UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM 10-K


þ
            
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
the fiscal year ended December 31, 2008


Commission file number 000 –
27045





Heartland,
Inc.




(Exact
Name of Registrant as Specified in Its Charter)


Maryland
                  
                  36-4286069(State
      or Other Jurisdiction of Incorporation or Organization)
                  
                  (I.R.S.
      Employer Identification
No.)





1005
      N. 19th
      Street Middlesboro, KY
              
              40965(Address
      of Principal Executive Offices)
              
              (Zip
      Code)


Registrant’s
telephone number, including area code: (606) 248-7323


Securities
registered pursuant to Section 12(b) of the Act:





Name
      of Each ExchangeTitle
      of Each Class
            
            on
      Which RegisteredN/A
            
            N/A





Securities
registered pursuant to Section 12(g) of the Act:


Common
Stock, $.001 par value


(Title of
class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ.





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ.





Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes þ No o.





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large
      accelerated filer o
            Accelerated
      filer o
            Non-accelerated
      filer o
              (Do
      not check if a smaller reporting company)
            Smaller
      reporting company þ





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes o No þ





As of
March 9, 2009, the aggregate market value of the registrant’s Common Stock
(based upon the $0.20 closing price on that date) held by nonaffiliates
(excludes shares reported as beneficially owned by directors and officers) was
approximately $6,238,641.





As of
March 9, 2009, there were 43,541,457 shares of Common Stock
outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE





None.










HEARTLAND, INC.FORM
      10-KTABLE
      OF CONTENTSPart
      IITEM
      1.
                    Business
                    3ITEM
      1A.
                    Risk
      Factors
                    9ITEM
      1B.
                    Unresolved
      Staff Comments
                    9ITEM
      2.
                    Properties
                    9ITEM
      3.
                    Legal
      Proceedings
                    10ITEM
      4.
                    Submissions
      of Matters to a Vote of Security Holders
                    10Part
      IIITEM
      5.
                    Market
      for Registrant's Common Equity, Related Stockholder
Matters
                    10and
      Issuer Purchases of Equity SecuritiesITEM
      6.
                    Selected
      Financial Data
                    13ITEM
      7.
                    Management's
      Discussion and Analysis of Financial Condition
                    13and
      Results of OperationsITEM
      8.
                    Financial
      Statements and Supplementary Data
                    19ITEM
      9.
                    Change
      in and Disagreements with Accountants on Accounting
                    21and
      Financial DisclosureITEM
      9A.
                    Controls
      and Procedures
                    22ITEM
      9B.
                    Other
      Information
                    23Part
      IIIITEM
      10.
                    Directors,
      Executive Officers, and Corporate Governance
                    23ITEM
      11.
                    Executive
      Compensation
                    26ITEM
      12.
                    Security
      Ownership of Certain Beneficial Owners and Management
                    28and
      Related Stockholder MattersITEM
      13.
                    Certain
      Relationships and Related Transactions, and Director
      Independence
                    29ITEM
      14.
                    Principal
      Accountant Fees and Services
                    30Part
      IVITEM
      15.
                    Exhibits
      and Financial Statement Schedules
                    32





2




FORWARD
LOOKING STATEMENTS





This
annual report on Form 10-K contains forward-looking statements which include,
but are not limited to, statements concerning expectations as to our revenues,
expenses, and net income, our growth strategies and plans, the timely
development and market acceptance of our products and technologies, the
competitive nature of and anticipated growth in our markets, our ability to
achieve cost reductions, the status of evolving technologies and their growth
potential, the adoption of future industry standards, expectations as to our
financing and liquidity requirements and arrangements, the need for additional
capital, and other matters that are not historical facts. These forward-looking
statements are based on our current expectations, estimates, and projections
about our industry, management’s beliefs, and certain assumptions made by it.
Words such as “anticipates”, “appears”, “expects”, “intends”, “plans”,
“believes, “seeks”, “estimates”, “may”, “will” and variations of these words or
similar expressions are intended to identify forward-looking statements. In
addition, any statements that refer to expectations, projections, or other
characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements. These statements, which are
included in accordance with the safe harbor provisions of Section 21E of
the Securities Exchange Act of 1934, as amended, are not guarantees of future
performance and are subject to risks, uncertainties, and assumptions that are
difficult to predict. Therefore, actual results could differ materially and
adversely from those results expressed in any forward-looking statements, as a
result of various factors. Readers are cautioned not to place undue reliance on
forward-looking statements, which are based only upon information available as
of the date of this report. We undertake no obligation to revise or update
publicly any forward-looking statements for any reason.





Unless
the context indicates otherwise, the terms “Company”, “Corporate”, “Heartland”,
“our”, and “we” refer to Heartland, Inc. and its subsidiaries.








PART
I





ITEM
1           DESCRIPTION
OF BUSINESS








(A)           THE
COMPANY





Heartland,
Inc. (the “Company”) was incorporated in the State of Maryland on April 6, 1999
as a non-diversified closed-end management investment company as described in
the Investment Company Act of 1940 (“1940 Act”). On December 7, 2001 the
Company’s shareholders voted on withdrawing the Company from being regulated as
a business development company and thereby no longer being subject to the 1940
Act. In May 2004, after going through a couple of reverse mergers in 2003, the
Company changed its name to our current name, Heartland Inc.





Currently,
the Company operates in several States through the following three wholly-owned
subsidiaries:





·
            Mound
      Technologies, Inc. (“Mound”) which is based in Springboro, OH and
      commenced operations at the same location in 1964 under the name Mound
      Steel Corporation.


·
            Lee
      Oil Company, Inc. and its wholly owned subsidiaries Lee Enterprises, Inc.
      and Lee’s Food Marts, LLC (collectively “Lee Oil”) which is based in
      Middlesboro, KY and commenced operations in
  1988.


·
            Heartland
      Steel, Inc. (“Heartland Steel”) which is going to be based in Washington
      Court House, OH when operations begin in
2009.




3




The
Company currently manages its business as two operational segments and files as
a consolidated entity. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision makers. A third operating
segment will be added when operations begin at Heartland Steel. The two
operational segments we currently report are:





·
            Mound
      – Steel Fabrication – Primarily focused on the fabrication of metal
      products including structural steel, steel stairs and railings, bar
      joists, metal decks, and other miscellaneous steel
    products.


·
            Lee
      Oil – Oil Distribution – Primarily focused on the wholesale and retail
      distribution of petroleum products including those sold to the motoring
      public through our retail
locations.





Our
executive offices are located at 1005 N. 19th Street
in Middlesboro, KY, and the telephone number is (606) 248-7323.  Our
Internet address is www.heartlandholdingsinc.com for the corporate information.
Additionally, the Mound Technology division of the company currently maintains
an Internet addresses at www.moundtechnologies.com.  The information
contained on our web site(s) or connected to our web site is not incorporated by
reference into this Annual Report on Form 10-K and should not be considered part
of this report.





Decentralized
Management with Strong Corporate Infrastructure





Our
corporate group is responsible for maintaining a unified infrastructure to
support our diversified operations through standardized financial and
accounting, safety, environmental and maintenance processes and controls. Below
our corporate level, we operate a decentralized operational organization in
which our two chief operational officers are responsible for their operations,
including asset management, cost control, policy compliance and training and
other aspects of quality control. With an average of over 25 years of
industry experience, each regional manager has extensive knowledge of the
customer base, job requirements and working conditions in each local market.
This management structure allows us to monitor operating performance on a daily
basis, maintain financial, accounting and asset management controls, integrate
acquisitions, prepare timely financial reports and manage contractual
risk.





Compliance
Policies and Procedures.





We have
adopted and implemented policies and procedures reasonably designed to prevent
violation of the federal securities laws, and review these compliance policies
and procedures annually for their adequacy and the effectiveness of their
implementation.





(B)           BUSINESS
DEVELOPMENT





The
Company finalized the purchase of the property located at 25 Mound Park Drive in
Springboro, OH on April 18, 2008. The gross purchase price of the property was
$1,112,983 and was funded through a loan of $900,000 provided through Commercial
Bank of Harrogate, TN., net settlement of amounts due from the former landlord
of $426,321 and amounts due to the former landlord of $284,664 and Company
generated funds making up the remainder. The note was for a term of 60 months, a
fixed interest rate of 7.5%, and consisted of 59 monthly payments of $7,250.00
and one payment due on April 18, 2013 of $794,989.16.  This is the
same property which Mound Technologies currently uses for its operations and had
been renting from a related party for $16,250 per month. The Company’s CEO is
also the CEO of Commercial Bank. Allocation of the purchase price was $271,055
for land and $841,928 allocated to the buildings.





On
October 1, 2008, the Company entered into and closed a Securities
Purchase  Agreement  (the  "Lee Oil Agreement")
with Lee Holding Company LP and Gary Lee ("Sellers") and Lee Oil Company, Inc.
(“Lee Oil”), Lee’s Food Mart, LLC (“Lee Food”), and Lee Enterprises, Inc.
(“Lee,” and together with Lee Oil and Lee Food, the “Lee
Companies”).  Pursuant to the Lee Oil Agreement, the Company acquired
and, the Sellers sold, 100% of the outstanding securities in the Lee
Companies.   Terry Lee, our CEO and a director, is a principal of Lee
Holding Company LP.  Gary Lee is the brother of Terry
Lee.





In
consideration for 100% of the outstanding securities in the Lee Companies, the
Company paid the Sellers $3,250,000 in cash, issued the Sellers promissory notes
for an aggregate of $3,250,000 (the “Lee Companies Notes”) and issued the
Sellers 2,500,000 shares of common stock of the Company. The Lee Companies Notes
carry interest of 8% per year and the Company is required to pay the Sellers an
aggregate of $27,418 per month until the Lee Companies Notes are paid in
full.





In order
to fund the cash purchase price of the acquisition, on October 1, 2008, the
Company entered into a Loan Agreement (the “Loan Agreement”) with Choice
Financial Group (“Choice”).  Pursuant to the Loan Agreement, the
Company issued and sold a Promissory Note in the amount of $3,250,000 (the
“Choice Note”).  The Company is required to pay a monthly installment
of $30,799 and the outstanding balance including annual interest of 7.75% is
required to be paid in full by September 30, 2011.




4





In
accordance with the security agreements entered between the Company, each of the
subsidiaries of the Company and Choice, the assets of the Company thee parcels
of real estate owned by the Company and each of its subsidiaries were
collateralized by Choice and the securities of each of the subsidiaries of the
Company were pledged to Choice.  In addition, each of the Sellers
entered into a subordination agreement with Choice and Terry Lee entered a Put
Agreement with Choice whereby Mr. Lee agreed to acquire the Choice Note in the
event that Company defaults.





The
Company purchased an additional piece of property on December 30, 2008 in
Washington Court House, OH where we anticipate the future operations of
Heartland Steel to take place. The purchase price was $441,248.





Mission





Our
mission is to become a leading diversified company with business interests in
well established industries. We plan to successfully grow our revenues by
acquiring companies with historically profitable results, strong balance sheets,
sustainable cash flows, and solid management teams in place. By providing access
to financial markets, expanded marketing opportunities and operating expense
efficiencies, we hope to become the facilitator for future growth and higher
long-term profits. In the process, we hope to develop new synergies among the
acquired companies, which should allow for greater cost effectiveness and
efficiencies, thus further enhancing each individual company’s
strengths.





Expansion





We
intend to continue strengthening our presence within our existing geographic
footprint through internal growth and acquisitions of businesses with strong
customer relationships and experienced and skilled personnel.





Capital
Development





We
intend to continue growing our business through selective acquisitions and/or
upgrading our existing assets. Our capital investment decisions are determined
by an analysis of the projected return on capital employed for each of those
alternatives. Acquisitions are evaluated for “fit” within our stated goals and
thoroughly reviewed by corporate level personnel before any acquisition is
considered. We also evaluate the cost to acquire existing assets from a third
party versus the capital required to buy or build new assets.





Based on
these factors, we make capital investment decisions that we believe will support
our long-term growth strategy and these decisions may involve a combination of
asset acquisitions and/or the purchase of assets as deemed
necessary.





In 2008,
we completed the purchase of two pieces of property in Ohio:





·
              25
      Mound Park Drive in Springboro, OH – Current operations of Mound
      Technologies


·
              1629
      Old US Route 35SE in Washington C.H., OH – Future site of Heartland
      Steel





Additionally,
we completed the acquisition of Lee Oil as of October 1, 2008. This acquisition
included property and other fixed assets located in the State of Tennessee,
Commonwealth of Kentucky, and the Commonwealth of Virginia.





We
believe all the uses of capital described above fall within the scope of our
mission and will benefit the Company going forward.





5




(C) BUSINESS




STEEL FABRICATION
SEGMENT





Mound
Technologies, Inc. (“Mound”) was incorporated in the state of Nevada in November
of 2002, with its corporate offices located in Springboro, Ohio. Mound is in the
business of Steel Fabrication (“Steel Fabrication”).





Mound is
located in Springboro, Ohio and is a full service structural and miscellaneous
steel fabricator. It also manufactures steel stairs and railings, both
industrial and architectural quality. The present capacity of the facility is
approximately 6,000 tons per year of structural and miscellaneous steel. Mound
had been previously known as Mound Steel Corporation, which was started at the
same location in 1964.





Mound is
focused on the fabrication of metal products. Mound produces structural steel,
miscellaneous metals, steel stairs, railings, bar joists, metal decks and the
erection thereof. In the steel products segment, steel joists and joist girders,
and steel deck are sold to general contractors and fabricators throughout the
United States. Substantially all work is to order and no unsold inventories of
finished products are maintained. All sales contracts are firm fixed-price
contracts and are normally competitively bid against other suppliers. Cold
finished steel and steel fasteners are manufactured in standard sizes and
inventories are maintained.





This
division’s customers are typically U.S. based companies that require large
structural steel fabrication, with needs such as building additions, new
non-residential construction, etc. Customers are typically located within a
one-day drive from the Company’s facilities. The Company is able to reach 70% of
the U.S. population, yielding a significant potential customer base. Marketing
of the Division’s products is done by advertising in industry directories,
word-of-mouth from existing customers, and by the dedicated efforts of in-house
sales staff monitoring business developments opportunities within the Company’s
region. Large clients typically work with the Company on a continual basis for
all their fabricated metal needs.





Competition
overall in the U.S. steel fabrication industry has been reduced by approximately
50% over the last few years due to economic conditions leading to the lack of
sustained work. The number of regional competitors has gone down from ten (10)
to three (3) over the past five years. Larger substantial work projects have
declined dramatically with the downturn in the economy. Given the geographical
operating territory of the Company, foreign competition is not a major factor.
In addition to competition, steel pricing represents another significant
challenge. The cost of steel, our highest input cost, has seen significant
fluctuations 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.





OIL DISTRIBUTION
SEGMENT





Lee Oil
Company, Inc. and its wholly owned subsidiaries of Lee’s Food Marts, LLC and Lee
Enterprises, Inc. (collectively “Lee Oil”) are headquartered in Middlesboro, KY.
Lee Oil Company serves as the wholesaler and supplier to the two subsidiaries
that run the retail operations.





Lee Oil
was started in 1988 as a two person operation and has grown to currently
operating 23 convenience stores and selling approximately 40 million gallons of
product through a combination of both retail and wholesale
operations.





Lee Oil
Company is incorporated in the Commonwealth of Virginia and has been
domesticated in both the State of Tennessee and the Commonwealth of Kentucky.
Lee’s Food Marts, LLC was organized in the State of Tennessee while Lee
Enterprises, Inc was incorporated in the Commonwealth of Kentucky. Currently,
operations are centered in the Southeastern portion of Kentucky, the
Northeastern portion of Tennessee, and the Southwestern portion of
Virginia.




6





Lee Oil
Company operates as both a wholesaler and retailer while the two subsidiaries
operate only retail locations selling directly to the public. The retail
locations we operate are branded by one of the major oil companies. We currently
have the ability to brand a store one of three different brands: BP, Marathon,
and ExxonMobil.





Lee Oil
is focused on the distribution of petroleum products and that has taken a number
of different forms. We currently operate the 23 convenient stores mentioned
above and sell products on a consignment basis through a number of other stores.
We also deliver products directly to other retail locations, home heating
customers, and other customers ranging from mining operations to local school
districts.





Competition at
Mound





Competition
within the steel industry, both in the United States and globally, is intense
and expected to remain so. Mound competes with large U.S. competitors such as
United States Steel Corporation, Nucor Corporation, AK Steel Holding
Corporation, Ispat Inland Inc. and IPSCO Inc along with a number of local
suppliers. The steel market in the United States is also served by a number of
non-U.S. sources and U.S. supply is subject to changes in worldwide demand and
currency fluctuations, among other factors.





More than
35 U.S. companies in the steel industry have declared bankruptcy since 1997 and
have either ceased production or more often continued to operate after being
acquired or reorganized. In addition, many non-U.S. steel producers are owned
and subsidized by their governments and their decisions with respect to
production and sales may be influenced by political and economic policy
considerations rather than by prevailing market conditions. The steel industry
is highly cyclical in nature and subject to significant fluctuations in demand
as a result of macroeconomic changes in global economies, including those
resulting from currency volatility. The global steel industry is also generally
characterized by overcapacity, which can result in downward pressure on steel
prices and gross margins.





Mound
competes with other flat-rolled steel producers (both integrated steel mills and
mini-mills) and producers of plastics, aluminum, ceramics, carbon fiber,
concrete, glass, plastic, and wood that can be used in lieu of flat-rolled
steels in manufactured products. Mini-mills generally offer a narrower range of
products than integrated steel mills but can have some cost advantages as a
result of their different production processes.





