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 September 30, 2009
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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨ No x
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 November 5, 2009, there were
44,667, 558 shares of common stock,
$.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 OR PLAN OF
OPERATION
|
|
10
|
|
|
|
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
|
12
|
|
|
|
ITEM
4. CONTROLS AND PROCEDURES
|
|
12
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
|
ITEM
1. - LEGAL PROCEEDINGS
|
|
13
|
|
|
|
ITEM
1a – RISK FACTORS
|
|
13
|
|
|
|
ITEM
2. - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
|
13
|
|
|
|
ITEM
3. - DEFAULTS UPON SENIOR SECURITIES
|
|
13
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|
|
|
ITEM
4. – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
|
13
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|
|
|
ITEM
5. - OTHER INFORMATION
|
|
13
|
|
|
|
ITEM
6. - EXHIBITS
|
|
14
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|
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SIGNATURES
|
|
14
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|
|
|
PART I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
HEARTLAND, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
ASSETS
|
|
|
|
|
|
|
|
|
Sept.
30,
|
|
|
Dec.
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
|
|
$ |
3,337,694 |
|
|
$ |
4,101,692 |
|
Accounts
receivable, net
|
|
|
5,777,642 |
|
|
|
4,885,878 |
|
Inventory
|
|
|
4,042,648 |
|
|
|
2,775,635 |
|
Prepaid
expenses and other current assets
|
|
|
170,628 |
|
|
|
817,666 |
|
Total
current assets
|
|
|
13,328,612 |
|
|
|
12,580,871 |
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT AND EQUIPMENT, net
|
|
|
13,119,751 |
|
|
|
10,256,234 |
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
757,747 |
|
|
|
68,112 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
27,206,110 |
|
|
$ |
22,905,217 |
|
|
|
|
|
|
|
|
|
|
HEARTLAND, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS - continued
LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
|
Sept.
30,
|
|
|
Dec.
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
3,406,498 |
|
|
$ |
2,741,435 |
|
Other
current liabilities
|
|
|
1,329,104 |
|
|
|
1,244,170 |
|
Current
portion of notes payable
|
|
|
4,011,381 |
|
|
|
1,205,594 |
|
Current
portion of notes payable to related parties
|
|
|
120,521 |
|
|
|
129,127 |
|
Total
current liabilities
|
|
|
8,867,504 |
|
|
|
5,320,326 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM
OBLIGATIONS
|
|
|
|
|
|
|
|
|
Notes
payable, less current portion
|
|
|
7,685,539 |
|
|
|
8,204,783 |
|
Notes
payable to related parties, less current portion
|
|
|
3,240,124 |
|
|
|
3,330,872 |
|
Other
long-term liabilities
|
|
|
1,841,547 |
|
|
|
878,215 |
|
Total
long term liabilities
|
|
|
12,767,210 |
|
|
|
12,413,870 |
|
Total
liabilities
|
|
|
21,634,714 |
|
|
|
17,734,196 |
|
|
|
|
|
|
|
|
|
|
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; 44,667,558
and 42,759,047 shares issued and
|
|
|
|
|
|
|
|
|
outstanding
at Sept. 30, 2009 and Dec. 31, 2008, respectively
|
|
|
44,668 |
|
|
|
42,759 |
|
Additional
paid-in capital – common stock
|
|
|
17,440,011 |
|
|
|
17,011,726 |
|
Accumulated
deficit
|
|
|
(12,629,220 |
) |
|
|
(12,599,401 |
) |
Total
stockholders’ equity
|
|
|
5,571,396 |
|
|
|
5,171,021 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$ |
27,206,110 |
|
|
$ |
22,905,217 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements.
