form8k.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 8-K/A

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities and Exchange Act of 1934

Date of Report (Date of earliest reported): October 1, 2008

HEARTLAND, INC.
(Exact name of registrant as specified in charter)

Maryland
000-27045
36-4286069
(State  or  Other  Jurisdiction of Incorporation or Organization)
(Commission File Number)
(IRS Employer Identification No.)

P.O. Box 4320
Harrogate, TN  37752
 (Address of principal executive offices) (Zip Code)

606-248-7323
 (Registrant’s telephone no., including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
 
 
 
 
 

 
1



Explanatory Note:  This Form 8-K is being filed for the purpose of providing the financial statements of the business acquired and pro forma financial information related to the consolidated entity, which are attached under Item 9.01 below..

Item 1.01  
Entry into a Material Definitive Agreement
Item 2.01  Completion of Acquisition or Disposition of Assets
Item 2.03   Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant
Item 3.02  Unregistered Sales of Equity Securities.

Heartland, Inc. is the parent company of Lee Oil Company, Inc. and its subsidiaries (“Lee Oil”), a petroleum distributor operating in the southeastern Kentucky, southwestern Virginia, and northeastern Tennessee.
 
          As previously reported in Heartland’s Form 8-K filed on October 3, 2008 and in Heartland’s Form 10-Q for the quarter ended September 30, 2008, on October 1, 2008, Heartland entered into and closed a Securities Purchase Agreement (the “Agreement) with Lee Holding Company LP and Gary Lee (“Sellers”) that allowed Heartland to obtain 100% of the outstanding securities in Lee Oil Company, Inc., Lee’s Food Mart, LLC, and Lee Enterprises, Inc. Terry Lee, the company’s Chief Executive Officer and a director, is also the principal partner of Lee Holding Company LP  and Gary Lee is the brother of Terry Lee.
 
Pursuant to the Agreement, Lee Oil became a fully owned subsidiary of Heartland as of October 1, 2008 and will file consolidated financial statements going forward. For further information on the Purchase Agreement, Completion of Acquisition, the Creation of a Direct Financial Obligation, or the Unregistered Sales of Equity Securities, see the Heartland’s Form 8-K filed on October 3, 2008.


Item 9.01.          Financial Statements and Exhibits


(a)
Financial statements of businesses acquired.

 
Lee Oil Company’s audited financial statements with the auditor’s report are attached to this report and are incorporated herein by reference:
 
· Condensed Consolidated Balance Sheets as of December 31, 2007 and 2006.
· Condensed Consolidated Statements of Operations for years ended December 31, 2007 and 2006.
· Condensed Consolidated Statements of Cash Flows for the years ended December 31, 2007 and 2006.
· Condensed Consolidated Statements in Changes in Stockholders’ Equity for the years ended December 31, 2007 and 2006.
· Notes to Financial Statements


(b)
Pro forma financial information.

Heartland’s unaudited pro forma condensed consolidated financial information:
 
•     Unaudited pro forma condensed consolidated statements of income for the year ended December 31, 2007 and for the nine months ended September 30, 2008
•     Unaudited pro forma condensed consolidated balance sheet as of December 31, 2007 and September 30, 2008.
•     Notes to Unaudited Pro Forma Financial Statements
 
 
 (c)       Shell company transactions.

Not applicable

(d)        Exhibits

Exhibit No.
  
Description of Exhibit
4.1
  
Loan Agreement between Heartland, Inc. and Choice Financial Group dated October 1, 2008 (1)
4.2
  
Promissory Note payable to Choice Financial Group (1)
4.3
  
Guaranty by Lee Oil Company, Inc., Lee’s Food Mart, LLC, Lee Enterprises, Inc. and Mound Technologies, Inc. in favor of Choice Financial Group (1)
4.4
  
Form of Pledge Agreement by and between Heartland, Inc. and Choice Financial Group (1)
4.5
  
Form of Third Party Assignment of leases, Rents and Purchase Agreements (1)
4.6
  
Form of Third Party Security Agreement  (1)
4.7
  
Third Party Mortgage by Mound Technologies, Inc. in favor of Choice Financial Group (1)
4.8
  
Third Party Mortgage by Lee’s Food Mart’s LLC in favor of Choice Financial Group (1)
4.9
  
Third Party Deed of Trust by Lee Oil Company, Inc. in favor of Choice Financial Group (1)
10.1
  
Securities Purchase Agreement Lee Holding Company LP and Gary Lee  and Lee Oil Company, Inc., Lee’s Food Mart, LLC and Lee Enterprises, Inc. dated October 1, 2008 (1)
10.2
  
Employment, Noncompetition and Nondisclosure Agreement by and between Terry Lee and Heartland, Inc. dated October 1, 2008 (1)
10.3
  
Promissory Note payable to Lee Holding Company LP (1)
10.4
  
Promissory Note payable to Gary Lee (1)

(1) Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 3, 2008.