Price,
quality, delivery and service are the primary competitive factors in all markets
that Mound serves and vary in relative importance according to the product
category and specific customer.





Competition at Lee
Oil





The
retail fuel business is driven almost exclusively by the price and availability
of product. The motoring public demands that the price we charge for the
products we sell be in line with those of our competitors. The days of being
able to charge a higher amount for “branded” products over the “unbranded”
products are gone. Anytime our prices get out of line with our competitors, we
can see a quick and dramatic change in the volume of that particular
store.





The
wholesale side of the fuel business doesn’t necessarily depend as much on price
as the availability and dependability of being able to make deliveries of the
products requested in a timely fashion over and over again. Customers depend on
these deliveries in order to continue operations and schedule their shipments to
arrive just prior to running out of product.





The “Big
Box” outlets such as Wal-Mart and Kroger getting into the fuel business have had
a dramatic effect on the overall competition remaining. Many distributors have
ceased operations over the last 10 years and many more may do so in the near
future due mainly to the operational margins being squeezed as more and more of
these high volume and low margin outlets are brought into the
market.





Regulation





Both
operations are subject to a broad range of laws and regulations relating to the
protection of human health and the environment. We expect 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 Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA), 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 our financial position or on our competitive position since
others within our businesses are subject to the same environmental requirements.
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.




7





The
Comprehensive Environmental Response, Compensation and Liability Act, referred
to as “CERCLA” or the Superfund law, and comparable state laws impose liability,
without regard to fault on certain classes of persons that are considered to be
responsible for the release of a hazardous substance into the environment. These
persons include the current or former owner or operator of the disposal site or
sites where the release occurred and companies that disposed or arranged for the
disposal of hazardous substances that have been released at the site. Under
CERCLA, these persons may be subject to joint and severe liability for the costs
of investigating and cleaning up hazardous substances that have been released
into the environment, for damages to natural resources and for the costs of some
health studies. In addition, companies that incur liability frequently confront
additional claims because it is not uncommon for neighboring landowners and
other third parties to file claims for personal injury and property damage
allegedly caused by hazardous substances or other pollutants released into the
environment.





The
federal Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976, referred to as “RCRA”, generally does not regulate most
wastes generated by the exploration and production of oil and natural gas
because that act specifically excludes drilling fluids, produced waters and
other wastes associated with the exploration, development or production of oil
and gas from regulation as hazardous wastes. However, these wastes may be
regulated by the EPA or state agencies as non-hazardous wastes as long as these
wastes are not commingled with regulated hazardous wastes. Moreover, in the
ordinary course of our operations, industrial wastes such as paint wastes and
waste solvents as well as wastes generated in the course of our providing well
services may be regulated as hazardous waste under RCRA or hazardous substances
under CERCLA.





We
currently own or lease, and have in the past owned or leased, a number of
properties that have been used for many years in the storage of certain
petroleum products. Although we have utilized operating and disposal practices
that were standard in the industry at the time, there is the possibility that
activities on or products stored in these facilities may have resulted in the
disposal or release of hydrocarbons or other wastes on or under these
properties. In addition, we own or lease properties that in the past were
operated by third parties whose operations were not under our control. These
properties and the hydrocarbons or wastes disposed thereon may be subject to
CERCLA, RCRA and analogous state laws. Under these laws, we could be required to
remove or remediate previously disposed wastes or property contamination. We
believe that we are in substantial compliance with the requirements of CERCLA
and RCRA.





Supplies





We depend
on continued access to reliable supplies of various supplies of material and
products in both the steel fabrication and oil distribution businesses. We
believe there will be adequate sources of these supplies in order to meet our
near term needs, although probably at prices that can fluctuate greatly in a
very short period of time.





Employees





At
December 31, 2008, we had approximately 226 full-time employees. None of our
employees are represented by a union or covered by a collective bargaining
agreement. We believe that our relationship with our employees is
good.





Our
success is dependent, in part, upon our ability to attract and retain qualified
management and technical personnel and subcontractors. Competition for these
personnel is intense, and we will be adversely affected if we are unable to
attract key employees. We presently do not have a stock option plan for key
employees and consultants.




8





Customers





Overall,
our management believes that long-term we are not dependent on a single
customer. While the loss of any substantial customer could have a material
short-term impact, we believe that our diverse distribution channels and
customer base should reduce the long-term impact of any such loss.








ITEM 1A.RISK FACTORS





As a
smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange
Act of 1934, as amended (the  "Exchange  Act"), we are not
required to provide the information required by this item.





ITEM
1B. UNRESOLVED STAFF COMMENTS.





As a
smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are
not required to provide the information required by this item.





ITEM 2  DESCRIPTION OF PROPERTY





The
following properties are used in the operation of our business:





Corporate




Our
principal executive and administrative offices are located at 1005 N.
19th
Street in Middlesboro, Kentucky 40965.  Our phone number is (606)
248-7323.  We are currently utilizing space available at Lee Oil’s main
office in an effort to save costs at the corporate level and promote a more
centralized organization with direct oversight of ongoing operations. This space
may not be sufficient for us as we add employees to the corporate
staff.  In light of this, the corporation will evaluate its office needs
and determine the best option as we continue to grow.




Steel
Fabrication





The main
facility being used by Mound is an approximately 39,000 square feet building
located at 25 Mound Park Drive, in Springboro, OH. This facility accommodates
both the office and manufacturing plant for Mound.





Bulk
Plants





Lee Oil
owns two bulk plants for the storage and distribution of petroleum products. The
main plant is located at 1005 N. 19th Street
in Middlesboro, KY. The second plant is located on Hwy 58 in Jonesville,
VA.  These two plants serve the wholesale side of the businessas well as providing the
needed office space at both locations.





Retail
Operations





The
following chart details the number of retail sites that we currently lease or
own. Two of the stores we show as being owned are actually being run through
independent dealers and we split the profit from the sale of the products in
lieu of rental payments.





Number
      of
                      
                      Number
      of
                      
                      Remaining
      Lease
                      
                      Remaining
      LeaseState
                      
                      Owned
      Sites
                      
                      Leased
      Sites
                      
                      <
      3 Years
                      
                      >
      3 YearsTennessee
                      
                      8
                      
                      9
                      
                      2
                      
                      7Kentucky
                      
                      3
                      
                      4
                      
                      4
                      
                      0Virginia
                      
                      2
                      
                      1
                      
                      1
                      
                      013
                      
                      14  Most of
our retail fuel and convenience store leases are net leases requiring us to pay
taxes, insurance
and maintenance costs. Of the leases that expire in less than three years, we
anticipate that we will be able to negotiate acceptable extensions of the leases
for those locations
that we intend to continue operating. We believe that none of these leases are
individually material.
  9


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. There is no past,
pending or, to our knowledge, threatened litigation or administrative action,
including any litigation or action involving our officers, directors, or other
key personnel, which has or is expected by our management to have a material
effect upon our business, financial condition or operations.








ITEM
4 SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS





None





PART
II





ITEM 5  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES




Our common stock has been quoted on the
OTC Bulletin Board since August 2002. Our symbol is "HTLJ". For the periods
indicated, the following table sets forth the high and low bid prices per share
of common stock. These prices represent inter-dealer quotations without retail
markup, markdown, or commission and may not necessarily represent actual
transactions.





HIGH
                          
                          
                          LOWFISCAL
      YEAR ENDED DECEMBER 31, 2008First
      Quarter
                          
                          
                          0.40
                          
                          
                          
                          0.14Second
      Quarter
                          
                          
                          0.37
                          
                          
                          
                          0.12Third
      Quarter
                          
                          
                          0.40
                          
                          
                          
                          0.15Fourth
      Quarter
                          
                          
                          0.43
                          
                          
                          
                          0.15FISCAL
      YEAR ENDED DECEMBER 31, 2007First
      Quarter
                          
                          
                          0.50
                          
                          
                          
                          0.17Second
      Quarter
                          
                          
                          0.33
                          
                          
                          
                          0.11Third
      Quarter
                          
                          
                          0.27
                          
                          
                          
                          0.13Fourth
      Quarter
                          
                          
                          0.65
                          
                          
                          
                          0.18




Holders of Shares of Common
Stock





The
Company has authorized 100,000,000 shares of common stock with a par value of
$.001 per share.  As of December 31, 2008, the Company had 42,787,424
shares of common stock authorized to be issued and 42,759,047 actually
outstanding.  As of March 9, 2008, there were approximately 707
stockholders of record of our common stock. This does not reflect those shares
held beneficially or those shares held in "street" name.





We did
not pay cash dividends in the past, nor do we expect to pay cash dividends for
the foreseeable future. We anticipate that earnings, if any, will be retained
for the development of our business.




10





Preferred
Stock





The
Company has 5,000,000 shares of preferred stock authorized with a par value of
$.001. As of December 31, 2008, the Company has 2,370,000 shares of Series A
Convertible Preferred Stock issued and outstanding.  The preferred
stock has a face value of $0.25 per share and the basis of conversion is one
share of the Company’s common stock for each share of preferred
stock.  The preferred stock has liquidation priority rights over all
other stockholders.  The preferred shares can be converted at any time
at the option of the stockholder, but will convert automatically at the end of
three years into the Company’s common stock.





Warrants





The
preferred shares include a Series A and Series B common stock purchase
warrant.  The Series A warrant allows the holder to purchase 20% of
the number of preferred shares purchased at $0.75 per share; the Series B
warrant allows the holder to purchase 20% of the number of preferred shares
purchased at $1.00 per share. Both series of warrants are exercisable over a
three year period.  The Company can call in the warrants after 12
months if the price of the common stock in the market is 150% of the warrant
price for 10 consecutive days. The company had 2,370,000 shares of Series A
Convertible Preferred Stock issued and outstanding as of December 31, 2007and
2008.




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.





Options





The
Company has one employee non-statutory stock option agreement as detailed in
Form 8-K filed on June 28, 2007. This particular option was granted with Board
approval to Terry L. Lee and contains the option to purchase 1,822,504 shares of
common stock at an exercise price of $0.33 over a pro-rata five year basis. All
shares issued under this option would be restricted and any portion of the
option not exercised by June 26, 2012 will expire.





Penny Stock
Considerations





Because
our shares trade at less than $5.00 per share, they are “penny stocks” as that
term is generally defined in the Securities Exchange Act of 1934 to mean equity
securities with a price of less than $5.00. Our shares thus will be subject to
rules that impose sales practice and disclosure requirements on broker-dealers
who engage in certain transactions involving a penny stock.





Under the
penny stock regulations, a broker-dealer selling a penny stock to anyone other
than an established customer or accredited investor must make a special
suitability determination regarding the purchaser and must receive the
purchaser’s written consent to the transaction prior to the sale, unless the
broker-dealer is otherwise exempt. Generally, an individual with a net worth in
excess of $1,000,000 or annual income exceeding $100,000 individually or
$300,000 together with his or her spouse is considered an accredited investor.
In addition, under the penny stock regulations the broker-dealer is required
to:





·
            Deliver,
      prior to any transaction involving a penny stock, a disclosure schedule
      prepared by the Securities and Exchange Commission relating to the penny
      stock market, unless the broker-dealer or the transaction is otherwise
      exempt;




11




·
            Disclose
      commissions payable to the broker-dealer and our registered
      representatives and current bid and offer quotations for the
      securities;





·
            Send
      monthly statements disclosing recent price information pertaining to the
      penny stock held in a customer’s account, the account’s value and
      information regarding the limited market in penny stocks;
    and





·
            Make
      a special written determination that the penny stock is a suitable
      investment for the purchaser and receive the purchaser’s written agreement
      to the transaction, prior to conducting any penny stock transaction in the
      customer’s account.





Because
of these regulations, broker-dealers may encounter difficulties in their attempt
to sell shares of our common stock, which may affect the ability of selling
shareholders or other holders to sell their shares in the secondary market and
have the effect of reducing the level of trading activity in the secondary
market. These additional sales practice and disclosure requirements could impede
the sale of our securities, if our securities become publicly traded. In
addition, the liquidity for our securities may be decreased, with a
corresponding decrease in the price of our securities. Our shares in all
probability will be subject to such penny stock rules and our shareholders will,
in all likelihood, find it difficult to sell their securities.





Dividends





We do not
anticipate paying dividends on any common shares of stock in the foreseeable
future. We plan to retain any future earnings for use in our business. Any
decisions as to future payments of dividends will depend on our earnings and
financial position and such other facts as the Board of Directors deems
relevant. The outstanding preferred shares of stock do carry an annual 10% stock
dividend until converted at the option of the stockholder or automatically after
three years from the date of purchase.





Recent
Sales of Unregistered Securities





In
January and February of 2008, the company issued 440,000 shares to 8 individuals
in a private placement. These shares were valued at $.50/share and funds were
received in the amount of $220,000.





During
the year ended December 31, 2008, the Company authorized total issuances of
6,220,319 shares of common stock. The issuances related to the
following:





Description
                                
                                Quantity
                                
                                Stock PriceStock
      Dividends for 2007
                                
                                172,314
                                
                                Average
      Stock Price - 2007 (1)Stock
      Dividends for 2008
                                
                                227,158
                                
                                Average
      Stock Price - 2008 (2)Private
      Placement
                                
                                440,000
                                
                                Set
      @ $.50Conversion
      of Debt & Related Interest
                                
                                83,360
                                
                                Conversion
      Rate $1.00 (3)Board
      Compensation
                                
                                430,716
                                
                                Quarterly
      Closing Price (4)CEO
      Compensation
                                
                                503,784
                                
                                Average
      Stock Price - 2008(2)Board
      Approved Issuances
                                
                                4,362,987
                                
                                Various
      (5)6,220,319(1)
      Average monthly closing price for Jan - Nov 2007 and Dec 15,
      2007(2)
      Average monthly closing price for Jan - Nov 2008 and Dec 15,
      2008(3)
      Set in convertible notes(4)Closing
      price at the end of each quarter.(5)
      Varied - majority (2.5M shares) issued for Lee Oil purchase @
      $.20





12


We relied
upon Section 4(2) of the Securities Act of 1933, as amended for the above
issuances. We believed that Section 4(2) was available because:





·
            None
      of these issuances involved underwriters, underwriting discounts or
      commissions;


·
            We
      placed restrictive legends on all certificates
  issued;


·
            No
      sales were made by general solicitation or
  advertising;


·
            Sales
      were made only to accredited investors or investors who were sophisticated
      enough to evaluate the risks of the
investment.





ITEM 6.  SELECTED FINANCIAL
DATA





As a
smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange
Act of 1934, as amended (the  "Exchange  Act"), we are not
required to provide the information required by this item.





ITEM 7.  ANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS




The
following discussion should be read in conjunction with the financial statements
for the year ended December 31, 2008 included with this Form
10-K.  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, 2008. 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 our
objectives, including, among other things, technological and other developments
within a given field, intense and evolving competition, the lack of an
“established trading market” for our shares, and our ability to obtain
additional financing, as well as other risks detailed from time to time in our
public disclosure filings with the SEC.





Overview





It is
management’s belief that Heartland has made a dramatic turn around from where it
was a little over a year ago. Our Board of Directors and new CEO have developed
a plan of action that has allowed us to shed some segments of the business over
the previous two years that didn’t seem to be helping the bottom line in favor
of activities that we believe will generate positive cash flow for future growth
and expansion. Management has chosen to look at possible future acquisitions
from a bottom up approach rather than a simple top line growth approach. The new
CEO along with the new CFO have also made it clear to all members of the Board
of Directors and management that all expenses are being looked at from the
corporate side in order that we may further reduce some of the expenses that may
have been overlooked in the past. We believe the evidence of our commitment to
this plan of action is represented in the accompanying financial
reports.





Recent
Developments





On
October 1, 2008, the Company entered into and closed a Securities
Purchase  Agreement  (the  "Lee Oil Agreement")
with Lee Holding Company LP and Gary Lee ("Sellers") and Lee Oil Company, Inc.
(“Lee Oil”), Lee’s Food Mart, LLC (“Lee Food”), and Lee Enterprises, Inc.
(“Lee,” and together with Lee Oil and Lee Food, the “Lee
Companies”).  Pursuant to the Agreement, the Company acquired and, the
Sellers sold, 100% of the outstanding securities in the Lee
Companies.




13





In
consideration for 100% of the outstanding securities in the Lee Companies, the
Company paid the Sellers $3,250,000 in cash, issued the Sellers promissory notes
for an aggregate of $3,250,000 (the “Lee Companies Notes”) and issued the
Sellers 2,500,000 shares of common stock of the Company. The Lee Companies Notes
carry interest of 8% per year and the Company is required to pay the Sellers an
aggregate of $27,418 per month until the Lee Companies Notes are paid in
full.





In order
to fund the cash purchase price of the acquisition, on October 1, 2008, the
Company entered into a Loan Agreement (the “Loan Agreement”) with Choice
Financial Group (“Choice”).  Pursuant to the Loan Agreement, the
Company issued and sold a Promissory Note in the amount of $3,250,000 (the
“Choice Note”).  The Company is required to pay a monthly installment
of $30,799 and the outstanding balance including annual interest of 7.75% is
required to be paid in full by September 30, 2011.





In
accordance with the security agreements entered between the Company, each of the
subsidiaries of the Company and Choice, the assets of the Company thee parcels
of real estate owned by the Company and each of its subsidiaries were
collateralized by Choice and the securities of each of the subsidiaries of the
Company were pledged to Choice.  In addition, each of the Sellers
entered into a subordination agreement with Choice and Terry Lee entered a Put
Agreement with Choice whereby Mr. Lee agreed to acquire the Choice Note in the
event that Company defaults.