HEARTLAND, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(Unaudited)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended |
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009 |
|
|
2008 |
|
SALES
|
|
$ |
24,874,767 |
|
|
$ |
5,425,498 |
|
|
$ |
67,392,032 |
|
|
$ |
15,684,082 |
|
Cost
of goods sold
|
|
|
(22,204,230 |
) |
|
|
(4,337,807 |
) |
|
|
(59,559,303 |
) |
|
|
(12,908,296 |
) |
Gross
profit
|
|
|
2,670,537 |
|
|
|
1,087,691 |
|
|
|
7,832,729 |
|
|
|
2,775,786 |
|
EXPENSES
|
|
|
(
2,637,282 |
) |
|
|
(467,083 |
) |
|
|
(
7,602,252 |
) |
|
|
(1,338,386 |
) |
NET
OPERATING (LOSS)INCOME
|
|
|
33,255 |
|
|
|
620,608 |
|
|
|
230,477 |
|
|
|
1,437,400 |
|
Other
income (expense)
|
|
|
(154,967 |
) |
|
|
(64,145 |
) |
|
|
(268,010 |
) |
|
|
(49,681 |
) |
(LOSS)
INCOME BEFORE INCOME TAXES
|
|
|
(121,712 |
) |
|
|
556,463 |
|
|
|
(37,533 |
) |
|
|
1,387,719 |
|
Federal
and state income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes, current period
|
|
|
(25,597 |
) |
|
|
- |
|
|
|
(73,152 |
) |
|
|
- |
|
Income
tax benefit, deferred
|
|
|
33,228 |
|
|
|
- |
|
|
|
88,340 |
|
|
|
- |
|
(LOSS)
INCOME FROM CONTINUING OPERATIONS
|
|
|
(114,081 |
) |
|
|
556,463 |
|
|
|
(22,345 |
) |
|
|
1,387,719 |
|
LESS:
Preferred Dividends
|
|
|
(14,813 |
) |
|
|
(14,812 |
) |
|
|
(44,439 |
) |
|
|
(44,438 |
) |
NET
(LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS
|
|
$ |
(128,895 |
) |
|
$ |
541,651 |
|
|
$ |
(66,784 |
) |
|
$ |
1,343,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
NET
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
|
$ |
(498,823 |
) |
|
$ |
1,216,816 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
payments for property, plant and equipment
|
|
|
(3,848,133 |
) |
|
|
(1,374,020 |
) |
Net
proceeds from disposition of assets
|
|
|
260,000 |
|
|
|
- |
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(3,588,133 |
) |
|
|
(1,374,020 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
proceeds from notes payable
|
|
|
3,422,312 |
|
|
|
686,934 |
|
Net
payments on notes to related parties
|
|
|
(99,354 |
) |
|
|
(74,845 |
) |
Payments
on capital lease
|
|
|
- |
|
|
|
(34,891 |
) |
Proceeds
from issuance of common stock
|
|
|
- |
|
|
|
220,000 |
|
NET
CASH PROVIDED BY FINANING ACTIVITIES
|
|
|
3,322,958 |
|
|
|
797,198 |
|
|
|
|
|
|
|
|
|
|
(DECREASE)
INCREASE IN CASH
|
|
|
(763,998 |
) |
|
|
639,994 |
|
|
|
|
|
|
|
|
|
|
CASH,
BEGINNING OF PERIOD
|
|
|
4,101,692 |
|
|
|
216,570 |
|
|
|
|
|
|
|
|
|
|
CASH,
END OF PERIOD
|
|
$ |
3,337,694 |
|
|
$ |
856,564 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
702,774 |
|
|
$ |
57,669 |
|
Taxes
paid
|
|
$ |
73,152 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
NON
CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation as share based compensation
|
|
$ |
75,231 |
|
|
$ |
90,000 |
|
Issuance
of common stock for services and settlement
|
|
$ |
315,000 |
|
|
$ |
- |
|
Issuance of common stock in payment of convertible promissory notes &
accrued interest
|
|
$ |
32,490 |
|
|
$ |
124,377 |
|
Issuance
of common stock for dividends
|
|
$ |
7,473 |
|
|
$ |
83,379 |
|
Purchase
of Mound facilities by settlement of amount to/from former
landlord
|
|
$ |
- |
|
|
$ |
141,657 |
|
Settlement
of amount due from landlord
|
|
$ |
- |
|
|
$ |
426,321 |
|
Settlement
of amount due to landlord
|
|
$ |
- |
|
|
$ |
284,664 |
|
|
|
|
|
|
|
|
|
|
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)
SEPTEMBER 30,
2009
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 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 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, 2008 as filed with the Securities and Exchange
Commission on Form 10-K.
The
balance sheet at December 31, 2008 has been derived from the audited financial
statements 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.
We have
evaluated subsequent events that have occurred since the end of the quarter
through November 4, 2009.