2






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
HEARTLAND, INC.
  
       
December 9, 2008    
By:
/s/ Mitchell L. Cox
  
   
Mitchell Cox
  
   
CFO
  
       

 


3

Exhibit 9.01

 
Heartland, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Statements and Footnotes
For the Nine Months Ended September 30, 2008
and the Year Ended December 31, 2007

 
Introduction
 
On October 1, 2008, Heartland, Inc. (“Heartland”) obtained 100% ownership in Lee Oil Company, Inc., Lee’s Food Marts, LLC, and Lee Enterprises, Inc. (“Lee Oil”). The closing of the transaction is not expected to result in a gain for tax purposes. The accompanying unaudited pro forma condensed consolidated financial statements assume the formation of the consolidated entity will be recorded using purchase accounting in accordance with SFAS No. 141, “Business Combinations” with Heartland being treated as the acquirer for accounting purposes. 
 
The unaudited pro forma condensed consolidated balance sheet of Heartland at September 30, 2008 assumes the formation of the consolidated entity occurred on September 30, 2008. The unaudited pro forma condensed consolidated statements of income of Heartland for the year ended December 31, 2007 and for the nine months ended September 30, 2008 assume the formation of the consolidated entity occurred on January 1, 2007.
 
The unaudited pro forma condensed consolidated financial statements and accompanying notes have been prepared in conformity with U.S. generally accepted accounting principles consistent with those used in, and should be read together with, Heartland’s historical consolidated financial statements and related notes included in Heartland’s Form 10-KSB for the year ended December 31, 2007 and Form 10-Q for the quarter ended September 30, 2008.
 
The adjustments reflected in the unaudited pro forma condensed consolidated financial statements are based on currently available information and certain estimates and assumptions; therefore, actual results may differ from the pro forma adjustments. However, management believes that the assumptions used provide a reasonable basis for presenting the significant effects of the formation of the consolidated entity and that the pro forma adjustments in the unaudited pro forma condensed consolidated financial statements give appropriate effect to the assumptions and are applied in conformity with accounting principles generally accepted in the United States.
 
The unaudited pro forma condensed consolidated financial statements do not purport to present Heartland’s results of operations had the formation of the consolidated entity actually been completed at the dates indicated. In addition, the unaudited pro forma condensed consolidated financial statements do not project Heartland’s results of operations for any future period.


4
 
Exhibit 9.01(a)






Lee Oil Company, Inc. and Subsidiaries

Consolidated Financial Statements

Years Ended December 31, 2007 and 2006




 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
5

 



Paul D. Harris, CPA
P.O. Box 404, Jonesville, VA  24263
276-346-1972 ~ Fax: 276-346-1769


December 2, 2008

Lee Oil Company, Inc.
P.O. Box 2580
Middlesboro, KY 40965

Board of Directors & Stockholders:

I have audited the accompanying consolidated balances sheets of Lee Oil Company, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of income, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of Lee Oil Company’s management. My responsibility is to express an opinion on these financial statements based on my audit.

I conducted my audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.

In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lee Oil Company, Inc. as of December 31, 2007 and 2006 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.




/s/ Paul D. Harris
Certified Public Accountant



6







LEE OIL COMPANY, INC. AND SUBSIDIARIES
  
CONSOLIDATED BALANCE SHEETS
  
   
ASSETS
  
             
   
December 31,
    
December 31,
  
   
2007
    
2006
  
             
CURRENT ASSETS
            
   Cash
   $ 2,149,788     $ 2,597,321  
   Accounts receivable, net
     2,590,666       2,064,063  
   Inventory
     1,778,675       1,555,689  
Total current assets
     6,519,129       6,217,073  
                 
PROPERTY, PLANT AND EQUIPMENT, net
     4,448,488       4,877,239  
                 
OTHER ASSETS
                
   Notes receivable
     25,000       18,000  
Total other assets
     25,000       18,000  
                 
TOTAL ASSETS
   $ 10,992,617     $ 11,112,312  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
  
                 
CURRENT LIABILITIES
                
   Accounts payable
   $ 1,380,705     $ 2,094,895  
   Current portion of notes payable
     904,837       399,902  
   Refundable security deposits
     40,000       40,000  
   Accrued interest
     6,360       6,965  
   Obligation to related party
     11,049       -  
   Accrued expenses
     44,171       46,503  
   Unearned supplier incentives, current portion
     54,565       46,141  
Total current liabilities
     2,441,687       2,634,406  
                 
