Edgar Filing: HEARTLAND, INC.

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 June 30, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

HEARTLAND, INC.

(Exact name of 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)

1005 N. 19th Street

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 July 22, 2011, there were 36,353,648 shares of common stock, $0.001 par value per share, outstanding.

HEARTLAND, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS		3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		10
ITEM 4. CONTROLS AND PROCEDURES		10
PART II. OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS		11
ITEM 1A – RISK FACTORS
ITEM 2. - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		11
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES		11
ITEM 4. – REMOVED AND RESERVED		11
ITEM 5. - OTHER INFORMATION		11
ITEM 6. - EXHIBITS		11
SIGNATURES		12

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HEARTLAND, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

	June 30,		December 31,
	2011		2010
	(Unaudited)

CURRENT ASSETS
Cash	$	1,337,213	$	1,089,035
Accounts receivable, net		5,487,783		6,612,134
Accounts receivable - related parties		693,167		373,412
Inventory		3,920,807		4,008,178
Prepaid expenses and other current assets		957,939		788,793
Total current assets		12,396,909		12,871,552

PROPERTY, PLANT AND EQUIPMENT, net		11,798,700		12,426,502

OTHER ASSETS		1,320,740		1,006,493

Total assets	$	25,516,349	$	26,304,547

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

HEARTLAND, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS - continued

LIABILITIES AND STOCKHOLDERS’ EQUITY

	June 30,			December 31,
	2011			2010
	(Unaudited)

CURRENT LIABILITIES
Accounts payable	$	4,136,402		$	4,460,294
Line of credit		1,179,774			1,175,000
Current portion of notes payable		3,313,975			3,426,368
Current portion of notes payable to related parties		373,091			671,558
Other current liabilities		1,100,606			647,458
Total current liabilities		10,103,848			10,380,678

Notes payable, less current portion		2,410,695			2,441,845
Notes payable to related parties, less current portion		6,155,936			6,229,516
Other long-term liabilities		463,589			542,921
Total liabilities		19,134,068			19,594,960

STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value 100,000,000 shares
authorized; 36,353,648 shares issued and
outstanding at June 30, 2011 and December 31, 2010		36,354			36,354
Additional paid-in capital – common stock		20,576,240			20,536,976
Accumulated deficit		(14,230,313	)		(13,863,743	)
Net stockholders’ equity		6,382,281			6,709,587

Total Liabilities and Stockholders’ Equity	$	25,516,349		$	26,304,547

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						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010

SALES	$	29,531,586		$	25,570,771		$	55,270,205		$	47,253,168
SALES RELATED PARTIES		182,701			321,129			561,665			548,202
Cost of goods sold		(26,916,951	)		(23,351,860	)		(50,740,794	)		(42,843,975	)
Gross profit		2,797,336			2,540,040			5,091,076			4,957,395
OPERATING EXPENSES		2,898,763			2,523,696			5,534,005			5,180,883
NET OPERATING (LOSS) INCOME		(101,427	)		16,344			(442,929	)		(223,488	)
Other expenses		(62,507	)		(66,469	)		(91,132	)		(154,988	)
Gain on sale of Premium Homes		152,700			-			152,700			-
Interest expense - related party		(48,777	)		(67,167	)		(158,727	)		(134,333	)
LOSS BEFORE INCOME TAXES		(60,011	)		(117,292	)		(540,088	)		(512,809	)
Federal and state income taxes
Income taxes, current period		(13,813	)		(5,483	)		(13,813	)		(10,096	)
Income tax benefit, deferred		9,872			40,552			187,331			194,121
NET LOSS		(63,952	)		(82,223	)		(366,570	)		(328,784	)
LESS: Preferred Dividends		-			(6,815	)		-			(20,557	)
NET LOSS AVAILABLE TO
COMMON STOCKHOLDERS	$	(63,952	)	$	(89,038	)	$	(366,570	)	$	(349,341	)

Net loss per share:
Basic:	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.02	)
Diluted:	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.02	)
Weighted average shares outstanding
Basic:		36,353,648			22,614,702			36,353,648			22,838,044
Diluted:		36,353,648			22,614,702			36,353,648			22,838,044

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

	Six Months Ended
	June 30,
	2011			2010


NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	501,543		$	(181,928	)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment		(115,144	)		(204,008	)
Net proceeds from disposition of assets		1,000			5,000
NET CASH USED IN INVESTING ACTIVITIES		(114,144	)		(199,008	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net payments toward notes payable		(123,246	)		(90,919	)
Net (payments toward) proceeds from notes to related parties		(15,975	)		33,909
NET CASH USED IN FINANING ACTIVITIES		(139,221	)		(57,010	)

INCREASE (DECREASE) IN CASH		248,178			(437,946	)

CASH, BEGINNING OF PERIOD		1,089,035			2,404,910

CASH, END OF PERIOD	$	1,337,213		$	1,966,964

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	312,466		$	364,273
Interest paid - related party	$	158,727		$	134,333
Income taxes paid	$	13,813		$	10,096

NON CASH INVESTING AND FINANCING ACTIVITIES
Amortization of deferred compensation as share based compensation	$	40,014		$	50,152
Issuance of common stock for services and settlement	$	-		$	40,000
Acceptance of receivable from related party for sale of Premium Homes	$	163,093		$	-

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

HEARTLAND, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

JUNE 30, 2011

NOTE A

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Regulation S-K promulgated by the Securities and Exchange Commission (“SEC”) and do not include all of the information and notes 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 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 condensed 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, 2010 as filed with the Securities and Exchange Commission on Form 10-K.

