10-K 1 hoi10k0531.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB (Mark One) _X_ Annual report under section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended May 31, 2001. _____Transition report under section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____ to ____. Commission File No: 0-21951 THE HERITAGE ORGANIZATION, INC. (Name of small business in its charter) Colorado 84-1356383 __________________________________________________________ (State or other jurisdiction (IRS Employer Identification of Incorporation) No.) 5001 Spring Valley Road, Suite 800 East __________________________________________________________ Address of Principal Executive Office (street and number) Dallas, Texas 75244 __________________________________________________________ City, State and Zip Code Issuer's telephone number: (972) 991-0001 Securities to be registered under Section 12(b) of the Act: Title of each class Name of each exchange on which registered N/A N/A Securities to be registered under Section 12(g) of the Act: Common Stock, no par value (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. _X_ State issuer's revenue for its most recent fiscal year: $ 5.00. State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked priced of such stock, as of a specified date within the past 60 days (See definition of affiliate in Rule 12b-2): $ -0- Note: If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated. (Issuers involved in bankruptcy proceedings during the past five years) Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ___ No ____ (Applicable only to corporate registrants) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 14,000,000 as of May 31, 2001. Documents incorporated by reference. If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g. Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed documents should be clearly described for identification purposes. Transitional Small Business Disclosure Format (check one): Yes__ No _X_ PART I ITEM 1. DESCRIPTION OF BUSINESS. General The Company was incorporated under the laws of the State of Colorado on August 28, 1996, and remains in the developmental and promotional stages. As of the end of its fiscal year ending May 31, 2001, the Company has not been able to reach any agreement or definitive understanding with any person or any other entity concerning a business combination transaction with the Company. At the present time, no good prospects exist for the potential business combination of the Company and any other entity. To date, the Company's only activities have been organizational ones, directed at the raising of capital, and preliminary efforts to seek one or more properties or businesses for acquisition. The Company has not commenced any commercial operations. The Company currently has no full-time employees and owns no real estate. The Company intends to continue with its previous business plan to seek, investigate and possibly acquire one or more properties or businesses. Such an acquisition may be made by purchase, merger, exchange of stock, or otherwise and may encompass assets or a business entity, such as a corporation, joint venture, or partnership. The Company has very limited capital, and it is unlikely that the Company will be able to take advantage of more than one such business opportunity. The Company intends to seek opportunities demonstrating the potential of long-term growth as opposed to short-term earnings. It is anticipated that the Company's officers and directors will continue to initiate contacts with securities broker-dealers and other persons engaged in other aspects of corporate finance to advise them of the Company's existence and to determine if the companies or businesses they represent have an interest in considering a merger or acquisition with the Company. No assurance can be given that the Company will be successful in finding or acquiring a desirable business opportunity, given the limited funds that are expected to be available for acquisitions, or that any acquisition that occurs will be on terms that are favorable to the Company or its stockholders. The Company's search for a candidate for acquisition will be directed toward small and medium-sized enterprises which have a desire to become public corporations and which are able to satisfy, or anticipate in the reasonably near future being able to satisfy, the minimum asset requirements in order to qualify shares for trading on NASDAQ or on an exchange such as the American or Pacific Stock Exchange. (See "Investigation and Selection of Business Opportunities.") The Company anticipates that the business opportunities presented to it will (i) be recently organized with no operating history, or a history of losses attributable to under-capitalization or other factors; (ii) be experiencing financial or operating difficulties; (iii) be in need of funds to develop a new product or service or to expand into a new market; (iv) be relying upon an untested product or marketing concept; or (v) have a combination of the characteristics mentioned in (i) through (iv). The Company intends to concentrate its acquisition efforts on properties or businesses that it believes to be undervalued. Given the above factors, investors should expect that any acquisition candidate may have a history of losses or low profitability. The Company does not propose to restrict its search for investment opportunities to any particular geographical area or industry, and may, therefore, engage in essentially any business, to the extent of its limited resources. This includes industries such as service, finance, natural resources, manufacturing, high technology, product development, medical, communications and others. The Company's discretion in the selection of business opportunities is unrestricted, subject to the availability of such opportunities, economic conditions, and other factors. As a consequence of the Company's registration of its securities under the Securities Exchange Act of 1934, any entity which has an interest in being acquired by the Company is expected to be an entity that desires to become a public company as a result of the transaction. In connection with such an acquisition, it is highly likely that an amount of stock constituting control of the Company would be issued by the Company or purchased from the Company's current principal shareholders by the target entity or its controlling shareholders. It is anticipated that business opportunities will come to the Company's attention from various sources, including its officers and directors, its other stockholders, professional advisors such as attorneys and accountants, securities broker-dealers, venture capitalists, members of the financial community, and others who may present unsolicited proposals. The Company has no plans, understandings, agreements, or commitments with any individual for such person to act as a finder of opportunities for the Company. Investigation and Selection of Business Opportunities To a large extent, a decision to participate in a specific business opportunity may be made upon management's analysis of the quality of the other company's management and personnel, the anticipated acceptability of new products or marketing concepts, the merit of technological changes, and numerous other factors which are difficult, if not impossible, to analyze through the application of any objective criteria. In many instances, it is anticipated that the historical operations of a specific firm may not necessarily be indicative of the potential for the future because of the possible need to shift marketing