During
the quarter ended September 30, 2009, the Company issued 75,000 shares of common
stock. The shares were valued based on the share price on September 15, 2009 and
a total expense of $30,000 was recorded as an operational expense.
During
the quarter ended June 30, 2009, the Company authorized the issuance of 886,362
shares of common stock. The issuance related to the following:
Description
|
|
Quantity
|
|
Closing
Price Date
|
Board
Compensation
|
|
|
136,362 |
|
June
15, 2009
|
Employment
Contract – Tom Miller
|
|
|
750,000 |
|
Valued
at $0.15/share
|
|
|
|
886,362 |
|
|
During
the quarter ended March 31, 2009, the Company authorized the issuance of 947,149
shares of common stock. The issuance related to the following:
Description
|
|
Quantity
|
|
Closing
Price Date
|
Stock
Dividend
|
|
|
28,377 |
|
Monthly
average
|
Conversion
of Debt & Related Interested
|
|
|
32,410 |
|
Set
by note at $1/share
|
Board
Compensation
|
|
|
136,362 |
|
March
15, 2009
|
Employment
Contract – Randy Frevert
|
|
|
750,000 |
|
Valued
at $0.15/share
|
|
|
|
947,149 |
|
|
|
|
|
|
|
|
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30,
2009
NOTE C
|
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.
The
following table sets forth the computation of basic and diluted earnings per
share for the nine months ended September 30:
|
|
2009
|
|
|
2008
|
|
Basic:
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
$ |
(66,784 |
) |
|
$ |
1,343,281 |
|
Weighted
average common shares outstanding
|
|
|
44,023,582 |
|
|
|
37,017,096 |
|
Income
per share
|
|
$ |
(0.00 |
) |
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
$ |
(1 |
) |
|
$ |
1,343,281 |
|
Adjusted
weighted average common shares outstanding
|
|
|
(1 |
) |
|
|
39,879,976 |
|
Income
per share
|
|
$ |
(1 |
) |
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
The
following table sets forth the computation of basic and diluted earnings per
share for the three months ended September 30:
|
|
2009
|
|
|
2008
|
|
Basic:
|
|
|
|
|
|
|
Net
(loss) income available to common stockholders
|
|
$ |
(128,895 |
) |
|
$ |
541,651 |
|
Weighted
average common shares outstanding
|
|
|
44,592,558 |
|
|
|
37,998,822 |
|
(Loss)
income per share
|
|
$ |
(0.00 |
) |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
|
(1 |
) |
|
$ |
541,651 |
|
Adjusted
weighted average common shares outstanding
|
|
|
(1 |
) |
|
|
40,596,008 |
|
Income
per share
|
|
|
(1 |
) |
|
$ |
0.01 |
|
(1) Due to the net loss
available to common shareholders, adding diluting securities to the denominator
would not properly reflect earnings per share.
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”)
for the three and nine month periods ending September 30, 2009. Mound
was the only operating segment for the three and nine month periods ending
September 30, 2008.
All
significant intercompany accounts and transactions have been
eliminated.
