form10ksb.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
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x ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
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THE
SECURITIES EXCHANGE ACT OF 1934
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FOR
FISCAL YEAR ENDED DECEMBER 31, 2007
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HEARTLAND, INC.
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(Name
of small business issuer in its charter)
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Maryland
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36-4286069
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(State
or other jurisdiction
of
incorporation or organization)
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(I.R.S.
Employer Identification Number)
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1501 Cumberland Gap
Parkway
Middlesboro,
KY 40965
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(Address
of principal executive offices) (Zip Code)
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606-248-7323
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(Issuer’s
telephone no.)
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Securities
registered pursuant to Section 12(b) of the Exchange Act: None
Securities
registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $.001 par
value
Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10- KSB or any
amendment to this Form 10-KSB. [X]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) [ ] Yes [X] No
Issuer’s
revenues for its most recent fiscal year ended December 31, 2007
were: $14,112,726
The
aggregate market value of the Registrant’s voting common stock held by
non-affiliates of the registrant as of April 11, 2008, was approximately:
$5,883,059 at $0.15 price per share. Number of shares of the registrant’s
common stock outstanding as of April 11, 2008 was: 37,147,105.
TABLE
OF CONTENTS
Item
#
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Description
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Page
Numbers
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PART
I
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ITEM 1.
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Description of Business
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3
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ITEM 2.
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Description of Property
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8
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ITEM 3.
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Legal
Proceedings
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9
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ITEM 4.
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Sumissions of Matters to a Vote of Security
Holders
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9
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PART
II
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ITEM 5.
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Market for Registrant’s Common
Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
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9
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ITEM 6.
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Management’s Discussion and
Analysis or Plan of Operations
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12
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ITEM 7.
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Financial Statements and
Supplementary Data
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16
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ITEM 8.
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Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
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44
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ITEM 8A.
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Controls and
Procedures
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44
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ITEM 8B.
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Other
Information
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46
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PART
III
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ITEM 9.
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Directors, Executive Officers,
Promoters and Control Persons: Compliance with Section 16(A) of the
Exchange Act
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46
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ITEM 10.
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Executive
Compensation
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48
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ITEM 11.
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Security Ownership of Certain
Beneficial Owners and Management.
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50
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ITEM 12.
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Certain Relationships and Related
Transactions, and Director
Independence
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51
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ITEM 13.
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Exhibits and Reports on Form
8-K
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51
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ITEM 14.
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Principal Accountant Fees and
Services
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52
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Signatures
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53
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PART
I
INTRODUCTION
FORWARD-LOOKING
STATEMENTS. This annual report contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that involve
risks and uncertainties. In addition, the Company (Heartland, Inc., a Maryland
corporation), may from time to time make oral forward-looking statements. Actual
results are uncertain and may be impacted by many factors. In particular,
certain risks and uncertainties that may impact the accuracy of the
forward-looking statements with respect to revenues, expenses and operating
results include without limitation; cycles of customer orders, general economic
and competitive conditions and changing customer trends, technological advances
and the number and timing of new product introductions, shipments of products
and components from foreign suppliers, and changes in the mix of products
ordered by customers. As a result, the actual results may differ materially from
those projected in the forward-looking statements.
Because
of these and other factors that may affect the Company’s operating results, past
financial performance should not be considered an indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods.
(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 addresses 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
Annual Report on Form 10-KSB 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.
(B) BUSINESS
DEVELOPMENT
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.(“Kerkela”), 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 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 as follows:
Mound
Technologies, Inc. of Springboro, OH acquired in December 2003 (Steel
Fabrication)
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. Mound 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.
This
division’s customers are typically U.S. based companies that require large
structural steel fabrication, with needs such as building additions, new
non-residential construction, etc. Customers are typically located within a
one-day drive from the Company’s facilities. The Company is able to reach 70% of
the U.S. population, yielding a significant potential customer base. Marketing
of the Division’s products is done by advertising in industry directories,
word-of-mouth from existing customers, and by the dedicated efforts of in-house
sales staff monitoring business developments opportunities within the Company’s
region. Large clients typically work with the Company on a continual basis for
all their fabricated metal needs.
Competition
overall in the U.S. steel fabrication industry has been reduced by approximately
50% over the last few years due to economic conditions leading to the lack of
sustained work. The number of regional competitors has gone down from ten (10)
to three (3) over the past five years. Larger substantial work projects have
declined dramatically with the downturn in the economy. Given the geographical
operating territory of the Company, foreign competition is not a major factor.
In addition to competition, steel pricing represents another significant
challenge. The cost of steel, our highest input cost, has seen significant
increases in recent years. The Company will manage this challenge by stockpiling
the most common steel component products and incorporating price increases in
job pricing as deemed appropriate.
Competition and Other
Factors
We are
subject to a wide variety of federal, state, and international environmental
laws, rules, and regulations. These laws, rules, and regulations may affect the
way we conduct our operations, and failure to comply with these regulations
could lead to fines and other penalties.
Competition
within the steel industry, both in the United States and globally, is intense
and expected to remain so. Mound competes with large U.S. competitors such as
United States Steel Corporation, Nucor Corporation, AK Steel Holding
Corporation, Ispat Inland Inc. and IPSCO Inc along with a number of local
suppliers. The steel market in the United States is also served by a number of
non-U.S. sources and U.S. supply is subject to changes in worldwide demand and
currency fluctuations, among other factors.
More than
35 U.S. companies in the steel industry have declared bankruptcy since 1997 and
have either ceased production or more often continued to operate after being
acquired or reorganized. In addition, many non-U.S. steel producers are owned
and subsidized by their governments and their decisions with respect to
production and sales may be influenced by political and economic policy
considerations rather than by prevailing market conditions. The steel industry
is highly cyclical in nature and subject to significant fluctuations in demand
as a result of macroeconomic changes in global economies, including those
resulting from currency volatility. The global steel industry is also generally
characterized by overcapacity, which can result in downward pressure on steel
prices and gross margins.
Mound
competes with other flat-rolled steel producers (both integrated steel mills and
mini-mills) and producers of plastics, aluminum, ceramics, carbon fiber,
concrete, glass, plastic and wood that can be used in lieu of flat-rolled steels
in manufactured products. Mini-mills generally offer a narrower range of
products than integrated steel mills but can have some cost advantages as a
result of their different production processes.
Price,
quality, delivery and service are the primary competitive factors in all markets
that Mound serves and vary in relative importance according to the product
category and specific customer.
In some
areas of our business, we are primarily an assembler, while in others we serve
as a fully integrated manufacturer. We have strategically identified specific
core manufacturing competencies for vertical integration and have chosen outside
vendors to provide other products and services. We design component parts in
cooperation with our vendors, contract with them for the development of tooling,
and then enter into agreements with these vendors to purchase component parts
manufactured using the tooling. Operations are also designed to be flexible
enough to accommodate product design changes required to respond to market
demand.
Raw
Materials
Mound’s
business depends on continued access to reliable supplies of various raw
materials. Mound believes there will be adequate sources of its principal raw
materials to meet its near term needs, although probably at higher prices than
in the past.
UNFAIR
TRADE PRACTICES AND TRADE REMEDIES
Under
international agreement and U.S. law, remedies are available to domestic
industries where imports are “dumped” or “subsidized” and such imports cause
material injury to a domestic industry. Dumping involves selling for export a
product at a price lower than the same or similar product is sold in the home
market of the exporter or where the export prices are lower than a value that
typically must be at or above the full cost of production. Subsidies from
governments (including, among other things, grants and loans at artificially low
interest rates) under certain circumstances are similarly actionable. The remedy
available is an antidumping duty order or suspension agreement where injurious
dumping is found and a countervailing duty order or suspension agreement where
injurious subsidization is found. When dumping or subsidies continue after the
issuance of an order, a duty equal to the amount of dumping or subsidization is
imposed on the importer of the product. Such orders and suspension agreements do
not prevent the importation of product, but rather require either that the
product be priced at an un-dumped level or without the benefit of subsidies or
that the importer pay the difference between such undumped or unsubsidized price
and the actual price to the U.S. government as a duty.
SECTION
201 TARIFFS
On March
20, 2002, in response to an investigation initiated by the office of the
President of the United States under Section 201 of the Trade Act of 1974, the
President of the United States imposed a remedy to address the serious injury to
the domestic steel industry that was found. The remedy was an additional tariff
on specific products up to 30% (as low as 9%) in the first year and subject to
reductions each year. The remedy provided was potentially for three years and a
day, subject to an interim review after 18 months as to continued need. On
December 4, 2003 by Proclamation 7741, the President of the United States
terminated the import relief provided under this law pursuant to Section 204(b)
(1) (A) of the Trade Act of 1974 on the basis that “the effectiveness of the
action taken under Section 203 has been impaired by changed economic
circumstances” based upon a report from the U.S. International Trade Commission
and the advice from the Secretary of Commerce and the Secretary of Labor. Thus,
no relief under this law was provided to domestic producers during
2006.
ENVIRONMENTAL
MATTERS
Mound’s
operations are subject to a broad range of laws and regulations relating to the
protection of human health and the environment. Mound expects to expend in the
future, substantial amounts to achieve or maintain ongoing compliance with U.S.
federal, state, and local laws and regulations, including the Resource
Conservation and Recovery Act (RCRA), the Clean Air Act, and the Clean Water
Act. These environmental expenditures are not projected to have a material
adverse effect on Mound’s financial position or on Mound’s competitive position
with respect to other similarly situated U.S. steelmakers subject to the same
environmental requirements.
GENERAL
The
Company’s mission is to become a leading diversified company with business
interests in well established industries.
In
addition to the risks identified above the Company also faces risks of its own.
The Company is reliant upon identifying, contracting and financing each
acquisition it identifies. Since the Company is in its early stages, it may not
be able to obtain the necessary funding to continue its growth plan.
Additionally, the potential synergies identified with each of the acquisitions
may not materialize to the extent, if at all, as initially
identified.
Employees
As of
April 17, 2008, we employed 71 employees. From time to time, we also retain
consultants, independent contractors, and temporary and part-time
workers.
We
believe our relationship with our current employees is good. Our employees are
not represented by a labor union. Our success is dependent, in part, upon our
ability to attract and retain qualified management and technical personnel and
subcontractors. Competition for these personnel is intense, and we will be
adversely affected if we are unable to attract key employees. We presently do
not have a stock option plan for key employees and consultants.
Customers
Overall,
our management believes that long-term we are not dependent on a single
customer. While the loss of any substantial customer could have a material
short-term impact, we believe that our diverse distribution channels and
customer base should reduce the long-term impact of any such
loss.
The
following properties are used in the operation of our business:
Our
principal executive and administrative offices are located at 1501
Cumberland Gap Parkway, Middlesboro, Kentucky 40965. Our phone number
is (606) 248-7323. We utilize approximately 2,000 square feet on a
month to month lease for $2,000 per month. This space may not be
sufficient for us as we add employees to the corporate staff. In light of
this the corporation will evaluate its office needs and determine the best
option as we continue to grow.
In
Springboro, Ohio we lease approximately 39,000 square feet pursuant to a five
year lease with a stockholder of the company. The lease calls for monthly
payments of $16,250 and expires August 31, 2010. The facilities include 34,000
square feet which is used for manufacturing and 5,000 square feet for office
space. The space is used by Mound. The Company is currently in negotiation
to acquire the property.
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
4 SUBMISSIONS
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Our common stock has been quoted on the
OTC Bulletin Board since August 2002. Our symbol is "HTLJ". For the periods
indicated, the following table sets forth the high and low bid prices per share
of common stock. These prices represent inter-dealer quotations without retail
markup, markdown, or commission and may not necessarily represent actual
transactions.
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HIGH
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LOW
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FISCAL
YEAR ENDED DECEMBER 31, 2007
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First
Quarter
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0.50
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0.17
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Second
Quarter
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0.33
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0.11
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Third
Quarter
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0.27
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0.13
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Fourth
Quarter
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0.65
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0.18
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FISCAL
YEAR ENDED DECEMBER 31, 2006
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First
Quarter
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0.82
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0.33
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Second
Quarter
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0.50
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0.50
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Third
Quarter
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0.25
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0.25
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Fourth
Quarter
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0.40
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0.40
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Common
Stock
The
Company has authorized 100,000,000 shares of common stock with a par value of
$.001 per share. As of December 31, 2007, the Company had 36,567,105
shares of common stock issued and outstanding.
