value to be used throughout GAAP. SFAS No. 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 No. 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.
 
 
 
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
 
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 more fully described in Note 7. A gain of $303,155 was recognized upon the transfer to Lothian Oil Inc.
 
Note 4 — Inventory
 
 
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:
 
   
December 31,
2007
 
March 31,
2007
 
Capitalized costs of oil and gas properties:
   
   
 
Proved
 
$
 
$
 
Unproved
   
5,914,783
   
5,864,587
 
  
   
5,914,783
   
5,864,587
 
Less accumulated depletion, depreciation, and amortization
   
   
 
  
 
$
5,914,783
 
$
5,864,587
 
 
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 Company’s 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. (“Lothian”), previously its majority shareholder (the “Cato Unit Loan”). The Cato Unit Loan was subsequently increased to $8,000,000 during the year ended March 31, 2007. 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, Inc. (“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.
 
 
 
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
 
Note 7 — Note Payable to Related Party  – (continued)
 
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 December 31, 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 “Wardlaw Field”). 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 the Company entered into an agreement with its largest shareholder, Lothian. Pursuant to the terms of this agreement, Lothian forgave $1,800,000 that it asserted the Company owed to it, which amount included $753,296 in principal and $71,254 in accrued interest associated with the Wardlaw Loan. In exchange for the debt forgiveness, the Company agreed to deliver to Lothian any funds in excess of $100,000 that it received from Cano Petroleum in connection with the sale of the assets of UHC New Mexico Corporation. The Company does not anticipate that it will receive any funds in excess of $100,000 from Cano Petroleum in connection with that sale.
 
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 December 31, 2007 and December 31, 2006. Diluted earnings per share have not been presented since the inclusion of potential common shares would be antidilutive. All outstanding options and warrants are priced above the closing price of the Company’s common stock at December 31, 2007, and likewise are not included in potential common shares outstanding.
 
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 condensed consolidated financial statements as of the period ended December 31, 2007 in conformity with United States GAAP 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. For example, estimates of oil and gas reserves, asset retirement obligations and impairment on unproved properties held by the Company are particularly sensitive, and actual results could differ materially from any estimates contained in the Company’s condensed consolidated financial statements.
 
Note 11 — Stock Options
 
Directors of the Company adopted the 1998 Stock Option Plan effective July 1, 1998 (the “1998 Plan”). The 1998 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.
 
 
UNITED HERITAGE CORPORATION AND SUBSIDIARIES  
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
 
Note 11 — Stock Options  – (continued)
 
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 (the “2000 Plan”). Options may be granted to directors, officers, consultants, and/or employees of the Company and/or its subsidiaries. Options granted under the 2000 Plan are exercisable over a period to be determined when granted, but may be affected by the termination of employment. On December 31, 2007, there were 19 awards outstanding under the 2000 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 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 the fiscal year ended March 31, 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 three or nine months ended December 31, 2007.
 
The following table summarizes pertinent information with regard to the 1998 Plan and 2000 Plan for the nine months ended December 31, 2007:

   
Option and Rights
 
Weighted Average
Exercise Price
 
Outstanding at beginning of year, April 1, 2007
   
1,725,000
 
$
3.40
 
Granted
         
Exercised
   
   
 
Forfeited
   
   
 
Expired
   
   
 
Outstanding at December 31, 2007
   
1,725,000
 
$
1.40
 
Exercisable at December 31, 2007
   
1,725,000
 
$
1.40
 
 
The weighted average contractual life of options outstanding at December 31, 2007 was 3.33 years. The weighted average contractual life of exercisable options was $3.33 at December 31, 2007.
 
The following is a summary of the Company’s nonvested options for 2007:

Nonvested, at April 1, 2007
   
180,000
 
Granted
   
 
Vested
   
180,000
 
Forfeited
   
 
Nonvested, at December 31, 2007
   
 
 
 
UNITED HERITAGE CORPORATION AND SUBSIDIARIES  
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
 
Note 11 — Stock Options  – (continued)
 
During the third quarter the remaining unvested options vested upon the option holder’s separation from service in October 2007. The weighted average grant date fair value of options that vested during the nine months ended December 31, 2007 was $1.19. 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 $2,936,370 is recorded at December 31, 2007 and corresponding expense of $69,728 and $209,184 has been recorded for the three and nine months ended December 31, 2007, respectively.
 
