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UNITED STATES |
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SECURITIES AND EXCHANGE COMMISSION |
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Washington, D.C. 20549 |
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FORM 10-QSB |
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QUARTERLY REPORT |
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UNDER SECTION 13 OR 15(d) |
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OF THE SECURITIES EXCHANGE ACT OF 1934 |
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FOR QUARTER ENDED MARCH 31, 2006 |
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HEARTLAND, INC. |
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(Exact name of small business registrant as specified in its charter) |
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Maryland |
000-27045 |
36-4286069 |
(State or other jurisdiction of incorporation or organiztion) |
(Commission File Number) |
(IRS Employer Indentification Number) |
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25 Mound Park Drive |
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Springboro, Ohio 45066 |
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(Address of principal executive offices) (Zip Code) |
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763.557.2900 |
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(Registrants telephone no., including area code) |
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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 xNo o
Number of shares of the registrants common stock outstanding as of June 23, 2006 was: 25,128,858
Traditional Small Business Disclosure Format: Yes o |
No x |
1
HEARTLAND, INC. AND SUBSIDIARIES
FORM 10-QSB
FOR QUARTER ENDED MARCH 31, 2006
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION |
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ITEM 1. - FINANCIAL STATEMENTS |
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Consolidated Balance Sheet as of March 31, 2006 (Unaudited) |
3 |
Consolidated Statements of Operations For the Three Months Ended March 31, 2005 and 2006 (Unaudited) |
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Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2005 and 2006 (Unaudited) |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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ITEM 2. - MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION |
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ITEM 3. - CONTROLS AND PROCEDURES |
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PART II. OTHER INFORMATION |
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ITEM 1. - LEGAL PROCEEDINGS |
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ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS |
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ITEM 3. - DEFAULTS UPON SENIOR SECURITIES |
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ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
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ITEM 5. - OTHER INFORMATION |
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ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K |
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SIGNATURES |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEARTLAND, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
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March 31, 2006 |
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(Unaudited) |
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Current Assets: |
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Cash |
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$ |
613,008 |
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Accounts receivable, net |
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4,253,235 |
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Costs in excess of billings on uncompleted contracts |
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123,953 |
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Inventories |
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10,614,834 |
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Prepaid expenses and other |
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166,072 |
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Total Current Assets |
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15,771,102 |
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PROPERTY AND EQUIPMENT, net |
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3,085,796 |
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Other Assets: |
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Other intangibles |
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258,985 |
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Goodwill |
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1,429,787 |
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Investments |
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524,594 |
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Land deposits |
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233,320 |
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Security deposits |
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91,626 |
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Total Other Assets |
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2,538,312 |
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Total Assets |
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$ |
21,395,210 |
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See accompanying notes to consolidated financial statements.
3
HEARTLAND, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIENCY)
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March 31, 2006 |
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(Unaudited) |
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Current Liabilities: |
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Bank lines of credit |
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$ |
1,360,989 |
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Note payable land purchase |
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5,750,110 |
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Convertible promissory notes |
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1,191,800 |
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Current portion of long-term notes payable |
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100,058 |
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Acquisition notes payable to related parties |
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3,250,000 |
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Due to related parties |
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90,927 |
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Accounts payable |
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4,885,596 |
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Payroll taxes payable |
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679,282 |
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Other accrued liabilities |
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486,094 |
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Billings in excess of costs on uncompleted contracts |
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492,991 |
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Accrued interest payable |
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714,785 |
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Total Current Liabilities |
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19,002,632 |
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Long-Term Debt: |
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Notes Payable, less current portion |
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2,799,848 |
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Non-controlling interests in variable interest entities |
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368,215 |
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Shareholders Equity (Deficiency): |
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Preferred stock $0.001 par value, 5,000,000 shares authorized, none issued and outstanding Common stock $0.001 par value, 100,000,000 shares authorized, 27,056,140 issued and outstanding |
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27,051 |
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Additional paid-in-capital |
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17,662,223 |
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Accumulated deficit |
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(18,464,759 |
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Total Shareholders Equity (Deficiency) |
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(775,485 |
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Total Liabilities and Shareholders Equity (Deficiency) |
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$ |
21,395,210 |
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See accompanying notes to consolidated financial statements.
