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.



 
1

 


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
     
 
 
 
 
2

 
 
 
 
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.


 
3

 
 
 

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.
 
 
 
 
4

 
 
 
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.
 
 
 
 
5

 
 
 
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.
 
 
 
 
6

 


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:
 
 
7

 
 
 
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.
 
 
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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.
 
 
 
9

 
 
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.
 
 
 
10

 
 

 
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
 
 
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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)
     

 
 
 
 
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