UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended December 31, 2004
HEARTLAND INC.
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(Name of small issuer in its charter)
Maryland 36-4286069
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
3300 Fernbrook Lane
Plymouth, MN 55447
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(Address of principal executive offices) (Zip Code)
(763) 557-2900
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(Registrant's telephone no., including area code)
25 Mound Park Drive
Springboro, Ohio 45066
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(Former name, former address and former fiscal year
if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
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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. [ ]
Issuer's revenues for its most recent fiscal year ended December 31, 2004 were:
$49,996,683
The aggregate market value of the Registrant's voting common stock held by
non-affiliates of the registrant as of March 30, 2005, was approximately:
$22,706,520 at $1.15 price per share.
Number of shares of the registrant's common stock outstanding as of March 30,
2005 was: 19,744,801
Transfer Agent as of March 30, 2005:
Securities Transfer Corporation
2591 Dallas Parkway, Suite 102
Frisco, TX 75034
HEARTLAND INC.
FORM 10-KSB
TABLE OF CONTENTS
Item # Description Page Numbers
------ ----------- ------------
PART I
ITEM 1. Business of the Company . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 4. Submissions of Matters to a Vote of Security Holders . . . . . 16
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities . . . . . . 17
ITEM 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 24
ITEM 7. Financial Statements and Supplementary Data . . . . . . . . . . 31
ITEM 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . 55
ITEM 8A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . 55
ITEM 8B. Other Information . . . . . . . . . . . . . . . . . . . . . . . 55
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons:
Compliance with Section 16(A) of the Exchange Act . . . . . . . 56
ITEM 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . 58
ITEM 11. Security Ownership of Certain Beneficial Owners and Management. 60
ITEM 12. Certain Relationships and Related Transactions . . . . . . . . 62
ITEM 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 62
ITEM 14. Principal Accountant Fees and Services. . . . . . . . . . . . . 63
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 65
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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 imitation; 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. In 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 3300 Fernbrook Lane Plymouth, MN 55447,
telephone number (763) 557.2900. Our Internet address is
www.heartlandholdingsinc.com for the corporate information. Additionally, the
following divisions of the company currently maintain Internet addresses:
1)Evans Columbus, www.evanscolumbusllc.com, 2)Monarch Homes,
www.monarchhomesmn.com, 3) Karkela www.karkela.com and 4) Mound Technologies
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 classify our operations into four reportable segments: steel
fabrication, construction and property management, manufacturing, and
agriculture (currently idle but available for future use). A fifth segment
called "other" consists of corporate functions. Sales of our segments accounted
for the following approximate percentages of our consolidated sales for fiscal
years 2004: Steel Fabrication, 14.78 percent; Construction and Property
Management, 69.38 percent; Manufacturing 15.84 percent, Agriculture 0 percent
and Other, 0 percent.
3
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
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. During the 2002 fiscal year, the Company entered
into a definitive share exchange agreement and investment agreement with
Vivocom, Inc., a San Jose, California based software company that had developed
a proprietary all media switching system which enables all forms of data to be
sent over a single IP channel. The Company intended on investing a minimum of
three million two hundred and fifty thousand dollars ($3,250,000) within Vivocom
over several months. Due to the Company's inability to raise this money, the
share exchange never took place and the agreement terminated.
On December 7, 2001, the Company held a special meeting of its shareholders
in accordance with a filed Form DEF 14A with the Securities and Exchange
Commission whereby the shareholders voted on withdrawing the Company from being
regulated as a business development company and thereby no longer be subject to
the Investment Company Act of 1940 and to effect a one-for-nine reverse split of
its total issued and outstanding common stock. On December 14, 2001 the Company
filed a Form N-54C with the Securities and Exchange Commission formally
notifying its withdrawal from being regulated as a business development company.
The purpose of the withdrawal of the Company from being regulated as a business
development company and the one-for-nine reverse split of its total issued and
outstanding common stock was to allow the Company to merge with a potential
business in the future. By withdrawing from its status as a business development
company, the Company chose to be treated as a publicly traded "C" corporation.
On December 27, 2001, the Company went through a reverse merger whereby it
acquired all the outstanding shares of International Wireless. Under the said
reverse merger, the former Shareholders of International Wireless ended up
owning an 88.61% interest in the Company. Thereafter on January 2, 2002, the
Company changed its name from Origin to International Wireless, Inc.
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.
4
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 entered into an Acquisition Agreement to
acquire one hundred percent (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 and Subsidiaries.
On December 27, 2004, the Company entered into an Acquisition Agreement to
acquire one hundred percent (100%) of Monarch Homes, Inc. ("Monarch"), a
Minnesota corporation with its corporate headquarters located in Ramsey, MN for
five million dollars ($5,000,000). The acquisition price was made up of: 1)
$100,000 at closing, 2) a promissory note of $1,900,000 payable on or before
February 15, 2005 which, if not paid by that date, interest shall be due from
then to actual payment at 8%, simple interest, compounded annually and 3) six
hundred sixty-seven thousand (667,000) restricted newly issued shares of the
Company's common stock provided at closing. In the event the common stock of the
Company not is trading at a minimum of $5.00 as of December 27, 2005, the
Company is required to compensate the original Monarch shareholders for the
difference in additional stock. As a result of this transaction, Monarch became
a wholly owned subsidiary of the Company.
5
On December 30, 2004, the Company entered into an Acquisition Agreement to
acquire one hundred percent (100%) of Evans Columbus, LLS ("Evans"), an Ohio
corporation with its corporate headquarters located in Blacklick, OH for three
million five thousand dollars ($3,005,000). The acquisition price was made up
of: 1) $5,000 at closing, and 2) six hundred thousand (600,000) 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 $5.00 as of
December 30, 2005, the Company is required to compensate the original Evans
shareholders for the difference in additional stock. As a result of this
transaction, Evans became a wholly owned subsidiary of the Company.
On December 31, 2004, the Company entered into an Acquisition Agreement to
acquire one hundred percent (100%) of Karkela Construction, Inc. ("Karkela"), a
Minnesota corporation with its corporate headquarters located in St. Louis Park,
MN for three million dollars ($3,000,000). The acquisition price was made up of:
1) $100,000 at closing, 2) a short term promissory note payable of $50,000 on or
before January 31, 2005, 3) 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 4)
five hundred thousand (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 is
required to compensate the original Karkela shareholders for the difference in
additional stock. As a result of this transaction, Karkela became a wholly owned
subsidiary of the Company.
(C) BUSINESS
The Company's mission is to become a leading diversified company with
business interests in well established service organizations and capital goods
manufacturing companies focusing in the areas of 1) Steel Fabrication, 2)
Construction and Property Management (residential and commercial), 3)
Agriculture(currently idle), and 4) Manufacturing. The Company plans to
successfully grow its' revenue 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, the Company expects
to become the facilitator for future growth and higher long-term profits. In the
process, the Company expects to develop new synergies among the acquired
companies, which should allow for greater cost effectiveness and efficiencies,
and thus further enhancing each individual company's strengths. To date, the
Company has completed acquisitions in steel fabrication, residential and
commercial construction facilities, and heavy machinery industries.
The Company is headquartered in Plymouth, MN and currently trades on the
OTC Bulletin Board under the symbol HTLJ.OB. Including the senior management
team, Heartland currently employs 101 people.
Currently, the Company operates four major subsidiaries in the following
segments:
1) Mound Technologies, Inc. of Springboro, OH acquired in December 2003 (Steel
Fabrication)
2) Evans Columbus, LLC of Columbus, OH acquired in December of 2004
(Manufacturing)
3) Monarch Homes, Inc. of Ramsey, MN, acquired in December of 2004
(Construction and Property Management).
4) Karkela Construction, Inc. of St. Louis Park, MN, acquired in December of
2004 (Construction and Property Management).
These subsidiaries have an average operational history of more than 35
years, and each is characterized by a track record of consistent and stable
growth.
6
Excluding corporate expenses, the complementary nature of the operations of
the four segments offers the Company the opportunity to increase its top line
revenue through cross selling opportunities and expanded marketing
opportunities. Furthermore, the Company expects it will be able reduce overall
expenses through cost savings associated with reductions in raw materials costs
and corporate and administrative expenses.
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.
This business includes a Steel Fabrication ("Steel Fabrication"), a Property
Management Division ("Property Management") and a wholly owned subsidiary,
Freedom Products of Ohio ("Freedom").
The Steel Fabrication Division and Property Management Division are both
located in Springboro, Ohio. The Steel Fabrication Division 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. This division had been previously known as Mound Steel
Corporation, which was started at the same location in 1964.
Freedom is a wholly owned subsidiary of Mound located in Middletown, Ohio.
Freedom manufactures products for the heavy machinery industry and has the
ability to do complete assembly and testing if required. This includes machine
bases, breeching, pollution control abatement fabrications and material handling
fabrications. Freedom has the capacity to fabricate weldments and assemblies of
up to 50 tons total weight.
1a) Steel Fabrication Division:
The Steel Fabrication Division is focused on the fabrication of metal
products. This Division produces structural steel, miscellaneous metals, steel
stairs, railings, bar joists, metal decks and the erection thereof. This
Division 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.
7
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.
1b) Freedom Products of Ohio, Inc.:
Freedom Products of Ohio ("Freedom") is a wholly owned subsidiary of Mound.
Freedom manufactures products for the heavy machinery industry and has the
ability to do complete assembly and testing if required. This includes machine
bases, breeching, pollution control abatement fabrications and material handling
fabrications. Freedom has the capacity to fabricate weldments and assemblies up
to 50 tons total weight. Freedom is located in Middletown, Ohio.
The primary raw material for the steel mills segment is ferrous scrap,
which is acquired from numerous sources throughout the country. The steel mills
are also large consumers of electricity and natural gas. The primary raw
material for the steel products segment is steel, which is primarily purchased
from the steel mills segment. Supplies of raw materials and energy have been,
and are expected to be, adequate to operate the facilities.
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 supplies. 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.
8
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 undumped 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
2004.
9
Environmental Matters
---------------------
Mounds 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.
Construction and Property Management
------------------------------------
a) Monarch Homes, Inc.
-------------------
Monarch Homes, Inc., ("Monarch") was acquired in December 2004, is a
builder of custom residential homes in the state of Minnesota. Monarch is
located in Ramsey, MN, and was acquired in December of 2004. Our domestic
homebuilding operations currently involve the purchase and development of land
or lots and the construction and sale of single-family homes, town homes and
low-rise condominiums. Monarch was founded in 1995 and had annual sales of
approximately $23 million during the current fiscal year. Over the course of the
past ten years, Monarch has become one of the region's premier builders of
quality homes in planned communities in the northern and northwestern suburbs of
Minneapolis and St. Paul, Minnesota. In fiscal 2004, Monarch sold 87 homes,
including first-time, move-up and, in some markets, custom homes, ranging in
price from approximately $160,000 to $600,000. The average sales price in fiscal
2004 was approximately $275,000.
Our practice has been to acquire land, build homes on the land and sell the
homes within 24 to 36 months from the date of land acquisition. Generally, this
involves acquiring land that is properly zoned and is either ready for
development or, to some degree, already developed. We control a substantial
amount of our land, including lots and land to be developed into lots, through
option agreements that we can exercise over specified time periods or, in
certain cases, as the land or lots are needed. At December 31, 2004, Monarch
owned approximately 20 lots and has two exclusive agreements with developers.
Our growth strategy for Monarch has been focused primarily on organic growth
opportunities through land acquisition and development in existing business
units and markets.
It is the intent of the Company to expand this business unit into the
construction of super energy efficient homes using new EPS technology that
allows for custom construction, with greatly increased "R" ratings. An agreement
is in process to have exclusive rights to this type of construction product in
the area of Central America. The company believes that this will reduce the
seasonality associated with the construction industry.
b) Karkela Construction, Inc.
--------------------------
Karkela Construction, Inc. ("Karkela") was acquired in December 2004 and
located in St. Louis Park, MN. Karkela was acquired in December 2004 and is a
general contractor in the greater St. Paul and Minneapolis, Minnesota area
specializing in commercial, industrial, hospitality or multi-family space. More
specifically, Karkela is a designer and builder of custom office buildings for
medical, financial and other service type businesses. Karkela was originally
founded in 1983 and incorporated in 1990. During fiscal year 2004 Karkela had
revenues of approximately $11.8 million . It is the intent of Heartland to
expand that territory to include those geographies where the company can benefit
from its reputation.
10
c) Mound Property Management Division
----------------------------------
The Property Management Division is both located in Springboro, Ohio. The
Mound Property Management Division is focused on the ownership and management of
industrial property, in Ohio. The Property Management Division presently owns
two (2) properties and manages three (3) other properties which are all located
in Ohio. The two owned properties include 37,000 square feet of light and heavy
manufacturing buildings on approximately 6 acres. The Company manages 33 acres
of industrial property in Ohio, which is not owned.
