form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended March 31, 2008
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
HEARTLAND,
INC.
(Exact
name of small business registrant as specified in its charter)
|
Maryland
|
000-27045
|
36-4286069
|
|
(State
or other jurisdiction of
incorporation or organization)
|
(Commission
File Number)
|
(I.R.S.
Employer Identification Number)
|
1501
Cumberland Gap Parkway
Middlesboro,
KY 40965
(Address of principal executive offices)
(Zip Code)
606-248-7323
(Registrant’s
telephone no., including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer o
|
Accelerated
filer o
|
Non
accelerated filer o (Do not check if
a smaller reporting company) Smaller reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes oNo x
State the number of shares
outstanding of each of the issuer's classes of common equity, as of the latest
practicable date: As of May 12, 2008, there were 37,147,105 shares of common stock,
$.0001 par value per share, outstanding.
HEARTLAND,
INC.
FORM
10-Q
TABLE
OF CONTENTS
|
PART
I. FINANCIAL INFORMATION
|
|
3
|
| |
|
|
|
ITEM
1. FINANCIAL STATEMENTS
|
|
3
|
| |
|
|
|
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
|
|
11
|
| |
|
|
|
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
|
|
16
|
| |
|
|
|
ITEM
4. CONTROLS AND PROCEDURES
|
|
16
|
| |
|
|
|
ITEM
4T. CONTROLS AND PROCEDURES
|
|
16
|
| |
|
|
|
PART
II. OTHER INFORMATION
|
|
18
|
| |
|
|
|
ITEM
1. - LEGAL PROCEEDINGS
|
|
18
|
| |
|
|
|
ITEM
1A. RISK FACTORS
|
|
18
|
| |
|
|
|
ITEM
2. - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
|
18
|
| |
|
|
|
ITEM
3. - DEFAULTS UPON SENIOR SECURITIES
|
|
18
|
| |
|
|
|
ITEM
4. – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
|
18
|
| |
|
|
|
ITEM
5. - OTHER INFORMATION
|
|
19
|
| |
|
|
|
ITEM
6. - EXHIBITS
|
|
19
|
| |
|
|
|
SIGNATURES
|
|
20
|
|
|
|
|
PART I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
HEARTLAND, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
ASSETS
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
|
|
$ |
923,481 |
|
|
$ |
216,570 |
|
|
Accounts
receivable, net
|
|
|
2,817,417 |
|
|
|
3,188,591 |
|
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
619,934 |
|
|
|
311,899 |
|
|
Inventory
|
|
|
1,532,635 |
|
|
|
904,409 |
|
|
Prepaid
expenses and other
|
|
|
1,000 |
|
|
|
1,259 |
|
|
Total
current assets
|
|
|
5,894,467 |
|
|
|
4,622,728 |
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT AND EQUIPMENT, net
|
|
|
773,329 |
|
|
|
701,168 |
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
457,321 |
|
|
|
426,321 |
|
|
Total
other assets
|
|
|
457,321 |
|
|
|
426,321 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
7,125,117 |
|
|
$ |
5,750,217 |
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements.
HEARTLAND, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Convertible
promissory notes payable
|
|
$ |
53,450 |
|
|
$ |
53,450 |
|
|
Current
portion of notes payable
|
|
|
25,406 |
|
|
|
24,604 |
|
|
Current
portion of notes payable to related parties
|
|
|
75,930 |
|
|
|
89,156 |
|
|
Current
portion of capital lease
|
|
|
6,782 |
|
|
|
8,320 |
|
|
Accounts
payable
|
|
|
2,228,379 |
|
|
|
2,167,027 |
|
|
Obligations
to related parties
|
|
|
12,008 |
|
|
|
12,008 |
|
|
Accrued
payroll and related taxes
|
|
|
380,199 |
|
|
|
292,769 |
|
|
Accrued
interest
|
|
|
126,183 |
|
|
|
124,847 |
|
|
Accrued
expenses
|
|
|
569,322 |
|
|
|
587,942 |
|
|
Billings
in excess of costs and estimated earnings
on uncompleted contracts
|
|
|
766,675 |
|
|
|
195,432 |
|
|
Total
current liabilities
|
|
|
4,244,334 |
|
|
|
3,555,555 |
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
OBLIGATIONS
|
|
|
|
|
|
|
|
|
|
Notes
payable, less current portion
|
|
|
173,906 |
|
|
|
180,799 |
|
|
Notes
payable to related parties, less current portion
|
|
|
385,544 |
|
|
|
403,607 |
|
|
Capital
lease, less current portion
|
|
|
24,160 |
|
|
|
26,571 |
|
|
Total
long term liabilities
|
|
|
583,610 |
|
|
|
610,977 |
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
Preferred
stock $0.001 par value 5,000,000 shares
|
|
|
|
|
|
|
|
|
|
authorized,
2,370,000 shares issued and outstanding
|
|
|
2,370 |
|
|
|
2,370 |
|
|
Additional
paid-in capital – preferred stock
|
|
|
713,567 |
|
|
|
713,567 |
|
|
Common
stock, $0.001 par value 100,000,000 shares
|
|
|
|
|
|
|
|
|
|
authorized;
37,147,105 and 36,567,105 shares issued and
|
|
|
|
|
|
|
|
|
|
outstanding
at March 31, 2008 and December 31, 2007, respectively
|
|
|
37,146 |
