United Heritage Corporation is an independent producer of natural gas and crude oil based in Cleburne, Texas. The Company operates its business through its wholly owned subsidiaries, UHC Petroleum Corporation (Petroleum), UHC Petroleum Services Corporation (Services) and UHC New Mexico Corporation (New Mexico). United Heritage's Texas property includes 114 wells, and its New Mexico property includes 294 wells. Monthly oil and gas production from New Mexico, as of March 31, 2005, was 9.27 million cubic feet of gas and 964 barrels of oil. Monthly oil production from Petroleum, as of March 31, 2005, was 118 barrels of oil. Pursuant to a reorganization agreement, and an agreement and plan of merger, entered into on January 27, 2005, United Heritage transferred certain assets of National Heritage Sales Corporation, including the Heritage Lifestyle trademarks, point of sale material and good will, to Heritage Food Group, another subsidiary. On January 27, 2005, Heritage Food Group was merged into BMW Holdings, Inc. (BMW), an unrelated third party, with BMW being the surviving corporation in the merger. Prior to April 20, 2005, Petroleum held leases to approximately 10,502 acres of oil and gas interests in South Texas that produce from the Val Verde Basin. Petroleum acquired these properties in a series of transactions completed in February 1997. The field has 136 gross and 93 net productive oil wells on 142 gross and net developed acres. Petroleum is producing from wells in this field using Moyno pumps and submersible pumps. Petroleum implemented a nitrogen injection project that involved four injection wells and 30 producing wells. On May 20, 2005, Petroleum received an engineering study of its South Texas oil field, which showed proved reserves of 26,710,000 net barrels. The study indicated in excess of 168 million barrels of oil remaining in place. On April 20, 2005, Petroleum assigned 7,840 specific net acres of its 10,502-acre oil and gas leasehold situated in the Val Verde Basin to Dominion Oklahoma Texas Exploration & Production, Inc., which is a petroleum exploration and production company owned by Dominion Resources, Inc. (Dominion). Petroleum and Dominion also agreed to an area of mutual interest (AMI), which surrounds the 7,840 specific net acres. This AMI encompasses approximately 12,800 acres. The assignment to Dominion is for development of wells in depths below 2000 feet. Petroleum reserved all right to develop wells above 2000 feet. The term of the assignment is two years, but will continue so long as oil, gas or associated hydrocarbons are produced in paying quantities. The assignment provides that the first well is to be commenced within two years from the date of the assignment, and that subsequent wells must be drilled every 180 days. Dominion and Petroleum are negotiating the terms of a joint operating agreement. New Mexico acquired its oil and gas properties in June 1999. The properties are located in the Permian Basin of New Mexico, and consist of approximately 20,000 gross acres. These properties have 278 gross and net productive oil wells on 6,260 gross and net developed acres. Undeveloped gross and net acres are 13,740 based on 20 acre well spacing. Of the gross and net productive oil wells, 202 wells are located in the Cato San Andres Unit of New Mexico's properties. New Mexico owns four casing swabbing units, which are being utilized in these fields. On May 23, 2005 New Mexico received an engineering study of its southeastern New Mexico oil and gas fields. This study is based on the limited methods of recovery that are being utilized. The report estimated that 14,820,066 barrels of oil are recoverable and 2.753 billion cubic feet of gas is recoverable. Services, the Company's wholly owned subsidiary, acts as the field operator for the oil and gas properties located in Texas. Its operations do not contribute significantly to the Company's consolidated earnings.

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