The balance sheet at December 31, 2010 has been derived from the audited consolidated financial statement of that date, but does not include all of the information and notes required by accounting principles generally accepted in United States of America for complete financial statements.

NOTE B

EARNINGS PER SHARE

Basic earnings per share assumes no dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon the exercise of stock options and warrants, using the treasury stock method of computing such effects.

NOTE C

BUSINESS SEGMENTS

The consolidated financial statements include the accounts of Heartland, Inc. (“Heartland”) and its wholly owned subsidiaries, Mound Technologies, Inc. (“Mound”), Lee Oil Company, Inc. (“Lee Oil”), and Heartland Steel, Inc. (“HS”).All significant intercompany accounts and transactions have been eliminated.

The following tables reflect the Company’s segments at June 30, 2011 and 2010:

HEARTLAND, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

JUNE 30, 2011

NOTE C

BUSINESS SEGMENTS (Continued)

Company segments as of and for the period ended June 30, 2011:

	Holding Company (Heartland)			Oil Distributor (Lee Oil)		Steel Fabricator (Mound)			Steel Distributor (HS)			Totals

Total Assets	$	3,190,836		$	11,310,168	$	7,563,240		$	3,452,105		$	25,516,349

Three Months
Revenues		-			26,922,308		2,458,506			333,473			29,714,287
Intersegment Revenues		427,070			-		-			33,413			460,483
(Loss) Income
Before Income Taxes		(348,754	)		548,859		(105,502	)		(154,614	)		(60,011	)

Six Months
Revenues		-			49,853,497		5,274,749			703,624			55,831,870
Intersegment Revenues		638,569			-		-			276,391			914,960
(Loss) Income
Before Income Taxes		(655,569	)		434,534		50,550			(369,603	)		(540,088	)

Company segments as of and for the period ended June 30, 2010:

	Holding Company (Heartland)			Oil Distributor (Lee Oil)		Steel Fabricator (Mound)		Steel Distributor (HS)			Totals

Total Assets	$	2,647,273		$	11,572,528	$	7,695,805	$	4,397,336		$	26,312,942

Three Months
Revenues		-			22,096,693		2,892,491		902,715			25,891,899
Intersegment Revenues		264,595			-		-		157,186			421,781
(Loss) Income
Before Income Taxes		(358,681	)		285,599		100,359		(144,569	)		(117,292	)

Six Months
Revenues		-			41,044,457		5,428,103		1,328,810			47,801,370
Intersegment Revenues		529,189			-		-		681,413			1,210,602
(Loss) Income
Before Income Taxes		(749,885	)		283,189		336,059		(382,172	)		(512,809	)

NOTE D

SALE OF PREMIUM HOMES

In June 2011, the Company sold Premium Homes to Terry Lee. This resulted in a decrease in inventory and notes payable to related parties of approximately $350,000. In addition, the Company has recorded a gain from the sale of $152,700 and a non-interest bearing related party receivable of $163,093, which represents an advance on Terry Lee’s employment compensation and will be reduced by compensation expense. The advance does not bear interest and is expected to be satisfied by December 31, 2011.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The following discussion should be read in conjunction with the financial statements included in this Form 10-Q.The following discussion and analysis provides certain information, which the Company’s management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition for the quarterly period ended June 30, 2011. The statements contained in this section that are not historical facts are forward-looking statements that involve risks and uncertainties. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” should” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. From time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in our various filings with the SEC, or press releases or oral statements made by or with the approval of our authorized executive officers.

These forward-looking statements, such as statements regarding anticipated future revenues, capital expenditures and other statements regarding matters that are not historical facts, involve predictions. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. We do not undertake any obligation to publicly release any revisions to these forward-looking statements or to reflect the occurrence of unanticipated events. Many important factors affect our ability to achieve our objectives, including, among other things, technological and other developments within a given field, intense and evolving competition, the lack of an “established trading market” for our shares, and our ability to obtain additional financing, as well as other risks detailed from time to time in our public disclosure filings with the SEC.

Overview

The Company currently manages its business as three operational segments and files as a consolidated entity. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision makers. The three operational segments we currently report are:

·	Mound – Steel Fabrication – Primarily focused on the fabrication of metal products including structural steel, steel stairs and railings, bar joists, metal decks, and other miscellaneous steel products.