Competition and Other Factors
------------------------------
The conventional construction industry is essentially a "local" business
and is highly competitive. The top 10 builders, in the United States, in
calendar year 2003 accounted for approximately 15.1% of the total for-sale
attached and detached housing permits in the United States. Monarch and Karkela
compete in each market with numerous other homebuilders and general construction
companies, including national, regional and local builders. The industries top
six competitors based on revenues for their most recent fiscal year-end are as
follows: Beazer Homes USA, Inc., D. R. Horton, Inc., KB Homes, Lennar
Corporation, Pulte Homes, Inc. and The Ryland Group, Inc. The main competitive
factors affecting Monarch and Karkela operations are location, price,
availability of mortgage financing for customers, construction costs, design and
quality of homes, customer service, marketing expertise, availability of land,
price of land and reputation. We believe that Monarch and Karkela competes
effectively by building high quality units, maintaining geographic diversity,
responding to the specific demands of each market and managing the operations at
a local level.
The construction industry is affected by changes in national and local
economic conditions, job growth, long-term and short-term interest rates,
consumer confidence, governmental policies, zoning restrictions and, to a lesser
extent, changes in property taxes, energy costs, federal income tax laws,
federal mortgage financing programs and various demographic factors. The
political and economic environments affect both the demand for construction and
the subsequent cost of financing. Unexpected climatic conditions, such as
unusually heavy or prolonged rain or snow, may affect operations in certain
areas.
The construction industry is subject to extensive regulations. The Company
and its subcontractors must comply with various federal, state and local laws
and regulations, including worker health and safety, zoning, building standards,
erosion and storm water pollution control, advertising, consumer credit rules
and regulations, and the extensive and changing federal, state and local laws,
regulations and ordinances governing the protection of the environment,
including the protection of endangered species. The Company is also subject to
other rules and regulations in connection with its manufacturing and sales
activities, including requirements as to incorporate building materials and
building designs. All of these regulatory requirements are applicable to all
construction companies, and, to date, compliance with these requirements has not
had a material impact on the operation. We believe that the Company is in
material compliance with these requirements.
We purchase materials, services and land from numerous sources (primarily
local vendors), and believe that we can deal effectively with the challenges we
may experience relating to the supply or availability of materials, services and
land.
The results of operations of our Property Management segment may be
adversely affected by increases in interest rates. Any significant increase in
mortgage interest rates above currently prevailing low levels could affect the
ability or willingness of prospective buyers to finance their purchases.
Although we expect that we would be able to make adjustments in our operations
to mitigate the effects of any increase in interest rates, there can be no
assurances that these efforts would be successful.
11
This Property Management segment faces competition from real estate
investment trusts (REIT's), which are already among the largest commercial
property owners in the United States. With over 300 public and private REIT's in
the United States, they have slowly been growing their holdings through
acquisitions. Most REIT's, however, do not specialize in industrial and office
properties.
Manufacturing
-------------
Evans Columbus, LLC, ("Evans") acquired in December 2004, that manufactures
55-gallon steel drums at a production rate of approximately 3,000 drums per day.
Evans Columbus, which was founded in1955, generated revenues of approximately $8
million in 2004. Manufacturing is carried out in a fully equipped 70,000 square
foot facility located in Columbus, Ohio. This facility is able to do various
coated products as well as standard painted drums. Prior to its acquisition by
Heartland, Evans Columbus was a family owned and operated business.
In order to utilize manufacturing facilities and technology more
effectively, we pursue continuous improvements in manufacturing processes. We
have some flexible assembly lines to deliver products when customers require
them. Additionally, considerable effort is spent to reduce manufacturing costs
through process improvement, product and platform design, application of
advanced technology, enhanced environmental management systems, and better
supply-chain management.
Our production levels and inventory management goals are based on estimates
of demand for our products, taking into account production capacity, timing of
shipments, and field inventory levels. We also periodically shut down production
to allow for maintenance, rearrangement, and capital equipment installation at
the manufacturing facilities.
Incorporated into our Quality Policy, Evans maintains a regular
preventative maintenance and calibration schedule. Our dedicated maintenance
crew is "on-the-job" at all times. During manufacturing shifts, we are testing
to make sure drums are manufactured to meet customer specification and
governmental regulations. Regular preventative maintenance protects the plant
equipment and assures reliability and continuity of supply.
Competition and Other Factors
-----------------------------
The steel container industry is the third-largest steel user, next to the
automobile industry and the appliance industry. Steel drum-makers, who
manufacture 55-gallon drums that hold products ranging from chocolate for ice
cream bars to coatings for jelly beans, make up about 40 percent of the steel
container industry. The steel drum industry mainly uses cold-rolled steel.
There are approximately 14 manufacturers of 55 gallon steel drums
nationwide. The three major competitors of the company are North Coast Container
(Cleveland, Ohio), Berenfield Containters (Mason, OH), and Grief Bros
Corporation (Delaware, Ohio) which are all larger than Evans. The region where
Evans is located is one of the more heavily concentrated areas for 55 gallon
drum manufactures and users.
Attention to environmental compliance is practiced throughout the plant.
Working in concert with the Ohio and Federal EPA, we continue to incorporate
safe manufacturing processes. Rigorous testing throughout the plant ensures
safety for our employees, neighbors and the environment.
12
Evans is subject to the risks associated with the steel industry, in
particular to the cost of raw materials, energy and labor supply all of which
are managed effectively. The company is reliant upon several distributors
through out the Ohio Valley region. Evans sells it products to customers based
upon superior quality and service and not specifically on price which leads to
repeat business and less impact on economical affects (i.e. interest rates).
Other
-----
The Company's mission is to become a leading diversified company with
business interests in well established service organizations and capital goods
manufacturing companies.
Competition and Other Factors
-----------------------------
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
of 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 extend, if at all, as initially identified.
We will need to secure a minimum of $5,000,000 to satisfy such requirements
for the next 12 months, which funds will be used for debt payment, facilities
acquisition, lease obligations and personnel costs including salaries and
benefits. We are pursing many financing options which can be any combination of
debt or securities. We hope to be able to raise funds from an offering of our
stock. However, we may not raise any funds from an offering. We have no source
of funding identified at this time and our failure to raise funds in the future
will impair and delay our ability to implement our business plan further.
Collectively, our officers and directors on a fully diluted basis
beneficially own voting rights to 7,100,100 or 36% of our outstanding voting
stock. As such, our officers and directors have a significant voice in the
control the outcome of all matters submitted to a vote by the holders of our
voting stock, including the election of our directors, amendments to our
certificate of incorporation and approval of significant corporate transactions.
Additionally, our officers and directors could delay, deter or prevent a change
in our control that might be beneficial to our other stockholders.
By providing access to financial markets, expanded marketing opportunities
and operating expense efficiencies, the Company expects to become the
facilitator for future growth and higher long-term profits of the businesses we
acquire. In the process, the Company expects to develop new synergies among the
acquired companies, which should allow for greater cost effectiveness and
efficiencies, and thus further enhancing each individual company's strengths.
Employees
---------
As of December 31, 2004, we employed 101 employees. From time to time, we
also retain consultants, independent contractors, and temporary and part-time
workers.
The Company believes its relationship with its current employees is good.
Our employees are not represented by a labor union. However, the Company is in
dispute with former employees as to back salaries and severance pay as disclosed
in the footnotes below. The Company's success is dependent, in part, upon our
ability to attract and retain qualified management technical personnel and
subcontractors. Competition for these personnel is intense, and the Company will
be adversely affected if it is unable to attract key employees. The Company
presently does not have a stock option plan for key employees and consultants.
13
Customers
---------
Overall, management believes that long-term we are not dependent on a
single customer for any of the segments results. While the loss of any
substantial customer could have a material short-term impact on a segment, we
believe that our diverse distribution channels and customer base should reduce
the long-term impact of any such loss.
Available Information
---------------------
We are a reporting company under the Securities Exchange Act of 1934, as
amended, and file reports, proxy statements, and other information with the
Securities and Exchange Commission (SEC). Copies of these reports, proxy
statements, and other information can be inspected and copied at the SEC's
Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Because we make filings to the SEC electronically, you
may also access this information from the SEC's home page on the Internet at
http://www.sec.gov.
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-K and should
not be considered part of this report. We have attached the required
certifications under Section 302 of the Sarbanes-Oxley Act of 2002 regarding the
quality of our public disclosures as Exhibits 31(a) and 31(b) to this report.
Forward Looking Statements
--------------------------
The statements contained in this report that are not historical fact are
forward-looking statements that which can be identified by 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. We have made the forward-looking statements with management's
best estimates prepared in good faith.
Because of the number and range of the assumptions underlying our
projections and forward-looking statements, many of which are effected by
significant uncertainties and contingencies that are beyond our reasonable
control, some of the assumptions inevitably will not materialize and
unanticipated events and circumstances may occur subsequent to the date of this
prospectus.
These forward-looking statements are based on current expectations, and we
will not update this information other than required by law. Therefore, the
actual experience of Heartland, Inc ("Company"), and results achieved during the
period covered by any particular projections and other forward-looking
statements should not be regarded as a representation by the Company, or any
other person, that we will realize these estimates and projections, and actual
results may vary materially. We cannot assure you that any of these expectations
will be realized or that any of the forward-looking statements contained herein
will prove to be accurate. Section 27A(b)(1)(C) of the Securities Act and
Section 21E(b)(1)(C) provide that the safe harbor for forward looking statements
does not apply to statements made by companies such as ours that issue penny
stock.
14
ITEM 2. DESCRIPTION OF PROPERTY
The following properties are used in the operation of our business:
Our principal executive and administrative offices are located at 3300
Fernbrook Lane Plymouth, MN 55447. Our phone number is (763) 557.2900. Our
executive offices are leased from St. Paul Properties, Inc., 385 Washington
Street, St. Paul, Minnesota 55102. We are renting approximately 2,048 square
feet of an 85,232 square feet building. We pay our proportionate share of
utilities and real estate tax based upon our percentage of occupancy as the
building is shared with a number of tenants.
The term of the lease is for 60 months beginning January 1, 2005 but we
have an option in January 2007 to provide notice to the landlord that we wish to
terminate agreement as of December 2007. The lease required an initial security
deposit of $11,500. The lease requires payments of:
--------------------- -------------------------
Months Monthly Payment
--------------------- -------------------------
1-12 $2,219
--------------------- -------------------------
13-24 $2,261
--------------------- -------------------------
25-36 $2,304
--------------------- -------------------------
37-48 $2,347
--------------------- -------------------------
49-60 $2,389
--------------------- -------------------------
This space is not 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 on a month to
month lease for $8,500 per month from Mound Properties, LLP at 25 Mound Park
Drive, Springboro, Ohio. 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.
In Columbus, Ohio we lease approximately 70,000 square feet on a five (5)
year term from January 1, 2002 through December 31, 2007 for $20,000 per month
from Par Investments. The facilities include approximately 67,000 square feet
for manufacturing and 3,000 square feet for offices. The space is used by Evans.
In Ramsey, Minnesota we lease approximately 3,000 square feet on a month to
month lease for $7,000 per month from Brad Fritch. The facilities include
approximately 1,800 square feet of office space and 1,200 square feet for
storage. The space is used by Monarch.
In St. Louis Park, Minnesota we lease approximately 6,975 square feet on a
63 month lease beginning January 1, 2005. The facilities are used as offices for
our Karkela employees. The lessor is Larry Karkela dba Karkela properties. The
lease required an initial security deposit of $5,356. We pay our proportionate
share of utilities and real estate tax based upon our percentage of occupancy
which is 60.1%. The lease requires payments of:
--------------------- -------------------------
Months Monthly Payment
--------------------- -------------------------
1-12 $3,272
--------------------- -------------------------
13-24 $3,403
--------------------- -------------------------
25-36 $3,573
--------------------- -------------------------
37-48 $3,752
--------------------- -------------------------
49-60 $3,938
--------------------- -------------------------
61-63 $4,136
--------------------- -------------------------
15
The Property Management Division presently owns two (2) properties in Ohio
and manages three (3) other properties in Minnesota and North Dakota. The two
owned properties include 37,000 square feet of light and heavy manufacturing
buildings on approximately 6 acres. The Company manages 33 acres of industrial
property in Ohio, which is not owned. At the current time, we generate
approximately $12,000 per month in rental charges with the terms on the leases
being a rolling three months to three years.
ITEM 3. 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.
On February 20, 2003 a judgment in the amount of $28,750 was entered
against the Company for unpaid rent on behalf of Graham Paxton, the former
President and CEO of the Company as part of his employee benefit plan. To date
the judgment has not been paid.
On March 31, 2003, a judgment in the amount of $99,089, including $50,000
security deposit replenishment, was entered against the company for breach of
contract for non-payment of rent on the company's office facility in Woburn,
Massachusetts. The company is contingently liable for the balance of this lease
in the total amount of $428,000 through the lease expiration date of July 31,
2005. To date the judgment has not been paid.
Mound Technologies, Inc., a wholly owned subsidiary of the Company, leases
its manufacturing facility from Mound Properties, an organization owned by the
President of Mound Technologies, Inc. The financial institution, which has a
mortgage on the property, has obtained a judgment on the property and the owners
of Mound Technologies, Inc. The Company is in the process of purchasing and
refinancing the property which is anticipated to close on or around April 11,
2005.