|
|
|
36,566 |
|
|
Additional
paid-in capital – common stock
|
|
|
16,100,942 |
|
|
|
15,789,790 |
|
|
Accumulated
deficit
|
|
|
(14,556,852 |
) |
|
|
(14,958,608 |
) |
|
Total
stockholders’ equity
|
|
|
2,297,173 |
|
|
|
1,583,685 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$ |
7,125,117 |
|
|
$ |
5,750,217 |
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements
HEARTLAND, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
UNAUDITED
|
|
|
Three
Months Ended
|
|
|
|
|
March
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
REVENUE
- SALES
|
|
$ |
4,058,796 |
|
|
$ |
3,401,070 |
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
3,278,225 |
|
|
|
2,890,718 |
|
|
Selling,
general and administrative expenses
|
|
|
359,026 |
|
|
|
1,104,016 |
|
|
Depreciation
and amortization
|
|
|
21,331 |
|
|
|
17,096 |
|
|
Total
Costs and Expenses
|
|
|
3,658,582 |
|
|
|
4,011,830 |
|
|
NET
OPERATING INCOME (LOSS)
|
|
|
400,214 |
|
|
|
(610,760 |
) |
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
9,555 |
|
|
|
11,119 |
|
|
Gain
(loss) on disposal of property, plant and equipment
|
|
|
-- |
|
|
|
(19,432 |
) |
|
Interest
expense
|
|
|
(8,013 |
) |
|
|
(45,776 |
) |
|
Total
Other Income (Expense)
|
|
|
1,542 |
|
|
|
(54,089 |
) |
|
INCOME
(LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
|
|
401,756 |
|
|
|
(664,849 |
) |
|
FEDERAL
AND STATE INCOME TAXES
|
|
|
-- |
|
|
|
-- |
|
|
INCOME
(LOSS) FROM CONTINUING OPERATIONS
|
|
|
401,756 |
|
|
|
(664,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS:
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations (net of income tax expense of
$0)
|
|
|
-- |
|
|
|
11,831 |
|
|
Total
Discontinued Operations
|
|
|
-- |
|
|
|
11,831 |
|
|
NET
INCOME (LOSS)
|
|
|
401,756 |
|
|
|
(653,018 |
) |
|
LESS:
Preferred Dividends
|
|
|
(14,813 |
) |
|
|
(74,269 |
) |
|
NET
INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
|
|
$ |
386,943 |
|
|
$ |
(727,287 |
) |
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
(LOSS) PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
Continuing
operations :Basic
|
|
$ |
0.011 |
|
|
$ |
(0.020 |
) |
|
:Diluted
|
|
$ |
0.010 |
|
|
$ |
(0.020 |
) |
|
Discontinued
operations :Basic
|
|
$ |
-- |
|
|
$ |
0.001 |
|
|
:Diluted
|
|
$ |
-- |
|
|
$ |
0.001 |
|
|
Net
income
(loss) :Basic
|
|
$ |
0.010 |
|
|
$ |
(0.022 |
) |
|
:Diluted
|
|
$ |
0.010 |
|
|
$ |
(0.022 |
) |
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING: Basic
|
|
|
36,997,661 |
|
|
|
33,517,327 |
|
|
:
Diluted
|
|
|
39,706,597 |
|
|
|
33,517,327 |
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements
HEARTLAND, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
UNAUDITED
|
|
|
Three
Months Ended
|
|
|
|
|
March
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before income taxes
|
|
$ |
401,756 |
|
|
$ |
(664,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income (loss) to cash flows used in operating
activities
|
|
|
|
|
|
|
|
|
|
Stock
issued for services and settlement
|
|
|
-- |
|
|
|
499,290 |
|
|
Loss
on disposal of property, plant and equipment
|
|
|
-- |
|
|
|
19,432 |
|
|
Depreciation
and amortization
|
|
|
21,331 |
|
|
|
17,096 |
|
|
Share-based
compensation
|
|
|
21,732 |
|
|
|
-- |
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
|
|
Increase
in accounts receivable
|
|
|
371,174 |
|
|
|
541,426 |
|
|
Increase in
costs in excess of billings on uncompleted contracts
|
|
|
(308,035 |
) |
|
|
-- |
|
|
Decrease
(increase) in inventory
|
|
|
(628,226 |
) |
|
|
778 |
|
|
Decrease
(increase) in prepaids and other
|
|
|
259 |
|
|
|
(23,740 |
) |
|
Increase
(decrease) in accounts payable
|
|
|
61,352 |
|
|
|
(738,628 |
) |
|
Increase
in obligations to related parties
|
|
|
-- |
|
|
|
19,008 |
|
|
Increase
in accrued payroll and related taxes
|
|
|
87,430 |
|
|
|
31,352 |
|
|
Increase
in accrued interest
|
|
|
1,336 |
|
|
|
68,319 |
|
|
Increase
(decrease) in accrued expenses
|
|
|
(18,620 |
) |
|
|
66,297 |
|
|
Increase
in billings in excess of costs on uncompleted contracts
|
|
|
571,243 |
|
|
|
16,942 |
|
|
Cash
provided by (used in) continuing operations before income
taxes
|
|
|
582,732 |
|
|
|
(147,277 |
) |
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
-- |
|
|
|
11,831 |
|
|
(Decrease)
increase in net liabilities of entities discontinued
|
|
|
-- |
|
|
|
(45,206 |
) |
|
Cash
used in discontinued operations
|
|
|
-- |
|
|
|
(33,375 |
) |
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED BY (USED IN) OPERATING