4
HEARTLAND, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended March 31, |
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2006 |
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2005 |
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(Restated) |
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Net Revenues |
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$ |
8,168,493 |
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$ |
8,238,422 |
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Costs and Expenses: |
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Cost of goods sold |
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6,659,206 |
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7,267,069 |
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General and administrative expenses |
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1,552,338 |
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1,362,297 |
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Stock based compensation |
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212,500 |
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690,000 |
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Depreciation and amortization |
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55,050 |
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66,683 |
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Total Costs and Expenses |
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8,479,094 |
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9,386,049 |
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Loss from Operations |
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(310,601 |
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(1,147,627 |
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Other Income (Expense): |
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Rental income |
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28,803 |
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39,051 |
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Other income |
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36,842 |
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1,197 |
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Interest expense |
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(123,855 |
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(148,491 |
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Total Other Income (Expense) |
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(58,210 |
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(108,243 |
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Loss Before Income Taxes |
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(368,811 |
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(1,255,870 |
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Provision for Income Taxes |
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- |
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1,225 |
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Net Loss |
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$ |
(368,811 |
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$ |
(1,257,095 |
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Loss per Share: |
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Basic |
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$ |
(0.02 |
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$ |
(0.06 |
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Weighted Average Common and Common Equivalent Shares Outstanding |
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23,870,178 |
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19,424,801 |
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See accompanying notes to consolidated financial statements.
5
HEARTLAND, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended March 31, |
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2006 |
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2005 |
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(Restated) |
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Net income (loss) |
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$ |
(368,811 |
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$ |
(1,257,095 |
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Reconciliation of Net Income (Loss) to Net Cash Flows Used in Operating Activities: |
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Depreciation and amortization |
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298,459 |
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66,683 |
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Stock-based compensation |
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212,500 |
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690,000 |
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Changes in working capital: |
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Accounts receivable, trade, net |
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(182,992 |
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(687,212 |
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Costs in excess of billings on uncompleted contracts |
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208,443 |
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(378,910 |
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Inventories |
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(323,783 |
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(11,762 |
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Prepaid expenses and other |
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(20,878 |
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36,349 |
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Accounts payable |
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123,372 |
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544,092 |
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Payroll taxes payable |
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77,081 |
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82,408 |
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Other accrued liabilities |
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(50,345 |
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70,739 |
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Billings in excess of costs on uncompleted contracts |
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(28,961 |
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617,350 |
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Customer deposits |
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(12,770 |
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15,388 |
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Net Cash Flows Used in Operating Activities |
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(68,685 |
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(211,970 |
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Investing Activities: |
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Purchases of property and equipment |
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- |
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(10,862 |
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Other assets |
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(50,426 |
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400 |
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Net Cash Flows Used in Investing Activities |
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(50,426 |
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(10,462 |
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See accompanying notes to consolidated financial statements.
6
HEARTLAND, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
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Three Months Ended March 31, |
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2006 |
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2005 |
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(Restated) |
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Financing Activities: |
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Proceeds from issuance of common stock |
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$ |
243,283 |
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Proceeds from issuance of convertible notes |
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$ |
567,250 |
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Borrowings on lines of credit |
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9,566 |
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99,999 |
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Borrowings for land purchases |
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9,950 |
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Advances received from related parties |
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15,000 |
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Payments on obligations to related parties |
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(201,790 |
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Payments on notes payable |
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(216,066 |
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(201,286 |
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Repayment of short-term loan from individual |
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(50,000 |
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Payment of dividends |
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(1,760 |
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Net Cash Provided by Financing Activities |
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46,733 |
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227,413 |
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Increase (Decrease) in Cash |
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(72,378 |
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4,981 |
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Cash, beginning of period |
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685,386 |
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578,354 |
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Cash, end of period |
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$ |
613,008 |
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$ |
583,335 |
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See accompanying notes to consolidated financial statements.