Other than the matters above, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 15, 2004, a majority of the shareholders of record by special
meeting of the shareholders approved a change in the name of the Company from
International Wireless, Inc. to Heartland, Inc.
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
On March 30, 2005, there were approximately 571 shareholders of record of
our common stock. Our common stock currently available for trading on the NASDAQ
OTC Electronic Bulletin Board under the symbol "HTLJ.OB."
The Company was formed on April 6, 1999. In April, 1999, the Company's
common stock had been listed for trading on the OTC Bulletin Board under the
symbol "OGNI." The trading market for the Company's stock is limited and
sporadic and should not be deemed to constitute an "established trading market".
In connection with the change of the Company's name to International Wireless,
Inc., the Company's symbol was changed to "IWIN" on January 2, 2002. As a result
of the 30-1 reverse split of the shares outstanding, the Company's symbol was
changed to "IWLJ" on November 12, 2003. Subsequently, the Company changed its
name to Heartland Holdings, Inc in April 2004.
The following table sets forth the range of high and low bid prices of the
Company's common stock during the periods indicated. Such prices reflect prices
between dealers in securities and do not include any retail markup, markdown or
commission and may not necessarily represent actual transactions. The
information set forth below was provided by NASDAQ Trading & Market Services.
HIGH LOW
---- ----
FISCAL YEAR ENDED DECEMBER 31, 2003
First Quarter 0.04 0.04
Second Quarter 0.02 0.02
Third Quarter 0.02 0.02
Fourth Quarter 5.00 5.00
FISCAL YEAR ENDING DECEMBER 31, 2004
First Quarter 1.00 0.70
Second Quarter 1.00 0.70
Third Quarter 1.00 0.70
Fourth Quarter 1.60 1.60
(1) The quotations reflect inter-dealer prices, without mark-up, mark-down or
commission and may not represent actual transactions.
(2) During fiscal year ended 2004, the Company was not in compliance with the
reporting requirements and was not on the OTC BB. The Company began trading
as HTLJ.OB on December 21, 2004 at $1.00 per share.
The closing bid price for the common stock as reported by the OTC Bulletin Board
on March 30, 2004 was $1.15.
Preferred Stock
---------------
The company has 5,000,000 of preferred stock authorized with a par value of
$.001. None of these securities are issue or outstanding.
17
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 Company has no Warrants outstanding as of this date.
Options
-------
The Company has no Stock Option Plan as of this date.
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:
o Deliver, prior to any transaction involving a penny stock, a disclosure
schedule prepared by the Securities and Exchange Commissions relating to
the penny stock market, unless the broker-dealer or the transaction is
otherwise exempt;
o Disclose commissions payable to the broker-dealer and our registered
representatives and current bid and offer quotations for the securities;
o 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
o 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.
18
Dividends
---------
We do not anticipate paying dividends 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.
Recent Sales of Unregistered Securities
---------------------------------------
The following is information for all securities that the Company sold during its
current fiscal year ended December 31, 2004. Information with respect to
previously reported sales prior to January 1, 2004 may be found in the Company's
prior year filings.
The following is information for all securities that the Company has sold
since inception without registering the securities under the Securities Act.
These securities do not reflect a one-for-nine reverse split of the total issued
and outstanding common stock of the Company that took place in December 7, 2001,
or the thirty-for-one reverse split of the total issued and outstanding common
stock of the Company that took place November 12, 2003:
The Company sold 100,000 shares of common stock for $100,000 to an
accredited investor on January 18, 2000, and sold 21,390 shares of common stock
for $99,998.25 to another accredited investor on February 12, 2000. These
investors were individuals personally known to members of the Company's
management. Each of the sales was conducted in accordance with Rule 606 of
Regulation E of the Securities Act of 1933 (as amended, the "Act") exempt from
registration and free trading.
On April 14, 2000 the Company sold 50,000 shares of common stock to an
accredited investor for $50,000 or $1.00 per share. These shares were sold in
connection with a private offering pursuant to Section 4(2) of the Securities
Act and are restricted from resale pursuant to Rule 144 of the Act.
On May 8, 2000 the Company offered to sell and on May 24, 2000 completed
the sale of 142,000 units to private accredited investors for an aggregate of
$106,500 or $0.75 per unit. We received net proceeds totaling $96,500 after
payment of a 10% finder's fee to a non affiliated third party. Each Unit was
comprised of one share of common stock (free trading pursuant to Rule 606 of
Regulation E) and one Class A common stock purchase warrant. Each Class A common
stock purchase warrant is exercisable for one restricted common stock upon
payment of $.75 per warrant. The Class A warrants are exercisable for a five
year period.
On February 29, 2000 the Company offered for sale 16,000 shares of Series A
Convertible Preferred Stock for $4,600,000 or $287.50 per share. The Series A
Convertible Preferred Stock was convertible into common stock in stages
occurring at one months intervals over a ten month period. The Series A
Convertible provided for (a) a liquidation preference of $1.00 per share (plus
all declared but unpaid dividends); (b) full voting rights based upon the number
of shares of common stock into which each share is convertible; (c) no
conversion price per share of common stock; and (d) an automatic conversion into
common stock on specified dates. Class 1 Series A investors received the above
terms and had their funds placed into an escrow account which was set up where
the aggregate proceeds deposited in this account was to be released to the
Company when it reached $2,650,000. The use of proceeds was allocated for a
proposed acquisition of Encore/Sigma and for working capital. If the funds did
not reach that amount by a specified date, all principal and interest earned was
to be returned to the Class 1 Series A Preferred holders. Class 2 Series A
Convertible Preferred holders were offered one additional restricted common
stock for every $10.00 they invested if they agreed to allow the Company to use
their funds for current working capital rather than have their funds deposited
in the escrow account.
19
On June 6, 2000 the Company terminated the Series A Convertible Preferred
Stock offering, and on June 23, 2000, we returned to our Class 1 investors an
aggregate of $638,763 plus accrued interest which was previously recorded as
restricted cash. Also on June 6 we offered our Class 2 investors, in lieu of
each Series A Convertible Preferred Stock and restricted stock awarded, 383.33
Units. Each Unit was comprised of one share of common stock and one Common Stock
Purchase Warrant where each Common Stock Purchase Warrant is redeemable for one
share of common stock at an exercise price of $1.50 per share. As a result of
this exchange, we issued 324,999 shares of common stock for $243,750 or $0.75
per share along with 324,999 Common Stock Purchase Warrants. The warrants are
exercisable for a period of five years. The common stock was free trading based
on filing an offering circular pursuant to Rule 604 of Regulation E of the
Securities Act. No shares underlying the Common Stock Purchase Warrants are
restricted from resale pursuant to Rule 144 of the Act. Proceeds received from
the sale were used for working capital purposes and payment of the break up fee
paid to Encore/Sigma.
On June 12, 2000 the Company sold 20,000 shares of common stock to two
accredited investors for $25,000 or $1.25 per share. These shares are restricted
from resale pursuant to Rule 144 of the Act. Proceeds received from the sale
were used for working capital purposes.
On August 24, 2000 the Company sold an aggregate of 344,827 shares of
common stock to ten accredited investors for $100,000 or $0.29 per share. These
shares were sold in connection with a private offering pursuant to Rule 606 of
Regulation E and are free trading. Proceeds received from the sale were used for
working capital purposes.
On August 29, 2000 the Company offered to sell and on September 12, 2000
completed the sale of 350,000 shares of common stock to an accredited investor
for an aggregate of $507,500 or $1.45 per share. Net proceeds received were
$456,750, net of direct related costs of $50,750. These shares were sold in
connection with filing an offering circular pursuant to Rule 604 of Regulation E
of the Securities Act. Use of proceeds from this offering include payment of
accounting fees, legal fees associated the Alpha transaction and Vivocom
transaction, and with the evaluation of Vivocom's patent application, and for
general working and operating capital purposes.
On March 28, 2001 the Company sold 33,333 units to an investor for an
aggregate of $10,000 or $.30 per share. Each unit is comprised of one share of
common stock and one common stock warrant. Each warrant is redeemable for one
share of common stock upon the payment of $.40.
On April 4, 2001, the Company sold 100,000 units to an investor for an
aggregate of $30,000 or $.030 per unit. Each unit was comprised of one share of
common stock and one and one half common stock warrants, or 150,000 common stock
warrants. Each common stock warrant is redeemable for one share of common stock
upon payment of $.40 per warrant.
On May 9, 2001 the Company sold 50,000 units to an investor for an
aggregate of $20,000, or $0.40 per unit. Each unit is comprised of one share of
common stock and one common stock warrant. Each common stock warrant is
redeemable for one share of common stock upon the payment of $0.40 per warrant.
On May 15, 2001, the Company received $10,000 in the form of a short term
bridge loan from an investor. The duration of this loan is one month and has an
interest rate of 12% per annum. This investor also received common stock
warrants to purchase an aggregate of 15,000 shares of our common stock
exercisable at $.51 per share.
20
On May 17, 2001 the Company issued warrants to a non-affiliated consultant
to purchase an aggregate of 12,500 shares of common stock at an exercise price
of $0.40 per share.
On May 31, 2001 the Company sold 49,019.60 units to an investor for an
aggregate of $25,000, or $0.51 per unit. Each unit was comprised of one share of
common stock and six common stock purchase warrants. Each common stock warrant
is redeemable for one share of common stock upon the payment of $0.40 per
warrant.
On August 20, 2001 the Company offered to sell pursuant to a private
placement an aggregate of 5,400,000 shares of its common stock at $0.02 per
share for an aggregate of $108,000. Said shares shall be restricted pursuant to
Rule 144 of the Securities Act of 1933. Proceeds from the sale shall be used for
covering outstanding liabilities of the company and to pay for costs associated
with its continual listing on the NASDAQ OTC:BB exchange. At the time of filing
of this Form 10-K, One investor had purchased 1,500,000 of these shares for an
aggregate purchase price of $30,000.
On May 15, 2001, the Company received $10,000 in the form of a short-term
bridge loan from an investor. The duration of this loan is one month and has an
interest rate of 12% per annum. This investor also received common stock
warrants to purchase an aggregate of 15,000 shares of our common stock
originally exercisable at $.51 per share but adjusted to $0.40 per share and
also received an additional 10,000 common stock purchases warrants to purchase
an additional 10,000 shares of our common stock for extending the due date of
the note.
On May 17, 2001 the Company received $7,500 in the form of a short-term
bridge loan from an investor and on May 21, 2001 we received an additional
$2,500 from that investor as a short-term bridge loan. The duration of the loans
were 90 days and jointly due on August 21, 2001 and has an interest rate of 12%
per annum. This investor also received common stock purchase warrants to
purchase an aggregate of 25,000 shares of our common stock exercisable at $0.40
per share.
On May 21, 2001 the Company received $20,000 in the form of a short-term
bridge loan from an investor. The duration of the loan was 90 days and due on
August 21, 2001 and has an interest rate of 12% per annum. This investor also
received common stock purchase warrants to purchase an aggregate of 50,000
shares of our common stock exercisable at $0.40 per share.
On July 15, 2001 the Company received $12,000 in the form of a short-term
bridge loan from an investor. The duration of the loan was 60 days and due on
September 15, 2001 and has an interest rate of 12% per annum. This investor also
received common stock purchase warrants to purchase an aggregate of 50,000
shares of our common stock exercisable at $0.40 per share.
On August 20, 2001 the Company offered to sell five million four hundred
thousand shares (5,400,000) at a purchase price of $0.02 per share for an
aggregate of $108,000 ("Private Offering"). These shares are sold pursuant to an
exemption under the registration requirements of the Securities Act of 1933 (the
"Securities Act") and are restricted from resale pursuant to Rule 144 of the
Securities Act.
On August 29, 2001 the Company sold 1,500,000 shares of the Private
Offering to an investor for an aggregate of $30,000. The investor was an
accredited investor as that term is defined pursuant to Rule 501 of the
Securities Act of 1933. The offering was done pursuant to Rule 606 of Regulation
E.
On September 4, 2001 the Company sold 1,875,000 shares of the Private
Offering to an investor for an aggregate of $38,696 in the form of 101,834
shares of Telehublink, Inc. ("THLC") free trading common stock.
21
On September 19, 2001 the Company sold 525,500 shares of the Private
Offering to an investor for an aggregate of $10,500 in the form of 53,000 shares
of THLC free trading common stock at a value of $0.198 per share of THLC stock.