The
Company currently manages its business as two operational segments and files as
a consolidated entity. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision makers. A third operating
segment will be added when operations begin at Heartland Steel. The two
operational segments we currently report are:





·
            Mound
      – Steel Fabrication – Primarily focused on the fabrication of metal
      products including structural steel, steel stairs and railings, bar
      joists, metal decks, and other miscellaneous steel
    products.


·
            Lee
      Oil – Oil Distribution – Primarily focused on the wholesale and retail
      distribution of petroleum products including those sold to the motoring
      public through our retail
locations.




Critical Accounting
Policies





Our
financial statements and related public financial information are based on the
application of accounting principles generally accepted in the United States
(“GAAP”). GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on
the assets, liabilities, revenues, and expenses being reported. These estimates
can also affect supplemental information contained in our external disclosures
including information regarding contingencies, risk and financial condition.
We believe our use of estimates and underlying accounting assumptions
adhere to GAAP and are consistently and conservatively applied. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. Actual results may differ
materially from these estimates under different assumptions or conditions. We
continue to monitor significant estimates made during the preparation of our
financial statements.





Our
significant accounting policies are summarized in Note B of our financial
statements. While all these significant accounting policies impact our financial
condition and results of operations, we view certain of these policies as
critical. Policies determined to be critical are those policies that have the
most significant impact on our financial statements and require management to
use a greater degree of judgment and estimates. Actual results may differ
from those estimates. Our management believes that given current facts and
circumstances, it is unlikely that applying any other reasonable judgments or
estimate methodologies would cause effect on our consolidated results of
operations, financial position or liquidity for the periods presented in this
report.





14





Revenue
Recognition





Mound


Mound
recognizes revenues from fixed-price and modified fixed-price construction
contracts on the percentage-of-completion
method,  measured  by  the
percentage  of  total
cost  incurred  to  date  to estimated
total cost for each contract.





Lee
Oil


Lee Oil
recognizes revenue at the point of sale or upon delivery of the petroleum
products sold.




Environmental
Matters





Both
operations are subject to a broad range of laws and regulations relating to the
protection of human health and the environment. We expect 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 Comprehensive
Environmental Response, Compensation and Liability Act, 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 our financial position or on our competitive position with
respect to other similarly situated competitors being subject to the same
environmental requirements.





Tax
Loss Carryforward





Because
of our tax operating losses in 2004, 2005, 2006, and 2007, we have accumulated a
net operating loss carryforward for federal income tax purposes that, at
December 31, 2007, was approximately $4,317,000. Since United States tax
laws limit the time during which an NOL may be applied against future taxable
income and tax liabilities, we may not be able to take full advantage of our NOL
carryforward for federal income tax purposes. The carryforward will expire
during the period 2024 through 2027 if not otherwise used. A change in
ownership, as defined by federal income tax regulations, could significantly
limit the company’s ability to utilize its carryforward. If we achieve sustained
profitability, which may not occur, the use of net operating loss carryforwards
would reduce our tax liability increase and available cash resources. When
all operating loss carryforwards have been used or have expired, we would again
be subject to increased tax expense.





Deferred
Tax Assets





In
assessing the ability of the Company to realize the benefit of the deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The realization
of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which temporary differences, as determined pursuant to
SFAS No. 109, “Accounting for Income Taxes,” become deductible.
Management considers the reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment.
Management’s evaluation of the ability of the Company to realize the benefit of
the deferred tax assets must consider both positive and negative evidence. The
weight given to the potential effects of positive and negative evidence is based
on the extent to which it can be objectively verified. During the fourth quarter
of 2008, we reversed the valuation allowance related to the net operating loss
carryforwards and other temporary items totaling approximately
$1,806,000 as we determined it was more likely than not that we would be
able to use the assets to reduce future tax liabilities. The reversal resulted
in recognition of an income tax benefit.





Vendor
Incentive Recognition





Lee Oil
participates in multiple vendor incentive programs through our three primary
branded suppliers of BP Oil Products (“BP”), Marathon Petroleum Company
(“Marathon”) and ExxonMobil Corporation (“Exxon”). These incentives usually
consist of upgrading certain equipment or re-imaging sites to meet new standards
put forth by the suppliers. As this equipment is received or the improvements
made to the sites, we may receive funds in advance, be reimbursed for monies
already paid, or actually receive upgraded equipment directly from the supplier.
These programs usually require repayment if a particular site fails to meet
certain expectations and standards or if the site is debranded within a given
period of time (usually 5-10 years). The amounts earned or received under these
programs are accrued when they are received or deemed probable and can be
reasonably measured. We recognize the full liability of these advance payments
on the books at the time of the advancement and ratably remove them over the
remaining time period covered in the programs. At December 31, 2008, we have a
recognized liability of $802,382 with a current amount of
$102,989 that should be removed in 2009.
  15





Failure
to achieve requirements set forth by the vendors could result in the debranding
of a particular site and the requirement of having to repay any incentives
previously advanced on that site. In addition to the debranding of particular
sites, failure to meet contracted volume due to decreased volume if a particular
site is debranded could result in the cancellation of the actual supplier
contracts. We do not believe any of these incentive programs are individually
material and deem the likelihood of having a supplier contract cancelled for
failure to meet volume requirements to be unlikely. The reduction to the
liability account is recorded as other income since the reduction is related
more to a length of time having expired rather than directly with any product
being sold.





Results
of Operations





Significant
Changes





The most
significant change with respect to operations would be the acquisition of Lee
Oil as of October 1, 2008. As a result of this acquisition, the company is
filing a consolidated set of financials to include Lee Oil’s results of
operations for the fourth quarter of 2008 as well as the associated assets and
liabilities as of December 31, 2008. This consolidation made for a number of
significant changes in the current annual report and we believe will impact the
financials positively going forward.





Management
believes the two operating segments can compliment one another in the manner in
which they operate. The steel fabrication business turns low volume and high
gross margins while the oil distribution business turns massive volume with low
margins. The oil distribution business generates good cash flow while the steel
fabrication business can generate larger profits. We believe working together
they each can help the other’s weakness.





Revenues.Revenues increased for the year ended December 31, 2008 to $39,539,323
from $14,112,726 for the year ended December 31, 2007. The fourth quarter
acquisition of Lee Oil attributed for $20,417,083 of this
increase.





Cost of Goods
Sold.Cost of Goods Sold increased for the year ended December 31, 2008
to $34,432,778 from $12,641,424 for the year ended December 31, 2007. The fourth
quarter acquisition of Lee Oil attributed for $18,206,912 of this
increase.





Income (Loss)
From Continuing Operations.Income before Income Taxes increased for the
year ended December 31, 2008 to $1,278,499 from a loss of $1,090,267 for the
year ended December 31, 2007. The fourth quarter acquisition of Lee Oil
attributed for $295,312 of this increase.





Income Taxes.The most notable change other than the Lee Oil acquisition was the
removal of the valuation allowance of $1,806,400 against the deferred tax asset
established as a result of past Net Operating Losses.


See Note
I of the financial statements for more information regarding income
taxes.





Corporate
Overhead.Another major item we were able to address in 2008 was the
costs associated with running the corporate office. As discussed above in the
Overview, the new CEO and CFO are determined to cut waste out of the corporate
overhead as well as looking at the individual operations. Corporate expenses
were cut from approximately one and a half million dollars for the year ending
December 31, 2007 to approximately one million dollars for the year ending
December 31, 2008. The current year is the first full year that the new
oversight has been in effect and we believe the results are self-evident. We do
not currently see any great reduction going forward, but hope the extra
diligence being paid to these and other expenses can help keep the expenses in
line in future periods.





Discontinued
Operations. The Company is trying to lower expenses even more by
discontinuing the operations that were not generating a positive cash flow and
causing a drain on the profitable operations. The last of the construction
segments, Karkela, was discontinued effective June 30, 2007.




16





Liquidity and Capital
Resources





Sources of
Liquidity





As of
December 31, 2008, the Company had working capital of $7,260,545. The Company
generated cash flow from operating activities of $2,559,092 for the year
December 31, 2008. The timing of our collection of accounts receivable and
payments of our accounts payable is one of the principal influences on our cash
flow from operations. We typically sell our products and services on short-term
credit terms. We try to minimize our credit risk by performing credit checks,
obtaining letters of credit in certain instances, and conducting our own
collection efforts. Our accounts receivable, net of allowance for doubtful
accounts, were $4,885,878 and $3,188,591 at December 31, 2008 and 2007,
respectively. The increase in accounts receivable was attributable to the
acquisition of Lee Oil in the fourth quarter.





The
Company used $2,629,704 in investing activities for the year ended December 31,
2008.  This use of these funds was primarily attributable to the
purchase of two pieces of property in Ohio and the Lee Oil
acquisition.





The
Company’s generated $3,955,734 from financing activities for the period ended
December 31, 2008 primarily through new borrowings relating to the purchase of
the property in Ohio and the Lee Oil acquisition.




Our
principal sources of liquidity would be the cash available and collections from
our accounts receivables. As of December 31, 2008 these two items alone totaled
approximately nine million dollars and all current assets compared to our
current liabilities puts our current ratio at better than 2:1. We believe this
is sufficient to meet our short-term liquidity requirements. We also believe
cash provided from operating activities will be a great source of liquidity
going forward, but would seek outside financing for any major expansion,
betterment project, or possible future acquisitions as these would be considered
long term projects.





As of
December 31, 2008, the Company believes that cash on hand, cash generated by
operations, and available bank borrowings will be sufficient to pay trade
creditors, operating expenses in the normal course of business, and meet all of
its bank and subordinate debt obligations for the next 12 to 24
months.





It is our
belief that our stock is currently undervalued and that we are better suited to
fund current projects through cash provided from operations and financing rather
than attempting to sell what we belief to be an undervalued asset and further
dilute the securities.





One of
the Company’s  sources of financing is Commercial Bank of Harrogate,
TN. Terry Lee, the Company’s CEO, is also the CEO of Commercial Bank. Related
party transactions with Commercial Bank are pointed out in NOTE F of the
financial statements.





Trends





Management
is not aware of any trends or uncertainties that could have a material effect on
the Company’s ability to meet future obligations other than the price of the
commodities themselves. Steel and Petroleum Products have both moved
dramatically in price over the last six months and we see this trend continuing
into the future. Since our competitors would be faced with these same
fluctuations in price, we do not see it having a material effect on our ability
to continue operations and meet future obligations.





Subsequent
Events





On
February 20, 2009 the Company issued 12,827 shares of stock for the conversion
of two convertible notes and accrued interest. The stock was converted at
$1.00/share as prescribed on the note and was for the principal amount of $7,250
and accrued interest in the amount of $5,577.





On
February 23, 2009 the Company issued 12,335 shares of stock for the conversion
of accrued interest relating to three convertible notes previously
converted.




17





On March
3, 2009, the Company issued 7,248 shares of stock for the conversion of one
convertible note and accrued interest. The stock was converted at $1.00/share as
prescribed on the note and was for the principal amount of $5,200 and accrued
interest in the amount of $2,048.





On
February 23, 2009, the Company issued 120,000 shares of stock as non-cash
compensation for the members of the Board. These shares represent total
compensation in the amount of $30,000 for the fourth quarter and were booked as
such in that quarter.





On
February 23, 2009, the Company issued 750,000 shares of stock as part of the
employment agreement reached with Randy Frevert for his new duties as Chief
Operating Officer of Heartland Steel. Randy will be responsible for overseeing
the future construction of the facility as well as operations once they are up
and running.




Off-Balance
Sheet Arrangements





At
December 31, 2008, the Company did not have any off-balance sheet liabilities or
other contractual obligations that are reasonably likely to have a current or
future material effect on our financial condition.


18





ITEM
8.   FINANCIAL STATEMENTS



















HEARTLAND,
INC. AND SUBSIDIARIES




FINANCIAL
STATEMENTS




FOR
THE YEAR ENDED


DECEMBER
31, 2008











19


CONTENTS








PageReport
      of Independent Registered Public Accounting Firm
                F-1Registered Public
      Accounting Firm
                F-2Consolidated
      Balance Sheets
                F-3Consolidated
      Statements of Operations
                F-5Consolidated
      Statements of Cash Flows
                F-6Consolidated
      Statements of Stockholders’ Equity
                F-8Notes
      to Consolidated Financial Statements
                F-9-F-24


20




Report of
Independent Registered Public Accounting Firm








To the
Board of Directors and Stockholders of


Heartland,
Inc.











We have
audited the accompanying consolidated balance sheet of Heartland, Inc. and
Subsidiaries (the Company) as of December 31, 2008 and the related consolidated
statements of operations, stockholders’ equity and cash flows for the year ended
December 31, 2008.  The Company’s management is responsible for these
financial statements.  Our responsibility is to express an opinion on
these financial statements based on our audit.





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.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.





In our
opinion, the 2008 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Heartland, Inc. and
Subsidiaries as of December 31, 2008, and the results of its operations and its
cash flows for the year ended December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.

















/s/
Coulter & Justus, PC





Knoxville,
TN


March 30,
2009





F-1




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.


Middlesboro,
Kentucky








We have
audited the accompanying consolidated balance sheet of Heartland, Inc. and
Subsidiaries as of December 31, 2007 and the related consolidated statements of
operations, stockholders’ equity and cash flows for the year ended December 31,
2007.  Heartland, Inc.’s management is responsible for these financial
statements.  Our responsibility is to express an opinion on these
financial statements based on our audit.





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.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our 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 Heartland, Inc. and
Subsidiaries as of December 31, 2007, and the results of its operations and its
cash flows for the year ended December 31, 2007, in conformity with accounting
principles generally accepted in the United States of America.





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in Note A
to the consolidated financial statements included in Form 10-KSB for the year
ended December 31, 2007, the Company has a loss from continuing operations of
$1,090,267 in 2007 and an accumulated deficit of $14,958,608 at December 31,
2007, and there are existing uncertain conditions which the Company faces
relative to its obtaining capital in the equity markets.  These
conditions raise substantial doubt about its ability to continue as a going
concern.  Management’s plans regarding those matters were also
described in Note A.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.














/s/
Meyler & Company, LLC







Middletown,
NJ


April 10,
2008








F-2






HEARTLAND,
      INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSASSETSDecember
      31,2008
                
                
                2007CURRENT
      ASSETSCash
                
                $
                4,101,692
                
                
                $
                216,570Accounts
      receivable, net
                
                
                4,885,878
                
                
                
                3,188,591Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                
                
                138,892
                
                
                
                311,899Inventory
                
                
                2,775,635
                
                
                
                904,409Prepaid
      expenses and other
                
                
                -
                
                
                
                1,259Deferred
      tax asset, net
                
                
                678,774
                
                
                
                -Total
      current assets
                
                
                12,580,871
                
                
                
                4,622,728PROPERTY,
      PLANT AND EQUIPMENTLand
                
                
                2,514,002
                
                
                
                35,998Buildings
      and improvements
                
                
                4,609,621
                
                
                
                465,832Plant
      equipment
                
                
                829,579
                
                
                
                430,192Equipment
                
                
                2,139,845
                
                
                
                145,565Equipment
      at customers' location
                
                
                810,226
                
                
                
                -Office
      equipment
                
                
                193,798
                
                
                
                132,973Total
      property, plant and equipment
                
                
                11,097,071
                
                
                
                1,210,560Less:
      Accumulated depreciation
                
                
                (840,837
                )
                
                
                (509,392
                )Net
      property, plant and equipment
                
                
                10,256,234
                
                
                
                701,168OTHER
      ASSETSOther
      assets
                
                
                68,112
                
                
                
                426,321Total
      other assets
                
                
                68,112
                
                
                
                426,321Total
      assets
                
                $
                22,905,217
                
                
                $
                5,750,217




See
accompanying notes to financial statements.




F-3







HEARTLAND,
      INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSLIABILITIES
      AND STOCKHOLDERS' EQUITYDecember
      31,2008
                          
                          
                          2007CURRENT
      LIABILITIESAccounts
      payable
                          
                          $
                          2,741,435
                          
                          
                          $
                          2,167,027Accrued
      payroll and related taxes
                          
                          
                          190,762
                          
                          
                          
                          292,769Accrued
      interest
                          
                          
                          35,433
                          
                          
                          
                          124,847Accrued
      expenses
                          
                          
                          409,234
                          
                          
                          
                          599,950Lines
      of credit
                          
                          
                          475,000
                          
                          
                          
                          -Convertible
      promissory notes payable
                          
                          
                          12,450
                          
                          
                          
                          53,450Current
      portion of notes payable
                          
                          
                          730,594
                          
                          
                          
                          24,604Current
      portion of notes payable to related parties
                          
                          
                          129,127
                          
                          
                          
                          89,156Current
      portion of capital lease
                          
                          
                          -
                          
                          
                          
                          8,320Current
      portion of unearned supplier incentives
                          
                          
                          102,989
                          
                          
                          
                          -Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
                          
                          
                          493,302
                          
                          
                          
                          195,432Total
      current liabilities
                          
                          
                          5,320,326
                          
                          
                          
                          3,555,555LONG-TERM
      OBLIGATIONSNotes
      payable, less current portion
                          
                          
                          8,204,783
                          
                          
                          
                          180,799Notes
      payable to related parties, less current portion
                          
                          
                          3,330,872
                          
                          
                          
                          403,607Unearned
      supplier incentives, less current portion
                          
                          
                          699,393
                          
                          
                          
                          -Capital
      lease, less current portion
                          
                          
                          -
                          
                          
                          
                          26,571Deferred
      tax liability, net
                          
                          
                          178,822
                          
                          
                          
                          -Total
      long term liabilities
                          
                          
                          12,413,870
                          
                          
                          
                          610,977Total
      liabilities
                          
                          
                          17,734,196
                          
                          
                          
                          4,166,532STOCKHOLDERS’
      EQUITYPreferred
      stock $0.001 par value 5,000,000 sharesauthorized,
      2,370,000 shares issued and outstanding
                          
                          
                          2,370
                          
                          
                          
                          2,370Additional
      paid-in capital – preferred stock
                          
                          
                          713,567
                          
                          
                          
                          713,567Common
      stock, $0.001 par value 100,000,000 sharesauthorized;  42,759,047
      and 36,567,105 shares issued and outstanding atDecember
      31, 2008 and December 31, 2007, respectively
                          
                          
                          42,759
                          
                          
                          
                          36,566Additional
      paid-in capital – common stock
                          
                          
                          17,011,726
                          
                          
                          
                          15,789,790Accumulated
      deficit
                          
                          
                          (12,599,401
                          )
                          
                          
                          (14,958,608
                          )Total
      stockholders’ equity
                          
                          
                          5,171,021
                          
                          
                          
                          1,583,685Total
      Liabilities and Stockholders’ Equity
                          
                          $
                          22,905,217
                          
                          
                          $
                          5,750,217




See
accompanying notes to financial statements.