approaches substantially, expand significantly, change product emphasis, change or substantially augment management, or make other changes. Because of the lack of training or experience of the Company's management, the Company will be dependent upon the owners of a business opportunity to identify such problems and to implement, or be primarily responsible for the implementation of, required changes. Because the Company may participate in a business opportunity with a newly organized firm or with a firm which is entering a new phase of growth, it should be emphasized that the Company will incur further risks, because management in many instances will not have proved its abilities or effectiveness, the eventual market for such company's products or services will likely not be established, and such company may not be profitable when acquired. It is anticipated that the Company will not be able to diversify, but will essentially be limited to one such venture because of the Company's limited financing. This lack of diversification will not permit the Company to offset potential losses from one business opportunity against profits from another, and should be considered an adverse factor affecting any decision to purchase the Company's securities. It is emphasized that management of the Company may effect transactions having a potentially adverse impact upon the Company's shareholders pursuant to the authority and discretion of the Company's management to complete acquisitions without submitting any proposal to the stockholders for their consideration. Company management does not generally anticipate that it will provide holders of the Company's securities with financial statements, or any other documentation, concerning a target company or its business prior to any merger or acquisition. In some instances, however, the proposed participation in a business opportunity may be submitted to the stockholders for their consideration, either voluntarily by Company management which elects to seek the stockholders' advice and consent, or because state law so requires. The analysis of business opportunities will be undertaken by or under the supervision of the Company's executive officers and directors. Although there are no current plans to do so, Company management might hire an outside consultant to assist in the investigation and selection of business opportunities, and in that event, might pay a finder's fee. Since Company management has no current plans to use any outside consultants or advisors to assist in the investigation and selection of business opportunities, no policies have been adopted regarding use of such consultants or advisors, the criteria to be used in selecting such consultants or advisors, the services to be provided, the term of service, or regarding the total amount of fees that may be paid. However, because of the limited resources of the Company, it is likely that any such fee the Company agrees to pay would be paid in stock and not in cash. Otherwise, the Company anticipates that it will consider, among other things, the following factors regarding business opportunities: (a) Potential for growth and profitability, indicated by new technology, anticipated market expansion, or new products; (b) Competitive position as compared to other companies of similar size and experience within the industry segment as well as within the industry as a whole; (c) Strength and diversity of existing management, or management prospects that are scheduled for recruitment; (d) Capital requirements and anticipated availability of required funds, to be provided from operations, through the sale of additional securities, through joint ventures or similar arrangements, or from other sources; (e) The cost of participation by the Company as compared to the perceived tangible and intangible values and potential; (f) The extent to which the business opportunity can be advanced; (g) The Company's perception of how any particular business opportunity will be received by the investment community and by the Company's stockholders; (h) The accessibility of required management expertise, personnel, raw materials, services, professional assistance, and other required items; and (i) Whether the financial condition of the business opportunity would be, or would have a significant prospect in the foreseeable future to become, such as to permit the securities of the Company, following the business combination, to qualify to be listed on an exchange or on a national automated securities quotation system, such as NASDAQ, so as to permit the trading of such securities to be exempt from the requirements of Rule 15c2-6 recently adopted by the Securities and Exchange Commission. In regard to the last criterion listed above, the current standards for NASDAQ listing include, among other things, the requirements that the issuer of the securities that are sought to be listed have net tangible assets of at least $4,000,000, or a market capitalization of at least $50,000,000, or net income in its latest fiscal year of not less than $750,000. Many, and perhaps most, of the business opportunities that might be potential candidates for a combination with the Company would not satisfy the NASDAQ listing criteria. To the extent that the Company seeks potential NASDAQ listing, therefore, the range of business opportunities that are available for evaluation and potential acquisition by the Company would be significantly limited. In applying the criteria listed above, no one of which will be controlling, management will attempt to analyze all factors appropriate to the opportunity and make a determination based upon reasonable investigative measures and available data. Potentially available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Potential investors must recognize that, because of the Company's limited capital available for investigation and management's limited experience in business analysis, the Company may not discover or adequately evaluate adverse facts about the opportunity to be acquired. The Company is unable to predict when it may participate in a business opportunity and it has not established any deadline for completion of a transaction. It expects, however, that the process of seeking candidates, analysis of specific proposals and the selection of a business opportunity may require several additional months or more. Prior to making a decision to participate in a business opportunity, the Company will generally request that it be provided with written materials regarding the business opportunity containing such items as a description of product, service and company history; management resumes; financial information; available projections, with related assumptions upon which they are based; an explanation of proprietary products and services; evidence of existing patents, trademarks, or service marks, or rights thereto; present and proposed forms of compensation to management; a description of transactions between such company and its affiliates during relevant periods; a description of present and required facilities; an analysis of risks and competitive conditions; a financial plan of operation and estimated capital requirements; audited financial statements or an indication that audited statements will be available within sixty (60) days following completion of a merger transaction; and other information deemed relevant. As part of the Company's investigation, the Company's executive officers and directors may meet personally with management and key personnel, visit and inspect material facilities, obtain independent analysis or verification of