On October 3, 2001 the Company sold 250,000 shares of the Private Offering
to an investor for an aggregate of $5,000. The investor was an accredited
investor as that term is defined pursuant to Rule 501 of the Securities Act of
1933. The offering was done pursuant to Rule 606 of Regulation E.
On October 4, 2001 the Company sold 250,000 shares of the Private Offering
to an investor for an aggregate of $5,000. The investor was an accredited
investor as that term is defined pursuant to Rule 501 of the Securities Act of
1933. The offering was done pursuant to Rule 606 of Regulation E.
On October 10, 2001 the Company sold 500,000 shares of the Private Offering
to an investor for an aggregate of $10,000. The investor was an accredited
investor as that term is defined pursuant to Rule 501 of the Securities Act of
1933. The offering was done pursuant to Rule 606 of Regulation E.
On October 12, 2001 the Company sold 375,000 shares of the Private Offering
to an investor for an aggregate of $7,500. The investor was an accredited
investor as that term is defined pursuant to Rule 501 of the Securities Act of
1933. The offering was done pursuant to Rule 606 of Regulation E.
On October 17, 2001 the Company sold 125,000 shares of the Private Offering
to an investor for an aggregate of $2,500. The investor was an accredited
investor as that term is defined pursuant to Rule 501 of the Securities Act of
1933. The offering was done pursuant to Rule 606 of Regulation E.
During the year ended December 31, 2002, $42,000 of loans payable at
December 31, 2001 were converted into the Company's common stock under a private
placement for 49,900 shares and the exercise of 50,000 warrants.
During the year ended December 31, 2002, $160,149 of notes payable to
related parties was converted into 1,550,414 shares of common stock under the
Company's private placement offering.
During the year ended December 31, 2002, 5,863,928 shares of common stock
were issued for $691,772 in connection with a private placement offering.
During the year ended December 31, 2002, 620,351 shares of the Company's
common stock were issued to consultants for services rendered at a value of
$364,545.
During the year ended December 31, 2002, 890,832 common stock warrants were
exercised for $385,983 at prices ranging from $0.00 to $0.10 per share.
During the year ended December 31, 2002, 510,107 shares of common stock
were issued for the exercise of stock options for a consideration of $204,050.
During the year ended December 31, 2003 the Company issued 220,080 shares
of the Company's common stock to a consultant for services provided at a price
of $0.15 per share. Stock based compensation expense of $34,555 was recorded in
connection with this issuance.
During the year ended December 31, 2003 the Company issued 500,000 shares
of common stock as payment of a loan payable to a related party. The shares were
valued at $0.01 per share and the outstanding loan was reduced by $50,000.
22
During the year ended December 31, 2003, 70,000 shares were issued in
connection with the exercise of 70,000 non-qualified stock options at an
exercise price of $0.01 per share. Total proceeds were $7,000.
During the year ended December 31, 2003, the company received proceeds of
$219,125 from the sale of 2,191,250 shares of its common stock under a private
placement at $0.10 per share.
During the year ended December 31, 2003, the Company issued 268,000 shares
to private placement holders who had subscribed to the private placement at
higher prices. The effect of this additional issuance was to reduce these
holders' purchase price basis to $0.10 per share.
In August 2003, the Board of Directors issued 30,000,000 shares to First
Union Venture Group, LLC as consideration for their performance of duties
related to finalizing the Company's affairs.
In June 2004, the Board of Directors issued 500,000 shares to Jerry
Gruenbaum as consideration for services rendered to the Company.
During the year ended December 31, 2004, the company issued 16,835 shares
to Simon Pelman to settle an outstanding $15,000 loan at a price of $0.89 per
share.
During the year ended December 31, 2004, the Board of Directors issued
467,730 shares to Jack Gracik as consideration for services rendered to the
Company.
During the year ended December 31, 2004, the Board of Directors issued
140,000 shares to Ross Haugen as consideration for services rendered to the
Company.
During the year ended December 31, 2004, the company received proceeds of
$345,000 from the sale of 1,204,396 shares of its common stock under a private
placement at prices ranging between $0.16 and $1.00 per share.
The Company believes that the transactions described from inception through
January 3, 2001 above were exempt from registration under Regulation E
"Exemptions For Small Business Investment Companies" of the Securities Act of
1933 because the Company qualified at the time as a Small Business Investment
Company, the aggregate amount of the subject securities was not in excess of
$100,000 and the subject securities were sold to a limited group of persons,
each of whom was believed to have been a sophisticated investor. Restrictive
legends were placed, as applicable, on stock certificates evidencing the
securities.
During the year ended December 31, 2004, the company entered into
fifty-five (55) convertible note payable agreements for a total value of
$1,026,500. The notes bear interest at the rate of 10% per year and are due and
payable one year from the date executed at which time the notes, at the option
of the note holder, can be converted into 1,357,550 restricted newly issued
shares of common stock of which $695,550 will be converted at $1.00 per share
and $662,000 will be converted at $0.50 per share.
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:
o None of these issuances involved underwriters, underwriting discounts or
commissions;
o We placed restrictive legends on all certificates issued; o No sales were made
by general solicitation or advertising; o Sales were made only to accredited
investors or investors who were
sophisticated enough to evaluate the risks of the investment.
23
In connection with the above transactions, although some of the investors may
have also been accredited, we provided the following to all investors:
o Access to all our books and records.
o Access to all material contracts and documents relating to our operations.
o 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Overview
The following discussion should be read in conjunction with the financial
statements for the period ended December 31, 2004 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, 2004. This discussion and analysis should be read in
conjunction with the Company's financial statements and related footnotes.
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. In 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.
24
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.
On December 7, 2001, the Company held a special meeting of its shareholders
whereby the shareholders voted on withdrawing the Company from being regulated
as a business development company and thereby no longer be subject to the
Investment Company Act of 1940 and to effect a one-for-nine reverse split of its
total issued and outstanding common stock. On December 14, 2001 the Company
filed with the Securities and Exchange Commission formally notifying its
withdrawal from being regulated as a business development company.
On December 27, 2001, the Company went through a reverse merger whereby it
acquired all the outstanding shares of International Wireless. Under the said
reverse merger, the former Shareholders of International Wireless ended up
owning an 88.61% interest in the Company. Thereafter on January 2, 2002, the
Company changed its name from Origin to International Wireless, Inc.
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.
25
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 entered into an Acquisition Agreement to
acquire one hundred percent (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 and Subsidiaries.
On December 27, 2004, the Company entered into an Acquisition Agreement to
acquire one hundred percent (100%) of Monarch Homes, Inc. ("Monarch"), a
Minnesota corporation with its corporate headquarters located in Ramsey, MN for
five million dollars ($5,000,000). The acquisition price was made up of: 1)
$100,000 at closing, 2) a promissory note of $1,900,000 payable on or before
February 15, 2005 which, if not paid by that date, interest shall be due from
then to actual payment at 8%, simple interest, compounded annually and 3) six
hundred sixty-seven thousand (667,000) restricted newly issued shares of the
Company's common stock provided at closing. In the event the common stock of the
Company not is trading at a minimum of $5.00 as of December 27, 2005, the
Company is required to compensate the original Monarch shareholders for the
difference in additional stock. As a result of this transaction, Monarch became
a wholly owned subsidiary of the Company.
On December 30, 2004, the Company entered into an Acquisition Agreement to
acquire one hundred percent (100%) of Evans Columbus, LLS ("Evans"), an Ohio
corporation with its corporate headquarters located in Blacklick, OH for three
million five thousand dollars ($3,005,000). The acquisition price was made up
of: 1) $5,000 at closing, and 2) six hundred thousand (600,000) 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 $5.00 as of
December 30, 2005, the Company is required to compensate the original Evans
shareholders for the difference in additional stock. As a result of this
transaction, Evans became a wholly owned subsidiary of the Company.
On December 31, 2004, the Company entered into an Acquisition Agreement to
acquire one hundred percent (100%) of Karkela Construction, Inc. ("Karkela"), a
Minnesota corporation with its corporate headquarters located in St. Louis Park,
MN for three million dollars ($3,000,000). The acquisition price was made up of:
1) $100,000 at closing, 2) a short term promissory note payable of $50,000 on or
before January 31, 2005, 3) 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 4)
five hundred thousand (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 is
required to compensate the original Karkela shareholders for the difference in
additional stock. As a result of this transaction, Karkela became a wholly owned
subsidiary of the Company.
26
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2004 AND 2003
OVERVIEW
--------
Heartland, Inc. is an operating conglomerate with operations in steel
fabrication, manufacturing, construction and property management. Total
consolidated revenues for the year ended December 31, 2004 was $49,996,683
versus $4,428,836 for the year ended December 31, 2003. The Company incurred
operating expenses of $49,280,468 for the year ended December 31, 2004 and
$5,401,779 for the year ended December 31, 2003.
In fiscal year ended December 31, 2004 the company incurred a net income
from continuing operations of $742,199 or a gain of $0.04 per share compared to
a net loss of $ (1,510,450) or a loss of $(0.12) per share in fiscal year ended
December 31, 2003. The primary factor contributing to the net earnings increase
were from higher sales from the acquisitions of Monarch Homes, Karkela and Evans
and improved leverage of selling, general and administrative expenses.
2004 2003
------------- ------------
Net sales $ 49,996,683 $ 4,428,836
Cost and expenses
Cost of good sold 44,969,599 4,055,404
Selling, general and administrative expense 4,007,550 1,281,975
Stock Based Compensation 63,787 -
Depreciation and amortization 239,532 64,400
------------- ------------
Total Cash and Expenses 49,280,468 5,401,779
------------- ------------
Operating Income 716,215 (972,943)
Net Other Income 25,984 (537,507)
------------- ------------
Net Income(loss)from continuing operations 742,199 (1,510,450)
Total Discontinued Operations - Loss (1,120,853)
------------- ------------
Income before taxes 742,199 (2,631,303)
Income Taxes 412,410 -
------------- ------------
Income prior to adjustment
For acquisition earnings 329,789 -
Elimination of preacquisition earnings (733,458) 2,631,303
------------- ------------
Net Loss $ (403,669) $ -
============= ============
SALES
-----
Sales increased 1029% during fiscal ended December 31, 2004 to $49,996,683
from $4,428,836 in fiscal ended December 31, 2003. Sales increased primarily due
to the acquisitions of Evans Columbus, Karkela Construction and Monarch Homes.
Sales also increased at Mound Technology and subsidiaries in fiscal year ended
December 31, 2004 by 67% to $7,389,064 from $4,428,836 in fiscal year ended
December 31, 2003.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM
-------------------------------------------------
Pre-tax income before extraordinary item was $742,199 in fiscal year ended
December 31, 2004 and $(1,510,450) in fiscal year ended December 31, 2003.
Reflecting the acquisitions of Evans Columbus, Karkela Construction and Monarch
Homes which occurred in the final month of fiscal year ended December 31, 2004.
Operating losses at Mound Technologies and Subsidiaries decreases to
$(91,884) in fiscal ended December 31, 2004 from $ (972,943) in fiscal ended
December 31, 2003, reflecting higher sales and better cost controls.
27
Corporate and other expenses were $457,259 in fiscal year ended December
31, 2004 as compared to none in fiscal ended December 31, 2003 due principally
to the parent company beginning to pay expenses on its own behalf.
INTEREST EXPENSE
----------------
Interest expense was $165,718 during the fiscal year ended December 31,
2004 as compared to $351,801 in fiscal year ended December 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As presented in the Consolidated Statement of Cash Flows, net cash used by
operating activities was $(939,753) in fiscal 2004. The significant changes in
working capital were an $960,809 increase in accounts receivable, a $3,804,140
increase in inventory. Working capital requirements are not anticipated to
increase substantially in fiscal 2005.
During fiscal 2004, the Company used cash of $205,000 to acquire companies.
The Company received net cash of $1,026,550 from the issue of certain promissory
convertible notes.
The level of capital expenditures is expected to increase moderately in
fiscal 2005, and the source of funds for such expenditures is expected to be
cash from operations.
At December 31, 2004 the Company's total debt was $13,442,8218 as compared
to $4,008,827 at December 31, 2003. The Company believes that its funding
sources are adequate for its anticipated requirements.
Shareholders' equity was $252,656 at December 31, 2004 compared to
$(691,952) at December 31, 2003. The increase is due to the decrease in net loss
at Mound Technologies and Subsidiaries and the positive shareholders equity from
the acquisitions.
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. 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, as discussed below, 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.
28
We are seeking to raise up to $5 million of additional capital from private
investors and institutional money managers in the next few months, but there can
be no assurance that we will be successful in doing so. If we are not successful
in raising any of this additional capital, our current cash resources may not
sufficient to fund our current operations.
We may experience problems, delays, expenses, and difficulties sometimes
encountered by an enterprise in our stage of development, many of which are
beyond our control. For potential acquisitions, these include, but are not
limited to, unanticipated problems relating to the identifying partner(s),
obtaining financing, culminating the identified partner due to a number of
possibilities (prices, dates, terms, etc). Due to limited experience in
operating the combined entities for the Company, we may experience production
and marketing problems, incur additional costs and expenses that may exceed
current estimates, and competition.
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.
During the year ended December 31, 2004, the Company has not engaged in:
o Material off-balance sheet activities, including the use of structured
finance or special purpose entities;
o Trading activities in non-exchange traded contracts; or o Transactions with
persons or entities that benefit from their non-independent relationship
with the Company.