·	Lee Oil – Oil Distribution – Primarily focused on the wholesale and retail distribution of petroleum products including those sold to the motoring public through our retail locations.

·	Heartland Steel – Wholesale Steel – This is a startup segment of the business that we are working to develop into full fledged service center for the distribution of steel products.

Results of Operations

Three and six months ended June 30, 2011 as compared to the three and six months ended June 30, 2010

Revenues. Revenues increased for the three months ended June 30, 2011 to $29,714,287 from $25,891,900 for the three months ended June 30, 2010. The increase in revenue of $3,822,387 was primarily a result of price increases in the products being sold. Revenues increased for the six months ended June 30, 2011 to $55,831,870 from $47,801,370 for the six months ended June 30, 2010. The increase in revenue of $8,030,500 was primarily a result of price increases in the products being sold.

Cost of Goods Sold. Cost of Goods Sold increased for three months ended June 30, 2011 to $26,916,951 from $23,351,860 for the three months ended June 30, 2010. The increase in the cost of goods sold of $3,565,091 was primarily a result of price increases in the products being sold.

Gross Profit. Gross Profits increased for three months ended June 30, 2011 to $2,797,336 in comparison to $2,540,040 for the three months ended June 30, 2010. One of the contributing factors for the increase in gross profit was the leveling of prices allowing higher freight rates which are passed along to the customers to catch up with past price increases in all segments of the business. Gross profits for the six months ended June 30, 2011 were $133,681 higher than the same period in 2010. This includes the first three months of 2011 in which the gross margins were $123,614 lower than the same period in 2010.

Expenses. Operating expenses increased slightly to $2,898,763 in the three months ended June 30, 2011 compared to $2,523,696 for the three months ended June 30, 2010. One of the items included this quarter that was not considered normal was a one-time settlement of $105,000 paid to the U.S. Treasury on past employment taxes. These were not related to any unpaid taxes of the Company, but rather due to “common ownership” on the part of Mound relating back to a company closed many years ago. An additional item related to expenses for the three and six month periods ended June 30, 2011 would be transportation costs relating to higher fuel costs as indicated by the increase in revenues and cost of goods sold.

Liquidity and Capital Resources

Our principal sources of liquidity would be cash on hand and the conversion of accounts receivable into cash. We also believe cash provided from operating activities will be a great source of liquidity going forward, but would seek outside financing for any major expansion, betterment project, or possible future acquisitions as these would be considered long term projects.

The Company generated $501,543 from operating activities during the six months ended June 30, 2011. This was primarily a result in collection of outstanding receivables.

As of June 30, 2011, the Company believes that cash on hand, cash generated by operations, and available bank borrowings will be sufficient to pay trade creditors, operating expenses in the normal course of business, and meet all of its bank and subordinate debt obligations for the next 12 months.

It is our belief that our stock is currently undervalued and that we are better suited to fund current projects through cash provided from operations and financing rather than attempting to sell what we believe to be an undervalued asset and further dilute the securities.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2011. In making this assessment, management used the framework set forth in the report entitled Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.

Based on its evaluation of our disclosure controls and procedures, our management has concluded that during the period covered by this report, such disclosure controls and procedures were not effective and there is a material weakness in our internal control over financial reporting. A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

During the current reporting period, certain elements of the internal control system that may prevent the possibility of a misstatement being prevented or detected on a timely basis were found to be missing. These elements related principally to the segregation of duties and oversight in the financial reporting. Management will continue to monitor the identified material weakness and take the necessary steps to mitigate the possible impact on the Company’s financial statements.

The presence of these material weaknesses does not mean that a material misstatement has occurred in our financial statements, but only that our present controls might not be adequate to detect or prevent a material misstatement in a timely manner. Management believes that the material weaknesses set forth above did not have an effect on our financial results.

Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no unregistered sales of equity securities in the quarter ending June 30, 2011.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

REMOVED AND RESERVED

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NOT APPLICABLE

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibit 31.1		Certification of Terry L. Lee, Chief Executive Officer & Chairman of the Board

Exhibit 31.2		Certification of Mitchell L Cox, CPA, Chief Financial Officer

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


EX-101.INS		XBRL INSTANCE DOCUMENT

EX-101.SCH		XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

EX-101.CAL		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE

EX-101.DEF		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE

EX-101.LAB		XBRL TAXONOMY EXTENSION LABELS LINKBASE

EX-101.PRE		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

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.


		HEARTLAND, INC.
		(Registrant)


Date: August 15, 2011		By: /s/ Terry L. Lee
		Terry L. Lee
		Chief Executive Officer and
		Chairman of the Board
		(Principal Executive Officer)


Date: August 15, 2011		By: /s/ Mitchell L. Cox, CPA
		Mitchell L. Cox
		Chief Financial Officer
		(Principal Financial
		and Accounting Officer)