certain information provided, check references of management and key personnel, and take other reasonable investigative measures, to the extent of the Company's limited financial resources and management expertise. Company management believes that various types of potential merger or acquisition candidates might find a business combination with the Company to be attractive. These include companies desiring to create a public market for their shares in order to enhance liquidity for current shareholders, companies which have long-term plans for raising equity capital through the public sale of securities and believe that the possible prior existence of a public market for their securities would be beneficial, and companies which plan to acquire additional assets through issuance of securities rather than for cash and believe that the possibility of development of a public market for their securities will be of assistance in that process. Companies which have a need for an immediate cash infusion are not likely to find a potential business combination with the Company to be an attractive alternative. Form of Acquisition It is impossible to predict the manner in which the Company may participate in a business opportunity. Specific business opportunities will be reviewed as well as the respective needs and desires of the Company and the promoters of the opportunity and, upon the basis of that review and the relative negotiating strength of the Company and such promoters, the legal structure or method deemed by management to be suitable will be selected. Such structure may include, but is not limited to leases, purchase and sale agreements, licenses, joint ventures and other contractual arrangements. The Company may act directly or indirectly through an interest in a partnership, corporation or other form of organization. Implementing such structure may require the merger, consolidation or reorganization of the Company with other corporations or forms of business organization. In addition, the present management and stockholders of the Company may not have control of a majority of the voting shares of the Company following a reorganization transaction. As part of such a transaction, the Company's directors may resign and new directors may be appointed without any vote by stockholders. It is likely that the Company will acquire its participation in a business opportunity through the issuance of Common Stock or other securities of the Company. Although the terms of any such transaction cannot be predicted, it should be noted that in certain circumstances the criteria for determining whether or not an acquisition is a so-called "tax free" reorganization under the Internal Revenue Code of 1986, depends upon the issuance to the stockholders of the acquired company of up to 80% of the common stock of the combined entities immediately following the reorganization. If a transaction were structured to take advantage of these provisions rather than other "tax free" provisions provided under the Internal Revenue Code, the Company's stockholders in such circumstances would retain in the aggregate 20% or less of the total issued and outstanding shares. This could result in substantial additional dilution in the equity of those who were stockholders of the Company prior to such reorganization. Any such issuance of additional shares might also be done simultaneously with a sale or transfer of shares representing a controlling interest in the Company by the current officers, directors and principal shareholders. (See "Description of Business - General"). It is anticipated that any securities issued in any reorganization would be issued in reliance upon exemptions from registration, if any are available, under applicable federal and state securities laws. In some circumstances, however, the Company may agree to register such securities either at the time the transaction is consummated, or under certain conditions or at specified times thereafter. The issuance of substantial additional securities and their potential sale into any trading market that might develop in the Company's securities may have a depressive effect upon such market. The Company will participate in a business opportunity only after the negotiation and execution of a written agreement. Although the terms of such agreement cannot be predicted, generally such an agreement would require specific representations and warranties by all of the parties thereto, specify certain events of default, detail the terms of closing and the conditions which must be satisfied by each of the parties thereto prior to such closing, outline the manner of bearing costs if the transaction is not closed, set forth remedies upon default, and include miscellaneous other terms. As a general matter, the Company anticipates that it will enter into a letter of intent with the management, principals or owners of a prospective business opportunity prior to signing a binding agreement. Such a letter of intent will set forth the terms of the proposed acquisition but will not bind either the Company or the business opportunity to consummate the transaction. Execution of a letter of intent will by no means indicate that consummation of an acquisition is probable. Neither the Company nor the business opportunity will be bound to consummate the acquisition unless and until a definitive agreement concerning the acquisition as described in the preceding paragraph is executed. Even after a definitive agreement is executed, it is possible that the acquisition would not be consummated should either party elect to exercise any right provided in the agreement to terminate it on specified grounds. It is anticipated that the investigation of specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity, the costs theretofore incurred in the related investigation would not be recoverable. Moreover, because many providers of goods and services require compensation at the time or soon after the goods and services are provided, the inability of the Company to pay until an indeterminate future time may make it impossible to procure goods and services. Competition The Company expects to encounter substantial competition in its efforts to locate attractive opportunities, primarily from business development companies, venture capital partnerships and corporations, venture capital affiliates of large industrial and financial companies, small investment companies, and wealthy individuals. Many of these entities will have significantly greater experience, resources and managerial capabilities than the Company and will therefore be in a better position than the Company to obtain access to attractive business opportunities. The Company also will experience competition from other public "blind pool" companies, many of which may have more funds available than does the Company. Administrative Offices The Company currently maintains a mailing address at 5001 Spring Valley Road, Suite 800E, Dallas, Texas 75244, which is the office address of its President. The Company's telephone number there is (972) 991- 0001. Other than this mailing address, the Company does not currently maintain any other office facilities, and does not anticipate the need for maintaining office facilities at any time in the foreseeable future until a business combination transaction occurs. The Company pays no rent or other fees for the use of this mailing address. Employees The Company is a development stage company and currently has no employees. Management of the Company expects to use consultants, attorneys and accountants as necessary, and does not anticipate a need