|
|
|
|
|
|
|
|
|
|
ACTIVITIES
|
|
|
582,732 |
|
|
|
(180,652 |
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Payments
for property, plant and equipment
|
|
|
(93,492 |
) |
|
|
(39,260 |
) |
|
Payments
for other assets
|
|
|
(31,000 |
) |
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH (USED IN) INVESTING ACTIVITIES
|
|
|
(124,492 |
) |
|
|
(39,260 |
) |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements
HEARTLAND, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
UNAUDITED
|
|
|
Three
Months Ended
|
|
|
|
|
March
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Payments
on notes payable
|
|
$ |
(6,091 |
) |
|
$ |
(10,467 |
) |
|
Payments
on notes payable to related parties
|
|
|
(31,289 |
) |
|
|
(17,422 |
) |
|
Payments
on capital lease
|
|
|
(3,949 |
) |
|
|
-- |
|
|
Proceeds
from issuance of common stock
|
|
|
290,000 |
|
|
|
135,000 |
|
|
Proceeds
from issuance of preferred stock
|
|
|
-- |
|
|
|
152,500 |
|
|
NET
CASH PROVIDED BY FINANING ACTIVITIES
|
|
|
248,671 |
|
|
|
259,611 |
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE IN
CASH
|
|
|
706,911 |
|
|
|
39,699 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH,
BEGINNING OF PERIOD
|
|
|
216,570 |
|
|
|
249,209 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH,
END OF PERIOD
|
|
$ |
923,481 |
|
|
$ |
288,908 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
6,678 |
|
|
$ |
10,832 |
|
|
Taxes
paid
|
|
$ |
-- |
|
|
$ |
-- |
|
|
|
|
|
|
|
|
|
|
|
|
NON
CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation as share based compensation
|
|
$ |
21,732 |
|
|
$ |
-- |
|
|
Issuance
of common stock for services and settlement
|
|
$ |
-- |
|
|
$ |
499,290 |
|
|
Issuance of common stock for payment of obligations to related
parties
|
|
$ |
-- |
|
|
$ |
50,000 |
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements.
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2008
|
NOTE A
|
BASIS OF
PRESENTATION
|
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with Regulation S-K promulgated by the Securities and Exchange
Commission and do not include all of the information and footnotes required by
generally accepted accounting principles in the United States for complete
financial statements. In the opinion of management, these interim
financial statements include all adjustments, which include only normal
recurring adjustments, necessary in order to make the financial statements not
misleading. The results of operations for such interim periods are
not necessarily indicative of results of operations for a full
year. The unaudited consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto of the Company and management’s discussion and analysis of financial
condition and results of operations included in the Company’s Annual Report for
the year ended December 31, 2007 as filed with the Securities and Exchange
Commission on Form 10-KSB.
|
NOTE B
|
ACCOUNTING
POLICIES
|
The
accounting policies followed by the Company are set forth in Note B to the
Company’s audited consolidated financials statements in the Company’s Annual
Report for the year ended December 31, 2007 as filed with the Securities and
Exchange Commission on Form 10-KSB.
As
reflected in the accompanying financial statements, the Company has an
accumulated deficit of $14,556,852. The Company’s auditors, in their
opinion on the Company’s annual financial statements for 2007 dated April 10,
2008, included a “going concern” qualification related to substantial doubt
about the Company’s ability to continue as a going concern.
|
NOTE D
|
STOCKHOLDERS’
EQUITY
|
Preferred
Stock
In
January 2007, the Board of Directors approved the authorization of 5,000,000
shares of Series A Convertible Preferred Stock - par value
$0.001. The preferred stock has a face value of $0.25 per share and
the basis of conversion is one share of the Company’s common stock for each
share of preferred stock. The preferred stock has liquidation
priority rights over all other stockholders. The preferred shares can
be converted at any time at the option of the stockholder, but will convert
automatically at the end of three years into the Company’s common
stock.
As of
March 31, 2008, the Company has 2,370,000 shares of Series A Convertible
Preferred Stock issued and outstanding. The preferred shares carry a
10% annual stock dividend for the three years they are outstanding prior to
conversion. The preferred dividend in arrears at March 31, 2008 and 2007 was
$53,662 and $ -0-, respectively.