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30,
2009
NOTE D
|
BUSINESS SEGMENTS
(Continued)
|
The
following table reflects the Company’s segments for the three and nine month
periods ended September 30, 2009:
|
|
Holding
|
|
|
Oil
|
|
|
Steel
|
|
|
Steel
|
|
|
|
|
|
|
Company
|
|
|
Distributor
|
|
|
Fabricator
|
|
|
Distributor
|
|
|
|
|
|
|
(Heartland)
|
|
|
(Lee
Oil)
|
|
|
(Mound)
|
|
|
(HS)
|
|
|
Consolidated
|
|
Total
Assets
|
|
$ |
2,755,369 |
|
|
$ |
12,846,136 |
|
|
$ |
7,950,402 |
|
|
$ |
3,654,203 |
|
|
$ |
27,206,110 |
|
Three
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from External Customers
|
|
|
- |
|
|
|
21,481,262 |
|
|
|
3,291,515 |
|
|
|
101,990 |
|
|
|
24,874,767 |
|
Intersegment
Revenues
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
544,345 |
|
|
|
544,345 |
|
Gross
Margins
|
|
|
- |
|
|
|
2,248,389 |
|
|
|
373,075 |
|
|
|
49,073 |
|
|
|
2,670,537 |
|
Loss
From Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
Income Taxes
|
|
|
(401,796 |
) |
|
|
270,936 |
|
|
|
134,499 |
|
|
|
(125,350 |
) |
|
|
(121,712 |
) |
Nine
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from External Customers
|
|
|
- |
|
|
|
57,199,442 |
|
|
|
9,555,517 |
|
|
|
637,073 |
|
|
|
67,392,032 |
|
Intersegment
Revenues
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
544,345 |
|
|
|
544,345 |
|
Gross
Margins
|
|
|
- |
|
|
|
6,143,442 |
|
|
|
1,615,463 |
|
|
|
73,824 |
|
|
|
7,832,729 |
|
Loss
From Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
Income Taxes
|
|
|
(1,163,470 |
) |
|
|
724,289 |
|
|
|
840,217 |
|
|
|
(438,568 |
) |
|
|
(37,533 |
) |
Total
assets increased by approximately $3.5 million from the amount reported in the
December 31, 2008 annual report because of the construction of the building at
HS. All revenue and gross margins for the periods prior to October 1, 2008 would
be attributable to Mound since it was the only operating segment during the
first three quarters of 2008. The expenses related to Heartland were $215,766
and $600,994 for the three and nine month periods ended September 30, 2008
respectively.
On April
9, 2009, the Company entered into a $2 million construction note with a related
party bank for the construction of the future home of HS. The note bears
interest at 7.75% and will be converted into a long-term note once construction
is completed (not to exceed two years). At the time of conversion, the note will
have a term of 20 years. The note is collateralized by the building that is
being constructed.
As of
November 1, 2009, the Company has completed the construction on the building
referenced in Note E and has officially moved the HS operations to that
location. The Company is currently working with the related party bank to
convert the construction note into a normal long-term note. Upon conversion, of
which there is no guarantee, the Company will reclassify the presentation of the
note from a short-term liability to a long-term liability.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OERATION.
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 September 30,
2009. The statements contained in this section that are not historical
facts are forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) 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 developing into a service center for the distribution of steel
products. This segment of the business will not be fully operational until
later in the 2009.
|
Results
of Operations
Nine
months ended September 30, 2009 as compared to the nine months ended September
30, 2008
The main
differences between the results of operations from the first three quarters of
2008 to the first three quarters of 2009 can be attributed primarily to the Lee
Oil acquisition that took place in the fourth quarter of 2008 and the startup of
operations relating to Heartland Steel. A further breakdown is provided in NOTE
D – BUSINESS SEGMENTS of the financial statements.
Revenues.
Revenues increased for the three months ended September 30, 2009 to
$24,874,767 from $5,425,498 for the three months ended September 30, 2008.
Revenues increased from $15,684,082 to $67,392,032 for the nine months ended
September 30, 2008 and 2009 respectively.
Cost of Goods
Sold. Cost of Goods Sold increased for the three and nine months ended
September 30, 2009 to $22,204,230 and $59,559,303 from $4,337,807 and
$12,908,296 for the three and nine months ended September 30, 2008.
Gross Profit.
Gross Profits increased for three months ended September 30, 2009 to
$2,670,537 from $1,087,691 for the three months ended September 30, 2008. The
gross profit for the nine months ended September 30, 2009 was $7,832,729 and
$2,775,786 for the nine months ended September 30, 2008.
Expenses.
Expenses increased for three months ended September 30, 2009 to
$2,637,282 from $467,083 for the three months ended September 30,
2008. Expenses rose from $1,338,386 to $7,602,252 for the nine months
ended September 30, 2008 and 2009 respectively. In addition to the expenses
attributed to the Lee Oil acquisition, the current nine month period ending
September 30, 2009 includes expenses related to two employment contracts. The
chief operating officers of both Mound and HS were issued 750,000 shares of
common shares each as an inducement to enter into long-term employment
contracts. These shares were valued based on the share price on the date of
authorization and expensed accordingly. The total expense recorded was
$225,000.
Other (expense)
income. The interest expense recorded for the nine months ended September
30, 2009 was $702,774 compared to the $57,669 expense recorded for the nine
months ended September 30, 2008. This was primarily attributable to the interest
associated with the acquisition of Lee Oil. The interest relating to the
construction of the new HS building is being capitalized until the construction
is completed. The interest expense related to the new construction will begin in
November. See Note E.