LONG-TERM OBLIGATIONS
                
   Notes payable, less current portion
     3,838,884       4,256,270  
   Unearned supplier incentives, less current portion
     327,388       276,849  
Total long term liabilities
     4,166,272       4,533,119  
                 
STOCKHOLDERS’ EQUITY
                
   Common stock, $100.00 par value 500 shares
                
   authorized; 262 shares issued and outstanding
     26,200       26,200  
   Additional paid-in capital – common stock
     32,508       32,508  
   Retained Earnings
     4,325,950       3,886,079  
Total stockholders’ equity
     4,384,658       3,944,787  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   $ 10,992,617     $ 11,112,312  
                 


See accompanying notes to the financial statements
 
 
 
7
 

 

LEE OIL COMPANY, INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF OPERATIONS
  
   
             
   
Twelve Months Ended
  
   
December 31,
  
   
2007
    
2006
  
REVENUE - SALES
   $ 87,412,247     $ 78,387,244  
COSTS AND EXPENSES
                
   Cost of goods sold
     80,357,076       71,798,298  
   Selling, general and administrative expenses
     5,159,646       4,900,803  
   Depreciation and amortization
     846,343       857,221  
Total Costs and Expenses
     86,363,065       77,556,322  
NET OPERATING INCOME
     1,049,182       830,922  
                 
OTHER INCOME (EXPENSE)
                
   Other income
     129,749       111,097  
   Interest expense
     (271,952 )     (291,826 )
Total Other Expense
     (142,203 )     (180,729 )
INCOME FROM OPERATIONS BEFORE INCOME TAXES
     906,979       650,193  
   State income tax, current
     (51,418 )     (49,895 )
   Federal income tax, current
     (160,000 )     (200,484 )
NET INCOME
     695,561       399,814  
                 
 
 




See accompanying notes to the financial statements
 
8
 

 

LEE OILCOMPANY, INC. AND SUBSIDIARIES
        
CONSOLIDATED STATEMENTS OF CASH FLOWS
        
         
   
Twelve Months Ended
  
   
December 31,
  
   
2007
    
2006
  
             
CASH FLOWS FROM OPERATING ACTIVITIES
            
Net income from operating activities
   $ 695,561     $ 399,814  
                 
Adjustments to reconcile net income to cash flows provided by operating activities
                
    Depreciation and amortization
     846,343       857,221  
Changes in assets and liabilities
                
    (Increase) decrease in accounts receivable
     (526,603 )     47,705  
    (Increase) in inventory
     (222,986 )     (213,474 )
    (Increase) in advances to related parties
     (7,000 )     -  
    (Decrease) in accounts payable
     (714,190 )     (33,738 )
    (Decrease) increase in accrued interest
     (605 )     2,816  
    (Decrease) in accrued expenses
     (2,332 )     (8,411 )
    Increase in unearned supplier incentives
     58,963       155,832  
NET CASH PROVIDED BY OPERATING ACTIVITIES
     127,151       1,207,765  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
                
    Net payments for property, plant and equipment
     (417,595 )     (342,494 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
                
    Net proceeds from (payments toward) notes payable
     98,598       (281,711 )
    Dividends declared and paid
     (255,687 )     (162,357 )
NET CASH USED IN FINANING ACTIVITIES
     (157,089 )     (444,068 )
                 
(DECREASE) INCREASE IN CASH
     (447,533 )     421,203  
                 
CASH, BEGINNING OF PERIOD
     2,597,321       2,176,118  
                 
CASH, END OF PERIOD
   $ 2,149,788     $ 2,597,321  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
                
    Interest paid
   $ 271,952     $ 291,826  
    Taxes paid
   $ 211,418     $ 250,379  
 


See accompanying notes to the financial statements
 
 
9
 

 
LEE OILCOMPANY, INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
  
Years Ended December 31, 2006 and 2007
  
                         
         
Additional
              
   
Common
    
Paid-In
    
Retained
        
   
Stock
    
Capital
    
Earnings
    
Total
  
                         
Balance, December 31, 2005
   $ 26,200     $ 32,508     $ 3,648,619     $ 3,707,327  
                                 
   Net Income
                     399,814       399,814  
                                 
   Dividends Declared and Paid
                     (162,357 )     (162,357 )
                                 
Balance, December 31, 2006
     26,200       32,508       3,886,076       3,944,784  
                                 
   Net Income
                     695,561       695,561  
                                 
   Dividends Declared and Paid
                     (255,687 )     (255,687 )
                                 
Balance, December 31, 2007
   $ 26,200     $ 32,508     $ 4,325,950     $ 4,384,658  
                                 

 


See accompanying notes to the financial statements
 
10
 
Lee Oil Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note A – Summary of Significant Accounting Policies

Basis of Consolidation
The consolidated financial statements include the accounts of Lee Oil Company, Inc. and Lee’s Food Marts, LLC, a wholly owned subsidiary (collectively, the Company). All significant inter-company accounts and transactions have been eliminated in consolidation.