Inflation
---------
We are subject to the effects of inflation and changing prices. As
previously mentioned, we experienced rising prices for steel and other
commodities during fiscal 2004 that had a negative impact on our gross margins
and net earnings. In fiscal 2005, we expect average prices of steel and other
commodities to be higher than the average prices paid in fiscal 2004. 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.
Critical Accounting Policies and Estimates
------------------------------------------
In preparing our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America, we
must make decisions that impact the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures. Such decisions include the
selection of the appropriate accounting principles to be applied and the
assumptions on which to base accounting estimates. In reaching such decisions,
we apply judgments based on our understanding and analysis of the relevant
circumstances, historical experience, and actuarial valuations. Actual amounts
could differ from those estimated at the time the consolidated financial
statements are prepared.
Our significant accounting policies are described in Note 1 to the
consolidated financial statements. Some of those significant accounting policies
require us to make difficult subjective or complex judgments or estimates. An
accounting estimate is considered to be critical if it meets both of the
following criteria: (i) the estimate requires assumptions about matters that are
highly uncertain at the time the accounting estimate is made, and (ii) different
estimates that reasonably could have been used, or changes in the estimate that
are reasonably likely to occur from period to period, would have a material
impact on the presentation of our financial condition, changes in financial
condition or results of operations.
29
Accounts Receivable Valuation. We value accounts receivable, net of an
allowance for doubtful accounts. Each quarter, we estimate our ability to
collect outstanding receivables that provides a basis for an allowance estimate
for doubtful accounts. In doing so, we evaluate the age of our receivables, past
collection history, current financial conditions of key customers, and economic
conditions. Based on this evaluation, we establish a reserve for specific
accounts receivable that we believe are uncollectible, as well as an estimate of
uncollectible receivables not specifically known. A deterioration in the
financial condition of any key customer or a significant slow down in the
economy could have a material negative impact on our ability to collect a
portion or all of the accounts and notes receivable. We believe that an analysis
of historical trends and our current knowledge of potential collection problems
provide us with sufficient information to establish a reasonable estimate for an
allowance for doubtful accounts. However, since we cannot predict with certainty
future changes in the financial stability of our customers, our actual future
losses from uncollectible accounts may differ from our estimates. In the event
we determined that a smaller or larger uncollectible accounts reserve is
appropriate, we would record a credit or charge to selling, general, and
administrative expense in the period that we made such a determination.
30
ITEM 7. FINANCIAL STATEMENTS
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2004
31
CONTENTS
--------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm Page 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 (Deficit) F 7
Notes to Consolidated Financial Statements F 9
32
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.
Plymouth, MN
We have audited the accompanying consolidated balance sheets of Heartland, Inc.
and subsidiaries (formerly International Wireless, Inc.) as of December 31, 2004
and 2003 (restated) and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the two years in the
period ended December 31, 2004. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit 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. 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. We believe that our audit provides 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 the Company as of
December 31, 2004 and 2003 (restated), and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 2004, in
conformity with U.S. generally accepted accounting principles.
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 negative working capital of
$2,744,135, an accumulated deficit of $1,120,002, 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
March 20, 2005
F 1
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
CONSOLIDATED BALANCE SHEETS
December 31,
-----------------------------
2004 2003
----------- ----------
(Restated)
CURRENT ASSETS
Cash $ 578,354 $ 4,923
Accounts receivable net of allowance for doubtful
accounts of $684,829 and $550,336, respectively 3,450,970 1,123,202
Costs in excess of billings on uncompleted contracts 258,161
Inventory 4,932,629 619,192
Prepaid expenses and other 110,163
----------- ----------
Total Current Assets 9,330,277 1,747,317
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $723,761 and $510,218, respectively 1,876,685 982,502
OTHER ASSETS
Advances to related party 281,122
Goodwill 2,193,613 586,056
Security deposits 13,787 1,000
----------- ----------
2,488,522 587,056
----------- ----------
Total Assets $13,695,484 $3,316,875
=========== ==========
See accompanying notes to financial statements.
F 2
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
------------------------
2004 2003
----------- ----------
(Restated)
CURRENT LIABILITIES
Bank lines of credit $ 810,989
Notes payable - land purchases 1,965,698
Convertible promissory notes payable 1,026,550
Current portion of notes payable 45,133 $ 29,450
Current portion of capitalized lease obligations 115,423
Accounts payable 2,864,312 1,886,923
Acquisition notes payable to related parties 3,300,000
Obligations to related parties 670,907 543,480
Accrued payroll taxes 693,630 598,458
Accrued expenses 477,868 298,373
Billings in excess of costs on uncompleted contracts 82,839 156,507
Customer deposits 21,063
----------- ----------
Total Current Liabilities 12,074,412 3,513,191
LONG-TERM OBLIGATIONS
Notes payable, less current portion 541,313 495,636
Capitalized lease obligations, less current portion 269,100
Notes payable to an individual 150,000
Deferred income taxes 408,003
----------- ----------
Total Long Term Liabilities 1,368,416 495,636
STOCKHOLDERS' EQUITY (DEFICIT)
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; issued and outstanding
18,244,801 and 13,077,758 shares at
December 31, 2004 and 2003, respectively 18,244 13,077
Additional paid-in capital 1,354,414 11,304
Accumulated deficit (1,120,002) (716,333)
----------- ----------
Total Stockholders' Equity (Deficit) 252,656 (691,952)
----------- ----------
Total Liabilities and Stockholders' Equity (Deficit) $13,695,484 $3,316,875
=========== ==========
See accompanying notes to financial statements.
F 3
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31,
-------------------------------
2004 2003
-------------- --------------
(Restated)
REVENUE - SALES $49,996,683 $4,428,836
COSTS AND EXPENSES
Cost of goods sold 44,969,599 4,055,404
Selling, general and administrative expenses 4,007,550 1,281,975
Stock based compensation 63,787
Depreciation and amortization 239,532 64,400
----------- ----------
Total Costs and Expenses 49,280,468 5,401,779
----------- ----------
NET OPERATING INCOME (LOSS) 716,215 (972,943)
OTHER INCOME (EXPENSE)
Rental income 197,806
Other income 11,371 4,480
Loss on disposal of equipment (17,475) (39,237)
Interest expense (165,718) (351,801)
Realized loss on sale of marketable securities (150,949)
----------- ----------
Total Other Income (Expense) 25,984 (537,507)
----------- ----------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS 742,199 (1,510,450)
DISCONTINUED OPERATIONS
Loss from operations of discontinued subsidiary (457,853)
Loss on disposal of operating assets (663,000)
----------- ----------
Total Discontinued Operations - Loss (1,120,853)
----------- ----------
INCOME (LOSS) BEFORE TAXES 742,199 (2,631,303)
DEFERRED FEDERAL AND STATE INCOME TAXES 412,410
----------- ----------
INCOME (LOSS) PRIOR TO ADJUSTMENT FOR
PREACQUISITION EARNINGS 329,789 (2,631,303)
ELIMINATION OF PREACQUISITION EARNINGS (LOSS) (733,458) 2,631,303
----------- ----------
NET LOSS $ (403,669)
=========== ==========
NET LOSS PER COMMON SHARE
Basic $(.03)
Fully diluted $(.03)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 13,744,692
Fully diluted 15,101,692
See accompanying notes to financial statements.
F 4
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31,
-------------------------------
2004 2003
------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (403,669)
Adjustments to reconcile net loss to cash flows
used in operating activities:
Stock based compensation 63,787
Loss on disposal of equipment 2,489
Depreciation and amortization 58,336
Increase in accounts receivable (243,757)
Increase in costs in excess of billings on uncompleted contracts (113,724)
Decrease in inventory 109,895
Increase in prepaids and other (6,990)
Decrease in accounts payable (453,649)
Increase in accrued payroll taxes 95,172
Increase in accrued expenses 63,976
Decrease in billings in excess of costs on uncompleted contracts (147,565)
Increase in deferred income taxes 36,126
----------
NET CASH FLOWS USED IN OPERATING ACTIVITIES (939,573)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisition of subsidiaries (205,000)
Proceeds on disposition of property and equipment 7,450
Cash paid for security deposits (10,520)
----------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (208,070)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received in acquisition of subsidiaries 458,433
Proceeds from issuance of promissory convertible
notes payable 1,026,550
Payments on notes payable (46,241)
Payments on obligations to related parties (62,668)
Proceeds from issuance of common stock 345,000
----------
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,721,074
----------
INCREASE IN CASH 573,431
CASH, BEGINNING OF PERIOD 4,923
----------
CASH, END OF PERIOD $ 578,354
==========
See accompanying notes to financial statements
F 5
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
For the Year Ended December 31,
-------------------------------
2004 2003
------------ --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $164,347
Taxes paid 40,533
NON-CASH INVESTING AND FINANCING ACTIVITIES
Land acquired by:
Assuming loan payable 150,000
Issuance of common stock 94,000
Transportation equipment acquired with notes payable 61,094
Issuance of common stock in payment of obligation to
related party 15,000
Issuance of common stock as stock based compensation 63,787
Assets acquired and liabilities assumed in acquisition of
subsidiaries:
Cash acquired 458,433 4,923
Accounts receivable 2,084,011 1,123,202
Costs in excess of billings on uncompleted contracts 144,437
Inventory 4,423,332 619,192
Prepaids and other 103,173
Property, plant and equipment 452,364 982,502
Advance to related party 281,122
Goodwill 1,607,557 586,056
Security deposits 2,267 1,000
Line of credit (810,989)
Notes payable (2,012,205) (525,086)
Obligation under capital lease (384,523)
Accounts payable (1,431,038) (1,440,070)
Acquisition notes payable (3,300,000)
Obligations to related parties (205,095) (466,292)
Accrued expenses (115,519) (189,005)
Billings in excess of costs on uncompleted contracts (73,897) (156,507)
Customer deposits (21,063)
Deferred income taxes (371,877)
Issuance of common stock (830,490) (12,560)
Accrued payroll taxes (527,355)
See accompanying notes to financial statements
F 6
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Year Ended December 31, 2004
Additional
Capital Stock Paid - In Accumulated
---------------------------
Shares Capital Capital Deficit Total
-------------------------------------------------------------------------------
Balance December 31,
2002 23,249,442 $209,245 $8,612,489 $(9,098,330) $ (276,596)
Issuance of stock in
private placement at
$0.10 per share 1,166,250 10,497 106,128 116,625
Issuance of stock for
the exercise of non-
qualified stock options
at $0.01 per share 70,000 630 6,370 7,000
Issuance of stock to
consultants for services
provided at $0.15 per
share 220,080 1,981 32,574 34,555
Issuance of stock for
loan conversion at
$0.10 per share 500,000 4,500 45,500 50,000
Issuance of stock for
adjustments in private
placement 268,000 2,411 (2,411)
Issuance of stock for loan
conversion at $0.10 per
share 1,000,000 9,000 91,000 100,000
Issuance of stock in
private placement at
$0.10 per share 25,000 225 2,275 2,500
Issuance of stock to
investment banker as
fee to finalize company
affairs 30,000,000 270,000 (270,000)
Net loss for the year
ended December
31, 2003-pre-merger (809,596) (809,596)
----------- -------- ---------- ---------- ---------
Subtotal 56,498,772 508,489 8,623,925 (9,907,926) (775,512)
Reverse Merger:
Revenue 30 to 1
stock split, par
value increases to
$0.28 per share 54,615,480
Adjustment of par
value to $0.001 to
recapitalize com-
pany (506,606) 506,606
----------- -------- ---------- ---------- ---------
Subtotal 1,883,292 1,883 9,130,531 (9,907,926) (775,512)
See accompanying notes to financial statements.
F 7
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)(CONTINUED) For
the Year Ended December 31, 2004
Additional
Capital Stock Paid - In Retained
---------------------------
Shares Capital Capital Earnings Total
-------------------------------------------------------------------------------
Balance carried forward 1,883,292 1,883 9,130,531 (9,907,926) (775,512)
Issuance of common
stock to PMI Wireless,
Inc. 9,938,466 9,938 61,062 71,000
Issuance of common
stock to acquire Mound
Technologies, Inc. 1,256,000 1,256 11,304 12,560
Recapitalization of
accumulated deficit
in Reverse Merger (9,191,593) 9,191,593
---------- ------- ----------- ----------- ---------
Balance, December
31, 2003 13,077,758 13,077 11,304 (716,333) (691,952)
Correction of shares
issued in reverse
merger 703,082 703 (703)
Shares issued for
services rendered
at $0.05 per share 1,105,730 1,106 54,181 55,287
Shares issued in
connection with
law suit settlement 170,000 170 8,330 8,500
Shares issued for cash
at a price ranging
from $0.16 to $1.00 1,204,396 1,204 343,796 345,000
Shares issued to acquire
property at $0.47
per share 200,000 200 93,800 94,000
Shares issued to settle
loan @ $0.89 per share 16,835 17 14,983 15,000
Issuance of common
stock in connection
with acquisitions at
$0.47 per share 1,767,000 1,767 828,723 830,490
Net loss for the year
ended December 31,
2004 (403,669) (403,669)
---------- ------- ----------- ----------- ---------
18,244,801 $18,244 $1,354,414 $(1,120,002) 252,656
========== ======= =========== =========== =========
See accompanying notes to financial statements.