F-4








HEARTLAND,
      INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONSDecember
      31,2008
                    
                    
                    2007REVENUE
      - SALES
                    
                    $
                    39,539,323
                    
                    
                    $
                    14,112,726COSTS
      AND EXPENSESCost
      of goods sold
                    
                    
                    34,432,778
                    
                    
                    
                    12,641,424Selling,
      general and administrative expenses
                    
                    
                    3,533,311
                    
                    
                    
                    2,419,976Depreciation
      and amortization
                    
                    
                    338,805
                    
                    
                    
                    67,557Total
      Costs and Expenses
                    
                    
                    38,304,894
                    
                    
                    
                    15,128,957NET
      OPERATING INCOME (LOSS)
                    
                    
                    1,234,429
                    
                    
                    
                    (1,016,231
                    )OTHER
      INCOME (EXPENSE)Other
      income
                    
                    
                    224,445
                    
                    
                    
                    10,945Gain
      on disposal of property, plant and equipment
                    
                    
                    744
                    
                    
                    
                    32,763Interest
      expense
                    
                    
                    (181,119
                    )
                    
                    
                    (117,744
                    )Total
      Other Income (Expense)
                    
                    
                    44,070
                    
                    
                    
                    (74,036
                    )INCOME
      (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
                    
                    
                    1,278,499
                    
                    
                    
                    (1,090,267
                    )FEDERAL
      AND STATE INCOME TAXESIncome
      tax benefit, deferred
                    
                    
                    1,177,862
                    
                    
                    
                    -INCOME
      (LOSS) FROM CONTINUING OPERATIONS
                    
                    
                    2,456,361
                    
                    
                    
                    (1,090,267
                    )DISCONTINUED
      OPERATOINS:Income
      from discontinued operations (net of income tax expense of
    $0)
                    
                    
                    -
                    
                    
                    
                    82,196Gain
      on disposal of discontinued operations (net of income tax expense of
      $0)
                    
                    
                    -
                    
                    
                    
                    131,525Total
      Discontinued Operations
                    
                    
                    -
                    
                    
                    
                    213,721NET
      INCOME (LOSS)
                    
                    
                    2,456,361
                    
                    
                    
                    (876,546
                    )LESS:
      Preferred Dividends
                    
                    
                    (104,626
                    )
                    
                    
                    (162,286
                    )NET
      INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
                    
                    $
                    2,351,735
                    
                    
                    $
                    (1,038,832
                    )EARNINGS
      (LOSS) PER COMMON SHAREIncome
      (loss) from continuing
      operations:                                     
          Basic
                    
                    $
                    0.06
                    
                    
                    $
                    (0.03
                    )Diluted
                    
                    $
                    0.06
                    
                    
                    $
                    (0.03
                    )Net
      income
      (loss):                                                                                    Basic
                    
                    $
                    0.06
                    
                    
                    $
                    (0.03
                    )Diluted
                    
                    $
                    0.06
                    
                    
                    $
                    (0.03
                    )WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDING:    Basic
                    
                    
                    40,363,117
                    
                    
                    
                    35,223,242:
      Diluted
                    
                    
                    42,760,990
                    
                    
                    
                    35,223,242





See
accompanying notes to financial statements.





F-5











HEARTLAND,
      INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWSDecember
      31,2008
                
                
                2007(Restated)CASH
      FLOWS FROM OPERATING ACTIVITIESIncome
      (loss) from continuing operations before income taxes
                
                $
                2,456,361
                
                
                $
                (1,090,267
                )Adjustments
      to reconcile net income (loss) to cash flows used in operating
      activitiesStock
      issued for services and settlement
                
                
                120,000
                
                
                
                -Gain
      on disposal of property, plant and equipment
                
                
                (744
                )
                
                
                (32,763
                )Depreciation
      and amortization
                
                
                338,805
                
                
                
                67,557Amortization
      of unearned supplier incentives
                
                
                (20,926
                )
                
                
                -Share-based
      compensation
                
                
                120,667
                
                
                
                806,878Deferred
      tax benefit
                
                
                (1,177,862
                )
                
                
                -Stock
      refunds
                
                
                20,926
                
                
                
                -Changes
      in assets and liabilitiesAccounts
      receivable
                
                
                2,518,593
                
                
                
                (285,740
                )Costs
      in excess of billings on uncompleted contracts
                
                
                173,007
                
                
                
                241,678Inventory
                
                
                158,792
                
                
                
                (46,218
                )Prepaids
      and other
                
                
                3,347
                
                
                
                (1,389
                )Accounts
      payable
                
                
                (1,955,487
                )
                
                
                194,049Obligations
      to related parties
                
                
                -
                
                
                
                (7,992
                )Accrued
      payroll taxes
                
                
                (130,007
                )
                
                
                (390,304
                )Accrued
      interest
                
                
                (95,774
                )
                
                
                73,569Accrued
      expenses
                
                
                (289,402
                )
                
                
                344,040Billings
      in excess of costs on uncompleted contracts
                
                
                297,870
                
                
                
                (58,065
                )Operating
      cash flows from discontinued operations
                
                
                -
                
                
                
                9,180NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
                
                
                2,538,166
                
                
                
                (175,787
                )CASH
      FLOWS FROM INVESTING ACTIVITIESInvestment
      in Lee Oil, net of cash acquired
                
                
                (1,150,313
                )
                
                
                -Net
      proceeds from disposition of property, plant, and
equipment
                
                
                744
                
                
                
                177,715Payments
      for other assets
                
                
                -
                
                
                
                (415,029
                )Payments
      for property, plant and equipment
                
                
                (1,480,135
                )
                
                
                (177,134
                )Investing
      cash flows from discontinued operations
                
                
                -
                
                
                
                (9,180
                )NET
      CASH USED IN INVESTING ACTIVITIES
                
                
                (2,629,704
                )
                
                
                (423,628
                )




See
accompanying notes to financial statements.




F-6








HEARTLAND,
      INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWSDecember
      31,2008
                      
                      
                      2007CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from unearned supplier incentives
                      
                      $
                      20,485
                      
                      
                      $
                      -Payments
      on convertible promissory notes payable
                      
                      
                      -
                      
                      
                      
                      (10,000
                      )Proceeds
      from notes payable
                      
                      
                      3,887,476
                      
                      
                      
                      (48,220
                      )Payments
      on notes payable
                      
                      
                      (790,805
                      )
                      
                      
                      -Proceeds
      from related party notes payable
                      
                      
                      900,000
                      
                      
                      
                      -Payments
      on related party notes payable
                      
                      
                      (295,605
                      )
                      
                      
                      (70,145
                      )Payments
      on capital lease
                      
                      
                      (34,891
                      )
                      
                      
                      (2,359
                      )Proceeds
      from issuance of common stock
                      
                      
                      290,000
                      
                      
                      
                      135,000Proceeds
      from issuance of preferred stock
                      
                      
                      -
                      
                      
                      
                      562,500NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                      
                      
                      3,976,660
                      
                      
                      
                      566,776INCREASE
      (DECREASE) IN CASH
                      
                      
                      3,885,122
                      
                      
                      
                      (32,639
                      )CASH,
      BEGINNING OF PERIOD
                      
                      
                      216,570
                      
                      
                      
                      249,209CASH,
      END OF PERIOD
                      
                      $
                      4,101,692
                      
                      
                      $
                      216,570SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONInterest
      paid
                      
                      $
                      181,119
                      
                      
                      $
                      44,174Taxes
      paid
                      
                      $
                      137,655
                      
                      
                      $
                      -NON
      CASH INVESTING AND FINANCING ACTIVITIESPurchase
      of Springboro property by net settlement due to/from
    landlordSettlement
      of amount due from landlord
                      
                      $
                      426,321
                      
                      
                      $
                      -Settlement
      of amount due to landlord
                      
                      $
                      284,664
                      
                      
                      $
                      -Amortization
      of deferred compensation as share based compensation
                      
                      $
                      86,928
                      
                      
                      $
                      -Issuance of common stock in payment of convertible promissory
      notes
                      
                      $
                      83,295
                      
                      
                      $
                      -Issuance of common stock for payment of obligations to related
      parties
                      
                      $
                      -
                      
                      
                      $
                      50,000Issuance
      of common stock relating to acquisition of Lee Oil
                      
                      $
                      500,000
                      
                      
                      $
                      -Issuance
      of related party debt related to acquisition of Lee Oil
                      
                      $
                      3,250,000
                      
                      
                      $
                      -Issuance of common stock for services
                      
                      $
                      -
                      
                      
                      $
                      734,790Issuance
      of preferred stock for services
                      
                      $
                      -
                      
                      
                      $
                      30,000Preferred
      stock dividend from imbedded beneficial conversion feature
                      
                      $
                      -
                      
                      
                      $
                      123,437Issuance
      of common stock and options for executive compensation
                      
                      $
                      -
                      
                      
                      $
                      42,088Purchase
      of equipment with a capital lease
                      
                      $
                      -
                      
                      
                      $
                      37,250Purchase
      of equipment under trade-in
                      
                      $
                      -
                      
                      
                      $
                      13,000Purchase
      of equipment with a note payable
                      
                      $
                      -
                      
                      
                      $
                      23,823Payment
      of note payable upon sale of property
                      
                      $
                      -
                      
                      
                      $
                      225,172Payment
      for other amounts upon sale of property
                      
                      $
                      -
                      
                      
                      $
                      6,013Payment
      of accounts payable by related party
                      
                      $
                      -
                      
                      
                      $
                      20,000











See
accompanying notes to financial statements.


F-7





HEARTLAND
      & SUBSIDIARIESCONSOLIDATED
      STATEMENT OF STOCKHOLDERS' EQUITYFor
      the Years Ended December 31, 2008 and 2007Additional
                
                
                
                
                
                
                
                
                AdditionalPreferred
      Stock
                
                
                Paid-In
                
                
                Common
      Stock
                
                
                Paid-In
                
                
                Accumulated
                
                
                Stockholders'Shares
                
                
                Amount
                
                
                Capital
                
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                Deficit
                
                
                EquityBalance
      at January 1, 2007
                
                
                -
                
                
                $
                -
                
                
                $
                -
                
                
                
                32,303,105
                
                
                $
                32,303
                
                
                $
                14,832,175
                
                
                $
                (13,958,625
                )
                
                $
                905,853Common
      Stock Issued
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,264,000
                
                
                
                4,263
                
                
                
                916,527
                
                
                
                -
                
                
                
                920,790Preferred
      Stock Issued
                
                
                2,370,000
                
                
                
                2,370
                
                
                
                590,130
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                592,500Preferred
      Stock Dividends
                
                
                -
                
                
                
                -
                
                
                
                123,437
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (123,437
                )
                
                
                -Share
      Based Compensation
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                41,088
                
                
                
                -
                
                
                
                41,088Net
      Loss for Year EndedDecember
      31, 2007
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (876,546
                )
                
                
                (876,546
                )Balance
      at December 31, 2007
                
                
                2,370,000
                
                
                $
                2,370
                
                
                $
                713,567
                
                
                
                36,567,105
                
                
                $
                36,566
                
                
                $
                15,789,790
                
                
                $
                (14,958,608
                )
                
                $
                1,583,685Common
      Stock Issued
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,820,847
                
                
                
                5,821
                
                
                
                1,038,226
                
                
                
                -
                
                
                
                1,044,047Preferred
      Stock Dividends
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                371,095
                
                
                
                372
                
                
                
                96,782
                
                
                
                (97,154
                )
                
                
                -Share
      Based Compensation
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                86,928
                
                
                
                -
                
                
                
                86,928Net
      Income for Year EndedDecember
      31, 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,456,361
                
                
                
                2,456,361Balance
      at December 31, 2008
                
                
                2,370,000
                
                
                $
                2,370
                
                
                $
                713,567
                
                
                
                42,759,047
                
                
                $
                42,759
                
                
                $
                17,011,726
                
                
                $
                (12,599,401
                )
                
                $
                5,171,021





See
accompanying notes to financial statements.


F-8


HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008











NOTE A -
PRINCIPLES OF CONSOLIDATION AND NATURE OF BUSINESS





The
consolidated financial statements include the accounts of Heartland, Inc.
(“Heartland”) and its wholly owned subsidiaries, Mound Technologies, Inc.
(“Mound”), Lee Oil Company, Inc. (“Lee”), and Heartland Steel, Inc.
(“HS”).





Mound is
a regional fabricator of structural and miscellaneous steel, with most projects
focused in the State of Ohio. Lee operates a wholesale oil distributorship and
multiple retail convenient store locations for service within the tri-state area
of Kentucky, Virginia, and Tennessee. HS has not begun operations, however, it
intends to be a distributor of steel within the United States.





Karkela
Construction, Inc., a commercial construction contractor, acquired in December
2004 has been discontinued effective July 1, 2007.





All
significant intercompany accounts and transactions have been
eliminated.








NOTE B -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





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. At December 31, 2008, the
Company had approximately $2,200,000 on deposit with banks in excess of
federally insured limits and not otherwise collateralized. Credit risk is
subject to the financial strength of these financial institutions.





Accounts
Receivableand
Allowance for Doubtful Accounts


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





Estimates
are used in determining the allowance for doubtful accounts and are based on
historical collection experience and current trends. Management periodically
evaluates the standard allowance estimation methodology for appropriateness and
modifies as necessary.  Write off of accounts typically occurs once we
have exhausted all efforts to collect the account, which include collection
attempts by our employees and outside collection agencies.





For the
periods ending December 31, 2008 and 2007, we have estimated the allowance for
bad debts to be $185,428 and $187,680, respectively. Two customers comprised 18%
and 12% of trade accounts receivable at December 31, 2008.





All sales
taxes collected are netted against sales and accrued as a
liability.





Inventories


All
inventory is carried at the lower of cost or market. Inventory cost for Mound is
determined on the First-In, First-Out (FIFO) method. Lee has three classes of
inventory: wholesale oil, retail oil, and groceries. Wholesale oil cost is
determined using the average cost method, retail oil cost is determined using
the FIFO method, and grocery cost is determined using the retail inventory cost
method.





F-9





HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008








NOTE B -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Property, Plant, and
Equipment


Property,
plant, and equipment is stated at cost. Expenditures for major renewals and
betterments that extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation of property and equipment is provided using the
straight-line method at rates based on the following estimated useful
lives:




YearsEquipment
                          
                          
                          3 - 10Buildings
      & Improvements
                          
                          
                          15 - 40


Revenue
Recognition





Mound


Mound
recognizes revenues from fixed-price and modified fixed-price construction
contracts on the percentage-of-completion
method,  measured  by  the
percentage  of  total
cost  incurred  to  date  to estimated
total cost for each 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 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.  Because of inherent uncertainties in estimating costs, it
is at least reasonably possible that the estimates used will change within the
near term.





The
asset, “Costs and estimated earnings in excess of billings on uncompleted
contracts,” represents revenues recognized in excess of amounts
billed.  The liability, “Billings in excess of costs and estimated
earnings on uncompleted contracts,” represents billings in excess of revenues
recognized.





Lee
Oil


Lee Oil
recognizes revenue at the point of sale or upon delivery of the petroleum
products sold.





Unearned Supplier
Incentives


Lee Oil
participates in multiple vendor incentive programs through three primary branded
petroleum product suppliers, BP Oil Products (“BP”), Marathon Petroleum Company
(“Marathon”) and ExxonMobil Corporation (“Exxon”). These incentives usually
consist of upgrading certain equipment or re-imaging sites to meet new standards
put forth by the suppliers. As this equipment is received or the improvements
made to the sites, we may receive funds in advance, be reimbursed for monies
already paid, or actually receive upgraded equipment directly from the supplier.
These programs usually require repayment if a particular site fails to meet
certain expectations and standards or if the site is debranded within a given
period of time (usually 5-10 years).








F-10








HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008








NOTE B -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




We
recognize a liability of these advance payments at the time of the advancement
and ratably remove them over the remaining time period covered in the programs.
At December 31, 2008, we have a recognized liability of $802,382.





Failure
to achieve requirements set forth by the vendors could result in the debranding
of a particular site and the requirement of having to repay any incentives
previously advanced on that site. In addition to the debranding of particular
sites, failure to meet contracted volume due to decreased volume if a particular
site is debranded could result in the default of the supplier contracts. The
reduction to the liability account is recorded as other income since the
reduction is not related to the sale of the products.