Nature of Operations
The Company distributes petroleum products on both a retail and wholesale basis in the Northeastern Tennessee, Southeastern Kentucky, and Southwestern Virginia area.

Cash and Cash Equivalents
For purposes of classification within the financial statements, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.  At December 31, 2007, the Company had approximately $919,697 on deposit with banks in excess of federally insured limits and not otherwise collateralized.

Trade Accounts Receivable
The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral on trade accounts receivable.

Trade accounts receivable are recorded at the amount the Company expects to collect on balances outstanding at year-end. Management closely monitors outstanding balances and writes off all balances that are deemed to be uncollectible. Any account that falls outside of the credit terms specified for that account (normally 30 days) is subject to a finance charge being placed on the account at the end of each month. This process continues until such time as the account is paid or the amount is written off through bad debts.

Estimates are used in determining the allowance for doubtful accounts and are based on historical collection experience and current trends. Management periodically evaluates the standard allowance estimation methodology for appropriateness and modifies as necessary.  The Company’s accounts receivable are written off once the account is deemed to be uncollectible. This typically occurs once we have exhausted all efforts to collect the account, which include collection attempts by our employees and outside collection agencies.

For the periods ending December 31, 2007 and 2006, we have estimated the allowance for bad debts to be $17,191 and $13,981, respectively. The total amount of the accounts receivable which were over 90 days old and being charged a finance charge as of December 31, 2007 and 2006 was $21,543 and $3,186, respectively.

Inventories
Inventories consist primarily of gasoline and diesel fuel. These products are carried at average cost for products stored at the bulk plants and at last cost for products delivered to the retail locations.

Excise Taxes
Products picked up at the terminal may be subject to both federal and state excise taxes.  These taxes along with other taxes placed on the products from various taxing authorities are passed through as separate line item charges in our billing process at the wholesale level and had a carrying value of $124,748 and $132,867 for the periods ending December 31, 2007 and 2006, respectively.


Property and Equipment
Property and equipment are carried at cost. Expenditures for major renewals and betterments that extend the useful lives or property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation of property and equipment is provided using the straight-line method at rates based on the following estimated useful lives:
 
   
Years
  
 Vehicles    
3 - 5
  
 Machinery & Equipment     
5 - 7
  
 Furniture & Fixtures      
7 - 10
  
 Buildings & Improvements     
15 - 40
  
                                             
The following table reflects the carrying values of the significant categories of property and equipment as of December 31:
 
   
  2007
    
 2006
  
 Equipment        6,167,910       5,843,903  
 Buildings      3,074,014       2,941,738  
 Plant Equipment     414,843       414,843  
 Other Assets      53,286       192,079  
 Land     1,240,713       1,190,713  
 Less:  Accumulated                
 Depreciation 
     (6,502,278 )     (5,706,037 )
 Totals      4,448,488       4,877,239  
                                                 
Use of Estimates
The preparation of financial statements in accordance with accounting principals generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements.  Estimates also affect the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
Note B – Notes Receivable

Notes receivable relate to amounts due from related parties or other outside parties and are reported under other assets.  The notes are non-interest bearing.
 
   
 2007
   
 2006
  
$6,500 promissory note from a former customer                
  with monthly payments until the note is paid in full. 
   $ 6,000$       -  
                 
$18,000 promissory note from a customer to be repaid                
  over a four year period, ending September 30, 2008.                
 Thereafter, any balance remaining will be repaid over                
 six years ending September 30, 2014.      18,000       18,000  
                 
 Other notes receivable     1,000       -  
                 
 Totals è    $ 25,000     $ 18,000  
 

 
11
                                                                                                                                           
 
Note C – Concentration of Credit Risk

Three customers comprised 24%, 22%, and 11% of trade accounts receivable at December 31, 2007 and 25%, 23%, and 8%, respectively, of trade receivables at December 31, 2006

Note D – Notes Payable

Notes payable consist of long term notes entered into with various financial institutions or outside parties for the purchase of property and equipment with a carrying value of $4,448,488 at December 31, 2007. The assets purchased with these notes serve as collateral for the individual notes. The following tables give the notes and terms along with maturities:
 