During
the year ended December 31, 2007, the Company’s common stock transactions were
as follows:
Issued
1,182,000 common shares for services valued at $411,570, including 650,000
shares valued at $211,250 issued to members of the Board of
Directors.
The
company issued an additional 3,082,000 including the 1,000,000 shares issued in
connection with the new CEO employment package and other various services
rendered or monies recived during 2007 bringing the total shares issued in 2007
to 4,264,000.
As of
April 11, 2008, there were 37,147,105 shares of common stock
outstanding.
As of
April 11, 2008, there were approximately 774 stockholders of record of our
common stock. This does not reflect those shares held beneficially or those
shares held in "street" name.
We did
not pay cash dividends in the past, nor do we expect to pay cash dividends for
the foreseeable future. We anticipate that earnings, if any, will be retained
for the development of our business.
Preferred
Stock
The
Company has 5,000,000 shares of preferred stock authorized with a par value of
$.001. As of December 31, 2007, the Company has 2,370,000 shares of Series A
Convertible Preferred Stock issued and outstanding. 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. All but 120,000 of these preferred
shares had been issued as of the end of the year.
Transfer
Agent
The
Company’s transfer agent and registrar of the common stock is Securities
Transfer Corporation, 2591 Dallas Parkway, Suite 102, Frisco, Texas
75034
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. The company had 2,370,000 shares of Series A
Convertible Preferred Stock issued and outstanding as of December 31,
2007.
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.
Penny Stock
Considerations
Because
our shares trade at less than $5.00 per share, they are “penny stocks” as that
term is generally defined in the Securities Exchange Act of 1934 to mean equity
securities with a price of less than $5.00. Our shares thus will be subject to
rules that impose sales practice and disclosure requirements on broker-dealers
who engage in certain transactions involving a penny stock.
Under the
penny stock regulations, a broker-dealer selling a penny stock to anyone other
than an established customer or accredited investor must make a special
suitability determination regarding the purchaser and must receive the
purchaser’s written consent to the transaction prior to the sale, unless the
broker-dealer is otherwise exempt. Generally, an individual with a net worth in
excess of $1,000,000 or annual income exceeding $100,000 individually or
$300,000 together with his or her spouse is considered an accredited investor.
In addition, under the penny stock regulations the broker-dealer is required
to:
|
*
|
Deliver,
prior to any transaction involving a penny stock, a disclosure schedule
prepared by the Securities and Exchange Commission relating to the penny
stock market, unless the broker-dealer or the transaction is otherwise
exempt;
|
|
*
|
Disclose
commissions payable to the broker-dealer and our registered
representatives and current bid and offer quotations for the
securities;
|
|
*
|
Send
monthly statements disclosing recent price information pertaining to the
penny stock held in a customer’s account, the account’s value and
information regarding the limited market in penny stocks;
and
|
|
*
|
Make
a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser’s written agreement
to the transaction, prior to conducting any penny stock transaction in the
customer’s account.
|
Because
of these regulations, broker-dealers may encounter difficulties in their attempt
to sell shares of our common stock, which may affect the ability of selling
shareholders or other holders to sell their shares in the secondary market and
have the effect of reducing the level of trading activity in the secondary
market. These additional sales practice and disclosure requirements could impede
the sale of our securities, if our securities become publicly traded. In
addition, the liquidity for our securities may be decreased, with a
corresponding decrease in the price of our securities. Our shares in all
probability will be subject to such penny stock rules and our shareholders will,
in all likelihood, find it difficult to sell their securities.
Dividends
We do not
anticipate paying dividends on any common shares of stock in the foreseeable
future. We plan to retain any future earnings for use in our business. Any
decisions as to future payments of dividends will depend on our earnings and
financial position and such other facts as the Board of Directors deems
relevant. The outstanding preferred shares of stock do carry an annual 10% stock
dividend until converted at the option of the stockholder or automatically after
three years from the date of purchase.
Recent
Sales of Unregistered Securities
In
January 2008 the company issued 580,000 shares to 10 individuals in a private
placement.
In
February 2007 the company issued 1,348,636 shares to 12 individuals in a private
placement and issued 200,000 shares to BullMarketMadness.com; 40,000 to the law
firm of Sichenzia Ross Friedman Ference LLP; and 40,000 shares to
smallcapvoice.com for services rendered to the company; and issued 250,000
shares to board member Trent Sommerville; 200,000 shares to board member Jerry
Gruenbaum and 200,000 shares to board member Kenneth B. Farris as
compensation.
The
company issued a total of 4,264,000 shrares of common stock in 2007 including
the 1,000,000 shares issued in connection with the new CEO employment package
and other various services rendered or monies recived during
2007.
We relied
upon Section 4(2) of the Securities Act of 1933, as amended for the above
issuances. We believed that Section 4(2) was available because:
|
*
|
None
of these issuances involved underwriters, underwriting discounts or
commissions;
|
|
|
|
|
* |
We
placed restrictive legends on all certificates issued; |
|
|
|
|
* |
No
sales were made by general solicitation or advertising; |
|
|
|
|
* |
Sales
were made only to accredited investors or investors who were sophisticated
enough to evaluate the risks of the
investment. |
In
connection with the above transactions, although some of the investors may have
also been accredited, we provided the following to all investors:
|
* |
Access
to all our books and records. |
|
|
|
|
* |
Access
to all material contracts and documents relating to our
operations. |
|
|
|
|
*
|
The
opportunity to obtain any additional information, to the extent we
possessed such information, necessary to verify the accuracy of the
information to which the investors were given
access.
|
Overview
The
following discussion should be read in conjunction with the financial statements
for the year ended December 31, 2007 included with this Form
10-KSB.
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 year ended
December 31, 2007.
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 its
objectives, including, among other things, technological and other developments
in the Internet 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.
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.
The
Company’s original investment strategy when it was regulated as a business
development company under the 1940 Act was to invest in a diverse portfolio of
private companies that could be used to build an Internet infrastructure by
offering hardware, software and/or services which enhance the use of the
Internet. Prior to it’s reverse merger with International Wireless,
the Company identified two eligible portfolio companies within which they
entered into agreements to acquire interests within such companies and to
further invest capital in these companies to further develop their
business. However, on each occasion and prior to each closing, the
Company was either unable to raise sufficient capital to consummate the
transaction or discovered information which modified its understanding of the
eligible portfolio company’s financial status to such an extent where it was
unadvisable for it to continue and consummate the transaction.
From
December 27, 2001 through June 2003, the Company attempted to develop its bar
code technology and bring it to market. To that extent, the Company
moved its operations to Woburn, Massachusetts, hired numerous computer
programmers, developers and sales people in addition to support staff. Due to
the Company’s inability to raise sufficient capital, the Company was unable to
pay current operating expenses and by June, 2003 shut down its operations
entirely.
On August
29, 2003, a change in control of the Company occurred in conjunction with naming
Attorney Jerry Gruenbaum of First Union Venture Group, LLC as attorney of record
for the purpose of overseeing the proper disposition of the Company and its
remaining assets and liabilities by any means appropriate, including settling
any and all liabilities to the U.S. Internal Revenue Service and the
Commonwealth of Massachusetts’ Attorney General’s office for unpaid
wages.
In
conjunction with naming Attorney Jerry Gruenbaum of First Union Venture Group,
LLC as attorney of record for the purpose of overseeing the proper disposition
of the Company and its remaining assets and liabilities, the Company issued
First Union Venture Group, LLC, a Nevada Limited Liability Company, Thirty
Million (30,000,000) newly issued common shares as consideration for their
services. In addition, the Company canceled any and all outstanding
options, warrants, and/or debentures not exercised to date. The
Company further nullified any and all salaries, bonuses, and benefits including
severance pay and accrued salaries to Stanley A. Young and Michael
Dewar.
On
November 12, 2003, the Company approved the spin-off of the two subsidiaries of
the Company and any and all remaining assets of the Company, including any
intellectual property, to enable the Company to pursue a suitable merger
candidate. In addition, the Company approved a 30 to 1 reverse split of all
existing outstanding common shares of the Company. Following the 30 to 1 reverse
split, the Company had 1,857,137 shares of common stock
outstanding.
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., a
Minnesota corporation with its corporate headquarters located in Ramsey, MN for
$5,000,000. On June 21, 2006, the Company agreed to accept the rescission of the
December, 2004 acquisition agreement from Monarch Homes, Inc. effective June 1,
2006.
On
December 30, 2004, the Company acquired 100% of Evans Columbus, LLC, an
Ohio corporation with its corporate headquarters located in Blacklick, OH for
$3,005,000. On June 21, 2006, the Company agreed to accept the rescission of the
December, 2004 acquisition agreement from Evans Columbus, LLC effective March
31, 2006.
On
December 31, 2004, the Company acquired 100% of Karkela Construction, Inc.,
a Minnesota corporation with its corporate headquarters located in St. Louis
Park, MN for $3,000,000. The acquisition price consisted of the
following:
|
* |
$100,000
at closing, |
|
|
|
|
* |
a
short term promissory note payable of $50,000 on or before January 31,
2005, |
|
|
|
|
*
|
a
promissory note of $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 provided at
closing. |
In the
event the common stock of the Company is 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. On November 1, 2007, the Company
elected to discontinue efforts with respect of the December, 2004 acquisition
agreement from Karkela Construction, Inc. effective June 30, 2007.
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 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. On January 18, 2007 the Company
abandoned its plans to acquire Ney Oil Company.
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 final terms of the acquisition agreement. On June 27, 2007 , Terry Lee was
named CEO of the Company.
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 of common
stock. On January 18, 2007 the Company abandoned its plans to acquire
Schultz Oil Company.
Results
of Operations
Revenues: Our consolidated
revenues increased $2,190,819, or 18%, to $14,112,726 in 2007 compared to
$11,921,907 for the prior year. One of the primary reasons for the increase in
the sales figures as well as the cost of goods sold would be the increase in the
cost of raw materials related to the steel industry. Contracts are bid with an
escalating clause in order to cover such increase. Additionally, the jobs
scheduled for the steel fabrication business were booked well in advance for
most of 2007 and into 2008. Having the ability to schedule the work ahead of
time makes the operations a little more efficient and more can naturally get
done in the same amount of time without requiring more resources.
Share-Based Compensation: The
largest difference in the expenses was the reduction in share-based compensation
from $2,982,278 in 2006 to $806,878 in 2007, or a 73% reduction in those
expenses. This helped the company to lower the operating loss from ($2,555,232)
in 2006 to ($1,016,231) in 2007.
Discontinued Operations: The
Company is trying to lower expenses even more by discontinuing the operations
that were not generating a positive cash flow and causing a drain on the
profitable operations. The last of the construction segments, Karkela, was
discontinued effective June 30, 2007. Two other related segments had been
discontinued in 2006.
Rent: The Company is currently
leasing the building in Springboro, OH for $16,250 per month and is currently
negotiating with the owner to purchase the building. This should allow for a
reduction of the rent expense of $195,000 per year with no additional
maintenance. The sale is expected to be completed sometime in the second
quarter.
Depreciation and Amortization:
Depreciation and amortization increased from $59,864 in 2006 to $67,557
in 2007. One of the causes for this increase would be the Company recording a
capitalized lease on individual overhead cranes at the steel fabrication shop in
Springboro.
Loss per Common Share: Our
earnings per common share fell from a profit of $.16 per share in 2006 to a loss
per common share of ($.03) in 2007. The dramatic change in earnings per common
share can be attributed to (i) a $6,970,905 gain from discontinued operation in
2006 as compared to a gain of $213,721 from discontinued operations in 2007 and
(ii) the preferred stock dividends declared in 2007 of $162,286.
Liquidity
and Capital Resources
As
reflected in our consolidated financial statements, we incurred a loss of
($1,038,832) in 2007 as compared to a profit of $4,103,133 in 2006.
In
response to these conditions, commencing in June 2007, our Board of Directors
initiated the restructuring of our management, led by the replacement of our
Chief Executive Officer. Our executive restructuring further included the
replacement of our Chief Financial Officer. Led by our newly appointed CEO and
supported by our Board of Directors, our restructured management team has
developed a strategic plan to alleviate our liquidity shortfalls, curtail
expenses and, ultimately, achieve profitability. Since June 2007, execution of
this plan has included the substantial curtailment of operating costs and
expenses, principally in the area of outside consultants and professionals.