F 8
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
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 subsidiaries, Mound Technologies, Inc. ("Mound")
a steel fabricator acquired in December 2003, Evans Columbus, LLC
("Evans") a steel drum manufacturer, Monarch Homes, Inc. ("Monarch") a
residential home builder and Karkela Construction, Inc. ("Karkela") a
commercial construction contractor, all of which were acquired in
December 2004. Heartland was previously involved with the development
of wireless technology and acquisition of companies developing
wireless technology for cell phones. The company, after finding it
difficult to obtain capital for its development efforts, ceased
operations in 2003. The 2004 financial statements have been prepared
as though the acquisitions occurred as of the beginning of the year.
The 2003 financial statements have been restated to reflect the
acquisition in December 2003 as though it occurred as of the beginning
of the year.
Reverse Merger
--------------
On December 1, 2003, PMI Wireless, Inc., a private company, acquired
9,938,466, subsequently adjusted to 10,641,548 shares of International
Wireless, Inc. common stock for $71,000 cash and the assumption of the
Company's liabilities, thereby obtaining control of the company.
Simultaneously, the Company authorized a 30 for 1 reverse split.
Subsequent to this split, PMI Wireless, Inc. controlled 84% of the
outstanding common stock of the Company. In this connection, the
Company became a wholly owned subsidiary of PMI Wireless, Inc. PMI
Wireless, Inc.'s officers and directors replaced the Company's and
changed its name to International Wireless, Inc. Prior to the merger,
International Wireless, Inc. was a non-operating shell corporation.
Pursuant to Securities and Exchange Commission rules, the merger of a
private operating company (PMI Wireless, Inc.) into a non-operating
public shell corporation with nominal net assets (International
Wireless, Inc.) is considered a capital transaction. Accordingly, for
accounting purposes, the merger has been treated as an acquisition of
PMI Wireless, Inc. by the Company and a recapitalization of the
Company.
Going Concern Uncertainty and Management's Plans
------------------------------------------------
As reflected in the accompanying financial statements, the Company has
current liabilities of $2,744,135 in excess of current assets,
resulting in negative working capital. Management is presently seeking
to raise permanent equity capital in the capital markets or some form
of long-term debt instrument to eliminate the negative working
capital. Additionally, the Company is seeking to acquire additional
profitable companies. Failure to raise equity capital or secure some
other form of long-term debt arrangement will cause the Company to
further increase its negative working capital deficit. However, there
are no assurances, that the Company will succeed in the obtaining of
equity financing or some form of long-term debt instrument.
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.
F 9
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Net 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 and Goodwill
----------------------------------
In July 2001, the Financial Accounting Standards Board ("FSAB") issued
SFAS NO. 141, "Business Combinations". SFAS No. 141 requires the
purchase method of accounting for business combinations initiated
after June 30, 2001 and eliminates the pooling-of-interests method.
In July 2001, the FASB issued SFAS NO. 142, "Goodwill and Other
Intangible Assets", which the company adopted during 2003. SFAS No.
142 requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously
reported goodwill and the identification of reporting units for
purposes of assessing potential future impairment of goodwill.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 changes the
accounting for long-lived assets to be held and used by eliminating
the requirement to allocate goodwill to long-lived assets to be tested
for impairment, by providing a probability weighted cash flow
estimation approach to deal with situations in which alternative
courses of action to recover the carrying amount of possible future
cash flows and by establishing a primary-asset approach to determine
the cash flow estimation period for a group of assets and liabilities
that represents the unit of accounting for long-lived assets to be
held and used. SFAS No. 144 changes the accounting for long-lived
assets to be disposed of other than by sale by requiring that the
depreciable life of a long-lived asset to be abandoned be revised to
reflect a shortened useful life and by requiring the impairment loss
to be recognized at the date a long-lived asset is exchanged for a
similar productive asset or distributed to owners in a spin-off if the
carrying amount of the asset exceeds its fair value. SFAS No 144
changes the accounting for long-lived assets to be disposed of by sale
by requiring that discontinued operations no longer be recognized in a
net realizable value basis (but at the lower of carrying amount or
fair value less costs to sell), by eliminating the recognition of
future operating losses of discontinued components before they occur
and by broadening the presentation of discontinued operations in the
income statement to include a component of an entity rather than a
segment of a business. A component of an entity comprises operations
and cash flows that can be clearly distinguished operationally and for
financial reporting purposes from the rest of the entity.
F 10
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Stock-Based Compensation
------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation" prescribes
accounting and reporting standards for all stock-based compensation
plans, including employee stock options, restricted stock, employee
stock purchase plans and stock appreciation rights. SFAS No. 123
requires employee compensation expense to be recorded (1) using the
fair value method or (2) using the intrinsic value method as
prescribed by accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB25") and related interpretations
with pro forma disclosure of what net income and earnings per share
would have been if the Company adopted the fair value method. The
Company accounts for employee stock based compensation in accordance
with the provisions of APB 25. For non-employee options and warrants,
the company uses the fair value method as prescribed in SFAS 123.
Allowance for Doubtful Accounts
-------------------------------
It is the company's policy to provide an allowance for doubtful
accounts when it believes there is a potential for non-collectibility.
Inventories
-----------
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out (FIFO) method.
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.
Contracts to manage, supervise, or coordinate the construction
activity of others are recognized only to the extent of the fee
revenue. The revenue earned in a period is based on the ratio of total
cost incurred to the total estimated total cost required by the
contract.
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
F 11
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
-------------------------------
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 in excess of billings on uncompleted contracts,"
represents revenues recognized in excess of amounts billed. The
liability, "Billings in excess of costs on uncompleted contracts,"
represents billings in excess of revenues recognized.
NOTE C - ACQUISITIONS
In December 2003, the Company acquired 100% of the issued and
outstanding stock of Mound Technologies ("Mound") for an aggregate
purchase price of 1,256,000 shares of the Company's common stock.
On December 27, 2004, the Company acquired 100% of Monarch Homes Inc.
("Monarch"). The acquisition price consisted of 1) $100,000 in cash,
2) a promissory note of $1,900,000 payable on or before February 15,
2005 which, if not paid by that date will include interest at 8% to
payment date, and 3) 667,000 restricted shares of the Company's common
stock. Should the common stock of the Company not be trading at a
minimum of $5 per share as of December 27, 2005, the Company must
compensate the seller for the difference in additional shares of
common stock.
On December 30, 2004, the Company acquired 100% of Evans Columbus, LLC
("Evans"). The acquisition price consisted of 1) $5,000 in cash, and
2) 600,000 restricted shares of the Company's common stock. Should the
common stock not be trading at a minimum of $5 per share as of
December 30, 2005, the Company must compensate the seller for the
difference in additional shares of common stock.
On December 31, 2004, the Company acquired 100% of Karkela
Construction, Inc. ("Karkela"). The acquisition price consisted of 1)
$100,000 in cash, 2) a promissory note payable of $50,000 due on or
before January 31, 2005, 3) a promissory note of $1,350,000 payable on
or before March 31, 2005 which if not paid by that date, will include
interest from December 31, 2004 at 8% to payment date, and 4) 500,000
restricted shares of the Company's common stock. Should the common
stock of the Company not be trading at a minimum of $4 per share as of
December 31, 2005, the company must compensate the seller for the
difference in additional shares of common stock.
F 12
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
NOTE C - ACQUISITIONS (CONTINUED)
The allocation of the purchase price for these acquisitions was as
follows:
Mound Monarch Evans Karkela
----------- ---------- ----------- ----------
Cash payment $ 100,000 $ 5,000 $ 100,000
Promissory notes $1,900,000 $1,400,000
Common stock shares 1,256,000 667,000 600,000 500,000
Value per share $ 0.01 $ 0.47 $ 0.47 $ 0.47
----------- ---------- ----------- ----------
Total Common Stock 12,560 313,490 282,000 235,000
----------- ---------- ----------- ----------
Total Purchase Price $ 12,560 $2,313,490 $ 287,000 $1,735,000
=========== ========== =========== ==========
Fair value of net assets acquired:
Cash $ 4,923 $ 150,996 $ 114,016 $ 193,421
Loan receivable 202,965 78,157
Accounts receivable 1,123,202 637,060 1,446,951
Costs in excess of billings 144,437
Inventory 619,192 3,843,570 579,762 65,994
Property, plant and equipment 982,502 160,834 460,586 35,944
Other assets 1,000 39,446
Liabilities assumed (3,304,315) (2,556,762) (1,622,027) (1,247,417)
Goodwill 586,056 511,887 1,095,670
----------- ---------- ---------- ----------
$ 12,560 $2,313,490 $ 287,000 $1,735,000
=========== ========== =========== ==========
NOTE D - INVENTORY
Inventory consists of the following at December 31,
2004 2003
---------- --------
Raw material $ 959,692 $505,652
Work in process - manufacturing 125,658 113,540
Work in process - home construction 1,108,892
Land held for development 2,734,677
Finished goods 3,710
---------- --------
$4,932,629 $619,192
========== ========
F 13
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
NOTE E - PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following at December
31,
Years of
Average
2004 2003 Useful Life
---------- --------- -----------
Land $ 317,400 $ 73,400
Leasehold improvements 44,724 33,134 5
Buildings 762,600 762,600 30
Furniture and fixtures 194,074 120,388 10
Machinery and equipment 950,587 397,580 10-15
Automotive equipment 331,061 105,618 7
---------- ----------
2,600,446 1,492,720
Less: accumulated depreciation 723,761 510,218
---------- ----------
$1,876,685 $ 982,502
========== ==========
NOTE F - BANK LINES OF CREDIT
A Company subsidiary has a $2,000,000 revolving line of credit with a
bank through July 2005 of which $1,189,011 is available at December
31, 2004. The line bears interest at 1.85% plus the London InterBank
Offered Rate ("LIBOR"). At December 31, 2004, the LIBOR was 3.10%. The
line is limited to 80% of eligible accounts receivable plus 50% of
eligible inventory. The line is collateralized by substantially all of
the subsidiary's assets and a $1,500,000 life insurance policy on the
life of a stockholder. At December 31, 2004, the Company had an
outstanding balance due of $810,989 on this line.
NOTE G - NOTES PAYABLE - LAND PURCHASES
The Monarch Homes, Inc. subsidiary acquires improved building lots for
future home construction. The purchases are financed through a
financial institution - Contractors Capital Corporation. At December
31, 2004, the Company's outstanding indebtedness aggregated
$1,965,698. The loans are secured by the land. See Note D - Inventory
- land held for development. The notes bear interest at a rate of 2.5%
to 3.0% and are repayable at the time the constructed homes are sold.
NOTE G - CONVERTIBLE PROMISSORY NOTE PAYABLE
The Company, between August and December 31, 2004, issued $1,026,550
in convertible promissory notes to various individuals and
organizations. 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. Of the $1,026,550
outstanding, $695,550 are convertible at $1.00 per share and $331,000
are convertible at $.50 per share.
F 14
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
NOTE H - NOTES PAYABLE
Notes payable consist of the following at December 31:
2004 2003
--------- ---------
Notes payable to bank due December 2009, payable in 59
monthly principal installments of $775 plus interest at
prime (5.25% at December 31, 2004). The note is
collateralized by substantially all of the subsidiary's
assets and a $1,500,000 life insurance policy on a Company
stockholder. $ 46,507
Notes payable to banks due February 2010 and March 2010,
payable in 72 monthly installments of $734 and $284
including interest at 6.18% and 6.27%, respectively. The
notes are collateralized by transportation equipment. 54,645
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. 485,294 $508,700
Note payable to a bank due April 2006, payable in 60 monthly
installments of $512 bearing no interest. The note was
collateralized by transportation equipment and was
paid-in-full in 2004. 16,386
-------- --------
586,446 525,086
Less: current portion 45,133 29,450
-------- --------
Long-term portion $541,313 $495,636
======== ========
Minimum future principal payments on notes over the next five years
and in the aggregate are as follows:
Year Amount
---- ------
2005 $ 45,133
2006 46,084
2007 47,765
2008 52,643
2009 54,738
Thereafter 340,083
--------
Total $586,446
NOTE I - NOTE PAYABLE TO AN INDIVIDUAL
In June 2004, an individual contributed four parcels of land to the
Company in exchange for 200,000 shares of the Company's common stock
and the assumption of a note in the amount of $150,000. The note is
non-interest bearing and has no specific repayment date.
F 15
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
NOTE J - CAPITAL LEASE OBLIGATION
A subsidiary of the Company entered into a sale/leaseback arrangement
with a bank in November 2004 for all of its property and equipment.
The arrangement was for 36 monthly payments of $11,141 each including
interest at an effective rate of 5.5% with a final payment of $40,500
due November 2007.