                     
12/31/07  
      
12/31/06 
      
Maturity 
  
Bank Notes    
 Rate  
      
Payment  
      
Balance  
      
Balance 
      
Date 
  
First Tennessee – Line of Credit
    
6.13%
       -       500,000       -      
-
  
   Commercial Bank – Line of Credit
             -       15,320       7,777      
-
  
   Ford Motor Credit
    
0.00%
       425.00       -       5,135    
12/25/07
  
   Paccar Financing
    
7.50%
       1,531.57       11,913       27,843    
09/06/08
  
   Commercial Bank #28594752
    
6.55%
       6,226.73       622,687       661,498    
03/24/19
  
   Peoples Community #20586005
    
5.50%
       6,100.00       895,889       918,169    
08/01/08
  
   First Tennessee #30029576
    
5.97%
       14,469.87       1,059,513       1,165,318    
08/17/15
  
                                         
Third Party Notes
                                        
   Sam Mars, Jr. - Lee #7
    
7.0%
       1,903.52       86,553       102,718    
05/01/12
  
   Sam Mars, Jr. – Lee #16
    
7.0%
       2,793.94       276,105       289,517    
05/16/20
  
   Sam Mars, Jr. – Plant
    
7.0%
       2,710.40       241,366       256,418    
06/25/18
  
   Mars Properties
    
6.0%
       6,821.04       352,770       411,532    
12/25/12
  
   Shoemaker Distributing
    
6.0%
       6,083.49       351,217       447,713    
10/01/13
  
   Petro Marketing
    
6.3%
       4,491.20       330,388       362,535    
09/30/15
  

The maturity dates of the above notes over the next five years are as follows:

 
   
 2007
  
 2008      897,008  
 2009     402,509  
 2010      430,464  
 2011      457,462  
 2012     472,070  
 Thereafter      2,084,208  
     Total Due       4,743,721  
 
                                                                    

For the periods ended December 31, 2007 and 2006, the Company recorded interest expense of $271,952 and $291,826, respectively.

The Company’s president is also the chief executive officer of Commercial Bank, which provides the Company’s line of credit.


Note E – Advertising

Advertising costs are expensed as incurred and totaled $15,237 and $20,616 in 2007 and 2006, respectively.
 
 
12
 

 
Note F – Unearned Supplier Incentives

The major oil companies require distributors to upgrade their sites to a new store image from time to time. To induce the distributors to upgrade all the sites and keep them from switching brands within a given amount of time, the major oil suppliers will provide the distributors with upfront funds to help cover some of the expenses in these conversions. This money has to be paid back if the distributor fails to comply with the standards set forth or wishes to switch brands before the agreement has been completed.

The Company has estimated this liability to be $381,953 and $322,990 for the years ending December 31, 2007 and 2006, respectively.
 
Note G – Leases

The Company has entered into a number of renewable leases that allow it to continue leasing certain pieces of property and/or stores through such time as it may no longer be cost effective to continue the lease or the property is deemed to be worth purchasing.  The Company looks at each lease prior to being renewed to see if any changes need to be made. Normally, these leases are setup for five year terms with the option of renewing for multiple five year terms and would automatically renew if no notification is given by either party. The only change in the renewal would normally be an escalator clause for inflation. We can not predict with certainty the amount of any such adjustment, therefore, the estimated lease payouts over the next five years would be a multiplier of the current year.

For the year ended December 31, 2007, the Company paid $256,212 to outside parties for the lease of certain real property. The Company would expect to pay out the same in each of the next five years for an estimated total of $1,281,059 over the next five years.
 
Note H – Income Taxes

Prior to January 1, 2007, Lee Enterprises, Inc. elected to be treated as a small business corporation for federal income tax purposes whereby the income and other tax attributes are reported by the individual shareholders rather than by the Company.  Accordingly, no provision was made for federal income tax purposes.  On January 1, 2007, Lee Enterprises, Inc. merged into Lee Food Marts, LLC.

For both 2007 and 2006, Lee Food Marts, LLC (Lee Food) elected to be treated as a partnership for federal income tax purposes.  Accordingly, the taxable income of Lee Food was allocated to the members and no provision for federal income taxes was provided in the accompanying financial statements.

Lee Food merged into Lee Oil Company, Inc. on September 30, 2008.

The following table provides reconciliation between Income from Operations before Income Taxes to taxable income for the Company:

   
2007
    
2006
  
Income from Operations before Income Taxes
   $ 906,979     $ 650,193  
Less:  Income from Lee Enterprises, Inc. operations
     (189,741 )     (158,651 )
           Income from Lee      Food Mart, LLC operations
     (195,809 )     (18,949 )
Income subject to federal income tax
   $ 521,429     $ 472,593  

Note I – Subsequent Events

All the issued and outstanding stock of the Company was purchased by Heartland, Inc on October 1, 2008. All future financial information for the Company will be consolidated into the Heartland’s financial statements as a wholly owned subsidiary.