Net Income (Loss) Per Common
Share


The
Company computes per share amounts in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 128, “Earnings per Share”.  SFAS No.
128 requires presentation of basic and diluted earnings per share
(EPS).  Basic EPS is computed by dividing the net 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.





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.





Share-Based
Compensation


On
January 1, 2006, the Company adopted the provisions of SFAS No. 123 (R)
“Share-Based Payment” using the modified prospective method. SFAS 123 (R)
requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments based upon the grant date fair value
of those awards. Under the modified prospective method, the Company recognizes
compensation cost for all share-based payments granted after January 1, 2006,
plus any awards granted prior to January 1, 2006 that remain unvested at that
time. Under this method of adoption, no restatement of prior periods is made.
The Company had no unvested awards granted prior to January 1,
2006.





The
Company accounts for stock issued for services using the fair value
method.  In accordance with Emerging Issues Task Force (“EITF”) 96-18,
the measurement date of shares issued for service is the date at which the
counterparty’s performance is complete.





Fair Values of Financial
Instruments


The
Company uses financial instruments in the normal course of
business.  The carrying values of cash, accounts receivable,
inventory, prepaid expenses, bank lines of credit, accounts payable, accrued
payroll taxes and other expenses, customer deposits, and unearned supplier
incentives approximate their fair value due to the short-term maturities of
these assets and liabilities.  The carrying values of notes payable is
estimated by management based on discounted cash flow analyses and approximates
fair value.





F-11








HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008








NOTE B -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Income
Taxes


Deferred
income taxes are provided using the liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of the changes in tax laws and rates on the date of
enactment.





The
Company files Federal and state income tax returns. The Company’s major tax
jurisdictions in which it files income tax returns include Federal (United
States of America), the State of Ohio, the State of Tennessee, the Commonwealth
of Kentucky and the Commonwealth of Virginia. The tax years that remain subject
to examination by these major tax jurisdictions are 2003 through 2008. The
Company’s policy is to classify penalties and interest associated with uncertain
tax positions, if any, as a component of its income tax provision.





Shipping and Handling
Costs


The
Company includes shipping and handling costs associated with inventory purchases
in cost of goods sold. Shipping and handling costs associated with inventory
sales are included in selling, general and administrative expenses.





Environmental Remediation
Costs


Petroleum
storage tanks at the Company’s owned and leased facilities are routinely
evaluated and inspected for potential leaks as part of the Company’s ongoing
monitoring of risks associated with exposure to environmental remediation costs.
In addition, by paying annual fees in Tennessee and Kentucky and by complying
with Tennessee, Kentucky and Virginia state regulations governing the storage
tanks, the Company is able to take advantage of liability limits, provided in
the applicable state regulations, for costs of clean-up in the event of a
storage tank leak. The Company follows Statement of Position 96-1, Environmental
Remediation Liabilities and SFAS 5, Accounting for Contingencies when evaluating
its liability for the costs of clean-up in the event of a storage tank leak.
Management has concluded that the risk of incurring material costs associated
with clean-up of a storage tank leak is remote and, as such, no amounts have
been accrued in the 2008 or 2007 balance sheets related to environmental
remediation liabilities.





Reclassification


Certain
amounts in the 2007 Financial Statements have been reclassified to conform to
the presentation used in the 2008 Financial Statements. Specifically, in 2007
the Company has separately disclosed the operating, investing, and financing
portions of the cash flows attributable to its discontinued operations (Note O),
which in prior periods were reported on a combined basis as a single
amount.





Recent Accounting
Pronouncements


In
December 2007, the FASB issued SFAS No. 141(R), 'Business Combinations -
Revised,' that improves the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial reports about a business combination and its
effects.   To accomplish that, this statement establishes
principles and requirements how the acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any non-controlling interest in the acquiree, recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase,
and determines what information to disclose




F-12




HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008








NOTE B -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination.  The changes to current practice
resulting from the application of SFAS No. 141(R) are effective for financial
statements issued for fiscal years beginning after December 15,
2008.  The adoption of SFAS No. 141(R) before December 15, 2008 is
prohibited.  The Company does not expect the adoption of SFAS No.
141(R) to have a material effect on its financial statements.





In
June 2008, the FASB issued FSP Emerging Issues Task Force 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities(“FSP EITF 03-6-1”). FSP EITF 03-6-1 provides that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of earnings per share pursuant to the two-class
method. FSP EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008, and interim periods within those years. Upon adoption, a
company is required to retrospectively adjust its earnings per share data
(including any amounts related to interim periods, summaries of earnings and
selected financial data) to conform with the provisions of FSP EITF 03-6-1. The
Company does not expect the adoption of FSP EITF 03-6-1 to have a material
effect on its consolidated financial statements.








NOTE C –
INVENTORIES





Inventory
at December 31 consisted of the following:




2008
                        
                        
                        2007Mound
                        
                        $
                        1,117,102
                        
                        
                        $
                        904,409Lee:Wholesale
      Fuel
                        
                        
                        461,887
                        
                        
                        
                        -Retail
      Fuel
                        
                        
                        404,351
                        
                        
                        
                        -Groceries
                        
                        
                        792,295
                        
                        
                        
                        -$
                        2,775,635
                        
                        
                        $
                        904,409


NOTE D –
BUILDING PURCHASE





The
Company finalized the purchase of the property located at 25 Mound Park Drive in
Springboro, OH on April 18, 2008. The gross selling price of the property was
$1,112,983 and was funded through a loan of $900,000 provided through Commercial
Bank of Harrogate, TN.(Note F), net settlement of amounts due from the former
landlord of $426,321 and amounts due to the former landlord of $284,664
and





Company
generated funds making up the remainder. This is the same property which Mound
Technologies currently uses for its operations and had been renting from a
related party for $16,250 per month. The Company’s CEO is also the CEO of
Commercial Bank.





F-13




HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008








NOTE E -
BANK LINES OF CREDITS





Lee Oil
has a $750,000 line of credit with First Tennessee Bank of which $475,000 of the
amount was available at December 31, 2008.  The line matures on May
31, 2009, bears interest at 1.9475% as of December 31, 2008 and is secured by
all current assets of Lee Oil.





Mound has
a $500,000 line of credit with First Tennessee Bank of which $300,000 was
available at December 31, 2008.  The line matures on August 15, 2009,
bears interest at one month Libor plus 2% as published on the first day of the
month in the Wall Street Journal (3.901% at December 31, 2008), and is secured
by all assets of the Mound. No amounts were due on this line at December 31,
2007.





NOTE F -
NOTES PAYABLE





Notes
payable consist of long term notes entered into with various financial
institutions, related parties, or third parties for the purchase of property and
equipment with a carrying value of $10,256,234 at December 31, 2008. The assets
purchased with these notes serve as collateral for the individual notes as well
as substantially all other assets of the Company. The following tables give the
notes and terms along with maturities at December 31:







PmtExpiration
                  
                  Interest
                  
                  Include
                  
                  MonthlyDate
                  
                  Rate
                  
                  Interest
                  
                  Payment
                  
                  
                  2008
                  
                  
                  2007BankNotesCommercial
      Bank  (1)
                  4/18/11
                  
                  
                  6.50
                  %
                  Yes
                  
                  
                  508
                  
                  
                  
                  13,131
                  
                  
                  
                  -Commercial
      Bank  (1)(7)
                  6/27/13
                  
                  
                  6.00
                  %
                  Yes
                  
                  
                  8,347
                  
                  
                  
                  1,141,353
                  
                  
                  
                  -Commercial
      Bank (1)
                  4/18/13
                  
                  
                  7.25
                  %
                  Yes
                  
                  
                  7,250
                  
                  
                  
                  887,474
                  
                  
                  
                  -Citizen’s
      Bank (6)
                  6/20/13
                  
                  
                  6.00
                  %
                  Yes
                  
                  
                  5,825
                  
                  
                  
                  274,334
                  
                  
                  
                  -People’s
      Community (5)
                  8/1/23
                  
                  
                  3.25
                  %
                  Yes
                  
                  
                  6,100
                  
                  
                  
                  867,227
                  
                  
                  
                  -First
      Tennessee
                  8/17/15
                  
                  
                  5.97
                  %
                  Yes
                  
                  
                  14,470
                  
                  
                  
                  947,213
                  
                  
                  
                  -Choice
      Financial
                  10/01/11
                  
                  
                  7.75
                  %
                  Yes
                  
                  
                  30,780
                  
                  
                  
                  3,221,827
                  
                  
                  
                  -Totals
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  7,352,559
                  
                  
                  $
                  -





F-14




HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008








NOTE F -
NOTES PAYABLE (Continued)





Third
      Party Notes
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              2008
                              
                              
                              2007Sam
      Mars  - Lee #7 (6)(8)
                              5/1/12
                              
                              
                              7.00
                              %
                              Yes
                              
                              
                              1,904
                              
                              
                              
                              69,236
                              
                              
                              
                              -Sam
      Mars – Plant (6)(8)
                              6/25/18
                              
                              
                              7.00
                              %
                              Yes
                              
                              
                              2,710
                              
                              
                              
                              225,226
                              
                              
                              
                              -Sam
      Mars - Lee #16 (6)(8)
                              5/16/20
                              
                              
                              7.00
                              %
                              Yes
                              
                              
                              2,794
                              
                              
                              
                              261,766
                              
                              
                              
                              -Mars
      Properties (6)
                              12/25/12
                              
                              
                              6.00
                              %
                              Yes
                              
                              
                              6,821
                              
                              
                              
                              290,443
                              
                              
                              
                              -Shoemaker
      Dist
                              10/1/13
                              
                              
                              6.00
                              %
                              Yes
                              
                              
                              6,083
                              
                              
                              
                              297,886
                              
                              
                              
                              -Petro
      Marketing (9)
                              9/30/15
                              
                              
                              4.50
                              %
                              Yes
                              
                              
                              4,491
                              
                              
                              
                              294,729
                              
                              
                              
                              -Helen
      Miller (2)
                              4/15/13
                              
                              
                              0.00
                              %
                              No
                              
                              
                              4,152
                              
                              
                              
                              225,918
                              
                              
                              
                              265,743Lee
      Holding Company (3)
                              10/1/28
                              
                              
                              8.00
                              %
                              Yes
                              
                              
                              13,709
                              
                              
                              
                              1,617,041
                              
                              
                              
                              -Gary
      Lee (4)
                              10/1/28
                              
                              
                              8.00
                              %
                              Yes
                              
                              
                              13,709
                              
                              
                              
                              1,617,041
                              
                              
                              
                              -State
      of Ohio
                              04/15/10
                              
                              
                              0.00
                              %
                              No
                              
                              
                              9,569
                              
                              
                              
                              143,531
                              
                              
                              
                              -Totals
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              5,042,817
                              
                              
                              $
                              265,743





(1)
            Related
      Party - Terry Lee - CEO of Commercial Bank and CEO of the
      Company


(2)
            Related
      Party – Relative of Tom Miller, President of
  Mound


(3)
            Related
      Party – Terry Lee, Managing Partner of Lee Holding Company and CEO of the
      Company


(4)
            Related
      Party – Gary Lee, Vice-President of Lee Oil and relative of Terry Lee, CEO
      of the Company


(5)
            Interest
      Rate is variable and is based on the prime lending
  rate.


(6)
            Notes
      are due upon demand. Per terms of each agreement, the date listed as
      expiration date corresponds to the stipulated amortization period with the
      notes. All lenders, except Citizens Bank, have waived their right to call
      the notes until January 1, 2010 and as such, these notes have been
      classified as long-term debt. Management has also classified the Citizens
      Bank note as long-term debt.


(7)
            Interest
      rate fixed until June 2013 at which time the rate will become variable,
      computed as 6% above the federal discount rate. The rate is adjusted
      annually after June 2013, can not exceed 15.5% and can not change by more
      than 2% each year.


(8)
            Interest
      rate is variable, computed as 2% below the prime lending rate. The rate
      can not drop below 7%.


(9)
            Interest
      rate is variable, computed as 0.5% below the prime lending rate, adjusted
      annually.





During
2008, the Company repaid four notes payable to financial institutions and a
related party. The outstanding balance on those four notes at December 31, 2007
was $432,423.





At
December 31, 2008, minimum future principal payments over the next five years
and in the aggregate are as follows:





Due
      InTotal
                
                
                2009
                
                
                2010
                
                
                2011
                
                
                2012
                
                
                2013
                
                
                ThereafterTotal
                
                
                12,395,376
                
                
                
                859,721
                
                
                
                780,014
                
                
                
                3,652,920
                
                
                
                705,846
                
                
                
                1,333,972
                
                
                
                5,062,903Current
                
                
                (859,721
                )Long
      term
                
                
                11,535,655


F-15


HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008








NOTE G –
OTHER RELATED PARTY TRANSACTIONS




Issuance of Stock to Related
Parties





2008


Issued
503,784 common shares to Chief Executive Officer for accrued salary valued at
$120,667.





Issued
430,716 common shares to Board Members for services rendered valued at
$120,000.





Issued
1,250,000 common shares to Lee Holding Company for Lee Oil acquisition valued at
$250,000. Terry Lee is the managing partner of Lee Holding Company and CEO of
the Company.





Issued
1,250,000 common shares to Gary Lee for the Lee Oil acquisition valued at
$250,000. Gary Lee is the vice-president of Lee Oil and relative of Terry
Lee.





Issued
20,015 common shares to Dr. Kenneth Farris, a board member, for the preferred
stock dividend earned for the years of 2007 and 2008 valued at
$5,242.





2007


Issued
250,000 common shares to a related party for services rendered valued at
$60,000.





Issued
120,000 common shares to Chief Executive Officer for accrued salary valued at
$60,000.





Issued
1,000,000 common shares to Chief Executive Officer for five year employment
contract valued at $180,000.




Other Transactions with
Related Parties





During
the quarter ended December 31, 2008, Lee Oil sold 133,754 gallons of diesel fuel
to a mining company of which Terry Lee, the Company CEO, is a 33% owner. The
total amount invoiced for these gallons sold was $277,590.





During
the quarter ended December 31, 2008, Lee Oil leased a piece of property from
L&M Ventures of which Terry Lee, the Company CEO, is a 50% owner. The lease
payments made in the fourth quarter were $16,200.





NOTE H -
STOCKHOLDERS’ EQUITY





Preferred
Stock


In
January 2007, the Board of Directors approved the authorization of 5,000,000
shares of Series A Convertible Preferred Stock - par value $0.001.  As
of December 31, 2008 and 2007, the Company has 2,370,000 shares of Series A
Convertible Preferred Stock issued and outstanding.  The preferred
stock has a face value of $0.25 per share and the basis of conversion is one
share of the Company’s common stock for each share of preferred
stock.  The preferred stock has liquidation priority rights over all
other stockholders.  The preferred shares can be converted at any time
at the option of the stockholder, but will convert automatically at the end of
three years into the Company’s common stock.





The
preferred shares carry a 10% annual stock dividend for the three years they are
outstanding prior to conversion.  The stock dividends for 2007 and
2008 were paid in 2008.


F-16


HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008











NOTE H -
STOCKHOLDERS’ EQUITY (Continued)





Preferred Stock
(Continued)





The
preferred shares include a Series A and Series B common stock purchase
warrant.  The Series A warrant allows the holder to purchase 20% of
the number of preferred shares purchased at $0.75 per share; the Series B
warrant allows the holder to purchase 20% of the number of preferred shares
purchased at $1.00 per share. Both series of warrants are exercisable over a
three year period.  The Company can call in the warrants after 12
months if the price of the common stock in the market is 150% of the warrant
price for 10 consecutive days (i.e. $1.13 for the A warrant and $1.50 for the B
warrant).





During
the quarter ended March 31, 2007, the Company sold 610,000 shares of Series A
Convertible Preferred Stock (“Series A Preferred”) and received proceeds of
$152,500.





During
the quarter ended June 30, 2007, the Company sold 1,640,000 shares of Series A
Preferred and received proceeds of $410,000. In addition, 120,000 shares of
Series A Preferred were issued for services valued at $30,000.





Included
with the Series A Preferred were 474,000 Series A warrants and 474,000 Series B
warrants.  The Series A and Series B warrants were valued at $123,347
using the Black-Scholes option-pricing model and such amount is included in
Additional Paid in Capital – Preferred Stock. The assumptions used were as
follows:




Expected
      Life
                      
                      3
      yearsExpected
      Volatility
                      
                      
                      109.80%
      - 111.84
                      %Risk
      Free Interest Rate
                      
                      
                      2.5
                      %Expected
      Dividends
                      
                      
                      --  At
December 31, 2008 and 2007, there were 474,000 Series A warrants and 474,000
Series B warrants outstanding.





In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5), the Company recognized an imbedded
beneficial conversion feature present in the Series A Convertible Preferred
Stock.  The Company allocated a portion of the proceeds equal to the
intrinsic value of that feature to additional paid in capital.  The
Company recognized and measured an aggregate of $123,437 of the proceeds, which
is equal to the intrinsic value of the imbedded beneficial conversion feature,
to additional paid-in capital and as a dividend to the holders of the Series A
Convertible Preferred Stock issued during the year ended December 31,
2007.