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2008
|
NOTE D
|
STOCKHOLDERS EQUITY
(Continued)
|
Warrants
The
preferred shares include a Series A and Series B common stock purchase
warrant. The Series A warrant allows the holder to purchase 20% of
the number of preferred shares purchased at $0.75 per share; the Series B
warrant allows the holder to purchase 20% of the number of preferred shares
purchased at $1.00 per share. Both series of warrants are exercisable over a
three year period. The Company can call in the warrants after 12
months if the price of the common stock in the market is 150% of the warrant
price for 10 consecutive days (i.e. $1.13 for the A warrant and $1.50 for the B
warrant).
Options
The
Company has one employee non-statutory stock option agreement as detailed in
Form 8-K filed on June 28, 2007. This particular option was granted with Board
approval to Terry L. Lee and contains the option to purchase 1,822,504 shares of
common stock at an exercise price of $0.33 over a pro-rata five year basis. All
shares issued under this option would be restricted and any portion of the
option not exercised by June 26, 2012 will expire.
Common
Stock
The
Company has authorized 100,000,000 shares of common stock, with a par value of
$.001 per share. As of March 31, 2008, the Company has 37,147,105 shares
of common stock issued and outstanding.
During
the quarter ended March 31, 2008, the Company issued 580,000 shares of common
stock for cash of $290,000.
Inventory
consists of the following at March 31, 2008:
| Raw
material |
|
$ |
1,523,443 |
|
| Work in
process - manufacturing |
|
|
9,192 |
|
| |
|
$ |
1,532,635 |
|
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2008
|
NOTE F
|
DISCONTINUED
OPERATIONS
|
In
November 2007, in connection with the Company’s default under the terms of the
acquisition note owed to the former owner of Karkela Construction, Inc. and the
former owner’s intention to foreclose on the related security interest, the
Company elected to discontinue efforts with respect to Karkela and forfeit the
security interest pledged, the assets of Karkela including 100% of the equity
interest of Karkela. As a result, effective July 1, 2007, Karkela’s
operations, which comprised the construction and property management segment,
have been discontinued and Karkela is no longer a subsidiary of the
Company. As a result, the steel fabrication business comprises all of
the operations of the company and no segment information is presented for
2008. The results of operations and balance sheet items relating
toKarkela for the three months ended March 31, 2007 were:
Karkela
|
Revenue
|
|
$ |
2,274,625 |
|
|
Income
before income taxes
|
|
|
11,831 |
|
|
Net
assets (liabilities)
|
|
|
168,515 |
|
The
Company finalized the purchase of the property located at 25 Mound Park Drive in
Springboro, OH on April 18, 2008. The gross selling price of the property was
$1,112,983 and was funded through self-generated funds and a loan of $900,000
provided through Commercial Bank of Harrogate, TN. This is the same property
which Mound Technologies currently uses for its operations and had been renting
from a related party for $16,250 per month. The Company’s CEO is also the CEO of
Commercial Bank.
Certain
amounts in the March 31, 2007 Financial Statements have been reclassified to
conform to the presentation used in the March 31, 2008 Financial
Statements.
ITEM
2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OR PLAN OF OERATION.
Cautionary
Statement Pursuant to Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995:
This
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008
contains "forward-looking" statements within the meaning of the Federal
securities laws. These forward-looking statements include, among
others, statements concerning the Company's expectations regarding sales trends,
gross and net operating margin trends, political and economic matters, the
availability of equity capital to fund the Company's capital requirements, and
other statements of expectations, beliefs, future plans and strategies,
anticipated events or trends, and similar expressions concerning matters that
are not historical facts. The forward-looking statements in this
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 are
subject to risks and uncertainties that could cause actual results to differ
materially from those results expressed in or implied by the statements
contained herein.
The
interim financial statements have been prepared by Heartland, Inc. and in the
opinion of management, reflect all material adjustments which are necessary to a
fair statement of results for the interim periods presented, including normal
recurring adjustments. Certain information and footnote disclosures
made in the most recent annual financial statements included in the
Company's Form 10-KSB for the year ended December 31, 2007, have been condensed
or omitted for the interim statements. It is the Company's opinion
that, when the interim statements are read in conjunction with the December 31,
2007 financial statements, the disclosures are adequate to make the information
presented not misleading. The results of operations for the three
months ended March 31, 2008 are not necessarily indicative of the operating
results for the full fiscal year.
(A)
THE COMPANY
The
Company was incorporated in the State of Maryland on April 6, 1999 as Origin
Investment Group, Inc. (“Origin”). On December 27, 2001, the Company went
through a reverse merger with International Wireless, Inc. Thereafter on January
2, 2002, the Company changed its name from Origin to International Wireless,
Inc. On November 15, 2003, the Company went through a reverse merger with PMI
Wireless, Inc. Thereafter in May 2004, the Company changed its name from
International Wireless, Inc. to our current name, Heartland Inc.