13

 

Exhibit 9.01(b)

HEARTLAND, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEETS
  
(unaudited)
  
                         
                         
   
December 31, 2007
  
         
Pro Forma Adjustments
        
   
Heartland, Inc.
    
Lee Oil
    
Purchase
    
Heartland, Inc.
  
   
Historical
    
Historical
    
Adjustments
    
Pro Forma
  
ASSETS
                        
                         
CURRENT ASSETS
                        
   Cash
   $ 216,570     $ 2,149,788     $ -     $ 2,366,358  
   Accounts receivable, net
     3,188,591       2,590,666       -       5,779,257  
   Costs and estimated earnings in excess of billings
     311,899       -       -       311,899  
   Inventory
     904,409       1,778,675       -       2,683,084  
   Prepaid expenses and other
     1,259       -       -       1,259  
Total current assets
     4,622,728       6,519,129       -       11,141,857  
                                 
PROPERTY, PLANT AND EQUIPMENT, net
     701,168       4,448,488       2,072,351       7,222,007  
                                 
OTHER ASSETS
     426,321       25,000       -       451,321  
                                 
Total assets
   $ 5,750,217     $ 10,992,617     $ 2,072,351     $ 18,815,185  
                                 






14

 




HEARTLAND, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEETS- continued
  
(unaudited)
  
                         
   
December 31, 2007
  
         
Pro Forma Adjustments
        
   
Heartland, Inc.
    
Lee Oil
    
Purchase
    
Heartland, Inc.
  
   
Historical
    
Historical
    
Adjustments
    
Pro Forma
  
                         
CURRENT LIABILITIES
                        
   Convertible promissory notes payable
   $ 53,450     $ -     $ -     $ 53,450  
   Current portion of notes payable
     24,604       904,837       466,667       1,396,108  
   Current portion of notes payable to related    parties
     89,156       -       -       89,156  
   Refundable customer deposit
     -       40,000       -       40,000  
   Accounts payable
     3,172,585       1,380,705       -       4,553,290  
   Obligations to related parties
     12,008       11,049       -       23,057  
   Current portion of capital lease
     8,320       -       -       8,320  
   Accrued interest
     -       6,360       -       6,360  
   Accrued expenses
     -       44,171       -       44,171  
   Unearned supplier incentives, current portion
     -       54,565               54,565  
   Billings in excess of costs and estimated earnings
     195,432       -       -       195,432  
Total current liabilities
     3,555,555       2,441,687       466,667       6,463,909  
                                 
LONG-TERM OBLIGATIONS
                                
   Notes payable, less current portion
     180,799       3,838,884       6,033,333       10,053,016  
   Notes payable to related parties, less current portion
     403,607       -       -       403,607  
   Capital Lease, less current portion
     26,571       -       -       26,571  
   Unearned supplier incentives, less current portion
     -       327,388       -       327,388  
Total long term liabilities
     610,977       4,166,272       6,033,333       10,810,582  
                                 
STOCKHOLDERS’ EQUITY
                                
   Preferred stockholders' equity
     715,937       -       -       715,937  
   Common stockholders' equity
     15,826,356       58,708       441,292       16,326,356  
   (Accumulated deficit) Retained earnings
     (14,958,608 )     4,325,950       (4,868,941 )     (15,501,599 )
Total stockholders’ equity
     1,583,685       4,384,658       (4,427,649 )     1,540,694  
                                 
Total Liabilities and Stockholders’ Equity
   $ 5,750,217     $ 10,992,617     $ 2,072,351     $ 18,815,185  
                                 

 

The accompanying notes are an integral part of the unaudited pro forma condensed consolidated financial statements.
 
 
 
15
 
 
 
 
HEARTLAND, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
  
(unaudited)
  
                         
   
Twelve Months Ended December 31, 2007
  
         
Pro Forma Adjustments
        
   
Heartland, Inc.
    
Lee Oil
    
Purchase
    
Heartland, Inc.
  
   
Historical
    
Historical
    
Adjustments
    
Pro Forma
  
                         
REVENUE - SALES
   $ 14,112,726     $ 87,412,247     $ -     $ 101,524,973  
COSTS AND EXPENSES
                                
   Cost of goods sold
     12,641,424       80,357,076       -       92,998,500  
   Selling, general and administrative expenses
     2,419,976       5,159,646       -       7,579,622  
   Depreciation and amortization
     67,557       846,343       -       913,900  
Total Costs and Expenses
     15,128,957       86,363,065       -       101,492,022  
NET OPERATING INCOME (LOSS)
     (1,016,231 )     1,049,182       -       32,951  
OTHER INCOME (EXPENSE)
                                