Common
Stock





2008


During
the year ended December 31, 2008, the Company authorized total issuances of
6,220,319 shares of common stock. The issuances related to the
following:





F-17




HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008








NOTE H -
STOCKHOLDERS’ EQUITY (Continued)





Common Stock
(Continued)





2008
(Continued)





Description
                                    
                                    Quantity
                                    
                                    Stock PriceStock
      Dividend
                                    
                                    172,314
                                    
                                    Average
      Stock Price (1)Stock
      Dividend
                                    
                                    227,158
                                    
                                    Average
      Stock Price (2)Private
      Placement
                                    
                                    440,000
                                    
                                    Set
      @ $.50Conversion
      of Debt & Related Interest
                                    
                                    83,360
                                    
                                    Conversion
      Rate $1.00 (3)Board
      Compensation
                                    
                                    430,716
                                    
                                    Quarterly
      Closing Price (4)CEO
      Compensation
                                    
                                    503,784
                                    
                                    Average
      Stock Price - 2008 (2)Board
      Approved Issuances
                                    
                                    4,362,987
                                    
                                    Various
      (5)6,220,319(1)
      Average monthly closing price for Jan - Nov 2007 and Dec 15,
      2007(2)
      Average monthly closing price for Jan - Nov 2008 and Dec 15,
      2008(3)
      Set in convertible notes(4)Closing
      price at the end of each quarter.(5)
      Varied - majority (2.5M shares) issued for Lee Oil purchase @
      $.20








2007


During
the year ended December 31, 2007, the Company authorized total issuances of
4,264,000 shares of common stock. The issuances related to the
following:





Description
                    
                    Quantity
                    
                    Stock PricePrivate
      Placement
                    
                    696,538
                    
                    Valued
      at $0.20 to $0.325Previous
      CEO Services
                    
                    250,000
                    
                    Valued
      at $0.24Conversion
      of Debt & Repayment of Loans
                    
                    153,846
                    
                    Valued
      at $0.325Board
      Compensation
                    
                    650,000
                    
                    Valued
      at $0.325CEO
      Employment Package
                    
                    1,000,000
                    
                    Valued
      at $0.18CEO
      Accrued Salary
                    
                    120,000
                    
                    Valued
      at $0.50Board
      Approved Issuances
                      For
      Services Rendered
                    
                    1,393,616
                    
                    Valued
      at $0.19 to $0.404,264,000




F-18




HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008








NOTE H -
STOCKHOLDERS’ EQUITY (Continued)




Common Stock
(Continued)





2007
(Continued)





Per an
Executive Employee Agreement the Company issued 1,000,000 common shares valued
at $180,000. The Company also granted five year employee non-statutory stock
options to purchase 1,822,504 shares of common stock at an exercise price of
$.33 per share.  The options were valued at $240,883 using the
Black-Scholes option–pricing model.  The total amount of $420,883 is
being amortized over five years with $86,928 and $42,088 having been included in
common stock and additional paid in capital during the years ended December 31,
2008 and 2007, respectively.


Expected
      Life
                        
                        5 yearsExpected
      Volatility
                        
                        
                        111.84
                        %Risk
      Free Interest Rate
                        
                        
                        2.5
                        %Expected
      Dividends
                        
                        
                        --





NOTE I -
INCOME TAXES





The
Company files a consolidated Federal income tax return. Prior to 2008, the
Company had erroneously not filed federal tax returns. During 2008, the Company
filed tax returns from 2003 through 2007. These tax returns were filed on the
GAAP basis of accounting and did not comply with the Internal Revenue Code
requirements. The Company intends to correct the filings during 2009. As such,
there may be timing differences that arise from those filings. In addition,
there could be penalties resulting from those filings. Because of these
uncertainties, it is at least reasonably possible that the tax benefit recorded
for 2008 will change in the near term. The Internal Revenue Service has not
notified the Company of any scheduled examinations of the Company’s returns. Due
to the federal carryforward losses available to the Company, the Company does
not anticipate any significant tax liabilities or interest due.





The
federal carryforward losses available to the Company as of December 31, 2008
aggregate approximately $3,100,000 to offset future taxable income of which
$976,000 expires in 2025, $637,000 expires in 2026, and $1,487,000 expires in
2027.





During
the fourth quarter of 2008, we reversed the valuation allowance related to the
net operating loss carryforwards and other temporary items as we determined it
was more likely than not that we would be able to use the assets to reduce
future tax liabilities. The reversal resulted in recognition of an income tax
benefit of $1,806,400 in 2008 and a corresponding increase in the net deferred
tax asset on the Consolidated Balance Sheet.





Temporary
differences which give rise to deferred taxes are summarized as follows for the
years ended December 31, 2008 and 2007:




F-19




HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008








NOTE I -
INCOME TAXES (Continued)








Deferred
Tax Assets:




2008
                                          
                                          
                                          
                                          2007Allowance
      for doubtful accounts
                                          
                                          $
                                          74,171
                                          
                                          
                                          $
                                          75,072Deferred
      revenues
                                          
                                          
                                          320,953
                                          
                                          
                                          
                                          --Vacation
      accrual
                                          
                                          
                                          4,602
                                          
                                          
                                          
                                          4,452Net
      operating losses
                                          
                                          
                                          1,231,035
                                          
                                          
                                          
                                          1,726,876Total
      Deferred Tax Assets
                                          
                                          
                                          1,630,761
                                          
                                          
                                          
                                          1,806,400Deferred Tax Liabilities:Depreciation
                                          
                                          
                                          92,925
                                          
                                          
                                          
                                          --Purchase
      price allocation
                                          
                                          
                                          1,037,884
                                          
                                          
                                          
                                          --Total
      Deferred Tax Liabilities
                                          
                                          
                                          1,130,809
                                          
                                          
                                          
                                          --Net
      deferred tax assets
                                          
                                          
                                          499,952
                                          
                                          
                                          
                                          1,806,400Less:  Valuation
      allowance
                                          
                                          
                                          --
                                          
                                          
                                          
                                          (1,806,400
                                          )Net
      Deferred Tax Asset
                                          
                                          
                                          499,952
                                          
                                          
                                          
                                          --Less:
      Portion classified as current asset
                                          
                                          
                                          (678,774
                                          )
                                          
                                          
                                          --Portion
      classified as long-term liability
                                          
                                          $
                                          (178,822
                                          )
                                          
                                          
                                          --




The
reconciliation of income tax expense attributable to continuing operations
computed at the U.S. Federal Statutory tax rates to the income tax benefit
recorded for the year ended December 31, 2008 is as follows:


Federal
      income taxes at 34%
                                      
                                      $
                                      434,690State
      income taxes
                                      
                                      
                                      137,655Decrease
      in valuation allowance
                                      
                                      
                                      (1,806,400
                                      )Other
                                      
                                      
                                      56,193Income
      tax benefit
                                      
                                      $
                                      (1,177,862
                                      )





NOTE J –
OPERATING LEASES





The
Company maintains a number of leases on various pieces of real property. These
leases are primarily the operating leases at the various retail locations of Lee
Oil and require us to pay the related taxes, insurance and maintenance costs
associated with those properties





F-20





HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008








NOTE J –
OPERATING LEASES (Continued)





At
December 31, 2008, the minimum future lease payments over the next five years
and in the aggregate are as follows:




Year
                        
                        Amount2009
                        
                        
                        306,4922010
                        
                        
                        306,4922011
                        
                        
                        299,8002012
                        
                        
                        283,0202013
                        
                        
                        148,190Thereafter
                        
                        
                        255,000





NOTE K –
CONTINGENCIES





The
Company is subject to various claims in the ordinary course of business but
believes their ultimate resolution will have no material adverse effect on its
financial condition,  results of operations or cash
flows.








NOTE L —
EARNINGS (LOSS) PER SHARE DATA





Basic
earnings (loss) per share assumes no dilution and is computed by dividing net
income available to common stockholders by the weighted average number of common
shares outstanding during each period. Diluted earnings (loss) per share
reflect, in periods in which they have a dilutive effect, the effect of common
shares issuable upon the exercise of stock options and warrants, using the
treasury stock method of computing such effects.





The
following table sets forth the computation of basic and diluted earnings (loss)
per share for the years ended December 31:




2008
                              
                              
                              2007Basic:Income
      (loss) from continuing operations
                              
                              $
                              2,456,361
                              
                              
                              $
                              (1,090,267
                              )Net
      income (loss) available to common
      stockholders
                              
                              $
                              2,351,735
                              
                              
                              $
                              (1,038,832
                              )Average
      shares outstanding
                              
                              
                              40,363,117
                              
                              
                              
                              35,223,242Basic
      earnings (loss) per share fromcontinuing
      operations
                              
                              $
                              0.06
                              
                              
                              $
                              (0.03
                              )Basic
      earnings (loss) per share
                              
                              $
                              0.06
                              
                              
                              $
                              (0.03
                              )Diluted:Income
      (loss) from continuing operations
                              
                              $
                              2,456,361
                              
                              
                              $
                              (1,090,267
                              )Net
      income (loss) available to common
      stockholders
                              
                              $
                              2,351,735
                              
                              
                              $
                              (1,038,832
                              )Average
      shares outstanding
                              
                              
                              42,760,990
                              
                              
                              
                              35,223,242Diluted
      earnings (loss) per share fromcontinuing
      operations
                              
                              $
                              0.06
                              
                              
                              $
                              (0.03
                              )Basic
      earnings (loss) per share
                              
                              $
                              0.06
                              
                              
                              $
                              (0.03
                              )




F-21








HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008








NOTE M –
BUSINESS SEGMENTS





The
Company analyzes its assets, liabilities, cash flows, and results of operations
by subsidiary. The Company relies on management at the first-level subsidiary
(Mound, Lee Oil, HS) to analyze the subsidiary and report to Heartland. As a
result, the Company, in its application of SFAS 131, makes its financial
decisions based on the overall performance of the first level subsidiaries. The
following table reflects the Company’s segments at December 31,
2008:




Holding
                    
                    
                    Oil
                    
                    
                    Steel
                    
                    
                    SteelCompany
                    
                    
                    Distributor
                    
                    
                    Fabricator
                    
                    
                    Distributor(Heartland)
                    
                    
                    (Lee
      Oil)
                    
                    
                    (Mound)
                    
                    
                    (HS)
                    
                    
                    ConsolidatedRevenues
                    
                    $
                    -
                    
                    
                    $
                    20,417,082
                    
                    
                    $
                    19,122,241
                    
                    
                    $
                    -
                    
                    
                    $
                    39,539,323Gross
      Margins
                    
                    
                    -
                    
                    
                    
                    2,281,495
                    
                    
                    
                    2,825,050
                    
                    
                    
                    -
                    
                    
                    
                    5,106,545Operating
      Expenses
                    
                    
                    938,913
                    
                    
                    
                    1,994,078
                    
                    
                    
                    939,125
                    
                    
                    
                    -
                    
                    
                    
                    3,872,116Other
      Income
                    
                    
                    (36,035
                    )
                    
                    
                    17,014
                    
                    
                    
                    63,091
                    
                    
                    
                    -
                    
                    
                    
                    44,070Net
      Income From ContinuingOperations
      Before Income Taxes
                    
                    
                    (974,948
                    )
                    
                    
                    304,431
                    
                    
                    
                    1,949,016
                    
                    
                    
                    -
                    
                    
                    
                    1,278,499Current
      Assets
                    
                    
                    689,747
                    
                    
                    
                    6,741,938
                    
                    
                    
                    5,115,434
                    
                    
                    
                    33,752
                    
                    
                    
                    12,580,871Total
      Assets
                    
                    
                    2,963,505
                    
                    
                    
                    12,350,145
                    
                    
                    
                    7,116,567
                    
                    
                    
                    475,000
                    
                    
                    
                    22,905,217Current
      Liabilities
                    
                    
                    283,456
                    
                    
                    
                    2,156,883
                    
                    
                    
                    2,879,987
                    
                    
                    
                    -
                    
                    
                    
                    5,320,326Total
      Liabilities
                    
                    
                    6,635,073
                    
                    
                    
                    7,157,081
                    
                    
                    
                    3,942,042
                    
                    
                    
                    -
                    
                    
                    
                    17,734,196Capital
      Expenditures
                    
                    
                    -
                    
                    
                    
                    338,550
                    
                    
                    
                    1,397,646
                    
                    
                    
                    441,248
                    
                    
                    
                    2,177,444





As
discussed in Note O, the operations of Karkela were discontinued during 2007.
The Company’s segments listed below, do not include Karkela as it was not a
segment of the Company at December 31, 2007.


Holding
                                  
                                  
                                  SteelCompany
                                  
                                  
                                  Fabricator(Heartland)
                                  
                                  
                                  (Mound)
                                  
                                  
                                  ConsolidatedRevenues
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  14,112,726
                                  
                                  
                                  $
                                  14,112,726Gross
      Margins
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,471,302
                                  
                                  
                                  
                                  1,471,302Operating
      Expenses
                                  
                                  
                                  1,700,205
                                  
                                  
                                  
                                  787,328
                                  
                                  
                                  
                                  2,487,533Other
      Expense
                                  
                                  
                                  -
                                  
                                  
                                  
                                  74,036
                                  
                                  
                                  
                                  74,036Net
      (Loss) Income from ContinuingOperations
      Before Income Taxes
                                  
                                  
                                  (1,700,205
                                  )
                                  
                                  
                                  609,938
                                  
                                  
                                  
                                  (1,090,267
                                  )Current
      Assets
                                  
                                  
                                  -
                                  
                                  
                                  
                                  4,622,728
                                  
                                  
                                  
                                  4,622,728Total
      Assets
                                  
                                  
                                  2,259
                                  
                                  
                                  
                                  5,747,958
                                  
                                  
                                  
                                  5,750,217Current
      Liabilities
                                  
                                  
                                  642,737
                                  
                                  
                                  
                                  2,912,818
                                  
                                  
                                  
                                  3,555,555Total
      Liabilities
                                  
                                  
                                  642,737
                                  
                                  
                                  
                                  3,523,795
                                  
                                  
                                  
                                  4,166,532Capital
      Expenditures
                                  
                                  
                                  -
                                  
                                  
                                  
                                  181,889
                                  
                                  
                                  
                                  181,889
  F-22





HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008








NOTE N –
ACQUISITON OF LEE OIL





On
October 1, 2008 the Company entered into a Securities
Purchase Agreement  (the  "Agreement") with Lee Holding
Company LP and Gary Lee ("Sellers"). Pursuant to the Agreement, the Company
acquired and, the Sellers sold, all of the outstanding securities of Lee
Oil.  Terry Lee, the Company’s Chief Executive Officer and a director
of the Company, is the principal partner of Lee Holding Company
LP.  Gary Lee is the vice-president of Lee Oil Company and relative of
Terry Lee.





In
consideration for all of the outstanding securities of Lee Oil, the Company paid
the Sellers $3,250,000 in cash, issued the Sellers promissory notes for an
aggregate of $3,250,000 (the “Lee Companies Notes”) and 2,500,000 shares of
common stock of the Company. The Lee Companies Notes carry interest of 8% per
year and the Company is required to pay the Sellers an aggregate of $27,418 per
month until the Lee Companies Notes are paid in full.(Note F)





In
connection with the acquisition of Lee Oil, the Company entered an Employment,
Noncompetition and Nondisclosure Agreement with Terry Lee.  In
consideration for Mr. Lee serving as CEO, Mr. Lee shall receive an annual salary
of $140,000 and 150,000 shares of common stock.





In order
to fund the cash purchase price of the acquisition, on October 1, 2008, the
Company entered into a Loan Agreement (the “Loan Agreement”) with Choice
Financial Group (“Choice”).  Pursuant to the Loan Agreement, the
Company executed a Promissory Note in the amount of $3,250,000 (the “Choice
Note”).  The Company is required to pay a monthly installment of
$30,799 and the outstanding balance including annual interest of 7.75% is
required to be paid in full by September 30, 2011. (Note F)





The
following is an unaudited condensed statement of operations for the years ended
December 31, 2008 and 2007 showing the combined results of operations of the
Company (including all other consolidated subsidiaries) and Lee Oil as though
the Company had acquired Lee Oil on January 1, 2007:
 Pro
      Forma – Unaudited2008
                                          
                                          
                                          2007Revenue
                                          
                                          $
                                          133,365,220
                                          
                                          
                                          $
                                          101,524,973Gross
      Margins
                                          
                                          
                                          11,390,576
                                          
                                          
                                          
                                          8,526,473Operating
      Income
                                          
                                          
                                          2,249,251
                                          
                                          
                                          
                                          32,951Net
      Income (Loss)
                                          
                                          
                                          3,
      137,934
                                          
                                          
                                          
                                          (343,271
                                          )Earnings
      per Share
                                          
                                          $
                                          0.07
                                          
                                          
                                          $
                                          (0.01
                                          )





The
following table summarizes the estimated fair value of the assets acquired and
the liabilities assumed at the date of acquisition as recorded by the Company at
October 1, 2008. The Company is still evaluating the allocation of the purchase
price which is preliminary and subject to refinement:


Current
      Assets
                                
                                $
                                8,004,359Property,
      Plant & Equipment
                                
                                
                                7,682,547Total
      Assets Acquired
                                
                                
                                15,686,906Current
      Liabilities
                                
                                
                                3,875,764Long-Term
      Debt
                                
                                
                                4,811,142Total
      Liabilities Assumed
                                
                                
                                8,686,906Net
      Assets Acquired
                                
                                $
                                7,000,000





F-23




HEARTLAND,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008








NOTE N –
ACQUISITON OF LEE OIL (Continued)





In
accordance with the security agreements entered between the Company and Choice,
substantially all the assets of the Company collateralize the Choice Note and
the securities of each of the subsidiaries of the Company were also pledged to
Choice. In addition, each of the Sellers entered into a subordination agreement
with Choice and Terry Lee entered a Put Agreement with Choice whereby Mr. Lee
agreed to acquire the Choice Note in the event that Company
defaults.