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. 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 the fiscal year ended March 31, 2005 are exercisable at $2.25 and $3.00, respectively, and have a remaining contractual life of 2 years. The warrants issued in the fiscal year ended March 31, 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 were transferred to Walter G. Mize (“Mize”) on July 31, 2007 and, thereafter, from Mize to Blackwood Ventures LLC (“Blackwood”) on September 26, 2007, as more fully described in Note 17.
 
During the quarter ended December 31, 2007, there were 10,306,325 warrants issued, as more fully described in Notes 15 and 16.
 
UNITED HERITAGE CORPORATION AND SUBSIDIARIES  
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
 
Note 12 — Stock Warrants  – (continued)
 
United Heritage Corporation Warrants Issuance Quarter Ended 12/31/07

IssuanceDate
 
Warrant Holder
 
Warrants
 
Exercise Price
 
11/28/2007
   
DK True Energy Development Ltd. &RTP
Secure Energy Corp.
   
9,000,000
 
$
1.05
 
11/28/2007
   
Private Placement
   
1,306,325
 
$
1.40
 
 
   
Total
   
10,306,325
       
 
The following schedule summarizes pertinent information with regard to the stock warrants for the nine months ended December 31, 2007:

   
Shares
Outstanding
 
Weighted Average
Exercise Price
 
Outstanding at beginning of year, April 1, 2007
   
5,085,334
 
$
3.08
 
Granted
   
10,306,325
   
1.09
 
Exercised
   
   
 
Forfeited
   
   
 
Expired
   
   
 
Outstanding at December 31, 2007
   
15,391,659
 
$
1.75
 
Exercisable
   
5,085,334
 
$
3.08
 
 
An expense of $1,204,875, related to the compensatory warrants issued to DK True Energy Development Ltd. and RTP Secure Energy Corp., was recorded in the three and nine months ended December 31, 2007. An additional compensation expense of approximately $8.2 million will be recorded over the vesting term of such warrants.
 
In addition, the Company, as part of an independent consulting services agreement, has agreed to issue a warrant to purchase up to 1,600,000 shares of common stock to Applewood Energy Inc., and a warrant to purchase up to 1,000,000 shares of common stock to GWB Petroleum Consultants, Ltd., as more fully described in Note 16 — Consulting Agreements. The Company has also agreed to issue a warrant to purchase up to 1,500,000 shares of common stock to Joseph Langston, and a warrant to purchase up to 1,500,000 shares of common stock to Blackwood Capital Limited, as more fully described in Note 18 — Subsequent Events — Consultants. Each of the above-referenced warrants will be issued upon receipt of shareholder approval in accordance with applicable federal securities laws and in compliance with Nasdaq Marketplace Rule 4350 (“Rule 4350”).
 
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”.
 
 
UNITED HERITAGE CORPORATION AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
 
Note 13 — Preferred Stock  – (continued)
 
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 the State of Utah on May 17, 2006, however, no preferred shares have been issued as of December 31, 2007.
 
Note 14 — Supplemental Disclosures of Cash Flows Information

   
Nine Months Ended
December 31,
 
  
 
2007
 
2006
 
Cash paid during the three months for:
         
Interest
 
$
 
$
26,698
 
Taxes
 
$
 
$
 
 
Note 15 — Issuance of Common Stock
 
On November 28, 2007 the Company completed the sale and issuance of units having a total gross value of $600,000 in a private placement to accredited investors (the “November Offering”). Each unit was 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 obtains shareholder approval of their issuance. The Company sold and issued a total of 21 units at a price of $24,000 per unit, for net cash proceeds of approximately $504,000. The Company also converted debt in the amount of $96,000 owed to Blackwood, its largest shareholder, into 4 units. The per share price of the common stock included in the units was less than the per share book or market value of the Company’s common stock on the date of sale. No underwriting discounts or commissions were paid in connection with the November Offering. The Company is obligated to register the shares underlying the warrants, subject to compliance with Rule 415 promulgated under the Securities Act of 1933, as amended.
 
Note 16 — Consulting Agreements
 
On November 28, 2007 the Company entered into a 12 month consulting agreement (the “Consulting Agreement”) with DK True Energy Development Ltd., a member of Blackwood, the Company’s largest shareholder, and RTP Secure Energy Corp. (together, the “Consultants”). In accordance with the terms of the Consulting Agreement, the Consultants are to provide the Company with, among other things, reservoir analysis, and geological and engineering expertise, as required and reasonably requested by the Company from time to time, as well as to assist the Company with respect to: (i) reviewing technical data and providing advice regarding the development of the Wardlaw Field; (ii) identifying and introducing the Company to management candidates, including prospective members of the board of directors and officers; (iii) interacting with the Company’s potential investors; and (iv) assisting and advising the Company with respect to developing a pilot program and a full development plan for the full production of the Wardlaw Field.
 