to engage any full-time employees so long as it is seeking and evaluating business opportunities. The need for employees and their availability will be addressed in connection with the decision whether or not to acquire or participate in specific business opportunities. No remuneration will be paid to the Company's officers except as set forth under "Executive Compensation" and under "Certain Relationships and Related Transactions". CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Except for historical matters, the matters discussed in this Form 10KSB are forward-looking statements based on current expectations, and involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements under the following headings: (i) "Description of Business - General" - the general description of the Company's plan to seek a merger or acquisition candidate, and the types of business opportunities that may be pursued. (ii) "Description of Business - Investigation and Selection of Business Opportunities" - the steps which may be taken to investigate prospective business opportunities, and the factors which may be used in selecting a business opportunity. (iii) "Description of Business - Form of Acquisition" - the manner in which the Company may participate in a business acquisition. The Company wishes to caution the reader that there are many uncertainties and unknown factors which could affect its ability to carry out its business plan in the manner described herein. ITEM 2. DESCRIPTION OF PROPERTY. The Company currently maintains a mailing address at 5001 Spring Valley Road, Suite 800 East, Dallas, Texas 75244, which is the address of its President. The Company pays no rent for the use of this mailing address, however, for financial statement purposes, the Company is accruing $50 per month as additional paid-in capital for this use. The Company does not believe that it will need to maintain an office at any time in the foreseeable future in order to carry out its plan of operations described herein. The Company's telephone number is (972) 991-0001. The Company currently has no investments in real estate, real estate mortgages, or real estate securities, and does not anticipate making any such investments in the future. However, the policy of the Company with respect to investment in real estate assets could be changed in the future without a vote of security holders. ITEM 3. LEGAL PROCEEDINGS. The Company is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated. No director, officer or affiliate of the Company, and no owner of record or beneficial owner of more than five percent (5.0%) of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the security holders of the Company during the fourth quarter of the reporting year which ended May 31, 2001. Part II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's shares have been approved for trading on the OTC Bulletin Board since approximately April 15, 1998, but on March 1, 2000, the trading symbol was changed from "BUFG" to "THOI". No actual trading of such shares has occurred, and no bid or asked prices have been posted. It is not anticipated that any actual trading activity will occur until the Company has completed a merger or acquisition transaction. The Company's securities are currently held of record by a total of approximately 55 persons. The Company issued 12,740,000 shares of Common Stock in May 1999. Steadfast Investments, L.P., purchased 11,083,800 of the Shares for a purchase price of $870, and GMK Family Holdings, L.L.C., purchased 1,656,200 of the Shares for a purchase price of $130. The Company filed Restated and Amended Articles of Incorporation on January 3, 2000. These Restated Articles provide for a new class of stock, Class B Common Stock, which shall have the same rights, preferences and limitations as the current Common Stock, except that each share of Class B Common Stock shall have 10,000 votes per share. The holders of Class B Common Stock also have the pre-emptive right to purchase, at their par value, additional shares of Class B Common Stock in order to maintain the same relative voting power in the Company upon the issuance of any additional shares of Common Stock of the Company to any other stockholder or upon the issuance of any shares of Common Stock of the Company to any new stockholder. The authorization of the Class B Voting Stock will have an effect on the holders of Common Stock and Preferred Stock, in that the voting power of the holders of Common Stock and Preferred Stock will be diluted because Preferred Stock and Common Stock is only entitled to one vote per share. In addition, the Restated Articles of Amendment provide that no pre-emptive rights shall exist for the stockholders except that the stockholders of Class B Common Stock shall have the pre-emptive right to purchase, at their par value, additional shares of Class B Common Stock in order to maintain the same relative voting power in the Company upon the issuance of any additional shares of Common Stock of the Company to any other stockholder or upon the issuance of any shares of Common Stock of the Company to any new stockholder. No dividends have been declared or paid on the Company's securities, and it is not anticipated that any dividends will be declared or paid in the foreseeable future. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. The Company remains in the development stage and, since inception, has experienced no significant change in liquidity or capital resources or stockholder's equity other than the receipt of proceeds in the amounts of $8,500 from its inside capitalization funds and $10,000 from two loans from a shareholder, and the expenditure of such funds in furtherance of the Company's business plan, including primarily expenditure of funds to pay legal and accounting expenses. Consequently, the Company's balance sheet for the fiscal year ended May 31, 2001, reflects a total asset value of $1,791. Results of Operations During the period from August 28, 1996 (inception) through May 31, 2001, the Company has engaged in no significant operations other than organizational activities, acquisition of capital, preparation and filing of the registration of its securities under the Securities Exchange Act of 1934, as amended, compliance with its periodical reporting requirements, and efforts to locate a suitable merger or acquisition candidate. No revenues were received by the Company during this period. For the fiscal year ended May 31, 2001, the Company incurred a loss as a result of expenses associated with compliance with the reporting requirements of the Securities Exchange Act of 1934, and expenses associated with locating and evaluating acquisition candidates. The Company anticipates that until a business combination is completed with an acquisition candidate, it will not generate revenues. It may also continue to operate at a loss after completing a business combination, depending upon the performance of the acquired business. Need for Additional Financing The Company will require additional capital in order to meet its cash needs for the next year, including the costs of compliance with the continuing reporting requirements of the Securities Exchange Act of 1934, as amended. No specific commitments to provide additional funds have been made by management or other stockholders, and the Company has no current plans, proposals, arrangements or understandings with respect to the sale or issuance of additional securities prior to the location of a merger or acquisition candidate. Accordingly, there can be no assurance that any additional funds will be available