Prior to
the acquisition of the Lee Companies, except for the fact that Terry Lee is an
executive officer, director and shareholder of the Company and Gary Lee is a
relative of Terry Lee, no material relationship existed between the Company and
the Sellers and/or their affiliates, directors, officers or any associate of an
officer or director.





The
shares issued in connection with the purchase of the Lee Companies and in
connection with Mr. Lee’s employment agreement were offered and sold in a
private placement transaction made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506
promulgated thereunder.  Each of the former shareholders of the Lee
Companies are accredited investors as defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933.





NOTE O –
DISCONTINUED OPERATIONS





In 2007,
in connection with the Company’s default under the terms of the acquisition note
owed to the former owner of Karkela Construction, Inc. and the former owner’s
intention to foreclose on the related security interest, the Company elected to
discontinue efforts with respect to Karkela and forfeit the security interest
pledged and the assets of Karkela including 100% of the equity interest of
Karkela. As a result, effective July 1, 2007, Karkela is no longer a subsidiary
of the Company.


Karkela
                            
                            2007Revenue
                            
                            $
                            4,388,948Pre
      tax profit
                            
                            
                            84,008Net
      assets (liabilities)
                            
                            
                            --


F-24





ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE





On August
1, 2008 (the “Dismissal Date”), the Company advised Meyler & Company LLC
(the “Former Auditor”) that it was dismissed as the Company’s independent
registered public accounting firm.  The decision to dismiss the Former
Auditor as the Company’s independent registered public accounting firm was
approved by the Company’s Board of Directors on July 31,
2008.





During
the years ended December 31, 2007 and 2006, and through the Dismissal Date, the
Company has not had any disagreements with the Former Auditor on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the Former Auditor’s
satisfaction, would have caused them to make reference thereto in their reports
on the Company’s consolidated financial statements for such years.





There
have been no disagreements between the Company and Meyler & Company, LLC
(“MC”) in connection with any services provided to us by them for the periods of
their engagement on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.





No
accountant’s report on the financial statements for the past two years contained
an adverse opinion or a disclaimer of opinion or was qualified or modified as to
uncertainty, audit scope or accounting principles, except such reports did
contain a going concern qualification; such financial statements did not contain
any adjustments for uncertainties stated therein. In addition, MC did not advise
the Company with regard to any of the following:





1.
            That
      information has come to their attention, which made them unwilling to rely
      on management’s representations, or unwilling to be associated with the
      financial statements prepared by management;
or





2.
            That
      the scope of the audit should be expanded significantly, or information
      has come to the accountant’s attention that the accountant has concluded
      will, or if further investigated might, materially impact the fairness or
      reliability of a previously issued audit report or the underlying
      financial statements, except as indicated in the financial statements
      issued or to be issued covering the fiscal periods subsequent to the date
      of the most recent audited financial statements, and the issue was not
      resolved to the accountant’s satisfaction prior to its resignation or
      dismissal.  During the most recent two fiscal years and during
      any subsequent interim periods preceding the date of each engagement, we
      have not consulted MC regarding any matter requiring disclosure under
      Regulation S-K, Item 304(a)(2).





On August
1, 2008 (the “Engagement Date”), the Company engaged Coulter & Justus, P.C.
(“CJ”) as its independent registered public accounting firm for the Company’s
fiscal year ended December 31, 2008. The decision to engage the CJ as Company’s
independent registered public accounting firm was approved by the Company’s
Board of Directors.





During
the fiscal years ended December 31, 2007 and 2006 and through August 1, 2008,
the Company did not consult with CJ regarding: (i) either: the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that may be rendered on the Company’s consolidated
financial statements, and CJ did not provide either a written or oral advice to
the Company that CJ concluded was an important factor considered by the Company
in reaching a decision as to any accounting, auditing, or financial reporting
issue; or (ii) any matter that was the subject of any “disagreement” or
“reportable event”.





On
December 11, 2007 (the “RBSM Dismissal Date”), the Company advised Russell
Bedford Stefanou Mirchandani LLP (the “RBSM Former Auditor”) that it was
dismissed as the Company’s independent registered public accounting
firm.  The decision to dismiss the RBSM Former Auditor as the
Company’s independent registered public accounting firm was approved by the
Company’s Board of Directors on December 7, 2007.  The RBSM Former
Auditor was engaged on May 2, 2007  and did not issue a report on the
Company’s consolidated financial statements during
the  most  recent two fiscal years and through
the  Dismissal Date.




21




On
December 11, 2007 (the “2007 Engagement Date”), the Company engaged Meyler &
Company, LLC (“2007 New Auditor”) as its independent registered public
accounting firm for the Company’s fiscal year ended December 31, 2007. The
decision to engage the 2007 New Auditor as the Company’s independent registered
public accounting firm was approved by the Company’s Board of
Directors.




During
the two most recent fiscal years and through the 2007 Engagement Date, the
Company has not consulted with the 2007 New Auditor regarding
either:


1.
              except
      to the extent that the 2007 New Auditor audited the Company’s financial
      statements for the years ended December 31, 2006 and 2005, the application
      of accounting principles to any specified transaction, either completed or
      proposed, or the type of audit opinion that might be rendered on the
      Company’s financial statements, and neither a written report was provided
      to the Company nor oral advice was provided that the New Auditor concluded
      was an important factor considered by the Company in reaching a decision
      as to the accounting, auditing or financial reporting issue;
      or
 
 2.
              any
      matter that was either subject of disagreement or event, as defined in
      Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction to
      Item 304 of Regulation S-B, or a reportable event, as that term is
      explained in Item 304(a)(1)(iv)(A) of Regulation
  S-B.


ITEM
9A.  CONTROLS AND PROCEDURES





Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2008. In making this assessment, management used the framework
set forth in the report entitled Internal Control- Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission, or
COSO. The COSO framework summarizes each of the components of a company’s
internal control system, including (i) the control environment, (ii) risk
assessment, (iii) control activities, (iv) information and communication, and
(v) monitoring.





Based on
its evaluation of our disclosure controls and procedures, our management has
concluded that during the period covered by this report, such disclosure
controls and procedures were not effective and there is a material weakness in
our internal control over financial reporting. A material weakness is a
deficiency or a combination of control deficiencies, in internal control over
financial reporting such that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim financial statements will not be
prevented or detected on a timely basis.





During
2008, certain elements of the financial statements and related disclosures were
incorrect or omitted and certain accounting errors were discovered. These errors
related principally to the accounting for deferred taxes and the purchase price
allocation.





In order
to mitigate this material weakness, management intends to implement procedures
providing for the timely technical review of all consolidated financial
statements and the notes thereto.





The
presence of these material weaknesses does not mean that a material misstatement
has occurred in our financial statements, but only that our present controls
might not be adequate to detect or prevent a material misstatement in a timely
manner.





This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting. Management
was not subject to attestation by our registered public accounting firm pursuant
to temporary rules of the Securities and Exchange Commission that permits the
Company to provide only management’s report in this Annual Report.





22





ITEM
9B. OTHER INFORMATION




Not applicable.




PART
III




ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS: COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT





The
directors and officers of our Company are set forth below. The directors held
office for their respective term and until their successors were duly elected
and qualified. Vacancies in the existing Board were filled by a majority vote of
the remaining directors. The officers serve at the will of the Board of
Directors.





Name
                        
                        Age
                        
                        With
      Company Since
                        
                        Director/PositionTerry
      L. Lee
                        
                        51
                        
                        06/2007
                        
                        CEO,
      Chairman of the BoardThomas
      C. Miller
                        
                        53
                        
                        12/2003
                        
                        Secretary
      and DirectorMitchell
      L. Cox, CPA
                        
                        47
                        
                        09/2007
                        
                        Chief
      Financial OfficerTrent
      Sommerville
                        
                        41
                        
                        12/2003
                        
                        DirectorRandy
      Frevert
                        
                        52
                        
                        3/2008
                        
                        DirectorDr.
      Kenneth B. Farris
                        
                        59
                        
                        4/2004
                        
                        Director





MR.
TERRY L. LEE - CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD





Prior to
joining the Company, from 1995 to the present, Mr. Lee has served as the
President and Chief Executive Officer of Commercial Bank where he is
responsible for the management of $426 million in assets, 14 locations and 151
employees.  In 1989, prior to his appointment as Chief Executive
Officer in 1994, Mr. Lee began his career with Commercial Bank as a bookkeeper
where he eventually moved to Vice President - Marketing in 1991, Vice
president – Loan Officer in 1991 and Senior Vice President – Senior Lending
Officer in 1992.  In addition to serving as the Chief Executive
Officer and President of Commercial Bank, Mr. Lee serves as the Chief Executive
Officer and President of Lee Oil Company, Inc., Lee Enterprises, Inc., Lee’s
Food Mart, LLC, Cumberland Ford Motors, Inc., L & M Ventures, Inc., Green
Hill Properties, Inc. and Berea Ford Motors, Inc.  Mr. Lee graduated
from Lincoln Memorial University with a Bachelor of Arts in Business
Administration and Management in 1979.





MR.
MITCHELL L. COX, CPA – CHIEF FINANCIAL OFFICER





Mr. Cox
is a certified public accountant and has served as the President and owner of
Accounting & Tax Solutions, Inc. advising clients on all aspects of the
accounting business.  Further, Mr. Cox has also served as the
Controller and Secretary for Lee Oil Company where he has managed all financial
transactions and record keeping.  Mr. Cox received his BS in Business from
Carson Newman College in Jefferson City, TN in 1984.




23





MR.
TRENT SOMMERVILLE – DIRECTOR





Mr.
Sommerville was elected as Director and Chairman of the Board on December 1,
2003.  Mr. Sommerville has been appointed as our Chief Executive
Officer and served in that capacity from December 1, 2003 until June 27, 2007
when Terry L. Lee was appointed to serve in that capacity.  Mr.
Sommerville attended Perkingston College. Mr. Sommerville worked at Anjet where
he obtained NASD Series 22 and Series 63 licenses. Following his experience
there, Mr. Sommerville started IGE Capital where he has been actively involved
in many venture capital opportunities including FYBX Corporation, Cyber
Operations, Way Cool 3D, and PMI Wireless.





MR.
THOMAS C. MILLER – SECRETARY AND DIRECTOR





Mr.
Miller has been with the Registrant since 2003 when it acquired Mound
Technologies, Inc.  Mr. Miller was elected to the Board of Directors
on May 23, 2006, and as its Chief Operating Office on September 27,
2006.  From May 23, 2006 to September 27, 2006, Mr. Miller acted as
the Registrant’s Chief Executive Officer.  Mr. Miller graduated from
Ohio State University with a Bachelor of Science degree in Civil Engineering in
1978 and continued his education at the University of Dayton where he received a
Master of Business Administration degree in 1983.  He is a registered
engineer in the state of Ohio.  Mr. Miller started on the shop floor
at Mound Steel Corporation as a welder.  He spent time working in the
engineering and sales department before becoming Vice President of Sales and
Quality in 1986.  He became President of Mound Steel Corporation in
1990.  The additional title of Chief Executive was added to his
responsibilities in 2001.  In November of 2002, Mr. Miller became
Chief Executive officer of Mound Technologies, Inc.  In 1988 he was
elected to the Lebanon City Council.  He was re-elected in 1992 and
served as Vice Mayor during that time period.  Mr. Miller has served
on various local boards including the Middletown Regional Hospital Foundation,
Dan Beard Council of Boy Scouts of America, and the Warren County Business
Advisory Council.  In addition to his new position as President and
Chief Operating Officer of the Registrant, Mr. Miller will continue as President
of the Registrant’s subsidiary Mound Technologies, Inc.





RANDY
FREVERT - DIRECTOR





Mr.
Frevert, since June 2007, has served as the Vice President for Patriot Steel,
Inc., a full line structural steel service center.  Prior to joining
Patriot Steel, Inc., Mr. Frevert served as the Product/Processing Manager for
Leeco Steel/O’Neal Steel, Inc. from October 2006 through May
2007.  From July 2005 through October 2006, Mr. Frevert was Vice
President for Industrial Steel Construction, Inc. and from March 1995 through
July 2005 was the Vice President/General Manager for Action Steel Supply,
Inc.  Mr. Frevert graduated from Indiana Wesleyan University with a
BSBA and MBA.    Mr. Frevert serves as an adjunct faculty
member for Indiana Wesleyan University.




DR.
KENNETH B. FARRIS – DIRECTOR





Dr.
Farris was appointed a director of our Company on January 8, 2004. Dr. Farris, a
resident of New Orleans, Louisiana is a graduate of Tulane University’s School
of Medicine where he received his MD and MPH degrees in1975. He is a graduate of
Carnegie-Mellon University where he received his BS degree in 1971.
Dr. Farris is board certified in Pathology. He has been teaching at Tulane
University School of Medicine since 1975 where he has received numerous awards
for outstanding teaching. Since 1991 he has held the position of Clinical
Associate Professor, Department of Pathology and Clinical Associate Professor
Department of Pediatrics. In addition, Dr Ferris holds the position of Director
of Pathology at West Jefferson Medical Center in Marrero, Louisiana, and Medical
Director, Laboratory at Pendleton Memorial Methodist Hospital. Dr. Farris is a
member of various medical societies and has published extensively. Among his
many accomplishments in his field, as of 1982 he holds the position of
Laboratory Accreditation Program Inspector for the College of American
Pathologists. He is a founding member and past President of the Greater New
Orleans Pathology Society. He is currently a Delegate to the House of Delegates
to the American Medical Association. He has held various positions including
past President, Speaker to the House of Delegates, member of the Board of
Governors and a current Delegate to the House of Delegates to the Louisiana
State Medical Society. He has held the position of President, Vice President,
Secretary and Treasurer for the Tulane Medical Alumni Association. He is a
former Drug Control Crew Chief to the United States Olympic
Committee.




24





Our
bylaws currently provide for a board of directors comprised of such number as is
determined by the Board.




FAMILY
RELATIONSHIPS





None.





BOARD
COMMITTEES





Our
business, property and affairs are managed by or under the direction of the
board of directors. Members of the board are kept informed of our business
through discussion with the chief executive and financial officers and other
officers, by reviewing materials provided to them and by participating at
meetings of the board and its committees.




The total
number of meetings of the Board of Directors during the fiscal year ended
December 31, 2008 was four. The Board of Directors did not decide any matters by
written consent. Each of the incumbent directors attended a majority of (i) the
meetings of the Board during the year and (ii) the total number of meetings of
all committees of the Board on which the incumbent directors
served.




The
Compensation Committee did not meet during the year ended December 31, 2008. All
matters addressed by the Compensation Committee were decided on by the Board of
Directors. The function of the Committee is to approve stock plans and option
grants and review and make recommendations to the Board of Directors regarding
executive compensation and benefits.




As of
March 9, 2009, the Audit Committee consisted of the following members: Dr.
Kenneth B. Farris, Trent Sommerville, and Randy Frevert. The Audit Committee met
two times in fiscal year 2008. Responsibilities of the Committee include (1)
reviewing financial statements and consulting with the independent auditors
concerning the Company's financial statements, accounting and financial
policies, and internal controls, (2) reviewing the scope of the independent
auditors' activities and the fees of the independent auditors, and (3) reviewing
the independence of the auditors. All of the members of the Audit Committee meet
the independence standards established by the National Association of Securities
Dealers.





Compliance with Section
16(a) of the Exchange Act





Section
16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers, and persons who own more then 10 percent of our Common
Stock, to file with the SEC the initial reports of ownership and reports of
changes in ownership of common stock. Officers, directors and greater than 10
percent stockholders are required by SEC regulation to furnish us with copies of
all Section 16(a) forms they file.





Specific
due dates for such reports have been established by the Commission and we are
required to disclose any failure to file reports. Except as otherwise set forth
herein, based solely on review of the copies of such forms furnished to us, or
written representations that no reports were required, we believe that to date
all required forms have been filed, and that there was no failure to comply with
Section 16(a) filing requirements applicable to our officers, directors and ten
percent stockholders.




CODE
OF ETHICS





Because
we are an early stage company with limited resources, we have not yet adopted a
"code of ethics", as defined by the SEC, that applies to the Company's Chief
Executive Officer, Chief Financial Officer, principal accounting officer or
controller and persons performing similar functions. We are in the process of
drafting and adopting a Code of Ethics.




25


ITEM 11.  EXECUTIVE COMPENSATION





Compensation
for our executive officers is determined by our compensation committee, which
has historically been comprised solely of independent
directors.  Recently, a compensation committee member has resigned
and, as a result, our board of directors has been handling all compensation
matters. Our philosophy is to provide a compensation package that attracts and
retains executive talent.  We strive to provide our named executive
officers, who are the officers listed in the summary compensation table, with a
competitive base salary that is in line with their roles and responsibilities
when compared to peer companies of comparable size in similar
locations.





Although
the principal method of providing compensation to our named executive officers
is a salary, we intend to adopt a stock option plan, which permits the grant of
stock options, stock grants and other forms of equity-based
compensation.  The plan will be administered by the compensation
committee.  Our executive officers are eligible for grants pursuant to
the plan.





Although
the principal compensation of our executive officers will be salary, we may
provide officers with equity-based incentives.  The base salary level
and the nature and amount of equity-based incentives is established and reviewed
by the compensation committee based on the level of responsibilities, the
experience and tenure of the individual and the current and potential
contributions of the individual. In determining base salary, we give
consideration to persons holding similar positions within comparable peer
companies and consideration is given to the executive’s relative experience in
his or her position.  Base salaries are reviewed periodically and at the
time of promotion or other changes in responsibilities.