However, in addition to the restructuring of our current operations, we are
currently evaluating certain substantial financing arrangements, performing due
diligence procedures on certain acquisition candidates and carefully considering
other strategic initiatives to bring the Company into a state of profitability
and continued growth.
Subsequent
Events
The
Company filed a Form 4 on March 10, 2008 relating to Jerry Gruenbaum no longer
being subject to Section 16 reporting requirements.
The
Company filed a Form 8-K on March 11, 2008 relating to the appointment of Randy
Frevert as a director of the company in order to fill the vacancy left when
Jerry Gruenbaum resigned from the Board of Directors.
ITEM 7.
FINANCIAL STATEMENTS
HEARTLAND,
INC. AND SUBSIDIARIES
FINANCIAL
STATEMENTS
FOR
THE YEAR ENDED
DECEMBER
31, 2007
CONTENTS
|
Page
|
Report of
Independent Registered Public Accounting Firm |
F-1 |
|
|
Consolidated Balance
Sheets |
F-2 |
|
|
Consolidated
Statements of Operations |
F-4 |
|
|
Consolidated
Statements of Cash Flows |
F-5 |
|
|
Consolidated
Statements of Stockholders’ Equity |
F-8 |
|
|
Notes to
Consolidated Financial Statements |
F-10 |
|
|
MEYLER
& COMPANY, LLC
CERTIFIED
PUBLIC ACCOUNTANTS
ONE ARIN
PARK
1715
HIGHWAY 35
MIDDLETOWN,
NJ 07748
Report of
Independent Registered Public Accounting Firm
To the
Board of Directors
Heartland,
Inc.
Cumberland
Gap, Tennessee
We have
audited the accompanying consolidated balance sheets of Heartland, Inc. and
Subsidiaries as of December 31, 2007 and 2006 and the related consolidated
statements of operations, stockholders’ equity and cash flows for each of the
years in the two-year period ended December 31, 2007. Heartland,
Inc.’s management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Heartland, Inc. and
Subsidiaries as of December 31, 2007 and 2006, and the results of its operations
and its cash flows for each of the years in the two-year period ended December
31, 2007, in conformity with accounting principles generally accepted in the
United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note A
to the consolidated financial statements, the Company has a loss from continuing
operations of $1,090,267 in 2007 and an accumulated deficit of $14,958,608 at
December 31 2007, and there are existing uncertain conditions which the Company
faces relative to its obtaining capital in the equity markets. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management’s plans regarding those matters also are
described in Note A. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/
Meyler & Company, LLC
__________________________
Middletown,
NJ
April 10, 2008
HEARTLAND, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
ASSETS
|
|
December
31,
|
|
CURRENT
ASSETS |
|
2007
|
|
|
2006
|
|
Cash
|
|
$ |
216,570 |
|
|
$ |
249,209 |
|
Accounts
receivable net of allowance for doubtful
|
|
|
|
|
|
|
|
|
accounts
of $187,680 and $196,376, respectively
|
|
|
3,188,591 |
|
|
|
2,902,851 |
|
Costs
and estimated earnings in excess of billings on
|
|
|
|
|
|
|
|
|
uncompleted
contracts
|
|
|
311,899 |
|
|
|
553,577 |
|
Inventory
|
|
|
904,409 |
|
|
|
858,191 |
|
Prepaid
expenses and other
|
|
|
1,259 |
|
|
|
1,000 |
|
Total
current assets
|
|
|
4,622,728 |
|
|
|
4,564,828 |
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT AND EQUIPMENT, net of accumulated |
|
|
|
|
|
|
|
|
depreciation
of $509,392 and $523,838, respectively
|
|
|
701,168 |
|
|
|
919,655 |
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS |
|
|
|
|
|
|
|
|
Other
assets
|
|
|
426,321 |
|
|
|
4,149 |
|
Total
other assets
|
|
|
426,321 |
|
|
|
4,149 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
5,750,217 |
|
|
$ |
5,488,632 |
|
See
accompanying notes to financial statements.
HEARTLAND, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
CURRENT
LIABILITIES |
|
|
|
|
|
|
Convertible
promissory notes payable
|
|
$ |
53,450 |
|
|
$ |
63,450 |
|
Current
portion of notes payable
|
|
|
24,604 |
|
|
|
39,471 |
|
Current
portion of notes payable to related parties
|
|
|
89,156 |
|
|
|
87,903 |
|
Current
portion of capital lease
|
|
|
8,320 |
|
|
|
-- |
|
Accounts
payable
|
|
|
2,167,027 |
|
|
|
1,992,978 |
|
Obligations
to related parties
|
|
|
12,008 |
|
|
|
50,000 |
|
Accrued
payroll and related taxes
|
|
|
292,769 |
|
|
|
683,073 |
|
Accrued
interest
|
|
|
124,847 |
|
|
|
51,278 |
|
Accrued
expenses
|
|
|
587,942 |
|
|
|
243,902 |
|
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
|
|
195,432 |
|
|
|
253,497 |
|
Net
liabilities of entities discontinued
|
|
|
-- |
|
|
|
213,721 |
|
Total
Current Liabilities
|
|
|
3,555,555 |
|
|
|
3,679,273 |
|
LONG-TERM
OBLIGATIONS
|
|
|
|
|
|
|
|
|
Notes
payable, less current portion
|
|
|
180,799 |
|
|
|
428,501 |
|
Notes
payable to related parties, less current portion
|
|
|
403,607 |
|
|
|
475,005 |
|
Capital
leases, less current portion
|
|
|
26,571 |
|
|
|
-- |
|
Total
Long Term Liabilities
|
|
|
610,977 |
|
|
|
903
j06 |
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock $0.001 par value 5,000,000 shares authorized, 2,370,000 shares
issued and outstanding
|
|
|
2,370 |
|
|
|
-- |
|
Additional
paid-in capital – preferred stock
|
|
|
713,567 |
|
|
|
-- |
|
Common
stock, $0.001 par value 100,000,000 shares authorized; issued and
outstanding 36,567,105 and 32,303,105 shares at
|
|
|
|
|
|
|
|
|
December
31, 2007 and 2006, respectively
|
|
|
36,566 |
|
|
|
32,303 |
|
Additional
paid-in capital
|
|
|
15,789,790 |
|
|
|
14,832,175 |
|
Accumulated
deficit
|
|
|
(14,958,608 |
) |
|
|
(13,958,625 |
) |
Total
Stockholders’ Equity
|
|
|
1,583,685 |
|
|
|
905,853 |
|
Total
Liabilities and Stockholders’ Equity
|
|
$ |
5,750,217 |
|
|
$ |
5,488,632 |
|
See
accompanying notes to financial statements.
HEARTLAND, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
REVENUE
- SALES
|
|
$ |
14,112,726 |
|
|
$ |
11,921,907 |
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
12,641,424 |
|
|
|
10,098,960 |
|
Selling,
general and administrative expenses
|
|
|
2,419,976 |
|
|
|
4,318,315 |
|
Depreciation
and amortization
|
|
|
67i57 |
|
|
|
59,864 |
|
Total
Costs and Expenses
|
|
|
15,128,957 |
|
|
|
14,477,139 |
|
NET
OPERATING LOSS
|
|
|
(1,016,231 |
) |
|
|
(2,555,232 |
) |
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
10,945 |
|
|
|
110,849 |
|
Gain
(loss) on disposal of property, plant and equipment
|
|
|
32,763 |
|
|
|
(3,540 |
) |
Interest
expense
|
|
|
(117,744 |
) |
|
|
(419,849 |
) |
Total
Other Income (Expense)
|
|
|
(74,036 |
) |
|
|
(3
12i40 |
) |
LOSS
FROM CONTINUING OPERATIONS
|
|
|
|
|
|
|
|
|
BEFORE
INCOME TAXES
|
|
|
(1,090,267 |
) |
|
|
(2,867,772 |
) |
FEDERAL
AND STATE INCOME TAXES
|
|
|
-- |
|
|
|
-- |
|
LOSS
FROM CONTINUING OPERATIONS
|
|
|
(1,090,267 |
) |
|
|
(2,867
,772 |
) |
DISCONTINUED
OPERATIONS:
|
|
|
|
|
|
|
|
|
Income
from discontinued operations (net of income tax expense of
$0)
|
|
|
82,196 |
|
|
|
84,800 |
|
Gain
on disposal of discontinued operations (net of income tax expense of
$0)
|
|
|
131,525 |
|
|
|
4,004,060 |
|
Loss
from discontinued operations of VIEs (net of income tax expense of
$0)
|
|
|
-- |
|
|
|
(12,692 |
) |
Gain
on disposal of discontinued operations of VIEs (net of income tax expense
of $0)
|
|
|
-- |
|
|
|
2,894,737 |
|
Total
discontinued operations
|
|
|
213,721 |
|
|
|
6,970,905 |
|
NET
(LOSS) INCOME
|
|
|
(876,546 |
) |
|
|
4,103,133 |
|
LESS:
Preferred Dividends
|
|
|
(162,286 |
) |
|
|
-- |
|
NET
(LOSS) INCOME AVAILABLE TO COMMON
|
|
|
|
|
|
|
|
|
STOCKHOLDERS
|
|
$ |
(1,038,832 |
) |
|
$ |
4,103,133 |
|
EARNINGS
(LOSS) PER COMMON SHARE
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$ |
(.04 |
) |
|
$ |
(.12 |
) |
Net
income (loss)
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$ |
(.03 |
) |
|
$ |
0.16 |
|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
35,223,242 |
|
|
|
24,923,495 |
|
See
accompanying notes to financial statements.
HEARTLAND, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
$ |
(1,090,267 |
) |
|
$ |
(2,867,772 |
) |
Adjustments
to reconcile net loss to cash flows used in operating
activities:
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
806,878 |
|
|
|
2,982,278 |
|
(Gain)/loss
on disposal of property, plant and equipment
|
|
|
(32,763 |
) |
|
|
3,540 |
|
Depreciation
and amortization
|
|
|
67,557 |
|
|
|
59,864 |
|
Acquisition
deposits
|
|
|
-- |
|
|
|
50,000 |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
Decrease in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(285,740 |
) |
|
|
(1,247,886 |
) |
Costs
in excess of billings on uncompleted contracts
|
|
|
241,678 |
|
|
|
(522,285 |
) |
Inventory
|
|
|
(46,218 |
) |
|
|
(171,680 |
) |
Prepaids
and other
|
|
|
(259 |
) |
|
|
105,000 |
|
Other
assets
|
|
|
(1,130 |
) |
|
|
13,203 |
|
(Decrease)
increase in:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
194,049 |
|
|
|
989,808 |
|
Obligations
to related parties
|
|
|
(7,992 |
) |
|
|
19,350 |
|
Accrued
payroll taxes
|
|
|
(390,304 |
) |
|
|
178,329 |
|
Accrued
interest
|
|
|
73,569 |
|
|
|
307,839 |
|
Accrued
expenses
|
|
|
344,040 |
|
|
|
(120,983 |
) |
Billings
in excess of costs on uncompleted contracts
|
|
|
(58,065 |
) |
|
|
1
18J61 |
|
Cash
(used in) continuing operations before income taxes
|
|
|
(184,967 |
) |
|
|
(103,234 |
) |
Discontinued
operations
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
213,721 |
|
|
|
6,968,093 |
|
(Decrease)
increase in net liabilities of entities discontinued
|
|
|
(213,721 |
) |
|
|
(630,904 |
) |
Gain
on rescission of acquisitions
|
|
|
-- |
|
|
|
(6,335,000 |
) |
Cash
provided by discontinued operations
|
|
|
-- |
|
|
|
2j89 |
|
NET
CASH (USED IN) OPERATING
|
|
|
|
|
|
|
|
|
ACTIVITIES
|
|
|
(184,967 |
) |
|
|
(101,045 |
) |
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from disposition of property, plant and equipment
|
|
|
177,715 |
|
|
|
-- |
|
Payments
for other assets
|
|
|
(415,029 |
) |
|
|
-- |
|
Payments
for property, plant and equipment
|
|
|
(177j34 |
) |
|
|
(44,336 |
) |
NET
CASH PROVIDED BY (USED IN) INVESTING
|
|
|
|
|
|
|
|
|
ACTIVITIES
|
|
|
(414,448 |
) |
|
|
(44,336 |
) |
See
accompanying notes to financial statements.