In lieu of cash compensation, the Consultants will receive 5-year warrants to purchase up to a total of 9,000,000 shares of common stock, at an exercise price of $1.05 per share, exercisable after December 31, 2007 and only on a cashless basis (such that fewer than 9,000,000 shares will be issued). The Consultants’ warrants are subject to shareholder approval in accordance with applicable federal securities laws and in compliance Rule 4350. The Company’s majority shareholder, Blackwood, has executed a voting agreement to approve the Consultants’ warrants. The Consultants’ warrants will vest, in the aggregate, as follows: (i) 1,147,500 warrant shares will vest upon effective shareholder approval; (ii) 2,452,500 warrant shares will vest upon the Company’s announcement that it is moving forward with a development program based on the results of the pilot program of the Wardlaw Field; and (iii) 5,400,000 warrant shares will vest at the rate of 675,000 shares for each increase of an average of 250 barrels of oil per day produced by the Company in any calendar month following the warrant issue date. Notwithstanding the foregoing, the Consultants’ warrants will vest entirely upon a change of control transaction, including an agreement for the sale or disposition of more than 50% of the Company’s interest in the Wardlaw Field. The Company is obligated to use its best efforts to file a registration statement with the Securities and Exchange Commission (the “SEC”) within 180 days providing for the resale of an aggregate of 6,500,000 of the Consultants’ warrant shares, subject to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”).
 
 
UNITED HERITAGE CORPORATION AND SUBSIDIARIES  
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
 
Note 16 — Consulting Agreements  – (continued)
 
Officers and Directors
 
On November 28, 2007, the Company entered into a consulting agreement with Applewood Energy, Inc., (“Applewood”), effective as of November 1, 2007 (the “Applewood Agreement”), pursuant to which Applewood agreed to provide the Company, for a period of two years from the effective date, the services of Mr. Paul D. Watson (“Watson”), as Chief Operating Officer and a member of board of directors.
 
As compensation for the services to be rendered under the terms of the Applewood Agreement, the Company agreed to issue Applewood shares of common stock having a value of $60,000 and pay cash compensation of $5,000 per month. Upon completion of the first and second years of the Applewood Agreement, the Company will pay Applewood a bonus, in shares of common stock, equal to the amount of Applewood’s annual compensation. Upon the achievement of certain milestones, Applewood will be entitled receive warrants to purchase shares of the Company’s common stock as follows: (i) the right to purchase 400,000 shares of common stock at an exercise price of $2.00 per share vesting upon completion of a successful pilot; (ii) the right to purchase 400,000 shares of common stock at an exercise price of $2.00 per share when the Company’s 30 day average production reaches 1,000 barrels of oil equivalent per day (“BOE/D”); (iii) the right to purchase 400,000 shares of common stock at an exercise price of $2.50 per share vesting when the Company’s 30 day average production reaches 2,000 BOE/D; and (iv) the right to purchase 400,000 shares of common stock having an exercise price of $3.00 per shares when the Company’s 30 day average production reaches 3,000 BOE/D. Before the Company can issue the shares of common stock for the bonus and the warrants, it must seek approval from its shareholders pursuant to Rule 4350.
 
In the event of a business combination or change of control, as they are defined in the Applewood Agreement, all unvested warrants issued to Applewood will immediately vest and Applewood will have the right to receive, upon exercise of its warrants and payment of the exercise price, subject in all cases to completion of a successful pilot, the kind and amount of shares of capital stock or other securities or property which it would have been entitled to receive upon or as a result of such combination or change of control had the warrants been exercised immediately prior to such event. In the event of a business combination or change of control which results in the termination of the Applewood Agreement, Applewood will receive a 12 month severance package payable upon the effective date of the transaction and only as to the cash portion of Applewood’s annual compensation.
 
On November 28, 2007, the Company entered into a consulting agreement with GWB Petroleum Consultants Ltd. (“GWB”), effective as of November 1, 2007 (the “GWB Agreement”), pursuant to which GWB agreed to provide the Company, for a period of two years from the effective date, the services of Mr. Geoffrey W. Beatson (“Beatson”) as Vice President of Engineering and Production.