2004
--------
Total minimum lease payments $419,294
Less: amount representing interest 34,771
--------
Net minimum lease payments 384,523
Less: current maturities 115,423
--------
Long-term portion $269,100
========
Minimum future lease payments as of December 31, 2004 were as follows:
Year Amount
---- ------
2005 $133,692
2006 133,692
2007 151,910
--------
Total $419,294
========
NOTE K - RELATED PARTY TRANSACTIONS
Advances to Related Party
-------------------------
Evans Columbus, LLC, acquired by the Company in December 2004,
advanced the former owner a net amount of $78,157 to cover operating
costs of the manufacturing facility owned by the former stockholders
and currently leased to Evans Columbus, LLC.
Monarch Homes, Inc. acquired by the Company, in December 2004 has made
a loan to a joint venture partnership in the amount of $202,965 in
which Monarch's former owner has a one third interest. The joint
venture was created to construct a restaurant.
Obligations to Related Parties
------------------------------
In connection with the acquisition of Mound Technologies, Inc. in
December 2003, the Company assumed a loan of $470,907 payable to the
former stockholder who currently is a significant stockholder of the
Company.
In connection with the acquisition of Karkela Construction, Inc., the
former principal stockholder of Karkela declared a $200,000 dividend
prior to the effective date of the acquisition, payable in January
2005.
F 16
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
NOTE L - STOCKHOLDERS' EQUITY (DEFICIT)
PRE-STOCK SPLIT AND REVERSE MERGER (See Consolidated Statement of
Stockholders' Equity [Deficit])
During the three months ended March 31, 2003 the Company issued
220,080 shares of the Company's common stock to a consultant for
services provided at a price of $0.15 per share. Stock based
compensation expense of $34,555 was recorded in connection with this
issuance.
During the three months ended March 31, 2003 the Company issued
500,000 shares of common stock as payment of a loan payable to a
related party. The shares were valued at $0.01 per share and the
outstanding loan was reduced by $50,000.
During the three months ended March 31, 2003, 70,000 shares were
issued in connection with the exercise of 70,000 non-qualified stock
options at an exercise price of $0.01 per share. Total proceeds were
$7,000.
During the three months ended March 31, 2003, the Company received
proceeds of $219,125 from the sale of 2,191,250 shares of its common
stock under a private placement at $0.10 per share.
During the nine months ended September 30, 2003, the Company issued
268,000 shares to private placement holders had who had subscribed to
the private placement at higher prices. The effect of this additional
issuance was to reduce these holder's purchase price basis to $0.10
per share.
In August 2003, the Board of Directors authorized an increase of the
Company's authorized shares from 50,000,000 to a maximum authorized of
100,000,000 shares and cancelled all outstanding options, warrants and
private placement offerings. The shareholders ratified the increase at
an August 29, 2003 shareholders' meeting.
In August 2003, the Board of Directors issued 30,000,000 shares to
First Union Venture Group, LLC as consideration for their performance
of duties related to finalizing the Company's affairs.
Reverse Merger
--------------
On December 1, 2003, the Company reverse merged with PMF Wireless,
Inc., effected a 30 for 1 reverse split, readjusted the par value of
its common stock and simultaneously changed its name to International
Wireless, Inc. See Note A to the Financial Statements - Reverse
Merger. In connection with the reverse merger, 9,938,466 shares of the
Company's common stock were issued for $71,000 in cash and the
assumption of liabilities.
On December 10, 2003, the Company issued $1,256,000 shares of its
common stock, at a value of $0.01 per share, to acquire Mound
Technologies, Inc.
During the year 2004, the Company realized that the number of shares
issued in connection with the reverse merger had to be adjusted.
Accordingly, in 2004, 703,082 shares were issued to adjust the
issuance of the reverse merger shares.
F 17
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
NOTE L - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
PRE-STOCK SPLIT AND REVERSE MERGER (CONTINUED)
(See Consolidated Statement of Stockholders' Equity)
Reverse Merger (Continued)
--------------------------
During the year 2004, the Company issued 1,105,730 shares of its
common stock to individuals for services rendered. The shares were
valued at $0.05 per share. Accordingly, stock based compensation in
the amount of $55,287 was recorded.
The Company settled an outstanding law suit by issuing 170,000 shares
of its common stock valued at $0.05 per share. Accordingly, stock
based compensation of $8,500 was recorded.
During the year at various dates, the Company issued 1,204,396 shares
of its common stock for cash. The shares were issued at various prices
ranging from $0.16 per share to $1.00 per share. The total
consideration received aggregated $345,000.
During 2004, the Company acquired three parcels of land having an
appraised value of approximately $600,000 for the issuance of 200,000
shares of its common stock and the assumption of debt aggregating
$150,000. The shares were valued at $0.47 per share.
In December 2004, the Company completed three acquisitions. Part of
the acquisition cost was the issuance of 1,767,000 shares of its
common stock valued at $0.47 per share or a consideration of $830,490.
The Company settled an outstanding indebtedness of $15,000 by issuing
16,835 shares of its common stock valued at $0.89 per share.
In connection with the convertible promissory notes, the Company has
reserved 1,357,000 shares of its common stock for potential
conversions.
NOTE M - INCOME TAXES
The Company has not elected as at December 31, 2004, to file a
consolidated Federal income tax return. Accordingly, the only carry
forward loses available to the Company are losses incurred in the
parent corporation, Heartland, Inc., aggregating approximately
$450,000 to offset future tax liabilities of the parent corporation.
This net operating loss expires in 2019.
Temporary differences which give rise to deferred taxes are
summarized as follows for the year ended December 31, 2003:
Timing difference relating to the payment of taxes due to
differences in tax and financial reporting fiscal year ends $408,003
Net operating loss and other carry forwards 135,000
Valuation allowance (135,000)
--------
Net deferred tax $408,003
========
F 18
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
NOTE M - INCOME TAXES (CONTINUED)
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.
There is no difference between the effective income tax rates for
deferred income taxes from the statutory Federal income tax rate.
NOTE N - LITIGATION
In February, 2003, a judgment in the amount of $28,750 was entered
against the Company for unpaid rent on behalf of Graham Paxton, the
former President and CEO of the Company as part of his employee
benefit plan.
In March, 2003, a judgment in the amount of $99,089, including $50,000
security deposit replenishment, was entered against the Company for
breach of contract for non-payment of rent on the Company's former
office facility in Woburn, Massachusetts. The Company is contingently
liable for the balance of the lease in the total amount of $428,000
through the lease expiration date of July 31, 2005.
NOTE O - OPERATING SEGMENTS
The Company presently organizes its business units into three
reportable segments: steel fabrication, manufacturing and
construction, and property management. The steel fabrication segment
focuses on the fabrication of metal products. The manufacturing
segment manufactures steel drums and also manufactures products for
the heavy machinery industry. The construction and property management
segment builds custom residential homes in the State of Minnesota and
functions as a general contractor in the greater St. Paul and
Minneapolis, Minnesota area. It also owns and manages industrial
property in Ohio.
The segments' accounting policies are the same as those described in
the Summary of Significant Accounting Policies. The Company's
reportable business segments are strategic business units that offer
different products and services. Each segment is managed separately
because they require different technologies and market to different
classes of customers.
Reportable Segments
------------------------------------------------------------------
Construction
Year ended December 31, 2004: Parent Steel and Property
Company Fabrication Manufacturing Management Total
--------- ----------- ------------- ------------- -----------
REVENUES (there are no
inter-segment revenues) $7,386,678 $7,924,178 $34,685,827 $49,996,683
NET INCOME (LOSS) $(476,129) 112,448 (118,098) 811,568 329,789
Total Assets 380,594 2,646,848 2,011,062 8,656,980 13,695,484
OTHER SIGNIFICANT ITEMS
Depreciation expense 21,729 115,181 102,622 239,532
Interest expense 18,886 5,256 59,155 82,421 165,718
Expenditures for assets 56,776 405,000 34,091 495,867
F 19
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
NOTE O - OPERATING SEGMENTS (CONTINUED)
Reportable Segments
-------------------------------------------------------------
Construction
Year ended December 31, 2003: Steel and Property
Fabrication Manufacturing Management Total
----------- ------------- ------------- ----------
REVENUES (there are no
inter-segment revenues) $4,428,836 $4,428,836
NET INCOME (LOSS) (1,510,450) (1,510,450)
Total assets 3,316,875 3,316,875
OTHER SIGNIFICANT ITEMS
Depreciation expense 64,400 64,400
Interest expense 351,801 351,801
Expenditures for assets 349,000 349,000
NOTE P - COMMITMENTS AND CONTINGENCIES
As indicated in Note C - Acquisitions, the Company is liable for
interest and promissory notes if not paid by the due dates and
additional shares of stock if the common stock of the Company is not
trading at a minimum of $4 and $5 per share in December 2005.
In June of 2004, an individual, in an exchange for 200,000 shares of
the Company's stock and the assumption of a note for $150,000,
transferred four parcels of land to the Company with an appraised
value of $600,000. One of the parcels was given as collateral to the
Internal Revenue Service for unpaid payroll taxes relating to the
Mound Technologies acquisition in 2003.
A subsidiary of the Company leases its manufacturing facility from a
related party. The lease calls for monthly lease payments of $20,000
and expires on September 30, 2007. Renewal options are for four terms
of five years each. The subsidiary has guaranteed the related party's
obligation under its mortgage obligation on the facility. Management
believes that the value of the premises pledged as collateral for the
guaranteed obligation are in excess of any future amount of the
payments that may be required pursuant to the terms of the guarantee.
Minimum future lease payments under the lease are as follows:
For the
Years Ending
December 31, Amount
------------ ------
2005 $ 240,000
2006 240,000
2007 180,000
---------
Total $ 660,000
=========
Three of the facilities are rented on a month to month basis from
stockholders of the Company. Rent expense amounted to $522,782 for the
year ended December 31, 2004.
F 20
HEARTLAND, INC. AND SUBSIDIARIES
(Formerly International Wireless, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
NOTE Q - SUBSEQUENT EVENTS
During the period January 1, 2005 to the date of this report, the
Company has issued an additional $518,000 of convertible promissory
notes convertible with common stock at $1.00 per share. Accordingly,
an additional 518,000 shares of common stock has been reserved for
future conversions.
The Company is obligated under the terms of a lease dated February 25,
2005 with the Receivership of Mound Properties, LP in Springboro, Ohio
owned by a related party on behalf of Mound for a month to month term
beginning January 2005 at a monthly rent of $16,250. Each party has
the right to terminate this lease with 30 days notice. Under the terms
of the lease, the Company is responsible for utilities, personal
property taxes, and repairs and maintenance.
The Company is also obligated under the terms of a five year lease
terminating December 31, 2009 in Plymouth, Minnesota for annual rents
of $26,624, $27,648, $28,160 and $28,672, respectively. Under the
terms of the lease the Company is responsible for a pro rata share of
real estate taxes and operating expenses as additional rental.
F 21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
All decisions to change accountants were approved by our Board of
Directors.
There have been no disagreements between the Company and Meyler & Company,
LLC ("MC") in connection with any services provided to us by each of 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 internal controls necessary to develop reliable financial statements
did not exist; or
2. 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
3. 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, or 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. Controls and Procedures
-----------------------
The Corporation maintains and is currently undertaking actions to improve
disclosure controls and procedures designed to ensure that information required
to be disclosed in reports filed under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the specified
time periods. As of the end of the period covered by this report, the
Corporation's Chief Executive Officer and Chief Financial Officer evaluated the
effectiveness of the Corporation's disclosure controls and procedures. Based on
the evaluation, which disclosed no significant deficiencies or material
weaknesses that are not being addressed in the actions currently being taken to
improve our disclosure controls and procedures, particularly in areas such as
contract, securities sales, expense and press release review and authorization,
the Corporation's Chief Executive Officer and Chief Financial Officer concluded
that the Corporation's disclosure controls and procedures are effective as of
the end of the period covered by this report in that information required to be
disclosed in reports filed under the Securities Exchange Act of 1934, as
amended, has been recorded, processed, summarized and reported within the
current fiscal year. There were no changes in the Corporation's internal control
over financial reporting that occurred during the Corporation's most recent
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Corporation's internal control over financial reporting.
Item 8B. Other Information
-----------------
None.
55
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The directors and officers of the Company and its subsidiaries, as of March
30, 2005, are set forth below. The directors hold office for their respective
term and until their successors are duly elected and qualified. Vacancies in the
existing Board are filled by a majority vote of the remaining directors. The
officers serve at the will of the Board of Directors.
The following table and text sets forth the names and ages of all directors
and executive officers of the Company and the key management personnel as of
December 31, 2004. The Board of Directors of the Company is comprised of only
one class. All of the directors will serve until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier death, retirement, resignation or removal. Executive officers
serve at the discretion of the Board of Directors and are appointed to serve
until the first Board of Directors meeting following the annual meeting of
stockholders. Also provided is a brief description of the business experience of
each director and executive officer and the key management personnel during the
past five years and an indication of directorships held by each director in
other companies subject to the reporting requirements under the Federal
securities laws.