The
Company was originally formed as a non-diversified closed-end management
investment company, as those terms are used in the Investment Company Act of
1940 (“1940 Act”). The Company at that time elected to be regulated as a
business development company under the 1940 Act. On December 7, 2001 the
Company’s shareholders voted on withdrawing the Company from being regulated as
a business development company and thereby no longer be subject to the 1940
Act.
Unless
the context indicates otherwise, the terms “Company,” “Corporate”, “Heartland,”
and “we” refer to Heartland, Inc. and its subsidiaries. Our executive offices
are located at 1501 Cumberland Gap Parkway, Middlesboro, KY, telephone number
(606) 248-7323. Our Internet address is www.heartlandholdingsinc.com
for the corporate information. Additionally, the Mound Technology division of
the company currently maintains an Internet address at
www.moundtechnologies.com. The information contained on our web
site(s) or connected to our web site is not incorporated by reference into this
Report on Form 10-Q and should not be considered part of this
report.
We
emphasize quality and innovation in our services, products, manufacturing, and
marketing. We strive to provide well-built, dependable products supported by our
service network. We have committed funding for engineering and
research in order to improve existing products and develop new products. Through
these efforts, we seek to be responsive to trends that may affect our target
markets now and in the future.
On November 15, 2003, a change in control of the Company occurred when the
Company went through a reverse merger with PMI Wireless, Inc., a Delaware
corporation with corporate headquarters located in Cordova, Tennessee. The
acquisition, took place on December 1, 2003 for the aggregate consideration of
fifty thousand dollars ($50,000) which was paid to the U.S. Internal Revenue
Service for the Company’s prior obligations, plus assumption of the Company’s
existing debts, for 9,938,466 newly issued common shares of the Company. Under
the said reverse merger, the former Shareholders of PMI Wireless ended up owning
an 84.26% interest in the Company.
On
December 10, 2003, the Company acquired 100% of Mound Technologies, Inc.
(“Mound”), a Nevada corporation with its corporate headquarters located in
Springboro, Ohio. The acquisition was a stock for stock exchange in which the
Company acquired all of the issued and outstanding common stock of Mound in
exchange for 1,256,000 newly issued shares of its common stock. As a result of
this transaction, Mound became a wholly owned subsidiary of the
Company.
In May
2004, the Company changed its name from International Wireless, Inc. to our
current name, Heartland, Inc.
On
December 27, 2004, the Company acquired 100% of Monarch Homes, Inc.
(“Monarch”), a Minnesota corporation with its corporate headquarters located in
Ramsey, MN for $5,000,000. The acquisition price consisted of $100,000 in
cash which was paid at closing, a promissory note for $1,900,000 which was
payable on or before February 15, 2005, and six hundred sixty-seven
thousand (667,000) restricted newly issued shares of the Company’s common stock
which was provided at closing. The Company has since rescinded this
acquisition and no longer owns Monarch.
On
December 30, 2004, the Company acquired 100% of Evans Columbus, LLC
(“Evans”), an Ohio corporation with its corporate headquarters located in
Blacklick, OH for $3,005,000. The acquisition price consisted of $5,000 in
cash at closing, and 600,000 restricted newly issued shares of the
Company’s common stock which was provided at closing. The Company has
since rescinded this acquisition and no longer owns Evans.
On
December 31, 2004, the Company acquired 100% of Karkela Construction, Inc.
(“Karkela”), a Minnesota corporation with its corporate headquarters located in
St. Louis Park, MN for $3,000,000. The acquisition price consisted
of $100,000 in cash at closing, a short term promissory note payable
of $50,000 on or before January 31, 2005, a promissory note for $1,305,000
payable on or before March 31, 2005 which, if not paid by that date, interest is
due from December 31, 2004 to actual payment at 8%, simple interest, compounded
annually and 500,000 restricted newly issued shares of the Company’s common
stock which was provided at closing. In the event the common stock of the
Company was not trading at a minimum of $4.00 as of December 31, 2005, the
Company was required to compensate the original Karkela shareholders for the
difference in additional stock. As a result of the aforementioned,
the Company issued the former Karkela shareholders 262,500 shares of common
stock on March 20, 2006. The Company has since rescinded this
acquisition and no longer owns Karkela.
On June
21, 2006, the Company agreed to accept rescissions of the December, 2004
acquisition agreements from Evans Columbus, LLC effective March 31, 2006 and
from Monarch Homes, Inc. effective June 1, 2006.
On July
29, 2005, the Company entered into a binding Stock Purchase Agreement with
Steven Persinger, an individual, to acquire all the issued and outstanding
shares of common stock of Persinger Equipment, Inc., a Minnesota corporation
(“Persinger”) for $4,735,000. The Company has abandoned its plans to
acquire Persinger Equipment, Inc. in January 2007.
On
September 12, 2005, the Company entered into a binding Agreement for Purchase
and Sale of Shares with Calvin E. Bergman, Lynn E. Bergman, Jerry L. Bergman,
Barbara A. Vance and Marvin Bergman, individually, to acquire all the issued and
outstanding shares of common stock of Ney Oil Company, an Ohio corporation (“Ney
Oil Company”) for $5,000,000. The Company abandoned its plans to
acquire Ney Oil Company on January 18, 2007.