7
HEARTLAND, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE A CONDENSED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the results for periods presented. Certain information and footnote disclosures, normally included in the financial statements prepared in accordance with generally accepted accounting principles, have been condensed and/or omitted. The results of operations for the three months ended March 31, 2006 are not necessarily indicative of the results of operations for the year ended December 31, 2006. The condensed financial statements should be read in conjunction with the Companys financial statements included in its annual Form 10-KSB for the year ended December 31, 2005.
NOTE B - STOCKHOLDERS EQUITY
During the three months ended March 31, 2006 the Company sold 486,565 shares of common stock for aggregate proceeds of $243,283, for an average price per share of $0.50.
During the three months ended March 31, 2006 the Company issued 425,000 shares of common stock for services rendered, and recorded stock-based compensation expense of $212,500 related thereto.
During the three months ended March 31, 2006, the Company converted $1,068,700 of the Convertible Promissory Notes and $128,144 of related accrued interest through the issuance of 2,393,686 shares of its common stock.
NOTE C GOING CONCERN
As reflected in the accompanying financial statements, the Company has negative working capital of $3,231,530 and an accumulated deficit of $18,464,759. The Companys auditors, in their opinion on the Companys annual financial statements for 2005 dated May 19, 2006, included a going concern qualification related to substantial doubt about the Companys ability to continue as a going concern.
NOTE D SUBSEQUENT EVENTS
On June 21, 2006, the Company agreed to accept recissions of the December, 2004 acquisition agreements from Evans Columbus, LLC effective March 31, 2006 and from Monarch Homes, Inc. effective June 1, 2006.
8
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OERATION.
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995:
This Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 2006 contains "forward-looking" statements within the meaning of the Federal securities laws. These forward-looking statements include, among others, statements concerning the Company's expectations regarding sales trends, gross and net operating margin trends, political and economic matters, the availability of equity capital to fund the Company's capital requirements, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The forward-looking statements in this Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 2006 are subject to risks and uncertainties that could cause actual results to differ materially from those results expressed in or implied by the statements contained herein.
The interim financial statements have been prepared by Heartland, Inc. and in the opinion of management, reflect all material adjustments which are necessary to a fair statement of results for the interim periods presented, including normal recurring adjustments. Certain information and footnote disclosures made in the most recent annual financial statements included in the Company's Form 10-KSB for the year ended December 31, 2005, have been condensed or omitted for the interim statements. It is the Company's opinion that, when the interim statements are read in conjunction with the December 31, 2005 financial statements, the disclosures are adequate to make the information presented not misleading. The results of operations for the three months ended March 31, 2006 are not necessarily indicative of the operating results for the full fiscal year.
BACKGROUND
The company currently conducts operations in steel fabrication, and construction. Mound Technologies, Inc. (steel fabrication) was acquired in December 2004. Karkela Construction, Inc. and Monarch Homes, Inc. (construction), and Evans Columbus, LLC (steel drum manufacturing) were acquired in December 2005. On June 21, 2006, the Company agreed to accept recissions of the December, 2004 acquisition agreements from Evans Columbus, LLC effective March 31, 2006 and from Monarch Homes, Inc. effective June 1, 2006. The discussion below compares the results from 2006 to the comparable period in 2005.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2005
Revenues for the three months ended March 31, 2006 were $8,168,493 compared to $8,238,422, a decrease of 1%. Loss from operations was $368,811 for the three months ended March 31, 2006, compared to a loss of $1,257,095 for the same period in 2005. The improvement was primarily due improved sales and profitability in the steel fabrication segment.
Interest expense for the three months ended March 31, 2006 was $123,855 compared to $148,491 for the same period in 2005 due to conversion of outstanding notes during the period.
Primarily as a result of these factors, net loss (before elimination of earnings of subsidiaries prior to their acquisition) was $368,811 for the First quarter of 2006 compared to a loss of $1,138,812 for the first quarter of 2005.
9
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was ($68,685) for the three months ended March 31, 2006. This was primarily related to operating losses, additional receivables in the steel fabrication and manufacturing businesses, and additional inventories of land and work-in-process in the construction businesses, offset in part by additional trade financing. The deficit was financed by sales of restricted shares totaling $243,283 and net borrowings of $19,516 during the three months ended March 31, 2006.
Total short-term and long-term debt at March 31, 2006 was $21,802,480 and total shareholders equity (deficiency) was ($775,485).