   Other income
     224,666       129,749       -       354,415  
   Gain (loss) on disposal of property, plant and equipment
     32,763       -       -       32,763  
   Interest expense
     (117,744 )     (271,952 )     -       (389,696 )
Total Other Income (Expense)
     139,685       (142,203 )     -       (2,518 )
INCOME (LOSS) BEFORE INCOME TAXES
     (876,546 )     906,979       -       30,433  
   Federal Income Tax, current
     -       (160,000 )     -       (160,000 )
   State Income Tax, current
     -       (51,418 )     -       (51,418 )
NET INCOME
     (876,546 )     695,561       -       (180,985 )
LESS: Preferred Dividends
     (162,286 )     -       -       (162,286 )
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
   $ (1,038,832 )   $ 695,561     $ -     $ (343,271 )
                                 
EARNINGS (LOSS) PER COMMON SHARE
   $ (0.029 )   $ 2,654.813     $ -     $ (0.009 )
                                 

The accompanying notes are an integral part of the unaudited pro forma condensed consolidated financial statements.
 
 
 
16
 
 
 
HEARTLAND, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEETS
  
(unaudited)
  
                         
                         
   
September 30, 2008
  
         
Pro Forma Adjustments
        
   
Heartland, Inc.
    
Lee Oil
    
Purchase
    
Heartland, Inc.
  
   
Historical
    
Historical
    
Adjustments
    
Pro Forma
  
ASSETS
                        
                         
CURRENT ASSETS
                        
   Cash
   $ 856,564     $ 2,099,687     $ -     $ 2,956,251  
   Accounts receivable, net
     3,341,634       4,215,880       -       7,557,514  
   Costs and estimated earnings in excess of billings
     298,743       -       -       298,743  
   Inventory
     1,549,011       2,030,018       -       3,579,029  
   Prepaid expenses and other
     24,020       2,088       -       26,108  
Total current assets
     6,069,972       8,347,673       -       14,417,645  
                                 
PROPERTY, PLANT AND EQUIPMENT, net
     1,985,236       4,846,824       2,072,351       8,904,411  
                                 
OTHER ASSETS
     -       20,826       -       20,826  
                                 
Total assets
   $ 8,055,208     $ 13,215,323     $ 2,072,351     $ 23,342,882  
 
 
17
 
 
 
                       
HEARTLAND, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEETS - continued
  
(unaudited)
  
                         
   
September 30, 2008
  
         
Pro Forma Adjustments
        
   
Heartland, Inc.
    
Lee Oil
    
Purchase
    
Heartland, Inc.
  
   
Historical
    
Historical
    
Adjustments
    
Pro Forma
  
                         
CURRENT LIABILITIES
                        
   Convertible promissory notes payable
   $ 12,450     $ -     $ -     $ 12,450  
   Current portion of notes payable
     134,660       882,314       466,667       1,483,641  
   Current portion of notes payable to related parties
     72,622       -       -       72,622  
   Refundable customer deposit
     -       10,000       -       10,000  
   Accounts payable
     2,128,046       2,529,895       -       4,657,941  
   Obligations to related parties
     12,008       -       -       12,008  
   Accrued payroll and related taxes
     264,341       -       -       264,341  
   Accrued interest
     113,928       6,360       -       120,288  
   Accrued expenses
     295,138       126,686       -       421,824  
   Unearned supplier incentives, current portion
     -       57,656               57,656  
   Billings in excess of costs and estimated earnings
     316,825       -       -       316,825  
Total current liabilities
     3,350,018       3,612,911       466,667       7,429,596  
                                 
LONG-TERM OBLIGATIONS
                                
   Notes payable, less current portion
     929,914       4,328,828       6,033,333       11,292,075  
   Notes payable to related parties, less current portion
     345,296       -       -       345,296  
   Unearned supplier incentives, less current portion
     -       345,935       -       345,935  
Total long term liabilities
     1,275,210       4,686,763       6,033,333       11,983,306  
                                 
STOCKHOLDERS’ EQUITY
                                
   Preferred stockholders' equity
     715,937       -       -       715,937  
   Common stockholders' equity
     16,322,835       58,708       441,292       16,822,835  
   (Accumulated deficit) Retained earnings
     (13,608,792 )     4,868,941       (4,868,941 )     (13,608,792 )
Total stockholders’ equity
     3,429,980       4,927,,649       (4,427,649 )     3,929,980  
                                 
Total Liabilities and Stockholders’ Equity
   $ 8,055,208     $ 13,256,539     $ 2,072,351     $ 23,342,882  

 


The accompanying notes are an integral part of the unaudited pro forma condensed consolidated financial statements.
 
 
18
 
 
HEARTLAND, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
  
(unaudited)
  
                         
   
Nine Months Ended September 30, 2008
  
         
Pro Forma Adjustments
        
   
Heartland, Inc.
    