HEARTLAND, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS (CONTINUED)
|
|
December
31,
|
|
|
|
2007
|
|
|
|
2006
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Payments
on convertible promissory notes payable
|
|
|
(10,000 |
) |
|
|
(166,985 |
) |
Payments
on notes payable
|
|
|
(48,220 |
) |
|
|
(36,698 |
) |
Payments
on notes payable to related parties
|
|
|
(70,145 |
) |
|
|
(49,037 |
) |
Payments
of obligations by related party
|
|
|
-- |
|
|
|
50,000 |
|
Payment
on capital lease obligation
|
|
|
(2,359 |
) |
|
|
-- |
|
Proceeds
from issuance of common stock
|
|
|
135,000 |
|
|
|
509,850 |
|
Proceeds
from issuance of preferred stock
|
|
|
562,500 |
|
|
|
-- |
|
NET
CASH PROVIDED BY
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
566,776 |
|
|
|
307j30 |
|
(DECREASE)
INCREASE IN CASH
|
|
|
(32,639 |
) |
|
|
161,749 |
|
CASH,
BEGINNING OF YEAR
|
|
|
249,209 |
|
|
|
87,460 |
|
CASH,
END OF YEAR
|
|
$ |
216,570 |
|
|
$ |
249,209 |
|
See
accompanying notes to financial statements.
HEARTLAND, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS (CONTINUED)
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
44,174 |
|
|
$ |
112,010 |
|
Taxes
paid
|
|
|
-- |
|
|
|
-- |
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance
of common stock for services
|
|
|
734,790 |
|
|
|
2,982,278 |
|
Issuance
of common stock in payment of convertible promissory notes
payable
|
|
|
|
|
|
|
1,450,265 |
|
Issuance
of common stock in payment of accrued interest
|
|
|
|
|
|
|
179,438 |
|
Issuance
of common stock for payment of obligations to related
parties
|
|
|
50,000 |
|
|
|
-- |
|
Issuance
of preferred stock for services
|
|
|
30,000 |
|
|
|
-- |
|
Preferred
stock dividend from imbedded beneficial conversation
feature
|
|
|
123,437 |
|
|
|
-- |
|
Issuance
of common stock and options for executive compensation
|
|
|
42,088 |
|
|
|
-- |
|
Purchase
of equipment with a capital lease
|
|
|
37,250 |
|
|
|
-- |
|
Purchase
of equipment under trade-in
|
|
|
13,000 |
|
|
|
-- |
|
Purchase
of equipment with a note payable
|
|
|
23,823 |
|
|
|
-- |
|
Payment
of note payable upon sale of property
|
|
|
225,172 |
|
|
|
-- |
|
Payment
for other assets upon sale of property
|
|
|
6,013 |
|
|
|
-- |
|
Payment
of accounts payable by related party
|
|
|
20,000 |
|
|
|
-- |
|
See
accompanying notes to financial statements.
HEARTLAND, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
For
the Years Ended December 31, 2007 and 2006
|
|
|
|
|
Additional
Paid
- In
|
|
|
Common
stock
|
|
|
Additional
paid
in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares |
|
|
Capital |
|
|
Capital |
|
|
Shares |
|
|
Capital
|
|
|
|
|
|
Deficit
|
|
|
Total
|
|
Balance,
December 31, 2005
|
|
|
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
|
23,746,024 |
|
|
$ |
23,746 |
|
|
$ |
16,053,901 |
|
|
$ |
(18,061,758 |
) |
|
$ |
(1,984,111 |
) |
Issuance
of common stock
for
conversion of convertible notes at $.50 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,900,530 |
|
|
|
2,900 |
|
|
|
1,447,365 |
|
|
|
-- |
|
|
|
1,450,265 |
|
Issuance
of common stock for cash at $.17 to $.38 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,666,940 |
|
|
|
1,667 |
|
|
|
508,183 |
|
|
|
-- |
|
|
|
509,850 |
|
Issuance
of common stock for services rendered to
the
company at $.25 to $.75 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
5,230,735 |
|
|
|
5,231 |
|
|
|
2,977,047 |
|
|
|
-- |
|
|
|
2,982,278 |
|
Issuance
of common stock for payments of interest on convertible
notes
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
358,876 |
|
|
|
359 |
|
|
|
179,079 |
|
|
|
-- |
|
|
|
179,438 |
|
Common
stock cancelled upon rescission of certain acquisitions
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,600,000 |
) |
|
|
(1,600 |
) |
|
|
(6,333,400 |
) |
|
|
-- |
|
|
|
(6,335,000 |
) |
Net
income for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
4j03j33 |
|
|
|
4j03j33 |
|
Balance
December 31, 2006
|
|
|
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
|
32,303,105 |
|
|
$ |
32,303 |
|
|
$ |
14,832,175 |
|
|
$ |
(13,958,625 |
) |
|
$ |
905,853 |
|
HEARTLAND, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
For
the Years Ended December 31, 2007 and 2006
|
|
Preferred
Stock
|
|
|
Additional
Paid
- In
|
|
|
Common
stock
|
|
|
Additional
paid-
in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Capital
|
|
|
Capital
|
|
|
Shares
|
|
|
Capital
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2006
|
|
|
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
|
32,303,105 |
|
|
$ |
32,303 |
|
|
$ |
14,832,175 |
|
|
$ |
(13,958,625 |
) |
|
$ |
905,853 |
|
Issuance
of common stock for cash at $.20 - $.325 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
696,538 |
|
|
|
696 |
|
|
|
134,304 |
|
|
|
-- |
|
|
|
135,000 |
|
Issuance
of common stock to Chief Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
for accrued salary at $.50 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
120,000 |
|
|
|
120 |
|
|
|
59,880 |
|
|
|
-- |
|
|
|
60,000 |
|
Issuance
of common stock for the settlement of amounts owed at $.36 per
share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
77,000 |
|
|
|
77 |
|
|
|
27,643 |
|
|
|
-- |
|
|
|
27,720 |
|
Issuance
of common stock to related party for services rendered at $.24 per
share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
250,000 |
|
|
|
250 |
|
|
|
59,750 |
|
|
|
-- |
|
|
|
60,000 |
|
Issuance
of common stock to Chief Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
per employment agreement at $. 18 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,000,000 |
|
|
|
1,000 |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,000 |
|
Issuance
of common stock for services
rendered
at $.19 - $.40 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,316,616 |
|
|
|
1,316 |
|
|
|
374,504 |
|
|
|
-- |
|
|
|
375,820 |
|
Issuance
of common stock for repayment of loans at $.325 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
153,846 |
|
|
|
154 |
|
|
|
49,846 |
|
|
|
-- |
|
|
|
50,000 |
|
Issuance
of common stock to directors for
services
rendered at $.325 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
650,000 |
|
|
|
650 |
|
|
|
210,600 |
|
|
|
-- |
|
|
|
211,250 |
|
Issuance
of preferred stock for cash at $.25 per share
|
|
|
2,250,000 |
|
|
|
2,250 |
|
|
|
560,250 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
562,500 |
|
Issuance
of preferred stock for services at $.25 per share
|
|
|
120,000 |
|
|
|
120 |
|
|
|
29,880 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
30,000 |
|
Preferred
stock dividends
|
|
|
-- |
|
|
|
-- |
|
|
|
123,437 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(123,437 |
) |
|
|
-- |
|
Share
based compensation
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
41,088 |
|
|
|
-- |
|
|
|
41,088 |
|
Net
loss for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(876i46 |
) |
|
|
(876,546 |
) |
Balance
at December 31, 2007
|
|
|
2,370,000 |
|
|
$ |
2,370 |
|
|
$ |
713,567 |
|
|
|
36,567,105 |
|
|
$ |
36,566 |
|
|
$ |
15,789,790 |
|
|
$ |
(14,958,608 |
) |
|
$ |
1,583,685 |
|
See
accompanying notes to financial statements.
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
NOTE
A -
|
PRINCIPLES
OF CONSOLIDATION AND NATURE OF
BUSINESS
|
The
consolidated financial statements include the accounts of Heartland, Inc.
(formerly International Wireless, Inc.) (“Heartland”) and its wholly owned
subsidiary, Mound Technologies, Inc. (“Mound”) a steel fabricator acquired in
December, 2003.
Karkela
Construction, Inc., a commercial construction contractor, acquired in December
2004 has been discontinued effective July 1, 2007.
Going Concern Uncertainty
and Management’s Plans
As
reflected in the accompanying financial statements, the Company had a loss from
continuing operations of $1,090,267 and an accumulated deficit of $14,958,608
for the year ended and as of December 31, 2007. The Company is
currently seeking financing in order to acquire additional profitable
companies. Failure to raise equity capital or secure some other form
of long-term debt arrangement would prohibit the Company from acquiring
additional profitable companies. There are no assurances that the
Company will succeed in obtaining equity or debt financing or if it is
successful that it will be able to locate favorable companies to
acquire.
NOTE
B -
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Cash and Cash
Equivalents
The
company considers all highly-liquid investments, with a maturity of three months
or less when purchased, to be cash equivalents.
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
NOTE
B -
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Net Income (Loss) Per Common
Share
The
Company computes per share amounts in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 128, “Earnings per Share”. SFAS No.
128 requires presentation of basic and diluted EPS. Basic EPS is
computed by dividing the income (loss) available to Common Stockholders by the
weighted-average number of common shares outstanding for the
period. Diluted EPS is based on the weighted-average number of shares
of Common Stock and Common Stock equivalents outstanding during the
periods.
Business
Combinations
The
Company follows the purchase method of accounting for business combinations in
accordance with SFAS No. 141 “Business Combinations”. Under SFAS No.
141, we record as our cost the estimated fair value of the acquired assets less
liabilities assumed. Any difference between the cost of an acquired
company and the sum of the fair values of tangible and intangible assets less
liabilities is recorded as Goodwill. The operations of the acquired
company from the date of acquisition are included in the financial
statements.
Goodwill and Other
Intangible Assets
The
Company follows SFAS No. 142 “Goodwill and Other Intangible Assets” in assessing
Goodwill for impairment. The Company performs an impairment review,
at least annually, for our reporting unit with assigned goodwill using a fair
value approach, whenever events or changes in circumstances indicate that the
goodwill asset may not be fully recoverable. Reporting units may be operating
segments, or one level below an operating segment, referred to as a component.
Under the fair value approach, whenever the carrying value of the reporting
unit, including the goodwill asset, exceeds the fair value of the reporting unit
(generally based on the reporting unit’s future estimated discounted cash
flows), then the goodwill asset may be impaired and the Company is required to
compare the implied fair value of the reporting units goodwill with the carrying
amount of the reporting unit’s goodwill. If the carrying amount of the reporting
unit’s goodwill is greater than the implied fair value of the reporting unit’s
goodwill an impairment loss must be recognized for the
excess.
Property, Plant and
Equipment and Depreciation
Property,
plant and equipment is stated at cost and is depreciated using the straight line
method over the estimated useful lives of the respective
assets. Routine maintenance, repairs and replacement costs are
expensed as incurred and improvements that extend the useful life of the assets
are capitalized. When property, plant and equipment is sold or
otherwise disposed of, the cost and related accumulated depreciation are
eliminated from the accounts and any resulting gain or loss is recognized in
operations.
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
NOTE
B -
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Share-Based
Compensation
On
January 1, 2006, the Company adopted the provisions of SFAS No. 123 (R)
“Share-Based Payment” using the modified prospective method. SFAS 123 (R)
requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments based upon the grant date fair value
of those awards. Under the modified prospective method, the Company recognizes
compensation cost for all share-based payments granted after January 1, 2006,
plus any awards granted prior to January 1, 2006 that remain unvested at that
time. Under this method of adoption, no restatement of prior periods is made.
The Company had no unvested awards granted prior to January 1,
2006.
Prior to
January 1, 2006, the Company recognized the cost of employee services received
in exchange for equity instruments in accordance with Accounting Principles
Board Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB 25”). APB
25 required the use of the intrinsic value method, which measures compensation
cost as the excess, if any, of the quoted market price of the stock over the
amount the employee must pay for the stock. Compensation expense was measured
under APB 25 on the date the shares were granted.
The
Company accounts for stock issued for services using the fair value
method. In accordance with Emerging Issues Task Force
(“EITF”) 96-18, the measurement date of shares issued for service is the date at
which the counterparty’s performance is complete.
Accounts
Receivable
Accounts
receivable represent amounts due from customers and are recorded at invoiced
amounts, net of allowances and do not bear interest.