On
September 12, 2005, the Company entered into a Letter of Intent with Terry
Robbins, President of Ohio Valley Lumber, to acquire all the issued and
outstanding shares of common stock of NKR, Inc, d.b.a. Ohio Valley Lumber, a
Delaware corporation (“NKR”) for $8,000,000.00. The Company abandoned its
plans to acquire NKR, Inc. on February 26, 2007.
On
September 21, 2005, the Company entered into a binding Acquisition Agreement
with Terry L. Lee and Gary D. Lee, individually, to acquire all the issued and
outstanding shares of common stock of Lee Oil Company, Inc., a Virginia
corporation, Lee Enterprises, Inc., a Kentucky corporation and Lee’s Food Marts
LLC, a Tennessee Limited Liability Company, (collectively hereinafter "Lee Oil
Company") for $6,000,000.00. The Company is currently renegotiating
the terms of the acquisition agreement.
On
September 26, 2005, the Company entered into a binding Acquisition Agreement
with Robert Daniel, Karol K. Hart-Bendure, M. Lucille Daniel, and Joe M. Daniel,
individually, to acquire all the issued and outstanding shares of common stock
of Schultz Oil Company, Inc., an Ohio Corporation (“Schultz Oil Company”) for
$3,500,000 consisting of $1,500,000 in cash at closing and 1,000,000 shares of
common stock. In the event the common stock of the Company does not
have a value of at least $2.00 as of September 26, 2007, the Company is required
to compensate the shareholders for the difference with the issuance of
additional shares. The Company abandoned its plans to acquire Schultz
Oil Company on January 18, 2007.
(C) BUSINESS
Our
mission is to become a leading diversified company with business interests in
well established industries. We plan to successfully grow our revenues by
acquiring companies with historically profitable results, strong balance sheets,
high profit margins, and solid management teams in place. By providing access to
financial markets, expanded marketing opportunities and operating expense
efficiencies, we hope to become the facilitator for future growth and higher
long-term profits. In the process, we hope to develop new synergies among the
acquired companies, which should allow for greater cost effectiveness and
efficiencies, thus further enhancing each individual company’s strengths. To
date, we have completed an acquisition in the steel fabrication industry.
Additionally, we have identified acquisition opportunities in gasoline
distribution and equipment distribution.
We are
headquartered in Middlesboro, Kentucky and currently trade on the OTC Bulletin
Board under the symbol HTLJ.OB. Including the senior management team, we
currently employ 71 people.
Currently,
we operate one major subsidiary Mound Technologies, Inc. of Springboro, OH
acquired in December 2003 (Steel Fabrication).
Mound
Technologies, Inc. (“Mound”) was incorporated in the state of Nevada in November
of 2002, with its corporate offices located in Springboro, Ohio. Mound is in the
business of steel fabrication (“Steel Fabrication”).
Mound is
located in Springboro, Ohio and is a full service structural and miscellaneous
steel fabricator. It also manufactures steel stairs and railings, both
industrial and architectural quality. The present capacity of the facility is
approximately 6,000 tons per year of structural and miscellaneous steel. Mound
had been previously known as Mound Steel Corporation, which was started at the
same location in 1964.
Mound is
focused on the fabrication of metal products and produces structural steel,
miscellaneous metals, steel stairs, railings, bar joists, metal decks and the
erection thereof. Mound produced gross sales of approximately $7.4 million in
2004. In the steel products segment, steel joists and joist girders, and steel
deck are sold to general contractors and fabricators throughout the United
States. Substantially all work is to order and no unsold inventories of finished
products are maintained. All sales contracts are firm fixed-price contracts and
are normally competitively bid against other suppliers. Cold finished steel and
steel fasteners are manufactured in standard sizes and inventories are
maintained.
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2007.
We are a
company with operations in steel fabrication. Revenues for the three
months ended March 31, 2008 were $4,058,796 compared to $3,401,070 for
the same period in 2007, which represents a increase of $657,726. The
increase in revenues for the period ending March 31, 2008 as compared to the
three months ended March 31, 2007 was partially the result of increases in the
price of the raw materials used in the manufacturing process and those increases
being passed along to the customers. Total operating expenses were
$3,658,582 for the three months ended March 31, 2008 compared to
$4,011,830 for the same periods in 2007 representing a decrease of
$353,248. The decreases were primarily a result of lower
administrative costs of the business.
Interest
expense for the three months ended March 31, 2008 was $8,013 compared to
$45,776 for the same periods in 2007. The decreases were
primarily due to the conversion of convertible promissory notes and the
reduction in acquisition notes payable upon the discontinued operations of
Karkela.
As a
result, Income (Loss) from continuing operations was $401,756 for the three
months ended March 31, 2008, compared to ($664,849) for the same
period in 2007.
LIQUIDITY
AND CAPITAL RESOURCES
Net cash
provided from operating activities was $582,732 for the three months ended March
31, 2008. This was primarily related to the decrease in accounts
receivable.
Total
short-term and long-term debt at March 31, 2008 was $4,827,944 and total
shareholders’ equity was $2,297,173.