Net Income Before
income Taxes. Net Income before Income Taxes decreased for the nine
months ended September 30, 2009 to a loss of $37,533 from a profit $1,387,719
for the nine months ended September 30, 2008. This decrease is primarily
attributable some costs associated with the startup at Heartland Steel including
the expensing of the shares associated with the chief operating officers
employment contract, additional interest expense associated with the Lee Oil
acquisition in the fourth quarter of 2008, and lower gross revenues
and profits generated from the Mound operations.
Liquidity and Capital
Resources
Sources of
Liquidity
As of
September 30, 2009, the Company had accumulated deficit of
$12,629,220. As of December 31, 2008, the Company had accumulated
deficit of $12,599,401.
The
Company has used $498,823 in operating activities for the nine months ended
September 30, 2009 primarily to fund additional accounts receivable and
inventory. We consider this to be normal with the price of oil and steel both
rising and would expect a reversal if these prices begin to
fall.
The
Company has used $3,588,133 in investing activities for the nine months ended
September 30, 2009 primarily related to the construction of a building for the
HS operations.
The
Company’s generated cash flow from financing activities of $3,322,958 for the
nine months ended September 30, 2009 primarily related to a construction loan as
described in NOTE E – CONSTRUCTION NOTE of the financial
statements.
Our
principal source of liquidity is cash on hand and the conversion of accounts
receivable into cash. We also believe cash provided from operating activities
will be a positive 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.
As of
September 30, 2009, 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.
Due to
the current price of our common stock, we do not expect to fund future projects
through the issuance of shares but rather will fund such projects through cash
on hand and financing, if available.
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
With the
participation of the Chief Executive Officer (the principal executive officer)
and Chief Financial Officer (the principal financial officer); the Company’s
management has evaluated the effectiveness of the Company’s disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)), as of the end of the quarterly
period covered by this Quarterly Report on Form 10-Q. Based on this evaluation,
our chief executive officer and our chief financial officer concluded that our
disclosure controls and procedures are not effective to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms. The
ineffectiveness of our disclosure controls and procedures is the result of
certain deficiencies in internal controls constituting material weaknesses as
discussed below. The material weaknesses identified did not result in the
restatement of any previously reported financial statements or any other related
financial disclosure, nor does management believe that it had any effect on the
accuracy of the Company's financial statements for the current reporting
period.
The
Company has limited accounting personnel with significant knowledge of generally
accepted accounting principles and lacks enough segregation of duties for there
to be proper internal controls over all accounting and financial reporting
operations. The lack of sufficient staff with significant knowledge of
generally accepted accounting principles or oversight from outside parties could
result in ineffective oversight and monitoring.
The
Company is currently reviewing its policies and is evaluating its disclosure
controls and procedures so that it will be able to determine the changes it can
and should make to make such controls more effective.
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 material 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.
UNREGISTER SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The
Company issued 75,000 shares to its directors during the quarter ended September
30, 2009. The associated cost of $30,000 was expensed in the
quarter.
During
the quarter ended June 30, 2009, the Company issued 750,000 shares of common
stock to Tom Miller, pursuant to the terms of his employment agreement and
136,362 shares of common stock to its directors.
During
the quarter ended March 31, 2009, the Company issued 28,377 shares of common
stock as a stock dividend, 32,410 shares of common stock for the conversion of
debt and related interest, 136,362 shares as board compensation and 750,000
shares to Randy Frevert pursuant to the terms of his employment
agreement.
The above
securities were offered and sold to the above parties in private placement
transactions made in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933 and/or Rule 506 promulgated under
Regulation D thereunder. Each of the investors are accredited investors as
defined in Rule 501 of Regulation D promulgated under the Securities Act of
1933.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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
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:
November 16, 2009
|
|
By:
/s/ Terry L. Lee
|
|
|
Terry
L. Lee
|
|
|
Chief
Executive Officer and
|
|
|
Chairman
of the Board
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
Date:
November 16, 2009
|
|
By:
/s/ Mitchell L. Cox, CPA
|
|
|
Mitchell
L. Cox
|
|
|
Chief
Financial Officer
|
|
|
(Principal
Financial
|
|
|
and
Accounting Officer)
|
|
|
|
14