Lee Oil
    
Purchase
    
Heartland, Inc.
  
   
Historical
    
Historical
    
Adjustments
    
Pro Forma
  
                         
REVENUE - SALES
   $ 15,684,082     $ 94,062,947     $ -     $ 109,747,029  
COSTS AND EXPENSES
                                
   Cost of goods sold
     12,908,296       87,713,803       -       100,622,099  
   Selling, general and administrative expenses
     1,248,433       4,639,524       -       5,887,957  
   Depreciation and amortization
     89,953       587,589       -       677,542  
Total Costs and Expenses
     14,246,682       92,940,916       -       107,187,598  
NET OPERATING INCOME (LOSS)
     1,437,400       1,122,031       -       2,559,431  
OTHER INCOME (EXPENSE)
                                
   Other income
     7,988       70,898       -       78,886  
   Gain (loss) on disposal of property, plant and equipment
     -       -       -       -  
   Interest expense
     (57,669 )     (228,377 )     -       (286,046 )
Total Other Income (Expense)
     (49,681 )     (157,479 )     -       (207,160 )
INCOME (LOSS) BEFORE INCOME TAXES
     1,387,719       964,552       -       2,352,271  
   Federal Income Tax, current
     -       (152,164 )     -       (152,164 )
   State Income Tax, current
     -       (44,089 )     -       (44,089 )
NET INCOME
     1,387,719       768,299       -       2,156,018  
LESS: Preferred Dividends
     (44,438 )     -       -       (44,438 )
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
   $ 1,343,281     $ 768,299     $ -     $ 2,111,580  
                                 
EARNINGS PER COMMON SHARE
   $ 0.036     $ 2,932.439     $ -     $ 0.053  

The accompanying notes are an integral part of the unaudited pro forma condensed consolidated financial statements.
 
 
 
19
 
Heartland, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
 

1.
Basis of Presentation
 
The historical financial information for the year ended December 31, 2007 is derived from and should be read in conjunction with the audited historical consolidated financial statements of Heartland, Inc. (“Heartland”). The historical financial information for the nine months ended September 30, 2008 and at September 30, 2008 is derived from and should be read in conjunction with the unaudited historical condensed consolidated financial statements of Heartland. The pro forma adjustments have been prepared as if certain transactions to be effected at the closing of this transaction had taken place on September 30, 2008, in the case of the balance sheet, or as of January 1, 2007, in the case of the statements of income for the year ended December 31, 2007 and the nine months ended September 30, 2008. These transactions include presenting Heartland’s interest in Lee Oil Company, Inc. and subsidiaries (“Lee Oil”) using the cost method of accounting. 


2.
Summary of Significant Accounting Policies
 
The accounting policies followed in preparing the unaudited pro forma consolidated financial statements are those used by Heartland as set forth in its historical consolidated financial statements contained in its Form 10-KSB for the year ended December 31, 2007 and Form 10-Q for the quarter ended September 30, 2008.
 
3.
Pro Forma Adjustments and Assumptions
 
The unaudited pro forma condensed consolidated financial statements give pro forma effect to the following:

·  
Reflects Heartland’s 100% interest in the pro forma earnings of Lee Oil for the year ended December 31, 2007 and the nine months ended September 30, 2008.
·  
Reflects the reclassification of the equity shown on Lee Oil’s balance sheet as of October 1, 2008 and the obligations arising from the October 1, 2008 acquisition being shown on the balance sheet for the year ended December 31, 2007 and the nine months ended September 30, 2008.
·  
Reflects the issuance of the 2,500,000 common shares of Heartland common stock and the cancellation of the 262 shares of Lee Oil stock. The weighted average number of shares for the year ended December 31, 2007 and the nine months ended September 30, 2008 would have been 37,723,242 and 39,517,016 respectively.
·  
The pro forma earnings for the year ended December 31, 2007 and the nine months ended September 30, 2008 do not reflect any interest expense relating to creation of the direct financial obligation.
·  
The pro forma earnings for the year ended December 31, 2007 and the nine months ended September 30, 2008 do not reflect any amortization expense relating to the difference in fair market value and book value as of October 1, 2008.



4.
Commitments and Contingencies
 
Commitments and contingencies of Heartland are set out in the audited historical consolidated financial statements for the year ended December 31, 2007 and the unaudited condensed consolidated financial statements for the nine months ended September 30, 2008 contained in Heartland’s Form 10-KSB for the year ended December 31, 2007 and Form 10-Q for the quarter ended September 30, 2008. Commitments and Contingencies relating to the October 1, 2008 acquisition are set out in Heartland’s Form 8-K filed on October 3, 2008 and will be presented with future filings.
 
 
 
 
 
20