Our
businesses are seasonally working capital intensive and require funding for
purchases of raw materials used in production, replacement parts inventory,
capital expenditures, expansion and upgrading of existing facilities, as well as
for financing receivables from customers. Additionally, our auditors,
in their opinion on our financial statements for the year ended December 31,
2007 issued a “going concern” qualification to their report dated April 10,
2008. We believe that cash generated from operations, together with
our bank credit lines, and cash on hand, will provide us with a majority of our
liquidity to meet our operating requirements. We believe that the
combination of funds available through future anticipated financing
arrangements, coupled with forecasted cash flows, will be sufficient to provide
the necessary capital resources for our anticipated working capital, capital
expenditures, and debt repayments for at least the next twelve
months.
We may
experience problems, delays, expenses, and difficulties sometimes encountered by
an enterprise in our stage of development, many of which are beyond our
control. For potential acquisitions, these include, but are not
limited to, unanticipated problems relating to the identifying partner(s),
obtaining financing, culminating the identified partner due to a number of
possibilities (prices, dates, terms, etc). Due to limited experience
in operating the combined entities for the Company, we may experience production
and marketing problems, incur additional costs and expenses that may exceed
current estimates, and competition.
Our
businesses are seasonally working capital intensive and require funding for
purchases of raw materials used in production, replacement parts inventory,
capital expenditures, expansion and upgrading of existing facilities, as well as
for financing receivables from customers. During the three months
ended March 31, 2008, the Company has not engaged in:
| |
-
Material off-balance sheet activities, including the use of structured
finance or special purpose entities; |
|
|
-
Trading activities in non-exchange traded contracts; or
|
|
|
-
Transactions with persons or entities that benefit from their
non-independent relationship with the
Company.
|
Inflation
We are
subject to the effects of inflation and changing prices. As
previously mentioned, we experienced rising prices for steel and other
commodities during fiscal 2007 and for the first three months of 2008 that had a
negative impact on our gross margins and net earnings. In the
remainder of fiscal 2008, we expect average prices of steel and other
commodities to be higher than the average prices paid in fiscal 2007 and for the
first three months of 2008. We will attempt to mitigate the impact of
these anticipated increases in steel and other commodity prices and other
inflationary pressures by actively pursuing internal cost reduction efforts and
introducing price increases.
Critical Accounting Policies
and Estimates
In
preparing our consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, we must make
decisions that impact the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures. Such decisions include the
selection of the appropriate accounting principles to be applied and the
assumptions on which to base accounting estimates. In reaching such
decisions, we apply judgments based on our understanding and analysis of the
relevant circumstances, historical experience, and actuarial valuations. Actual
amounts could differ from those estimated at the time the consolidated financial
statements are prepared.
Our
significant accounting policies are described in Note A to the consolidated
financial statements. Some of those significant accounting policies
require us to make difficult subjective or complex judgments or estimates. An
accounting estimate is considered to be critical if it meets both of the
following criteria: (i) the estimate requires assumptions about matters that are
highly uncertain at the time the accounting estimate is made, and (ii) different
estimates that reasonably could have been used, or changes in the estimate that
are reasonably likely to occur from period to period, would have a material
impact on the presentation of our financial condition, changes in financial
condition or results of operations.
Accounts
Receivable Valuation. We value accounts receivable, net of an allowance for
doubtful accounts. Each quarter, we estimate our ability to collect outstanding
receivables that provides a basis for an allowance estimate for doubtful
accounts. In doing so, we evaluate the age of our receivables, past collection
history, current financial conditions of key customers, and economic
conditions. Based on this evaluation, we establish a reserve for
specific accounts receivable that we believe are uncollectible, as well as an
estimate of uncollectible receivables not specifically known. A
deterioration in the financial condition of any key customer or a significant
slow down in the economy could have a material negative impact on our ability to
collect a portion or all of the accounts and notes receivable.
OFF-BALANCE
SHEET ARRANGEMENTS
We have
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future material effect on us.
Item
3. Quantitative and Qualitative Disclosures About Market Risks
Not
applicable
Item
4. Controls and Procedures
As a
“smaller reporting company” as defined by Item 10 of Regulation S-K, the Company
is not required to provide information required by this Item.
Item
4T. Controls and Procedures
As
required by Rule 13a-15 under the Exchange Act, our management, including our
Chief Executive Officer and our Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2008.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act. Our management is also required to
assess and report on the effectiveness of our internal control over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002
(“Section 404”). Management assessed the effectiveness of our
internal control over financial reporting as of March 31, 2008. In making
this assessment, we used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control -
Integrated Framework. During our assessment of the effectiveness of
internal control over financial reporting as of March 31, 2008, management
identified significant deficiencies related to (i) the U.S. GAAP expertise of
our internal accounting staff, (ii) our internal audit functions and (iii) the
absence of an Audit Committee as of March 31, 2008.
In 2007,
the Company engaged a new chief executive officer and chief financial officer.
As a result, new management has only recently begun to address these
deficiencies. Management determined that the lack of an Audit Committee of
the board of directors of the Company also contributed to insufficient oversight
of our accounting and audit functions.