to the Company to allow it to cover its expenses. Not withstanding the foregoing, to the extent that additional funds are required, the Company anticipates receiving such funds in the form of advancements from current shareholders without issuance of additional shares or other securities, or through the private placement of restricted securities rather than through a public offering. The Company does not currently contemplate making a Regulation S offering. The Company may also seek to compensate providers of services by issuances of stock in lieu of cash. For information as to the Company's policy in regard to payment for consulting services, see "Certain Relationships and Transactions." ITEM 7. FINANCIAL STATEMENTS. THE HERITAGE ORGANIZATION, INC. (A Development Stage Company) FINANCIAL STATEMENTS May 31, 2001 Report of Independent Certified Public Accountants Balance Sheet Statements of Operations Statement of Stockholders' Equity Statements of Cash Flows Notes to Financial Statements REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders of The Heritage Organization, Inc. We have audited the accompanying balance sheet of The Heritage Organization, Inc. (a development stage company) as of May 31, 2001, and the related statement of loss and accumulated deficit, cash flows, and stockholders' equity for each of the two years then ended, and for the period from inception (August 28, 1996) to May 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Heritage Organization, Inc. (a development stage company) as of May 31, 2001, and the results of its operations and its cash flows for the two years then ended, and for the period from inception (August 28, 1996) to May 31, 2001, in conformity with generally accepted accounting principles. Comiskey & Company, P.C. Denver, Colorado July 30, 2001 THE HERITAGE ORGANIZATION, INC. fka Buffalo Capital III, Ltd. (A Development Stage Company) BALANCE SHEET May 31, 2001 ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,791 -------- Total current assets 1,791 -------- TOTAL ASSETS $ 1,791 ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable $ 6 Notes payable - related party 10,000 Accrued interest - related party 751 -------- Total current liabilities $ 10,757 STOCKHOLDERS' EQUITY Preferred stock, no par value, 10,000,000 shares authorized;no shares issued and outstanding - Common Stock, no par value; 100,000,000 shares authorized;14,000,000 shares issued and outstanding at May 31, 2001. 8,500 Additional paid-in capital 81,459 Deficit accumulated during the development stage (98,925) --------- Total stockholders' equity (8,966) --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,791 ========= The accompanying notes are an integral part of the financial statements. THE HERITAGE ORGANIZATION, INC. fka Buffalo Capital III, Ltd. (A Development Stage Company) STATEMENTS OF OPERATIONS Period from For the For the August 28, 1996 year year (Inception) to ended ended May 31, 2001 May 31, 2001 May 31, 2000 --------------- ------------ ------------ REVENUES Investment Income $ 5 $ 5 $ - --------- --------- --------- EXPENSES Amortization 300 - 135 Bank charges 103 - - Consulting fees 62,800 - - Directors' fees 200 - - Interest expense 1,261 869 392 Filing fee 205 25 100 Legal and professional 28,657 3,851 3,137 Office expense 2,554 - 597 Rent expense 2,280 600 600 ---------- ---------- ---------- Total expenses 98,930 5,345 4,961 ---------- ---------- ---------- NET LOSS (98,925) (5,340) (4,961) Accumulated deficit Balance, beginning of period - (93,585) (88,624) ---------- ---------- ---------- Balance, end of period $ (98,925) $ (98,925) $ (93,585) ========== ========== ========== NET LOSS PER SHARE $ (0.02) $ (N/L) $ (N/L) ========== ========== ========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,489,913 14,000,000 14,000,000 ========== ========== ========== The accompanying notes are an integral part of the financial statements.

THE HERITAGE ORGANIZATION, INC. fka Buffalo Capital III, Ltd. (A Development Stage Company) STATEMENTS OF CASH FLOWS For the period from inception For the For the (August 28, 1996) year ended year ended to May 31, May 31, May 31, 2001 2001 2000 ---------------- ---------- ---------- CASH FROM OPERATING ACTIVITIES Net loss $ (98,925) $ (5,340) $ (4,961) Adjustments to reconcile net loss to net cash flows from operating activities: Amortization 300 - 135 Rent expense 2,850 600 600 Expenses paid by shareholders 15,609 - - Stock issued for directors' fees 59,960 - - Stock issued for consulting fees 3,040 - - Increase in accounts payable 6 (44) 50 Increase in accrued interest 751 359 392 ---------------- ----------- ---------- Net cash flows from operating activities (16,409) (4,425) (3,784) CASH FLOWS FROM INVESTING ACTIVITIES Organization costs 300 - - ---------------- ----------- ---------- Net cash flows from investing activities (300) - - CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock 8,500 - - Notes payable - related party 10,000 5,000 5,000 ---------------- ----------- ---------- Net cash flows from financing activities 18,500 5,000 5,000 ---------------- ----------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,791 575 1,216 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - 1,216 - ---------------- ----------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,791 $ 1,791 $ 1,216 ================ =========== ========== The accompanying notes are an integral part of the financial statements.

THE HERITAGE ORGANIZATION, INC. fka Buffalo Capital III, Ltd. (A Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY For the period from inception (August 28, 1996) to May 31, 2001 Deficit Common stock accumulated Price ---------------------- Additional during the Total per Number of paid-in development stockholders' share shares Amount Capital stage equity ----- ----------- ------ ---------- ----------- ------------ Common stock issued for cash and subscriptions receivable, August 1996 $0.05 150,000 $7,500 $ - $ - $ 7,500 Common stock issued for services, August 1996 0.00001 24,000,000 - 240 - 240 Shares canccelled - (22,800,000) - - - - Rent and services provided at no charge - - - 60,210 - 60,210 Net loss, May 31, 1997 - - - - (63,964) (63,964) ------- ------------ ------- ---------- ---------- ------------- Balance, May 31, 1997 1,350,000 7,500 60,450 (63,964) 3,986 Shares cancelled - (120,000) - - - - Common stock issued for services, February 1998 0.10 30,000 - 3,000 - 3,000 Rent provided at no charge - - - 600 - 600 Expenses paid by shareholders - - - 4,536 - 4,536 Net loss, May 31, 1998 - - - - (12,147) (12,147) ------- ------------ ------- ---------- ---------- ------------- Balance, May 31, 1998 1,260,000 7,500 68,586 (76,111) (25) Common stock issued for cash May 1999 0.00008 12,740,000 1,000 - - 1,000 Rent provided at no charge - - - 600 - 600 Expenses paid by shareholders - - - 11,073 - 11,073 Net loss, May 31, 1999 - - - - (12,513) (12,513) ------- ------------ ------- ---------- ---------- ------------- Balance, May 31, 1999 14,000,000 8,500 80,259 (88,624) 135 Rent provided at no charge - - - 600 - 600 Net loss, May 31, 2000 - - - - (4,961) (4,961) ------- ------------ ------- ---------- ---------- ------------- Balance, May 31, 2000 14,000,000 8,500 80,859 (93,585) (4,226) Rent provided at no charge - - - 600 - 600 Net loss, May 31, 2001 - - - - (5,340) (5,340) ------- ------------ ------- ---------- ---------- ------------- Balance, May 31, 2001 14,000,000 8,500 81,459 (98,925) (8,966) ============ ======= ========== ========== ============= The accompanying notes are an integral part of the financial statements.