With Company
Name Age Since Director/Position
----------------- --- ----- -----------------
Trent Sommerville 37 12/2003 Chief Executive Officer,
Chairman of the Board, Director
Jerry Gruenbaum 49 12/2001 Secretary, General Counsel,
Director, and Chief Financial
Officer
Kenneth B. Farris 45 01/2004 Director
Jeff Brandeis 49 04/2004 President
THE OFFICERS AND DIRECTORS OF THE COMPANY ARE SET FORTH BELOW.
TRENT SOMMERVILLE was elected as Director, Chairman of the Board and appointed
as Chief Executive Officer in December 1, 2003. Mr. Sommerville attended
Perkingston College. Mr. Sommerville worked at Anjet where he obtained a NASD
series 63 license. 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.
56
JERRY GRUENBAUM, ESQ., is the Corporate Secretary, General Counsel, Chief
Financial Officer and member of the Board of Directors. He was appointed as
Corporate Secretary and General Counsel in December 2001 and was elected to the
board on November 12, 2003. He has been admitted to practice law since 1979 and
is a licensed attorney in various states including the State of Connecticut
where he maintains his practice as a member of SEC Attorneys, LLC, specializing
in Securities Law, Mergers and Acquisitions, Corporate Law, Tax Law,
International Law and Franchise Law. He is the CEO of a licensed brokerage firm
in New York City where he maintains a Series 7, 24, 27 and 63 licenses. He is a
former President and Chairman of the Board of Directors of a multinational
publicly-traded company with operations in Hong Kong and the Netherlands. He
worked for the tax departments for Peat Marwick Mitchell & Co. (now KPMG Peat
Marwick LLP) and Arthur Anderson & Co.(now Arthur Anderson LLP). He has served
as Compliance Director for CIGNA Securities, a division of CIGNA Insurance. He
has lectured and taught at various Universities throughout the United States in
the areas of Industrial and financial Accounting, taxation, business law, and
investments. Attorney Gruenbaum graduated with a B.S. degree from Brooklyn
College - C.U.N.Y. Brooklyn, New York; has a M.S. degree in Accounting from
Northeastern University Graduate School of Professional Accounting, Boston,
Massachusetts; has a J.D. degree from Western New England College School of Law,
Springfield, Massachusetts; and an LL.M. in Tax Law from the University of Miami
School of Law, Coral Gables, Florida.
DR. KENNETH B. FARRIS was appointed a director of the 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.
JEFF BRANDEIS was appointed President of the Company on April 20, 2004. Mr.
Brandeis, a resident of Oldsmar, Florida, is a graduate of Baruch College in New
York City with a BBA degree, and a graduate of Long Island University - CW Post,
in New York with a MBA degree in Taxation. Mr. Brandeis worked five years
combined at KPMG Peat Marwick, LLP and Hertz Herson CPA's, a midsize CPA firm in
New York City in their tax departments. Over the past twenty 20 years, he has
had a very successful career in sales and sales management for a multi billion
dollar corporation. He has extensive experience managing and directing a sales
staff that sold tax software, Engagement software, Practice Management, along
with other financial accounting tools to major Accounting firms and
corporations. This includes not only managing their activities, but includes
budgeting, forecasting, planning, compensation plans.
Our bylaws currently provide for a board of directors comprised of such
number as is determined by the Board.
On June, 17, 2004 Mr. Craig A. Pietruszewski, who had served as our CFO
from April 20, 2004 resigned and Mr. Gruenbaum assumed the CFO position.
57
Family Relationships
--------------------
None.
Board Committees
----------------
We currently have no compensation committee, audit committee or other board
committee performing equivalent functions. Currently, 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, as amended, requires
our directors and executive officers, and persons who beneficially own more than
10% of a registered class of our equity securities, to file reports of
beneficial ownership and changes in beneficial ownership of our securities with
the SEC on Forms 3 (Initial Statement of Beneficial Ownership), 4 (Statement of
Changes of Beneficial Ownership of Securities) and 5 (Annual Statement of
Beneficial Ownership of Securities). Directors, executive officers and
beneficial owners of more than 10% of our Common Stock are required by SEC
regulations to furnish us with copies of all Section 16(a) forms that they file.
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 for the fiscal year ended December 31, 2004 all
required forms have been filed as of the date of filing of this Form 10K-SB.
ITEM 10. EXECUTIVE COMPENSATION
See "Executive Officers of the Registrant" in Part I of this report for
information regarding the executive officers of the company, which is
incorporated by reference in this section.
The following table sets forth compensation paid to the most highly
compensated executive officers for the fiscal years ended December 31, 2003 and
2004.
--------------------------- ------ --------- --------- ---------- ---------- ---------
Name/ Position Year Salary Bonus Stock Other Total
--------------------------- ------ --------- --------- ---------- ---------- --------
Trent Sommerville 2004 $ 164,976 $ 0 $ 0 $ 0 $164,976
Chairman and CEO 2003 $ 0 $ 0 $ 0 $ 0 $ 0
Jerry Gruenbaum 2004 $ 109,500 $ 0 $ 25,000 $ 0 $134,500
Secretary, General Counsel, 2003 $ 0 $ 0 $ 0 $ 0 $ 0
and Chief Financial Officer
Jeff Brandeis 2004 $ $ 0 $ 0 $ 0 $ 0
President 1
--------------------------- ------ --------- --------- ---------- ---------- --------
1) Jeff Brandeis was appointed President of the Company in April 2004.
58
Compensation Agreements
-----------------------
The Company has no employment agreement with employees and officers of the
company as of this date.
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 receive cash compensation for
their services as Directors, although some Directors are reimbursed for
reasonable expenses incurred in attending Board or committee meetings. During
the year ended December 31, 2004, all corporate actions were conducted by
unanimous written consent of the Board of Directors.
Stock Option Plan
-----------------
The Company has no Stock Option Plan as of this date.
Warrants
--------
The Company has no Warrants outstanding as of this date.
Indemnification
---------------
Under the Company's Articles of Incorporation and its Bylaws, the Company
may indemnify an officer or director who is made a party to any proceeding,
including a law suit, because of his position, if he acted in good faith and in
a matter he reasonably believed to be in the Company's best interest. The
Company may advance expenses incurred in defending a proceeding. To the extent
that the officer or director is successful on the merits in a proceeding as to
which he is to be indemnified, the Company must indemnify him against all
expenses incurred, including attorney's fees. With respect to a derivative
action, indemnity may be made only for expenses actually and reasonably incurred
in defending the proceeding, and if the officer or director is judged liable,
only by a court order. The indemnification is intended to be to the fullest
extent permitted by the laws of the State of Maryland.
Regarding indemnification for liabilities arising under the Securities Act
of 1933, which may be permitted to directors or officers under Maryland law, the
Company is informed that, in the opinion of the Securities and Exchange
Commission, indemnification is against public policy, as expressed in the Act
and is, therefore, unenforceable.
59
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 25, 2005, 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.
60
Security Ownership of Beneficial Owners (1):
---------------------------------------
Title of Class Name Shares Percent
-------------- ----------------------------- ------------- -------
Common Stock The Good One Inc. 1,700,000 (2) 8.61%
Lavonne Adams 1,155,000 5.85%
John Zavoral 1,000,000 5.01%
First Union Venture Group, LLC 1,500,000 (3) 5.60%
Security Ownership of Management:
---------------------------------
Title of Class Name Shares Percent
-------------- ------------------------------ ------------- -------
Common Stock Trent Sommerville 4,500,100 22.79%
Jerry Gruenbaum 1,000,000 (4) 5.01%
Jeffrey Brandeis 360,000 1.82%
Kenneth B. Farris 50,000 0.25%
Thomas Miller 1,200,000 6.08%
------------- ------
All Directors and Executive Officers
as a group (5 persons) 7,110,100 36.01%
============= ======
(1) These tables are based upon 19,744,801 shares outstanding as of March 30,
2005 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 believes 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.
(2) The Good One, Inc. owns 1,500,000 directly and 200,000 indirectly through
its sole shareholder June Stevens.
(3) First Union Venture Group, LLC is owned one half by Atty. Jerry Gruenbaum,
Secretary, General Counsel and Director of the Company and one half by
another individual who is not related to Atty. Gruenbaum or under his
control. In addition Jerry Gruenbaum owns 500,000 shares in his own name.
(4) Atty. Jerry Gruenbaum holds 500,000 shares as a result of a 50% interest in
First Union Venture Group, LLC. And 500,000 directly in his own name.
Changes in Control
------------------
None
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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.
At the current time, there are no related party transactions.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial statements; see index to financial statement and
schedules under Item 7 herein.
2. Financial statement schedules; see index to financial statements
and schedules under Item 7 herein.
(b) Exhibits:
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.
10.1 Acquisition Agreement between Evans Columbus, LLS ("Evans")
and Heartland to acquire Evans dated December 30, 2004,
incorporated by reference to the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission
on January 4, 2005.
10.2 Acquisition Agreement between Karkela Construction, Inc.
("Karkela") and Heartland to acquire Karkela dated December
31, 2004, incorporated by reference to the Company's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on January 6, 2005.
10.3 Acquisition Agreement between Monarch Homes, Inc.("Monarch")
and Heartland to acquire Monarch dated December 30, 2004,
incorporated by reference to the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission
on January 4, 2005.
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.
62
(c) Reports on Form 8-K:
The Company filed a Form 8-K on January 8, 2004 relating to
the addition of Dr. Kenneth Farris to the Board of Directors
of Heartland, Inc.
The Company filed a Form 8-K on April 23, 2004 relating to
the cancellation of the Acquisition Agreement entered into
on December 11, 2003, to acquire one hundred percent of
Precision Metal Industries, Inc. a Florida corporation.
The Company filed a Form 8-K on April 27, 2004 relating to
the appointment of Jeffrey Brandeis as president of the
Company and Craig Pietruszewski as the Chief Financial
Officer of the Company.
The Company filed a Form 8-K/A on June 1, 2004 relating to
the audited financial from Form 8K submitted on or about
December 11, 2003 the describing an Acquisition Agreement
that the Registrant entered on December 10, 2003 to acquire
one hundred percent of Mound Technologies, Inc. a Nevada
corporation.
The Company filed a Form 8-K on June 15, 2004 relating to
changing the name of the Company from International
Wireless, Inc. to Heartland, Inc.
The Company filed a Form 8-K on June 17, 2004 relating to an
Agreement to acquire four commercial parcels of real estate.
Also, Craig Pietruszewski resigned as the Registrant's CFO
and Jerry Gruenbaum, the Company's Secretary and General
Counsel was appointed CFO in the interim.
The Company filed a Form 8-K on November 24, 2004 relating
to an Acquisition Agreement to purchase Ohio Mulch Supply,
Inc. of 2140 Advanced Avenue, Columbus, Ohio, a Ohio
corporation.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth fees billed to us by our auditors during the
fiscal years ended December 31, 2004 and December 31, 2003 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.
63
(i) Audit Fees
---------------------------- ------------------ ----------------------
Firm Fiscal Year 2003 Fiscal Year 2004
---------------------------- ------------------ ----------------------
Meyler & Company, LLC $ 50,000.00 $ 100,000.00 (1)
---------------------------- ------------------ ----------------------
(ii) Audit Related Fees
None
(iii) Tax Fees
None
(iv) All Other Fees
None
TOTAL FEES
---------------------------- ------------------ ----------------------
Firm Fiscal Year 2003 Fiscal Year 2004
---------------------------- ------------------ ----------------------
Meyler & Company, LLC $ 50,000.00 $ 100,000.00 (1)
---------------------------- ------------------ ----------------------
(1) Based on latest information available on March 30, 2005, the date this
report was filed. Final numbers may end up higher.
AUDIT FEES. 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 2004 or 2003.
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 does not have 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.
64
SIGNATURES
In accordnance 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: 03/30/05 By: /s/ TRENT SOMMERVILLE
---------------------------
Trent Sommerville
Chief Executive Officer and
Chairman of the Board
Date: 03/30/05 By: /s/ JEFFREY BRANDEIS
---------------------------
Jeffrey Brandeis
President
Date: 03/30/05 By: /s/ JERRY GRUENBAUM
---------------------------
Jerry Gruenbaum, Esq.
Secretary, Chief Financial
Officer,General Counsel and
Director
Date: 03/30/05 By: /s/ Dr. KENNETH B. FARRIS
---------------------------
Dr. Kenneth B. Farris
Director
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/Trent Sommerville Trent Sommerville CEO & Chairman 03-30-2005
--------------------- of the Board
/s/Jeffrey Brandeis Jeffrey Brandeis President 03-30-2005
---------------------
/s/Jerry Gruenbaum Jerry Gruenbaum CFO, Secretary 03-30-2005
--------------------- & Director
/s/ Kenneth B. Farris Kenneth B. Farris Director 03-30-2005
--------------------- ----------------- ------------ -------------
65