Allowance for Doubtful
Accounts
It is the
company’s policy to provide an allowance for doubtful accounts. The
allowance is based on prior experience and management’s evaluation of the
collectibility of accounts receivable.
Inventories
Inventories
are stated at the lower of cost or market value. Cost is determined
using the first-in, first-out (FIFO) method.
Fair Values of Financial
Instruments
The
Company uses financial instruments in the normal course of
business. The carrying values of cash, accounts receivable, advance
receivable, prepaid expenses, bank lines of credit, accounts payable, notes
payable, convertible promissory note, accrued expenses and customer deposits
approximate their fair value due to the short-term maturities of these assets
and liabilities. The carrying values of notes payable and loans
payable approximate their fair value based upon management’s estimates using the
best available information.
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
NOTE
B -
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Revenue
Recognition
The
Company recognizes revenue when the product is manufactured and
shipped. Revenues from fixed-price and modified fixed-price
construction contracts are recognized on the percentage-of-completion
method, measured by the
percentage of total
cost incurred to date to estimated
total cost for each contract. This method is used because management considers
expended total cost to be the best available measure of progress on these
contracts. Revenues from cost-plus-fee contracts are recognized on
the basis of costs incurred during the period plus the fee earned, measured by
the cost-to-cost method.
Contract
costs include all direct material and labor costs and those indirect costs
related to contract performance, such as indirect labor, supplies, tools,
repairs, and depreciation costs. Selling, general, and administrative
costs are charged to expense as incurred. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions, and
final contract settlements may result in revisions to costs and income and are
recognized in the period in which the revisions are
determined. Profit incentives are included in revenues when their
realization is reasonably assured. An amount equal to contract costs
attributable to claims is included in revenues when realization is probable and
the amount can be reliably estimated.
The
asset, “Costs and estimated earnings in excess of billings on uncompleted
contracts,” represents revenues recognized in excess of amounts
billed. The liability, “Billings in excess of costs and estimated
earnings on uncompleted contracts,” represents billings in excess of revenues
recognized.
Impairment of Long-Lived
Assets
The
Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Reclassificaiton
Certain
amounts in the 2006 Financial Statements have been reclassified to conform to
the presentation used in the 2007 Financial Statements.
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
NOTE
B -
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Recent Accounting
Pronouncements
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS 159”). SFAS 159 allows entities
to measure at fair value many financial instruments and certain other assets and
liabilities that are not otherwise required to be measured at fair value. SFAS
159 is effective for fiscal years beginning after November 15, 2007. The Company
has not determined what impact, if any, that adoption will have on results of
operations, cash flows or financial position.
In June
2007, the FASB ratified the Emerging Issues Task Force (EITF) consensus on Issue
No. 06-11,
“Accounting
for Income Tax Benefits of Dividends on Share-Based Payment Awards” (EITF
06-11). Effective January 1, 2008, EITF 06-11 requires on a prospective basis
that the tax benefit related to dividend equivalents paid on restricted stock
and restricted stock units which are expected to vest be recorded as an increase
to additional paid-in capital. Prior to January 1, 2008, the Company accounted
for this tax benefit as a reduction to income tax expense. The adoption of EITF
06-11 will not have a material impact on the Company’s financial condition and
results of operations.
In
November 2007, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 109, “Written Loan Commitments Recorded at Fair
Value Through Earnings” (SAB 109). SAB 109 requires that the expected net future
cash flows related to servicing of a loan be included in the measurement of all
written loan commitments that are accounted for at fair value through earnings.
The adoption of SAB 109 is on a prospective basis and effective for the
Company’s loan commitments measured at fair value through earnings which are
issued or modified after January 1, 2008. The adoption of SAB 109 will not have
a material impact on the Company’s financial condition and results of
operations.
In
December 2007, the FASB issued SFAS No. 160, '“Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51”. The
objective of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards that require the following changes. The ownership interests
in subsidiaries held by parties other than the parent be clearly identified,
labeled, and presented in the consolidated statement of financial position
within equity, but separate from the parent's equity. The amount of
consolidated net income attributable to the parent and to the noncontrolling
interest be dearly identified and presented on the face of the consolidated
statement of income. When a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary is initially measured
at fair value. The gain or loss on the deconsolidation of the
subsidiary is measured using the fair value of any noncontrolling equity
investment rather than the carrying amount of that retained investment and
entities provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. The changes to current practice resulting from the
application of SFAS No. 160 is effective for financial statements issued for
fiscal years beginning alter December 15, 2008, and interim periods within those
fiscal years. The adoption of SFAS No. 160 before December 15, 2008
is prohibited. The Company has not evaluated the effect, if any, that
SFAS No. 160 will have on its financial statements.
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
NOTE
B -
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Recent Accounting
Pronouncements (Continued)
In
December 2007, the FASB issued SFAS No. 141(R), 'Business Combinations -
Revised,' that improves the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial reports about a business combination and its
effects. To accomplish that, this statement establishes
principles and requirements how the acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any noncontroling interest in the acquiree, recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase,
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. The changes to current practice resulting from the
application of SFAS No. 141(R) are effective for financial statements issued for
fiscal years beginning after December 15, 2008. The adoption of SFAS
No. 141(R) before December 15, 2008 is prohibited. The Company does
not expect the adoption of SFAS No. 141(R) to have a material effect on its
financial statements.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133. SFAS No. 161 gives financial statement users better information
about the reporting entity's hedges by providing for qualitative disclosures
about the objectives and strategies for using derivatives, quantitative data
about the fair value of and gains and losses on derivative contracts, and
details of credit-risk-related contingent features in their hedged positions.
The standard is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged, but not required. We do not anticipate the adoption of SFAS No. 161
will have a material effect on the Company’s financial statements.
Inventory
consists of the following:
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Raw
material |
|
$ |
885,183 |
|
|
$ |
824,824 |
|
Work in
process |
|
|
16,961 |
|
|
|
30,421 |
|
Finished
goods |
|
|
2,265 |
|
|
|
2,946 |
|
|
|
$ |
904,409 |
|
|
$ |
858,191 |
|
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
NOTE D –
|
UNCOMPLETED
CONTRACTS
|
Costs,
estimated earnings, and billings on uncompleted contracts are summarized as
follows:
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Costs
incurred on uncompleted contracts
|
|
$ |
4,546,687 |
|
|
$ |
7,171,771 |
|
Estimated
earnings
|
|
|
1,525,310 |
|
|
|
1,075,654 |
|
|
|
|
6,071,997 |
|
|
|
8,247,425 |
|
Billing
to date
|
|
|
5,955,530 |
|
|
|
7,947,345 |
|
|
|
$ |
116,467 |
|
|
$ |
300,080 |
|
These
amounts are reflected in the balance sheet as follows:
|
|
|
|
|
|
|
|
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
$ |
311,899 |
|
|
$ |
553
,577 |
|
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
|
$ |
(195,432 |
) |
|
$ |
(253,497 |
) |
NOTE E -
|
PROPERTY,
PLANT, AND EQUIPMENT
|
Property,
plant, and equipment consists of the following:
|
|
December
31,
|
|
|
Years
of Average
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
Useful
Life
|
|
Land
|
|
$ |
35,998 |
|
|
$ |
73,400 |
|
|
|
-- |
|
Leasehold
improvements
|
|
|
91,830 |
|
|
|
91,830 |
|
|
|
31.5 |
|
Buildings
|
|
|
374,002 |
|
|
|
762,600 |
|
|
|
37.5 |
|
Furniture
and fixtures
|
|
|
132,973 |
|
|
|
114,426 |
|
|
|
5-7 |
|
Machinery
and equipment
|
|
|
430,192 |
|
|
|
324,874 |
|
|
|
5-12 |
|
Automotive
equipment
|
|
|
90,315 |
|
|
|
76,363 |
|
|
|
5 |
|
Equipment
held under capital lease
|
|
|
55,250 |
|
|
|
-- |
|
|
|
8 |
|
|
|
|
1,210,560 |
|
|
|
1,443,493 |
|
|
|
|
|
Less:
accumulated depreciation
|
|
|
509,392 |
|
|
|
523,838 |
|
|
|
|
|
|
|
$ |
701,168 |
|
|
$ |
919,655 |
|
|
|
|
|
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
The
Company is currently in negotiations to acquire the property where the Mound
Facilities are located from the current owner who is a stockholder of the
Company. In consideration of the purchase, the Company will assume
certain outstanding debts secured by the property, including mortgages and any
liens for real estate taxes and assessments. At December 31, 2007,
these payments amounted to $421,042 and will be allocated to the building and
other costs upon completion of the purchase.
NOTE G -
|
BANK
LINES OF CREDIT
|
A Company
subsidiary has a $500,000 line of credit with a bank expiring July 27, 2008 of
which the entire amount was available at December 31, 2007. The line
bears interest at one month Libor plus 2% as published on the first day of the
month in the Wall Street Journal. The Libor rate at December 31, 2007
was 4.28%. The line is secured by all assets of the
Company. No amounts were due on this line at December 31,
2007.
NOTE H -
|
CONVERTIBLE
PROMISSORY NOTES PAYABLE
|
The
Company issued $734,150 and $1,026,550 in convertible promissory notes payable
to various individuals and organizations in 2005 and 2004, respectively. During
2007, the Company paid off $10,000 of convertible promissory
notes. During 2006, the Company converted $1,450,265 of convertible
promissory notes into 2,900,530 shares of common stock. Also, during
2006 the Company paid off $166,985 of convertible promissory notes and issued
358,876 shares of common stock as payment for $179,438 of interest on the notes.
The notes are unsecured, due within 1 year from date of issue, and bear interest
at the rate of 10%. The notes can be converted into common stock of
the Company, generally at $0.50 per share. The amounts due at
December 31, 2007 and 2006 amount to $53,450 and $63,450,
respectively. At December 31, 2007, the Company was in default on
these convertible notes.
Notes
payable consist of the following:
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
|
2006
|
|
Notes payable
to banks due February 2010 and March 2010, payable in 72 monthly
installments of $734 and $284 including interest at 6.17% and
6.27%, respectively. The notes are collateralized by transportation
equipment |
|
$ |
24,915 |
|
|
$ |
35,937 |
|
|
|
|
|
|
|
|
|
|
Mortgage
notes payable to a bank due March 2017 and May 2017, payable in 180
monthly installments of $2,260 and $2,739 including interest at 7.50% and
7.25%, respectively. The notes are collateralized by
buildings. During 2007, the company sold the
building which had the May 2017 mortgage payable.
|
|
|
180,488 |
|
|
|
432,035 |
|
|
|
|
|
|
|
|
|
|
Less: current
portion |
|
|
205,403 |
|
|
|
467,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
24,604 |
|
|
|
39,471 |
|
|
|
|
|
|
|
|
|
|
Long-term
portion |
|
$ |
180,799 |
|
|
$ |
428,501 |
|
At
December 31, 2007, minimum future principal payments over the next five years
and in the aggregate are as follows:
|
|
|
|
Year
|
|
Amount
|
|
2008
|
|
$ |
24,604 |
|
2009
|
|
|
26,912 |
|
2010
|
|
|
18,923 |
|
2011
|
|
|
17,589 |
|
2012
|
|
|
18,955 |
|
Thereafter
|
|
|
98,420 |
|
Total
|
|
$ |
205,403 |
|
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
NOTE J –
|
CAPITAL
LEASE OBLIGATION
|
The
Company is a lessee of machinery and equipment under a capital lease expiring in
2011 with an implied interest rate of 24.18%. The asset and liability under
capital lease are recorded at the lower of the present value of the minimum
lease payments or the fair value of the asset. The asset is amortized
over its estimated productive life. Amortization of the asset under
capital lease is included in depreciation expense.
Property
and equipment held under capital lease:
|
|
|
|
Machinery
and equipment
|
|
$ |
55,250 |
|
Less
accumulated amortization
|
|
|
(2,167 |
) |
Net
|
|
$ |
53,083 |
|
Minimum
future lease payments under capital lease as of December 31, 2007 for each of
the next five years in the aggregate are:
2008
|
|
$ |
15,876 |
|
2009
|
|
|
15,876 |
|
2010
|
|
|
15,876 |
|
2011
|
|
|
2,647 |
|
Net
minimum lease payment
|
|
|
50,275 |
|
Less
amount representing interest
|
|
|
(15,384 |
) |
Present
value of net minimum lease payments
|
|
$ |
34,891 |
|
Less
current portion
|
|
|
8,320 |
|
Long
term portion
|
|
$ |
26,571 |
|
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
NOTE K -
|
RELATED
PARTY TRANSACTIONS
|
Obligations to Related
Parties
During,
2007 and 2006, a stockholder of the company paid certain obligations on behalf
of the company in the amount of $20,000 and $50,000,
respectively. During 2007, the stockholder was repaid $57,992 of
which $50,000 was repaid with 153,846 shares of common stock. The
amounts due at December 31, 2007 and 2006 amounted to $11,008 and $50,000,
respectively.