Our businesses are seasonally working capital intensive and require funding for purchases of raw materials used in production, replacement parts inventory, capital expenditures, expansion and upgrading of existing facilities, as well as for financing receivables from customers. Additionally, our auditors, in their opinion on our financial statements for the year ended December 31, 2005 issued a going concern qualification to their report dated May 19, 2006. We believe that cash generated from operations, together with our bank credit lines, and cash on hand, will provide us with a majority of our liquidity to meet our operating requirements. We believe that the combination of funds available through future anticipated financing arrangements, coupled with forecasted cash flows, will be sufficient to provide the necessary capital resources for our anticipated working capital, capital expenditures, and debt repayments for at least the next twelve months.
Seasonality
Our operations are subject to seasonal fluctuations, particularly the construction segment, located in Minnesota, which can be affected by the adverse weather conditions that can occur in that region.
Inflation
We are subject to the effects of inflation and changing prices. We experienced rising prices for steel and other commodities during fiscal 2005 and for the first three months of 2006 that had a negative impact on our gross margins and net earnings. In addition, rising natural gas prices have hurt our results in the manufacturing area. In the remainder of fiscal 2006, we expect average prices of steel and other commodities to be higher than the average prices paid in fiscal 2005 and for the first three months of 2006. We will attempt to mitigate the impact of these anticipated increases in steel and other commodity prices and other inflationary pressures by actively pursuing internal cost reduction efforts and introducing price increases.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3. CONTROLS AND PROCEDURES.
The Companys management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Companys disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures were effective as of the end of the period covered by this report. There has been no change in the Companys internal control over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of our business, we and/or our subsidiaries are named as defendants in suits filed in various state and federal courts. We believe that none of the litigation matters in which we, or any of our subsidiaries, are involved would have a material adverse effect on our consolidated financial condition or operations.
There is no other past, pending or, to the Company's knowledge, threatened litigation or administrative action which has or is expected by the Company's management to have a material effect upon our Company's business, financial condition or operations, including any litigation or action involving our Company's officers, directors, or other key personnel.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2006 the Company sold an aggregate of 486,565 shares of common stock to investors in private placements.
On March 15, 2006 the company issued 25,000 shares for public relation services to SmallCapVoice.com.
On March 15, 2006 the company issued 400,000 shares for public relations to Crystal Research Associates, LLC.
During the three months ended March 31, 2006, $1,068,700 of notes plus $128,144 in interest on said notes were converted to equity at $0.50 per share for a total of 2,393,686 newly issued shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of March 31, 2006 the company is in defult on $1,161,800 on notes outstanding issued during 2004 and 2005 plus accrued interest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On June 21, 2006, the Company agreed to accept recissions of the December, 2004 acquisition agreements from Evans Columbus, LLC effective March 31, 2006 and from Monarch Homes, Inc. effective June 1, 2006.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) |
Exhibits: |
Exhibit 31.1 |
Certification of Thomas C. Miller, President, Chief Executive Officer & Director | |
Exhibit 31.2 |
Certification of Jerry Gruenbaum, Interim Chief Financial Officer & Director. |
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Exhibit 32.1 |
Certification of Thomas C. Miller, President, Chief Executive Officer & Director | |
Exhibit 32.2 |
Certification of Jerry Gruenbaum, Interim Chief Financial Officer & Director. |
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(b) |
Reports on Form 8-K: |
Three Months Ended March 31, 2006
The Company filed a Form 8-K on March 16, 2006 and a Form 8-KA on March 21, 2006 relating to non reliance on previously issued financial statements filed by the Company as a result of the Securities and Exchange Commissions review of certain of the Companys prior filings.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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HEARTLAND, INC. |
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(Registrant) |
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Date: June 23, 2006 |
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By: /s/ THOMAS C. MILLER |
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Thomas C. Miller |
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President, CEO and Director |
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(Duly Authorized Officer) |
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Date: June 23, 2006 |
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By: /s/ JERRY GRUENBAUM |
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Jerry Gruenbaum |
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Interim and Chief Financial |
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Officer and Director |
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(Principal Financial |
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and Accounting Officer) |
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