THE HERITAGE ORGANIZATION, INC. fka Buffalo Capital III, Ltd. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS May 31, 2001 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Development stage company The Heritage Organization, Inc. (a development stage company) (the "Company") was incorporated under the laws of the State of Colorado on August 28, 1996. The initial registered office of the Company is 4750 Table Mesa Drive, Boulder, Colorado 80301. The principal office of the Company has moved to 5001 Spring Valley Road, Suite 800 East, Dallas, Texas 75244. The Company is a new enterprise in the development stage as defined by Statement No. 7 of the Financial Accounting Standards Board and has not engaged in any business other than organizational efforts. It has no full-time employees and owns no real property. The Company intends to operate as a capital market access corporation by registering with the U.S. Securities and Exchange Commission under the Securities Exchange Act of 1934. After this, the Company intends to seek to acquire one or more existing businesses which have existing management, through merger or acquisition. Management of the Company will have virtually unlimited discretion in determining the business activities in which the Company might engage. Accounting Method The Company records income and expenses on the accrual method. Fiscal year The Company maintains a May 31 fiscal year end for financial reporting purposes, and an August 31 fiscal year end for tax reporting purposes. Organization costs Costs to incorporate the Company have been capitalized and were being amortized over a sixty-month period. These costs were fully expensed as of December 31, 1999 under the requirements of SOP-98-5. Loss per share Loss per share was computed using the weighted number of shares outstanding during the period. Statement of cash flows For the purpose of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Use of estimates The preparation of the Company's financial statements in conformity with generally accepted accounting principals requires the Company's management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. Fair Values of Financial Instruments Unless otherwise indicated, the fair value of all reported assets and liabilities which represent financial instruments (none of which are held for trading purposes) approximate the carrying values of such amounts. Stock Basis Shares of Common Stock issued for other than cash have been assigned amounts equivalent to the fair value of the service or assets received in exchange. Consideration of Other Comprehensive Income Items SFAF 130 - Reporting Comprehensive Income, requires companies to present comprehensive income (consisting primarily of net income plus other direct equity changes and credits) and its components as part of the basic financial statements. For the year ended May 31, 2000, the Company's financial statements do not contain any changes in equity that are required to be reported separately in comprehensive income. 2. STOCKHOLDERS' EQUITY Common Stock As of May 31, 2000, 14,000,000 shares of the Company's no par value Common Stock were issued and outstanding. Of these shares, 11,083,800 were purchased for $870 cash on May 4, 1999 by Steadfast Investments, L.P.. Another 1,656,200 shares were purchased for $130 cash on May 4, 1999 by GMK Family Holdings, L.L.C. Effective May 4, 1999 pursuant to the transfer in ownership of 12,740,000 shares of Common Stock, all Class A and Class B warrants were cancelled as per agreement. For the year ended May 31, 1997, 2,280,000 (pre-split) shares of the Company's Common Stock were cancelled. For the year ended May 31, 1998, an additional 12,000 (pre-split) shares of the Company's Common Stock were cancelled. Effective subsequent to the cancellation of these shares, the Company had a 10-for-1 forward stock split. All share and per share amounts have been restated to reflect the stock split. Preferred Stock The Company's Certificate of Incorporation authorizes the issuance of 10,000,000 shares of preferred stock, no par value per share. The Board of Directors of the Company is authorized to issue preferred stock from time to time in series and is further authorized to establish such series, to fix and determine the variations in the relative rights and preferences as between the series and to allow for the conversion of preferred stock into common stock. No preferred stock has been issued by the Company. 3. RELATED PARTY TRANSACTIONS Rent is being provided to the Company at no charge. For purposes of financial statements, the Company is accruing $50 per month as additional paid-in capital for this use. Note Payable The Company has two unsecured notes payable to a shareholder. These notes total $10,000 plus accrued interest at 11.5%. The notes are due August 18, 2001, and November 21, 2001. Interest of $869 was included in operations for the year ended May 31, 2001. 4. INCOME TAXES The Company has federal net operating loss carryforwards of approximately $99,000 expiring in the years 2012, 2013, 2019 and 2021. The tax benefit of these net operating losses is approximately $18,000 and has been offset by a full allowance for realization. This carryforward may be limited under Section 381 of the Internal Revenue Code, upon the consummation of a business combination. For the period ended May 31, 2001, the valuation allowance increased by approximately $5,400. 5. SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES During the year ended May 31, 2001, the Company recorded rent expense for the years ended May 31, 2001 and 2000 of $50 per month for totals of $600 and $600, respectively. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The Company has had no change in, nor disagreements with, its principal independent accountant since the date of inception. Part III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The directors and executive officers currently serving the Company are as follows: Name Age Positions Held and Tenure Gary M. Kornman 57 Chairman of Board of Directors since May 1999 W. Ralph Canada, Jr. 46 President & Director since May 1999 Vickie A. Walker 42 Treasurer & Director since May 1999 Secretary since October 1999 The directors named above will serve until the next annual meeting of the Company's stockholders. Thereafter, directors will be elected for one-year terms at the annual stockholders' meeting. Officers will hold their positions at the pleasure of the board of directors, absent any employment agreement, of which none currently exists or is contemplated. There is no arrangement or understanding between any of the directors or officers of the Company and any other person pursuant to which any director or officer was or is to be selected as a director or officer. The directors and officers will devote their time to the Company's affairs on an "as needed" basis, which, depending on the circumstances, could amount to as little as two hours per month, or more than forty hours per month, but more than likely will fall within the range of five to ten hours per month. There are no family relationships between any of the directors or officers of the Company. The Company's board of directors has not held any formal meetings during the fiscal year ending May 31, 2001. Biographical Information Gary M. Kornman Mr. Kornman has been Chief Executive Officer of The Heritage Organization, L.L.C., since March, 1995. He currently serves as Chief Executive Officer of The Heritage Organization, Inc., a Delaware corporation (since 1986), and President and CEO of Kornman & Associates, Inc. (since 1975). He was President and CEO of The Planning Group, Inc. from 1970 through 1975. The Heritage Organization, L.L.C., provides counseling services to some of America's wealthiest families. Mr. Kornman is also the sole shareholder, and an officer and director of many other corporations. Mr. Kornman earned a Bachelor of Arts from Vanderbilt University in 1965 with concentrations in Business/Economics and Psychology and was a National Merit Scholar. In 1969 he received his Doctor of Jurisprudence from the University of Alabama School of Law and received the American Jurisprudence Award in Estate Planning, the American Jurisprudence Award in Contracts and the American Jurisprudence Award in Evidence. He is admitted to practice before the Bar of the State of Alabama, and is a member of the American Bar Association Section of Taxation and Section of Trust, Real Property and Probate. W. Ralph Canada, Jr. Mr. Canada has served as President of The Heritage Organization, L.L.C., since March, 1995. He currently serves as President of Heritage Investments, L.L.C. and Heritage Securities Corporation, Vice President of the U.S. National Foundation For Anti-Aging & Survival Research and The Institute For Anti-Aging & Survival, Inc. From 1987 through 1994, Mr. Canada was a Partner in the Dallas office of the law firm of Hopkins & Sutter, where he served as Head of the Litigation Section from 1991 through 1994. He was a Partner in the Dallas office of the Stinson, Mag & Fizzell law firm, and Head of Litigation Section there from April, 1985 to October, 1987. From February, 1984 to March, 1985, he was Partner in the Rentzel, Wise & Robertson law firm. He was Associate in the Litigation Section of Johnson & Swanson from June, 1979, to January, 1984. Each of the above-referenced firms were located in Dallas, Texas. Mr. Canada received a Bachelor of Arts degree with a Major in History in 1976 from the University of Texas at Austin, graduating with Highest Honors. At the University of Texas he was a member of Phi Beta Kappa and Phi Eta Sigma. He received a Doctor of Jurisprudence, Cum Laude, from Harvard Law School in 1979. He was Editor-in-Chief of the Harvard Environmental Law Review. Mr. Canada is a member of the American Bar Association and the Dallas Bar Association. He is admitted to practice before the Bar in the State of Texas, and is admitted to practice before the United States Court of Appeals for the Fifth Circuit and the United States District Courts for the Northern, Eastern, Western and Southern Districts of Texas. Vickie A. Walker Ms. Walker has been Secretary-Treasurer and Chief Financial Officer of The Heritage Organization, L.L.C., since March, 1995. She currently serves as Secretary-Treasurer and Chief Financial Officer of The Heritage Organization, Inc., as Secretary-Treasurer and Chief Financial Officer of Kornman & Associates, Inc., as Treasurer of the U.S. National Foundation For Anti-Aging & Survival Research, and as Treasurer of The Institute for Anti-Aging & Survival, Inc. Ms. Walker began her affiliations with Kornman & Associates, Inc. in June, 1977. Ms. Walker supervises an accounting staff comprised of two CPA's and four staff accountants. In addition to her normal finance and accounting duties, she coordinates Contract Drafting and Negotiations, Legal Entities Formation, and Licensing and Filings. Ms. Walker serves on a number of mission critical committees of The Heritage Organization, L.L.C., including Employee Management and Benefits, Aviation and Transportation, and Procurement and Budget. She is Chairperson for the Executive Management Committee. Compliance With Section 16(a) of the Exchange Act. To the best knowledge and belief of the Company, all persons have complied with the filing requirements of Section 16(a) of the Exchange Act. ITEM 10. EXECUTIVE COMPENSATION. No officer or director received any remuneration from the Company during the fiscal year. Until the Company acquires additional capital, it is not intended that any officer or director will receive compensation from the Company other than reimbursement for out-of-pocket expenses incurred on behalf of the Company. See "Certain Relationships and Related Transactions." The Company has no stock option, retirement, pension, or profit-sharing programs for the benefit of directors, officers or other employees, but the Board of Directors may recommend adoption of one or more such programs in the future. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. (a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table sets forth, as of the end of the Company's most recent fiscal year, the number of shares of Common Stock owned of record and beneficially by persons who hold 5.0% or more of the outstanding Common Stock of the Company. Name and Number of Shares Percent of Address Owned Beneficially Class Owned Steadfast Investments, L.P. 11,083,800 79.17% Suite 800, East Tower 5001 Spring Valley Road Dallas, Texas 75244 GMK Family Holdings, L.L.C. 1,656,200 11.83% Suite 800, East Tower 5001 Spring Valley Road Dallas, Texas 75244 James T. Edwards 1,249,600 8.93% 209 Cargile Lane Nashville, TN 37205 Mr. Gary M. Kornman may be deemed to be the beneficial owner of all shares purchased by Steadfast Investments, L.P., and by GMK Family Holdings, L.L.C. (b) SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth, as of the end of the Company's most recent fiscal year, the number of shares of Common Stock owned of record and beneficially by executive officers and directors of the outstanding Common Stock of the Company. Also included are the shares held by all executive officers and directors as a group. The person listed is an officer, a director, or both, of the Company. Name and Number of Shares Percent of Address Owned Beneficially Class Owned Gary M. Kornman 12,740,000 91% Suite 800, East Tower 5001 Spring Valley Road Dallas, Texas 75244 W. Ralph Canada, Jr. 0 0% Suite 800, East Tower 5001 Spring Valley Road Dallas, Texas 75244 Vickie A. Walker 0 0% 1683 S. Walker Road Pleasant View, Tennessee 37146 All directors and executive officers (3 persons) 12,740,000 91% ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Indemnification of Officers and Directors As permitted by Colorado law, the Company's Articles of Incorporation provide that the Company will indemnify its directors and officers against expenses and liabilities they incur to defend, settle, or satisfy any civil or criminal action brought against them on account of their being or having been Company directors or officers unless, in any such action, they are adjudged to have acted with gross negligence or willful misconduct. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable. Exclusion of Liability Pursuant to the Colorado Corporation Code, the Company's Articles of Incorporation exclude personal liability for its directors for monetary damages based upon any violation of their fiduciary duties as directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, acts in violation of Section 7-5-114 of the Colorado Corporation Code, or any transaction from which a director receives an improper personal benefit. This exclusion of liability does not limit any right which a director may have to be indemnified and does not affect any director's liability under federal or applicable state securities laws. Conflicts of Interest None of the officers of the Company will devote more than a portion of his time to the affairs of the Company. There will be occasions when the time requirements of the Company's business conflict with the demands of the officers' other business and investment activities. Such conflicts may require that the Company attempt to employ additional personnel. There is no assurance that the services of such persons will be available or that they can be obtained upon terms favorable to the Company. Each of the Company's officers and directors also are officers, directors, or both of several other companies: however these entities are not anticipated to be in direct competition with the Company for available opportunities. The former officers, directors and principal shareholders of the Company were parties to a Stock Purchase Agreement dated April 23, 1999, pursuant to which each of them agreed to sell all of his stock in the Company at a price of approximately $0.2681 per share. The sale of shares pursuant to the Stock Purchase Agreement was contingent upon the prior closing by the Company under the Stock Subscription Agreement. Each of the former officers, directors and principal shareholders acquired their shares in the Company for services valued at the equivalent of $0.05 per share. Accordingly, each of them realized a substantial profit from the sale of Shares under the terms of the Stock Purchase Agreement. Company management, and the other principal shareholders of the Company, may actively negotiate or otherwise consent to the purchase of a portion of their common stock as a condition to, or in connection with, a proposed merger or acquisition transaction. It is anticipated that a substantial premium may be paid by the purchaser in conjunction with any sale of shares by officers, directors or affiliates of the Company which is made as a condition to, or in connection with, a proposed merger or acquisition transaction. The fact that a substantial premium may be paid to Company officers, directors and affiliates to acquire their shares creates a conflict of interest for them and may compromise their state law fiduciary duties to the Company's other shareholders. In making any such sale, Company officers, directors and affiliates may consider their own personal pecuniary benefit rather than the best interests of the Company and the Company's other shareholders, and the other shareholders are not expected to be afforded the opportunity to approve or consent to any particular buy-out transaction involving shares held by members of Company management. Mr. Gary M. Kornman is a director and officer of the Company and may be deemed to be the beneficial owner of all shares purchased by Steadfast Investments, L.P., and by GMK Family Holdings, L.L.C. There are no familial relationships between any of the directors or officers of the Company. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) The Exhibits listed below are filed as part of this Annual Report. Exhibit No. Document 27 Financial Data Schedule (b) There have been no reports on Form 8-K filed for the annual reporting period ended May 31, 2001. Signatures In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. THE HERITAGE ORGANIZATION, INC. By: /s/ ________________ Gary M. Kornman (Chairman of Board of Directors) Date: August 27, 2001 By: /s/ ________________ W. Ralph Canada, Jr. (President & Director) Date: August 27, 2001 By: /s/ ________________ Vickie A. Walker (Secretary-Treasurer & Director) Date: August 27, 2001

HERITAGE ORGANIZATION INC 10-K