Notes Payable to Related
Parties
|
|
2007
|
|
|
2006
|
|
During 2005,
obligations to a related party and accrued rent in the amounts of $45,907
and $205,907, respectively were converted to a note
payable. The note is payable in 120 monthly installments in the
amount of $2,796 and bears interest at the rate of 6.00% |
|
|
209,270 |
|
|
$ |
229,588 |
|
|
|
|
|
|
|
|
|
|
During 2005,
obligations to related party in the amount of $425,000 was converted to a
note payable. The note is payable in 90 monthly installments in
the amount of $4,152 and is non-interest
bearing |
|
|
265,743 |
|
|
|
315,570 |
|
|
|
|
|
|
|
|
|
|
Obligations to
two related parties in the amount of $27,750. The notes are
payable on demand and bear interest at the rate of 7% |
|
|
17,750 |
|
|
|
17,750 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
492,763 |
|
|
|
562,908 |
|
|
|
|
|
|
|
|
|
|
Less: current
maturities |
|
|
89,156 |
|
|
|
87,903 |
|
|
|
|
|
|
|
|
|
|
Long-term
portion |
|
$ |
403,607 |
|
|
$ |
475,005 |
|
|
|
|
|
|
|
|
|
|
At
December 31, 2007, minimum future principal payments over the next five years
and in the aggregate are as follows:
Year
|
|
Amount
|
|
2008
|
|
$ |
89,156 |
|
2009
|
|
|
72,737 |
|
2010
|
|
|
74,150 |
|
2011
|
|
|
75,650 |
|
2012
|
|
|
77,243 |
|
Thereafter
|
|
|
103,827 |
|
Total
|
|
$ |
492,763 |
|
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
NOTE K-
|
RELATED
PARTY TRANSACTIONS
(CONTINUED)
|
Transactions With Related
Parties
Issued
250,000 common shares to a related party for services rendered valued at
$60,000.
Issued
120,000 common shares to Chief Executive Officer for accrued salary valued at
$60,000.
Issued
1,000,000 common shares to Chief Executive Officer for five year employment
contract valued at $180,000 [See Note Q].
NOTE L-
|
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. As
of December 31, 2007, the Company has 2,370,000 shares of Series A Convertible
Preferred Stock issued and outstanding. 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.
The
preferred shares carry a 10% annual stock dividend for the three years they are
outstanding prior to conversion. The Preferred dividend in arrears
for the year ended December 31, 2007 was $38,849.
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).
During
the quarter ended March 31, 2007, the Company sold 610,000 shares of Series A
Convertible Preferred Stock (“Series A Preferred”) and received proceeds of
$152,500.
During
the quarter ended June 30, 2007, the Company sold 1,640,000 shares of Series A
Preferred and received proceeds of $410,000. In addition, 120,000
shares of Series A Preferred were issued for services valued at
$30,000.
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
|
STOCKHOLDERS
EQUITY (Continued)
|
Preferred Stock
(Continued)
Included
with the Series A Preferred were 474,000 Series A warrants and 474,000 Series B
warrants. The Series A and Series B warrants were valued at $123,347
using the Black-Scholes option-pricing model and such amount is included in
Additional Paid in Capital – Preferred Stock. The assumptions used were as
follows:
Expected
Life 3
years
Expected
Volatility 109.80%
- 111.84%
Risk Free
Interest
Rate 2.5%
Expected
Dividends --
At
December 31, 2007, there were 474,000 Series A warrants and 474,000 Series B
warrants outstanding.
In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5), the Company recognized an imbedded
beneficial conversion feature present in the Series A Convertible Preferred
Stock. The Company allocated a portion of the proceeds equal to the
intrinsic value of that feature to additional paid in capital. The
Company recognized and measured an aggregate of $123,437 of the proceeds, which
is equal to the intrinsic value of the imbedded beneficial conversion feature,
to additional paid-in capital and as a dividend to the holders of the Series A
Convertible Preferred Stock issued during the year ended December 31,
2007.
Common
Stock
The
Company has authorized 100,000,000 shares of common stock with a par value of
$.001 per share. As of December 31, 2007, the Company had 36,567,105
shares of common stock issued and outstanding.
During
the year ended December 31, 2007, the Company’s common stock transactions were
as follows:
Issued
1,182,000 common shares for services valued at $411,570, including 650,000
shares valued at $211,250 issued to members of the Board of
Directors.
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
|
STOCKHOLDERS
EQUITY (Continued)
|
Common Stock
(Continued)
Issued
635,000 common shares for cash of $115,000, including 210,000 shares issued for
cash previously received.
Issued
77,000 shares of common stock for the settlement of amounts owed of
$27,720.
Issued
400,000 common shares for $20,000 in cash, $50,000 in loan repayments and
$60,000 of services.
Issued
600,000 common shares for services valued at $115,500.
Per an
Executive Employee Agreement (see Note Q) the Company issued 1,000,000 common
shares
valued at
$180,000. The Company also granted five year employee non-statutory stock
options to purchase 1,822,504 shares of common stock at an exercise price of
$.33 per share. The options were valued at $240,883 using the
Black-Scholes option–pricing model. The total amount of $420,883 is
being amortized over five years. $42,088 has been included in common
stock and additional paid-in capital. The assumptions used were as
follows
Expected
Life |
5
years |
Expected
Volatility |
111.84% |
Risk Free
Interest Rate |
2.5% |
Expected
Dividends
|
-- |
Issued
250,000 common shares to a related party for services rendered valued at
$60,000.
Issued
120,000 common shares to the chief executive officer for accrued salary valued
at $60,000.
2006
In June
2006, the Company agreed to accept the rescissions of the December 2004
acquisition agreements with Evans Columbus, LLC effective March 31, 2006 and
with Monarch Homes, Inc. effective June 1, 2006. As a result, 1,600,000 shares
of the Company’s common stock issued for the acquisitions (600,000 – Evans and
1,000,000 – Monarch) were cancelled.
In
November 2006, the Company, based upon prior approval of the Board of Directors,
issued 200,000 shares of its common stock to both its Chief Executive Officer
and its Chief Financial Officer. The 400,000 shares were valued at $0.575 per
share and an amount of $230,000 was charged as stock based
compensation.
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
|
STOCKHOLDERS
EQUITY (Continued)
|
2006
At
various times during 2006, the Company issued a total of 2,900,530 shares of its
common stock to holders of convertible promissory notes upon the conversion of
$1,450,265 of notes at a price of $0.50 per share. Additionally, the Company
issued 358,876 shares of its common stock at $0.50 per share for payment of
interest accrued on the convertible promissory notes.
The
Company sold a total of 1,666,940 shares of its common stock at prices ranging
from $0.17 to $0.38 per share to various individuals during 2006 for total
proceeds of $509,850.
At
various times during 2006, the Company, upon prior approval of its Board of
Directors, issued a total of 4,830,735 shares of its common stock to various
individuals for services rendered to the Company. The shares were valued at
prices ranging from $0.25 to $0.75 per share. Accordingly, stock based
compensation expense of $2,752,278 was recorded.
The
Company has elected as of December 31, 2005, to file a consolidated Federal
income tax return. Certain pre-acquisition net operating loss
carryforwards are limited under Section 382 of the Internal Revenue Code due to
the significant ownership changes resulting from the acquisitions. The
carryforward losses available to the Company from losses incurred in the parent
corporation, Heartland, Inc., and any losses from its wholly owned subsidiary
resulting subsequent to the respective acquisition dates as of
December 31, 2007 aggregate approximately $5,842,000 to offset future taxable
income of which $450,000 expires in 2024, $3,268,000 expires in 2025, $637,000
expires in 2026, and $1,487,000 expires in 2027.
The
Federal and State income tax provision (benefit) is as follows:
|
|
2007
|
|
|
2006
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
-- |
|
|
$ |
-- |
|
State
|
|
|
-- |
|
|
|
-- |
|
Total Current
Expense
|
|
|
-- |
|
|
|
-- |
|
Deferred: |
|
|
|
|
|
|
|
|
Federal
|
|
|
-- |
|
|
|
-- |
|
State
|
|
|
-- |
|
|
|
-- |
|
Total Deferred
Benefit
|
|
|
-- |
|
|
|
-- |
|
Federal and
State income tax benefit |
|
$ |
-- |
|
|
$ |
-- |
|
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
NOTE M-
|
INCOME TAXES
(CONTINUED)
|
Temporary
differences which give rise to deferred taxes are summarized as follows for the
years ended December 31, 2007 and 2006:
|
|
2007
|
|
|
2006
|
|
Allowance
for doubtful accounts
|
|
$ |
75,072 |
|
|
$ |
78,550 |
|
Deferred
revenues
|
|
|
(610,124 |
) |
|
|
(391,565 |
) |
Vacation
accrual
|
|
|
4,452 |
|
|
|
6,149 |
|
Net
operating losses
|
|
|
2,337,000 |
|
|
|
1,742,000 |
|
Net
deferred tax assets
|
|
|
1,806,400 |
|
|
|
1,435,134 |
|
Less:
Valuation allowance
|
|
|
(1,806,400 |
) |
|
|
(1,435,134 |
) |
Net
|
|
$ |
-- |
|
|
$ |
-- |
|
The
parent company has recorded a full valuation allowance to reflect the estimated
amount of deferred tax assets that may not be realized since the generation of
future taxable income is not assured beyond a reasonable doubt. The
valuation allowance increased (decreased) in the amount of approximately
$371,000 and $(84,000) for the years ended December 31, 2007 and 2006,
respectively.
There is
no significant difference between the effective income tax rate and the
statutory Federal income tax rate.
On
January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" (FIN 48). There was no impact on the
Company's consolidated financial position, results
of operations or cash flows at December 31, 2006 and for the year then ended, as
a result of implementing FIN 48. At the adoption date of
January 1, 2007, the Company did not have any unrecognized tax
benefits. The Company's practice is to recognize interest and/or
penalties related to income tax matters in income tax expense. As of
January 1, 2007, the Company had no accrued interest or
penalties. The Company currently has no federal or state
tax examinations in progress nor has it
had any federal or state tax examinations since its
inception. All of the Company's tax years are subject to federal and
state tax examination.
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
NOTE N -
|
COMMITMENTS AND
CONTINGENCIES
|
Leases
The
Company leased its former corporate office space in Plymouth, Minnesota pursuant
to a four year lease which expires on December 31, 2009. The lease
calls for monthly payments of $2,347 in 2008 and $2,389 in 2009. In
addition, the Company is responsible for its pro-rata share of real estate taxes
and operating expenses. During 2006, the Company relocated
its corporate office and the lease was assumed by an unrelated third
party. The company remains contingently liable under the terms of the
lease.
The
Company leases the Mound Facilities from a stockholder of the
Company. The lease calls for monthly payments of $16,250 and expires
August 31, 2010.
Minimum
Future lease payments under the leases are as follows:
For
the Years
Ending December
31,
|
|
Related
|
|
|
|
Unrelated |
|
|
Party |
|
|
|
|
|
|
|
|
2008
|
|
$ |
28,160 |
|
|
$ |
195,000 |
|
2009
|
|
|
28,672 |
|
|
|
195,000 |
|
2010
|
|
|
-- |
|
|
|
130,000 |
|
Total
|
|
$ |
56,832 |
|
|
$ |
520,000 |
|
Rent
expense amounted to $164,941 and $111,158 for the years ended December 31, 2007
and 2006.
.
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
NOTE O -
|
CONCENTRATION
OF CREDIT RISK
|
Cash
accounts are generally held in FDIC insured banks. The Company’s cash
accounts in certain banks exceed the FDIC insured limit of
$100,000. At December 31, 2007 and 2006, the at risk amounts the
Company had were approximately $179,000 and $568,000,
respectively.
NOTE P –
|
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.