In order to correct the foregoing
deficiencies, we have taken the following remediation measures:
|
|
·
|
In
2007, we engaged Mitchell Cox, our new CFO. Mr. Cox has extensive
experience in internal control and U.S. GAAP reporting compliance, and
together with our chief executive officer will oversee and manage our
financial reporting process and required training of the accounting staff.
|
|
|
·
|
We
have committed to the establishment of effective internal audit functions,
however, due to the scarcity of qualified candidates with extensive
experience in U.S. GAAP reporting and accounting in the region, we were
not able to hire sufficient internal audit resources before end of 2007.
However, we will increase our search for qualified candidates with
assistance from recruiters and through referrals.
|
|
|
·
|
In
2008, we intend to appoint additional directors with to serve on an audit
committee.
|
We
believe that the foregoing steps will remediate the significant deficiency
identified above, and we will continue to monitor the effectiveness of these
steps and make any changes that our management deems appropriate.
A
material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis. A significant deficiency is a deficiency, or a
combination of deficiencies, in internal control over financial reporting that
is less severe than a material weakness, yet important enough to merit attention
by those responsible for oversight of the company's financial
reporting.
Except
for a material weakness in our revenue recognition, our management is not aware
of any material weaknesses in our internal control over financial reporting, and
nothing has come to the attention of management that causes them to believe that
any material inaccuracies or errors exist in our financial statement as of March
31, 2008. The material weakness in revenue recognition related to
duplicate billing and calculation of percentage of completion, which weaknesses
have been addressed by the Company. The reportable conditions and
other areas of our internal control over financial reporting identified by us as
needing improvement have not resulted in a material restatement of our financial
statements. Nor are we aware of any instance where such reportable conditions or
other identified areas of weakness have resulted in a material misstatement of
omission in any report we have filed with or submitted to the Commission.
PART
II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
In the
normal course of our business, we and/or our subsidiaries are named as
defendants in suits filed in various state and federal courts. We believe that
none of the litigation matters in which we, or any of our subsidiaries, are
involved would have a material adverse effect on our consolidated financial
condition or operations.
There is
no past, pending or, to our knowledge, threatened litigation or administrative
action which has or is expected by our management to have a material effect upon
our business, financial condition or operations, including any litigation or
action involving our officers, directors, or other key personnel.
Item
1A. Risk Factors
As a
“smaller reporting company” as defined by Item 10 of Regulation S-K, the Company
is not required to provide information required by this Item.
ITEM 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
In
January and February 2008, the Company issued 580,000 shares of common stock to
12 individuals in a private placement made in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933 and Rule
506 promulgated thereunder.
The
offering and sale was deemed to be exempt under Rule 506 of Regulation D and/or
Section 4(2) of the Securities Act of 1933, as amended. No advertising or
general solicitation was employed in offering the securities. The offerings and
sales were made to a limited number of persons, all of whom were accredited
investors or a limited number of unaccredited investors, business associates of
the Company or executive officers of the Company, and transfer was restricted by
the Company in accordance with the requirements of the Securities Act of 1933.
In addition to representations by the above-referenced persons, the Company has
made independent determinations that all of the above-referenced persons were
accredited or sophisticated investors, and that they were capable of analyzing
the merits and risks of their investment, and that they understood the
speculative nature of their investment. Furthermore, all of the above-referenced
persons were provided with access to our Securities and Exchange Commission
filings.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER
INFORMATION
The
Company was obligated under the terms of a lease dated February 25, 2005 with
the Receivership of Mound Properties, LP in Springboro, Ohio owned by a related
party on behalf of Mound for a month to month term beginning January 2005 at a
monthly rent of $16,250. Each party has the right to terminate this
lease with 30 days notice. Under the terms of the lease, the Company
was responsible for utilities, personal property taxes, repairs and maintenance.
The Company finalized the purchase of this property in the month of April and is
in the process of preparing a form 8-K detailing the purchase.
ITEM 6. EXHIBITS
AND REPORTS ON FORM 8-K
| Exhibit
31.1 |
|
Certification
of Terry L. Lee, Chief Executive Officer& Chairman of the
Board |
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| Exhibit
31.2 |
|
Certification
of Mitchell L Cox, CPA, Chief Financial Officer |
| |
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|
| Exhibit
32.1 |
|
Certification
of Terry L. Lee, Chief Executive Officer& Chairman of the
Board |
| |
|
|
| Exhibit
32.2 |
|
Certification
of Mitchell L. Cox, CPA, Chief Financial
Officer |
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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HEARTLAND,
INC.
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(Registrant)
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Date:
May 19, 2008
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By:
/s/ Terry L. Lee
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Terry
L. Lee
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Chief
Executive Officer and
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Chairman
of the Board
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(Duly
Authorized Officer)
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Date:
May 19, 2008
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By:
/s/ Mitchell L. Cox, CPA
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Mitchell
L. Cox
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Chief
Financial Officer
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(Principal
Financial
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and
Accounting Officer)
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20