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. Additionally, in the
second quarter of 2006 the company concluded that it was no longer the primary
beneficiary of the three entities previously reported as VIE’s, Mundus, Wyncrest
and PAR. Evans’ business was manufacturing and Monarch was included
in the construction and property management segment. Revenues, pre
tax profit (loss) and net assets (liabilities) on the discontinued entities are
as follows:
2007
|
|
Karkela
|
|
|
|
|
|
Revenue |
|
$ |
4,388,948 |
|
|
|
|
|
|
Pre
tax profit (loss) |
|
|
84,008 |
|
|
|
|
|
|
Net
assets (liabilities) |
|
|
-- |
|
|
|
|
|
|
2006
|
|
Karkela
|
|
|
Evans
|
|
|
Monarch
|
|
|
PAR
|
|
|
Wyncrest
|
|
|
Mundus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
8,302,360 |
|
|
$ |
2,416,738 |
|
|
$ |
1,844,709 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
Pre
tax profit (loss) |
|
|
84,008 |
|
|
|
792 |
|
|
$ |
-- |
|
|
|
(12,692 |
|
|
$ |
-- |
|
|
$ |
-- |
|
Net
assets(liabilities) |
|
|
(213,721 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
HEARTLAND, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31,
2007
Effective
June 27, 2007, the Company entered into an employment agreement with its new
chief executive officer [“CEO”]. The Agreement has a five year term
with an annual base salary of $120,000. Additional terms include the
issuance of 1,000,000 shares of common stock and five year non-statutory stock
options to purchase 1,823,504 shares of common stock at an exercise price of
$.33 per share. Effective December 31, 2007, the Company issued
120,000 shares of common stock to the CEO at $0.50 per share for accrued salary
of $60,000.
The fair
value of the common stock ($180,000) and employee non-statutory stock option
($240,833) will be expensed over the five year term of the
agreement. Expense for the year ended December 31, 2007 was
$42,088.
The
options were valued at the date of grant using the Black-Scholes option–pricing
model. The assumptions used were as follows:
Expected
Life 5 years
Expected
Volatility 111.84%
Risk Free
Interest Rate 2.5%
Expected
Dividends --
On
September 28, 2007, the Company entered into a letter of intent with Harris Oil
Co, Inc. (“Harris”) and DHS Development, LLC (“DHS”) (collectively “the
sellers”) to purchase certain assets of the sellers on or before December 31,
2007, unless extended. The purchase price of $4,100,000 is for the
following assets:
·
|
All
equipment, supply contracts and other assets of
Harris;
|
·
|
Three
convenience store sites of DHS located in Cookeville, TN, Hartsville, TN
and Sparta, TN;
|
·
|
30
year supply contracts on remaining DHS locations with a right of first
refusal for purchase;
|
·
|
10
year purchase option on remaining DHS locations if no bona fide third
party offer has been received at an agreed upon appraised
value;
|
·
|
The
letter of intent calls for the completion of definitive documentation,
completion of due diligence, and the completion of a US GAAP audit of the
sellers’ companies prior to December 31,
2007.
|
NOTE S–
|
SUBSEQUENT
EVENTS
|
In
January and February 2008, the company sold 580,000 common shares at $.50 per
share and received proceeds of $290,000. A member of the Board of
Directors received a 10% commission totaling $29,000 for the sale of the common
shares.
Currently,
the terms of the original letter of intent with Harris and DHS has
expired. The Company is seeking financing to fund the acquisition and
if such attempts are successful management plans to enter into a new letter of
intent if the terms remain favorable.
There
have been no disagreements between the Company and Meyler & Company, LLC
(“MC”) in connection with any services provided to us by them for the periods of
their engagement on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
No
accountant’s report on the financial statements for the past two years contained
an adverse opinion or a disclaimer of opinion or was qualified or modified as to
uncertainty, audit scope or accounting principles, except such reports did
contain a going concern qualification; such financial statements did not contain
any adjustments for uncertainties stated therein. In addition, MC did not advise
the Company with regard to any of the following:
1. That
information has come to their attention, which made them unwilling to rely on
management’s representations, or unwilling to be associated with the financial
statements prepared by management; or
2. That
the scope of the audit should be expanded significantly, or information has come
to the accountant’s attention that the accountant has concluded will, or if
further investigated might, materially impact the fairness or reliability of a
previously issued audit report or the underlying financial statements, except as
indicated in the financial statements issued or to be issued covering the fiscal
periods subsequent to the date of the most recent audited financial statements,
and the issue was not resolved to the accountant’s satisfaction prior to its
resignation or dismissal. During the most recent two fiscal years and
during any subsequent interim periods preceding the date of each engagement, we
have not consulted MC regarding any matter requiring disclosure under Regulation
S-K, Item 304(a)(2).
ITEM
8A AND 8A (T). CONTROLS AND PROCEDURES.
ITEM
8A AND 8A (T). 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 December 31, 2007.
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 December 31, 2007. 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 December 31, 2007,
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 December 31,
2007.
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 the
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
December 31, 2007. 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.
Auditor
Attestation
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit us to provide only management’s report in this
annual report.
None.
PART
III
The
directors and officers of our Company are set forth below. The directors held
office for their respective term and until their successors were duly elected
and qualified. Vacancies in the existing Board were filled by a majority vote of
the remaining directors. The officers serve at the will of the Board of
Directors.
Name
|
|
Age
|
|
With
Company Since
|
|
Director/Position
|
|
Terry
L. Lee
|
|
53
|
|
06/2007
|
|
CEO,
Chairman of the Board
|
|
|
|
|
|
|
|
|
|
Thomas
C. Miller
|
|
52
|
|
12/2003
|
|
Secretary
and Director
|
|
|
|
|
|
|
|
|
|
Mitchell
L. Cox, CPA
|
|
46
|
|
09/2007
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
Trent
Sommerville
|
|
40
|
|
12/2003
|
|
Director
|
|
Kenneth
B. Farris
|
|
58
|
|
01/2004
|
|
Director
|
|
MR.
TERRY L. LEE - CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
Prior to
joining the Company, from 1995 to the present, Mr. Lee has served as the
President and Chief Executive Officer of Commercial Bank where he is
responsible for the management of $426 million in assets, 14 locations and 151
employees. In 1989, prior to his appointment as Chief Executive
Officer in 1994, Mr. Lee began his career with Commercial Bank as a bookkeeper
where he eventually moved to Vice President - Marketing in 1991, Vice
president – Loan Officer in 1991 and Senior Vice President – Senior Lending
Officer in 1992. In addition to serving as the Chief Executive
Officer and President of Commercial Bank, Mr. Lee serves as the Chief Executive
Officer and President of Lee Oil Company, Inc., Lee Enterprises, Inc., Lee’s
Food Mart, LLC, Cumberland Ford Motors, Inc., L & M Ventures, Inc., Green
Hill Properties, Inc. and Berea Ford Motors, Inc. Mr. Lee graduated
from Lincoln Memorial University with a Bachelor of Arts in Business
Administration and Management in 1979.
MR.
MITCHELL L. COX, CPA – CHIEF FINANCIAL OFFICER
Mr. Cox
is a certified public accountant and has served as the President and owner of
Accounting & Tax Solutions, Inc. advising clients on all aspects of the
accounting business. Further, Mr. Cox has also served as the
Controller and Secretary for Lee Oil Company where he has managed all financial
transactions and record keeping. Terry Lee, the Company’s CEO, is
also a shareholder, director and officer of Lee Oil Company. Mr. Cox
received his BD in Business from Carson Newman College in Jefferson City, TN in
1984.
MR.
TRENT SOMMERVILLE – DIRECTOR
Mr.
Sommerville was elected as Director and Chairman of the Board on December 1,
2003. Mr. Sommerville has been appointed as our Chief Executive
Officer and served in that capacity from December 1, 2003 until June 27, 2007
when Terry L. Lee was appointed to serve in that capacity. Mr.
Sommerville attended Perkingston College. Mr. Sommerville worked at Anjet where
he obtained NASD Series 22 and Series 63 licenses. Following his experience
there, Mr. Sommerville started IGE Capital where he has been actively involved
in many venture capital opportunities including FYBX Corporation, Cyber
Operations, Way Cool 3D, and PMI Wireless.
MR.
THOMAS C. MILLER – SECRETARY AND DIRECTOR
Mr.
Miller has been with the Registrant since 2003 when it acquired Mound
Technologies, Inc. Mr. Miller was elected to the Board of Directors
on May 23, 2006, and as its Chief Operating Office on September 27,
2006. From May 23, 2006 to September 27, 2006, Mr. Miller acted as
the Registrant’s Chief Executive Officer. Mr. Miller graduated from
Ohio State University with a Bachelor of Science degree in Civil Engineering in
1978 and continued his education at the University of Dayton where he received a
Master of Business Administration degree in 1983. He is a registered
engineer in the state of Ohio. Mr. Miller started on the shop floor
at Mound Steel Corporation as a welder. He spent time working in the
engineering and sales department before becoming Vice President of Sales and
Quality in 1986. He became President of Mound Steel Corporation in
1990. The additional title of Chief Executive was added to his
responsibilities in 2001. In November of 2002, Mr. Miller became
Chief Executive officer of Mound Technologies, Inc. In 1988 he was
elected to the Lebanon City Council. He was re-elected in 1992 and
served as Vice Mayor during that time period. Mr. Miller has served
on various local boards including the Middletown Regional Hospital Foundation,
Dan Beard Council of Boy Scouts of America, and the Warren County Business
Advisory Council. In addition to his new position as President and
Chief Operating Officer of the Registrant, Mr. Miller will continue as President
of the Registrant’s subsidiary Mound Technologies, Inc.
DR.
KENNETH B. FARRIS – DIRECTOR
Dr.
Farris was appointed a director of our Company on January 8, 2004. Dr. Farris, a
resident of New Orleans, Louisiana is a graduate of Tulane University’s School
of Medicine where he received his MD and MPH degrees in1975. He is a graduate of
Carnegie-Mellon University where he received his BS degree in 1971.
Dr. Farris is board certified in Pathology. He has been teaching at Tulane
University School of Medicine since 1975 where he has received numerous awards
for outstanding teaching. Since 1991 he has held the position of Clinical
Associate Professor, Department of Pathology and Clinical Associate Professor
Department of Pediatrics. In addition, Dr Ferris holds the position of Director
of Pathology at West Jefferson Medical Center in Marrero, Louisiana, and Medical
Director, Laboratory at Pendleton Memorial Methodist Hospital. Dr. Farris is a
member of various medical societies and has published extensively. Among his
many accomplishments in his field, as of 1982 he holds the position of
Laboratory Accreditation Program Inspector for the College of American
Pathologists. He is a founding member and past President of the Greater New
Orleans Pathology Society. He is currently a Delegate to the House of Delegates
to the American Medical Association. He has held various positions including
past President, Speaker to the House of Delegates, member of the Board of
Governors and a current Delegate to the House of Delegates to the Louisiana
State Medical Society. He has held the position of President, Vice President,
Secretary and Treasurer for the Tulane Medical Alumni Association. He is a
former Drug Control Crew Chief to the United States Olympic
Committee.
Our
bylaws currently provide for a board of directors comprised of such number as is
determined by the Board.
FAMILY
RELATIONSHIPS
None.
BOARD
COMMITTEES
We
currently have established both a compensation committee and audit
committee, but a recent resignation has left each committee a person short and
we are in the process of selecting another individual to fill the vacancy. In
the meantime,.all members of our board of directors participate in all
discussions concerning the company.
LEGAL
PROCEEDINGS
No
officer, director, or persons nominated for such positions, promoter or
significant employee has been involved in legal proceedings that would be
material to an evaluation of our management.
Compliance with Section
16(a) of the Exchange Act
Section
16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers, and persons who own more then 10 percent of our Common
Stock, to file with the SEC the initial reports of ownership and reports of
changes in ownership of common stock. Officers, directors and greater than 10
percent stockholders are required by SEC regulation to furnish us with copies of
all Section 16(a) forms they file.
Specific
due dates for such reports have been established by the Commission and we are
required to disclose any failure to file reports. Except as otherwise set forth
herein, based solely on review of the copies of such forms furnished to us, or
written representations that no reports were required, we believe that to date
all required forms have been filed, and that there was no failure to comply with
Section 16(a) filing requirements applicable to our officers, directors and ten
percent stockholders.
CODE
OF ETHICS
Because
we are an early stage company with limited resources, we have not yet adopted a
"code of ethics", as defined by the SEC, that applies to the Company's Chief
Executive Officer, Chief Financial Officer, principal accounting officer or
controller and persons performing similar functions. We are in the process of
drafting and adopting a Code of Ethics.
The
following table provides summary information for the years 2005, 2006 and 2007
concerning cash and non-cash compensation paid or accrued by us to or on behalf
of the president and the only other employee(s) to receive compensation in
excess of $100,000.
SUMMARY
COMPENSATION TABLE
Name/
Position
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
|
|
|
Other
|
|
|
Total
|
|
Trent
Sommerville – Former CEO and Chairman
|
2007
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
81,250
|
|
|
$
|
29,0000
|
|
|
$
|
110,250
|
|
|
2006
|
|
$
|
155,500
|
|
|
$
|
0
|
|
|
$
|
50,000
|
|
|
$
|
0
|
|
|
$
|
205,500
|
|
|
2005
|
|
$
|
205,000
|
|
|
$
|
0
|
|
|
$
|
690,000
|
|
|
$
|
0
|
|
|
$
|
895,000
|
|
Jerry
Gruenbaum – Former CFO, Secretary and Director
|
2007
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
65,000
|
|
|
$
|
0
|
|
|
$
|
65,000
|
|
|
2006
|
|
$
|
88,000
|
|
|
$
|
0
|
|
|
$
|
50,000
|
|
|
$
|
0
|
|
|
$
|
138,000
|
|
|
2005
|
|
$
|
25,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
25,000
|
|
Terry
L Lee – CEO and Chairman
|
2007
|
|
$
|
60,000
|
|
|
$
|
0
|
|
|
$
|
42,088
|
|
|
$
|
0
|
|
|
$
|
102,088
|
|
|
2006
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
2005
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
COMPENSATION
AGREEMENTS
The
Company has entered into an employment contract with Terry L. Lee as the CFO and
is detailed in the 8-K filed on June 28, 2007. The five year employment contract
calls for a base salary of $120,000 a year which is actually a one year contract
with the option to automatically renew for four additional one year periods. In
addition to the base salary, Mr Lee was granted 1,000,000 shares of common stock
and an option to purchase additional shares over the term of the five year
contract. Currently, no portion of this option has been exercised.
No other
annual compensation, including a bonus or other form of compensation; and no
long-term compensation, including restricted stock awards, securities underlying
options, LTIP payouts, or other form of compensation, were paid to these
individuals during this period.
BOARD
COMPENSATION
Members
of our Board of Directors do not normally receive cash compensation for their
services as Directors, although some Directors are reimbursed for reasonable
expenses incurred in attending Board or committee meetings. All corporate
actions are conducted by unanimous written consent of the Board of Directors.
There was 650,000 shares of common stock issued in the first quarter of 2007 for
members of the Board as compensation and Terry Lee received 120,000 shares of
common shares in lieu of a cash payment of $60,000 for services rendered from
July through December in accordance with the employment contract.
STOCK
OPTION PLAN
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.
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. The company had 2,370,000 shares of Series A
Convertible Preferred Stock issued and outstanding as of December 31,
2007.
The
following table sets forth as of April 14, 2008, information with respect to the
beneficial ownership of the Company’s Common Stock by (i) each person known by
the Company to own beneficially 5% or more of such stock, (ii) each Director of
the Company who owns any Common Stock, and (iii) all Directors and Officers as a
group, together with their percentage of beneficial holdings of the outstanding
shares.
The
information presented below regarding beneficial ownership of our voting
securities has been presented in accordance with the rules of the Securities and
Exchange Commission and is not necessarily indicative of ownership for any other
purpose. Under these rules, a person is deemed to be a "beneficial owner" of a
security if that person has or shares the power to vote or direct the voting of
the security or the power to dispose or direct the disposition of the security.
A person is deemed to own beneficially any security as to which such person has
the right to acquire sole or shared voting or investment power within 60 days
through the conversion or exercise of any convertible security, warrant, option
or other right. More than one person may be deemed to be a beneficial owner of
the same securities. The percentage of beneficial ownership by any person as of
a particular date is calculated by dividing the number of shares beneficially
owned by such person, which includes the number of shares as to which such
person has the right to acquire voting or investment power within 60 days, by
the sum of the number of shares outstanding as of such date plus the number of
shares as to which such person has the right to acquire voting or investment
power within 60 days. Consequently, the denominator used for calculating such
percentage may be different for each beneficial owner. Except as otherwise
indicated below and under applicable community property laws, we believe that
the beneficial owners of our common stock listed below have sole voting and
investment power with respect to the shares shown.
SECURITY OWNERSHIP OF BENEFICIAL
OWNERS (1):
Title
of Class
|
|
Name
|
|
Shares
|
|
Percent
|
|
Common
Stock
|
|
John
E. Gracik
|
|
1,763,696
|
|
4.74
|
%
|
|
|
|
|
|
|
|
|
|
|
First
Union Venture Group, LLC
|
|
1,750,000
|
(2)
|
4.71
|
%
|
SECURITY OWNERSHIP OF
MANAGEMENT:
Title
of Class
|
|
Name
|
|
Shares
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Trent
Sommerville
|
|
3,300,000
|
|
8.88
|
%
|
|
|
|
|
|
|
|
|
|
|
Terry
L. Lee
|
|
1,120,000
|
|
3.02
|
%
|
|
|
|
|
|
|
|
|
|
|
Kenneth
B. Farris
|
|
563,636
|
|
1.52
|
%
|
|
|
|
|
|
|
|
|
|
|
Thomas
Miller
|
|
1,450,000
|
|
3.90
|
%
|
|
|
|
|
|
|
|
|
All
Directors and Executive Officers as a group (5 persons)
|
|
6,433,636
|
|
17.32
|
%
|
|
|
|
|
|
|
|
|
(1)
|
These
tables are based upon 37,147,105 shares outstanding as of April 11,
2008 and information derived from our stock records. Unless otherwise
indicated in the footnotes to these tables and subject to community
property laws where applicable, we believe unless otherwise noted that
each of the shareholders named in this table has sole or shared voting and
investment power with respect to the shares indicated as beneficially
owned. For purposes of this table, a person or group of persons is deemed
to have "beneficial ownership" of any shares which such person has the
right to acquire within 60 days as of April 11, 2008. For purposes of
computing the percentage of outstanding shares held by each person or
group of persons named above on April 14, 2008 any security which such
person or group of persons has the right to acquire within 60 days after
such date is deemed to be outstanding for the purpose of computing the
percentage ownership for such person or persons, but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person.
|
(2)
|
First
Union Venture Group, LLC which owns 1,000,000 shares is owned one half by
Atty. Jerry Gruenbaum and one half by another individual who is not
related to Atty. Gruenbaum or under his control. In addition Jerry
Gruenbaum owns 750,000 shares in his own
name.
|
No
director, executive officer or nominee for election as a director of our
company, and no owner of five percent or more of our outstanding shares or any
member of their immediate family has entered into or proposed any transaction in
which the amount involved exceeds $60,000 except as set forth
below.
Our
management is involved in other business activities and may, in the future
become involved in other business opportunities. If a specific business
opportunity becomes available, such persons may face a conflict in selecting
between our business and their other business interests. We have not and do not
intend in the future to formulate a policy for the resolution of such
conflicts.
In
Springboro, Ohio we lease approximately 39,000 square feet pursuant to a five
year lease with a stockholder of the company. The lease calls for a monthly
payment of $16,250 and expires August 31, 2010. The facilities include 34,000
square feet which is used for manufacturing and 5,000 square feet for office
space. The space is used by Mound. The Company is currently in negotiations to
acquire the property.
Exhibit
Number
|
Document
Description
|
3.1
|
Certificate
of Incorporation of Origin Investment Group, Inc. as filed with the
Maryland Secretary of State on April 6, 1999, incorporated by reference to
the Company’s Registration Statement on Form 10-KSB filed with the
Securities and Exchange Commission on August 16,
1999.
|
3.2
|
Amended
Certificate of Incorporation of International Wireless, Inc. as filed with
the Maryland Secretary of State on June 12, 2003, incorporated by
reference to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 12,
2003.
|
3.3
|
Amended
Certificate of Incorporation of International Wireless, Inc. to change
name to Heartland, Inc. as filed with the Maryland Secretary of State on
June 12, 2003, incorporated by reference to the Company’s Current Report
on Form 8-K filed with the Securities and Exchange Commission on June 15,
2004.
|
3.4
|
Bylaws
of Origin Investment Group, Inc., incorporated by reference to the
Company’s Registration Statement on Form 10-SB filed with the Securities
and Exchange Commission on August 16,
1999.
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley
Act.
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley
Act.
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted
Pursuant to Section 906 of the Sarbanes Oxley Act of
2002.
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted
Pursuant to Section 906 of the Sarbanes Oxley Act of
2002.
|
The
following table sets forth fees billed to us by our auditors during the fiscal
years ended December 31, 2007 and December 31, 2006 for: (i) services rendered
for the audit of our annual financial statements and the review of our quarterly
financial statements, (ii) services by our auditor that are reasonably related
to the performance of the audit or review of our financial statements and that
are not reported as Audit Fees, (iii) services rendered in connection with tax
compliance, tax advice and tax planning, and (iv) all other fees for services
rendered.
(i) Audit
Fees
FIRM
|
|
FISCAL
YEAR 2007
|
|
|
FISCAL
YEAR 2006
|
|
RBSM,
LLP
|
|
$ |
44,692 |
|
|
$ |
0 |
|
Meyler
& Company, LLC
|
|
$ |
144,800 |
|
|
$ |
165,000 |
|
(ii)
Audit Related Fees
None
(iii) Tax
Fees
None
(iv)
All Other Fees
None
TOTAL
FEES
FIRM
|
|
FISCAL
YEAR 2007
|
|
|
FISCAL
YEAR 2006
|
|
RBSM,
LLP
|
|
$ |
44,692 |
|
|
$ |
0.00 |
|
Meyler
& Company, LLC
|
|
$ |
144,800 |
|
|
$ |
165,000.00 |
|
AUDITFEES.
|
Consists
of fees billed for professional services rendered for the audit of our
consolidated financial statements and review of the interim consolidated
financial statements included in quarterly reports and services that are
normally provided in connection with statutory and regulatory filings or
engagements.
|
AUDIT-RELATED
FEES.
|
Consists
of fees billed for assurance and related services that are reasonably
related to the performance of the audit or review of our consolidated
financial statements and are not reported under “Audit Fees.” There were
no Audit-Related services provided in fiscal 2007 or
2006.
|
TAX
FEES.
|
Consists
of fees billed for professional services for tax compliance, tax advice
and tax planning.
|
ALL
OTHER FEES.
|
Consists
of fees for products and services other than the services reported
above.
|
POLICY
ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF
INDEPENDENT AUDITORS
The
Company currently has a designated Audit Committee, and accordingly,
the Company’s Board of Directors’ policy is to pre-approve all audit and
permissible non-audit services provided by the independent auditors. These
services may include audit services, audit-related services, and tax services
and other services. Pre-approval is generally provided for up to one year and
any pre-approval is detailed as to the particular service or category of
services and is generally subject to a specific budget. The independent auditors
and management are required to periodically report to the Company’s Board of
Directors regarding the extent of services provided by the independent auditors
in accordance with this pre-approval, and the fees for the services performed to
date. The Board of Directors may also pre-approve particular services on a
case-by-case basis.
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.
HEARTLAND
INC.
(Registrant)
Date:
April 14, 2008
|
By:
/s/ Terry Lee
|
Terry
Lee
Chief
Executive Officer
And
Chairman of the Board of Directors
Date:
April 14, 2007
|
By:
/s/ Mitchell Cox
|
Mitchell
Cox
Chief
Financial Officer
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
SIGNATURE
|
|
NAME
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
|
|
/s/
Terry Lee
|
|
Terry
Lee
|
|
Chief
Executive Officer, Chairman & Director
|
|
April
14, 2008
|
|
|
|
|
|
|
|
/s/
Mitchell Cox
|
|
Mitchell
Cox
|
|
Chief
Financial Officer
|
|
April
14, 2008
|
|
|
|
|
|
|
|
/s/
Thomas C. Miller
|
|
Thomas
C. Miller
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Secretary
& Director
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April
14, 2008
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/s/
Trent Sommerville
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Trent
Sommerville
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Director
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April
14, 2008
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