The
following table provides summary information for the years 2008 and 2007
concerning cash and non-cash compensation paid or accrued by us to or on behalf
of the president and the only other employee(s) to receive compensation in
excess of $100,000.




SUMMARY
COMPENSATION TABLE








Name
      & Principal Position
                Year
                
                Salary
      ($)
                
                
                Bonus
      ($)
                
                
                Stock
      Awards($)
                
                
                Option
      Awards ($)
                
                
                Non-Equity
      Incentive Plan Compensation ($)
                
                
                Change
      in Pension Value and Non-Qualified Deferred Compensation Earnings
      ($)
                
                
                All
      Other Compensation ($)
                
                
                Total
      ($)Trent
      Sommerville – Former CEO and Chairman
                2008
                
                
                0
                
                
                
                0
                
                
                
                20,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                
                
                
                20,0002007
                
                
                0
                
                
                
                0
                
                
                
                81,250
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                29,000
                
                
                
                110,250Tom
      Miller – Secretary and Director
                2008
                
                
                115,969
                
                
                
                0
                
                
                
                20,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                
                
                
                
                135,969Terry
      L Lee – CEO and Chairman
                2008
                
                
                34,000
                
                
                
                0
                
                
                
                120,667
                
                
                
                --
                
                
                
                -
                
                
                
                -
                
                
                
                
                
                
                
                154,6672007
                
                
                60,000
                
                
                
                0
                
                
                
                42,088
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                
                
                
                
                102,088




26




Outstanding
Equity Awards at Fiscal Year-End Table.




Option
      Awards
                Stock
      AwardsName
                
                Number
                  of
                  Securities
                  Underlying
                  Unexercised
                  Options
                  (#)
                  Exercisable
                
                
                Number
                  of
                  Securities
                  Underlying
                  Unexercised
                  Options
                  (#)
                  Unexercisable
                
                Equity
                  Incentive
                  Plan
                  Awards:
                  Number
                  of
                  Securities
      Underlying
                  Unexercised
                  Unearned
                  Options
                  (#)
                
                Option
                  Exercise
                  Price
                  ($)
                
                Option
                  Expiration
                  Date
                Number
                  of
      Shares
                  or
      Units
                  of
      Stock
                  That
      Have
                  Not
                  Vested
                  (#)
                Market
                  Value
      of
                  Shares
      or
                  Units
      of
                  Stock
                  That
      Have
                  Not
                  Vested
                  ($)
                Equity
                  Incentive
                  Plan
      Awards:
                  Number
                  of
                  Unearned
                  Shares,
                  Units
      or
                  Other
      Rights
                  That
      Have
                  Not
                  Vested
                  (#)
                Equity
      Incentive
                  Plan
      Awards:
                  Market
      or Payout
                  Value
                  of
                  Unearned
                  Shares,
                  Units
      or
                  Other
                  Rights
                  That
      Have
                  Not
                  Vested
                  ($)Terry
      Lee
                
                
                546,751
                
                
                
                1,275,753
                
                
                
                $
                0.33
                
                6/26/12
                NA
                NA
                NA
                NA








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.





COMPENSATION
AGREEMENTS





The
Company has entered into an employment contract with Terry L. Lee as the CEO and
is detailed in the 8-K filed on June 28, 2007. The five year employment contract
calls for a base salary of $120,000 a year which is actually a one year contract
with the option to automatically renew for four additional one year periods. In
addition to the base salary, Mr Lee was granted 1,000,000 shares of common stock
and an option to purchase additional shares over the term of the five year
contract. Currently, no portion of this option has been exercised. With Board
approval, Mr. Lee’s contract was renewed to reflect an adjusted base salary of
$140,000 a year. Mr. Lee received 503,784 shares of common stock during the year
in payment of accrued wages established in the above paragraph.  The
value assigned to these shares was $120,667.





BOARD
COMPENSATION





Members
of our Board of Directors do not normally receive cash compensation for their
services as Directors, although some Directors are reimbursed for reasonable
expenses incurred in attending Board or committee meetings. All corporate
actions are conducted by unanimous written consent of the Board of Directors.
There were 430,716 shares of common stock issued in 2008 for members of the
Board as compensation. These shares were issued based on the closing price of
the shares at the end of each quarter. Total value given to the shares issued as
Board compensation in 2008 was $120,001.  Below is a table summarizing
the compensation for each of the directors during the last fiscal
year.




27





DIRECTOR
      COMPENSATIONName
                  (a)
                
                Fees
                  Earned
      or
                  Paid
      in
                  Cash
                  ($)
                  (b)
                
                
                Stock
                  Awards
                  ($)
                  (c)
                
                
                Option
                  Awards
                  ($)
                  (d)
                
                
                Non-Equity
                  Incentive
                  Plan
                  Compensation
                  ($)
                  (e)
                
                
                Nonqualified
                  Deferred
                  Compensation
      Earnings
                  ($)
                  (f)
                
                
                All
                  Other
                  Compensation
                  ($)
                  (g)
                
                
                Total
                  ($)
                  (h)Terry
      Lee
                
                
                -
                
                
                
                20,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                20,000Tom
      Miller
                
                
                -
                
                
                
                20,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                20,000Mitchell
      Cox
                
                
                -
                
                
                
                20,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                20,000Trent
      Sommerville
                
                
                -
                
                
                
                20,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                20,000Randy
      Frevert
                
                
                -
                
                
                
                20,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                20,000Kenneth
      Farris
                
                
                -
                
                
                
                20,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                20,000





STOCK
OPTION PLAN





The
Company has one employee non-statutory stock option agreement as detailed in
Form 8-K filed on June 28, 2007. This particular option was granted with Board
approval to Terry L. Lee and contains the option to purchase 1,822,504 shares of
common stock at an exercise price of $0.33 over a pro-rata five year basis. All
shares issued under this option would be restricted and any portion of the
option not exercised by June 26, 2012 will expire.





Option
Information.


(a)
                Date
      of Option:
                June
      27, 2007(b)
                Optionee:
                Terry
      Lee(c)
                Number
      of Shares:
                1,822,504(d)
                Exercise
      Price:
                $0.33
      per share




The
Option shall be exercised by delivery to the Company of (a) written notice of
exercise stating the number of Shares being purchased (in whole shares only) and
such other information set forth on the form of Notice of Exercise.





ITEM
12.          SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





The
following table sets forth as of March 9, 2009, 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.




28





SECURITY OWNERSHIP OF BENEFICIAL
OWNERS:





None




SECURITY OWNERSHIP OF
MANAGEMENT:





Title
      of Class
                        Name
                        
                        Shares
                        
                        
                        PercentCommon
      Stock
                        Trent
      Sommerville
                        
                        
                        4,746,886
                        
                        
                        
                        10.90
                        %Common
    Stock
                        Terry
      L. Lee
                        
                        
                        3,492,321
                        
                        
                        
                        8.02
                        %Common
    Stock
                        Kenneth
      B. Farris
                        
                        
                        823,437
                        
                        
                        
                        1.89
                        %Common
    Stock
                        Thomas
      Miller
                        
                        
                        1,771,786
                        
                        
                        
                        4.07
                        %Common
    Stock
                        Mitchell
      L. Cox
                        
                        
                        71,786
                        
                        
                        
                        0.17
                        %Common
    Stock
                        Randy
      Frevert
                        
                        
                        821,786
                        
                        
                        
                        1.89
                        %All
      Directors and Executive Officers as a group (6 persons)
                        
                        
                        11,728,002
                        
                        
                        
                        26.94
                        %




(1)
            These
      tables are based upon 43,541,457 shares outstanding as of March 9,
      2009 and information derived from our stock records. Unless otherwise
      indicated in the footnotes to these tables and subject to community
      property laws where applicable, we believe unless otherwise noted that
      each of the shareholders named in this table has sole or shared voting and
      investment power with respect to the shares indicated as beneficially
      owned. For purposes of this table, a person or group of persons is deemed
      to have "beneficial ownership" of any shares which such person has the
      right to acquire within 60 days as of March 9, 2009. For purposes of
      computing the percentage of outstanding shares held by each person or
      group of persons named above on March 9, 2009 any security which such
      person or group of persons has the right to acquire within 60 days after
      such date is deemed to be outstanding for the purpose of computing the
      percentage ownership for such person or persons, but is not deemed to be
      outstanding for the purpose of computing the percentage ownership of any
      other person.




ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.




No
director, executive officer or nominee for election as a director of our
company, and no owner of five percent or more of our outstanding shares or any
member of their immediate family has entered into or proposed any transaction in
which the amount involved exceeds $60,000 except as set forth
below.





Our
management is involved in other business activities and may, in the future
become involved in other business opportunities. If a specific business
opportunity becomes available, such persons may face a conflict in selecting
between our business and their other business interests. We have not and do not
intend in the future to formulate a policy for the resolution of such
conflicts.




29





The
Company finalized the purchase of the property located at 25 Mound Park Drive in
Springboro, OH on April 18, 2008. The gross selling price of the property was
$1,112,983 and was funded through a loan of $900,000 provided through Commercial
Bank of Harrogate, TN., net settlement of amounts due from the former landlord
of $426,321 and amounts due to the former landlord of $284,664 and Company
generated funds making up the remainder. The note was for a term of 60 months, a
fixed interest rate of 7.5%, and consisted of 59 monthly payments of $7,250.00
and one payment due on April 18, 2013 of $794,989.16.  This is the
same property which Mound Technologies currently uses for its operations and had
been renting from a related party for $16,250 per month. The Company’s CEO is
also the CEO of Commercial Bank. Allocation of the purchase price was $271,055
for land and $841,928 allocated to the buildings.





On
October 1, 2008, the Company entered into and closed a Securities
Purchase  Agreement  (the  "Lee Oil Agreement")
with Lee Holding Company LP and Gary Lee ("Sellers") and Lee Oil Company, Inc.
(“Lee Oil”), Lee’s Food Mart, LLC (“Lee Food”), and Lee Enterprises, Inc.
(“Lee,” and together with Lee Oil and Lee Food, the “Lee
Companies”).  Pursuant to the Lee Oil Agreement, the Company acquired
and, the Sellers sold, 100% of the outstanding securities in the Lee
Companies.   Terry Lee, our CEO and a director, is a principal of Lee
Holding Company LP.  Gary Lee is the brother of Terry
Lee.





In
consideration for 100% of the outstanding securities in the Lee Companies, the
Company paid the Sellers $3,250,000 in cash, issued the Sellers promissory notes
for an aggregate of $3,250,000 (the “Lee Companies Notes”) and issued the
Sellers 2,500,000 shares of common stock of the Company. The Lee Companies Notes
carry interest of 8% per year and the Company is required to pay the Sellers an
aggregate of $27,418 per month until the Lee Companies Notes are paid in
full.





In order
to fund the cash purchase price of the acquisition, on October 1, 2008, the
Company entered into a Loan Agreement (the “Loan Agreement”) with Choice
Financial Group (“Choice”).  Pursuant to the Loan Agreement, the
Company issued and sold a Promissory Note in the amount of $3,250,000 (the
“Choice Note”).  The Company is required to pay a monthly installment
of $30,799 and the outstanding balance including annual interest of 7.75% is
required to be paid in full by September 30, 2011.





During
the quarter ended December 31, 2008, Lee Oil sold 133,754 gallons of diesel fuel
to a mining company of which Terry Lee is a 33% owner. The total amount invoiced
for these gallons sold was $277,590.





During
the quarter ended December 31, 2008, Lee Oil leased a piece of property from
L&M Ventures of which Terry Lee is a 50% owner. The lease payments made in
the fourth quarter were $16,200.




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, 2008 and December 31, 2007 for: (i) services rendered
for the audit of our annual financial statements and the review of our quarterly
financial statements, (ii) services by our auditor that are reasonably related
to the performance of the audit or review of our financial statements and that
are not reported as Audit Fees, (iii) services rendered in connection with tax
compliance, tax advice and tax planning, and (iv) all other fees for services
rendered.





(i) Audit
Fees





FIRM
                    
                    FISCAL
      YEAR 2008
                    
                    
                    FISCAL
      YEAR 2007RBSM,
      LLP
                    
                    $
                    0
                    
                    
                    $
                    44,692Meyler
      & Company, LLC
                    
                    $
                    118,000
                    
                    
                    $
                    144,800Coulter
      & Justus, PC
                    
                    $
                    35,000
                    
                    
                    $
                    0





30




(ii)
Audit Related Fees


None





(iii) Tax
Fees


None





(iv)
All Other Fees


None





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 2008 or
  2007.





TAX
      FEES.
                Consists
      of fees billed for professional services for tax compliance, tax advice
      and tax planning.ALL
      OTHER FEES.
                Consists
      of fees for products and services other than the services reported
      above.


POLICY
ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF
INDEPENDENT AUDITORS





The
Company currently has a designated Audit Committee, and accordingly, the
Company’s Board of Directors’ policy is to pre-approve all audit and permissible
non-audit services provided by the independent auditors. These services may
include audit services, audit-related services, and tax services and other
services. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services
and is generally subject to a specific budget. The independent auditors and
management are required to periodically report to the Company’s Board of
Directors regarding the extent of services provided by the independent auditors
in accordance with this pre-approval, and the fees for the services performed to
date. The Board of Directors may also pre-approve particular services on a
case-by-case basis.




31





Part
IV





ITEM
15.  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.


4.1
                                      Loan
      Agreement between Heartland, Inc. and Choice Financial Group dated October
      1, 2008 incorporated by reference to the Company’s Current Report on Form
      8K filed with the Securities and Exchange Commission on October 3,
      20084.2
                                      Promissory
      Note payable to Choice Financial Group incorporated by reference to the
      Company’s Current Report on Form 8K filed with the Securities and Exchange
      Commission on October 3, 20084.3
                                      Guaranty
      by Lee Oil Company, Inc., Lee’s Food Mart, LLC, Lee Enterprises, Inc. and
      Mound Technologies, Inc. in favor of Choice Financial Group incorporated
      by reference to the Company’s Current Report on Form 8K filed with the
      Securities and Exchange Commission on October 3, 20084.4
                                      Form
      of Pledge Agreement by and between Heartland, Inc. and Choice Financial
      Group incorporated by reference to the Company’s Current Report on Form 8K
      filed with the Securities and Exchange Commission on October 3,
      20084.5
                                      Form
      of Third Party Assignment of leases, Rents and Purchase Agreements
      incorporated by reference to the Company’s Current Report on Form 8K filed
      with the Securities and Exchange Commission on October 3,
    20084.6
                                      Form
      of Third Party Security Agreement incorporated by reference to the
      Company’s Current Report on Form 8K filed with the Securities and Exchange
      Commission on October 3, 20084.7
                                      Third
      Party Mortgage by Mound Technologies, Inc. in favor of Choice Financial
      Group incorporated by reference to the Company’s Current Report on Form 8K
      filed with the Securities and Exchange Commission on October 3,
      20084.8
                                      Third
      Party Mortgage by Lee’s Food Mart’s LLC in favor of Choice Financial Group
      incorporated by reference to the Company’s Current Report on Form 8K filed
      with the Securities and Exchange Commission on October 3,
    20084.9
                                      Third
      Party Deed of Trust by Lee Oil Company, Inc. in favor of Choice Financial
      Group incorporated by reference to the Company’s Current Report on Form 8K
      filed with the Securities and Exchange Commission on October 3,
      200810.1
                                      Securities
      Purchase Agreement Lee Holding Company LP and Gary Lee  and Lee
      Oil Company, Inc., Lee’s Food Mart, LLC and Lee Enterprises, Inc. dated
      October 1, 2008 incorporated by reference to the Company’s Current Report
      on Form 8K filed with the Securities and Exchange Commission on October 3,
      200810.2
                                      Employment,
      Noncompetition and Nondisclosure Agreement by and between Terry Lee and
      Heartland, Inc. dated October 1, 2008 incorporated by reference to the
      Company’s Current Report on Form 8K filed with the Securities and Exchange
      Commission on October 3, 200810.3
                                      Promissory
      Note payable to Lee Holding Company LP incorporated by reference to the
      Company’s Current Report on Form 8K filed with the Securities and Exchange
      Commission on October 3, 200810.4
                                      Promissory
      Note payable to Gary Lee incorporated by reference to the Company’s
      Current Report on Form 8K filed with the Securities and Exchange
      Commission on October 3,
2008





16.1
              Letter
      from Meyler & Company, LLC incorporated by reference to the Company’s
      Current Report on Form 8K filed with the Securities and Exchange
      Commission on August 5,
2008..




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.




32





SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.




HEARTLAND INC.(Registrant)Date:
      April 10, 2009
                By:
                /s/ Terry
      LeeTerry
      LeeChief
      Executive OfficerAnd
      Chairman of the Board of Directors(Principal
      Executive Officer)




Date:
      April 10, 2009
                  By:
                  /s/ Mitchell
      CoxMitchell
      CoxChief
      Financial Officer(Principal
      Financial Accounting andFinancial
      Officer)





In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.





SIGNATURE
                                  
                                  NAME
                                  
                                  TITLE
                                  
                                  DATE/s/
      Terry Lee
                                  
                                  Terry
      Lee
                                  
                                  Chief
      Executive Officer, Chairman & Director
                                  
                                  April
      10, 2009/s/
      Mitchell Cox
                                  
                                  Mitchell
      Cox
                                  
                                  Chief
      Financial Officer
                                  
                                  April
      10, 2009/s/
      Thomas C. Miller
                                  
                                  Thomas
      C. Miller
                                  
                                  Secretary
      & Director
                                  
                                  April
      10, 2009/s/
      Trent Sommerville
                                  
                                  Trent
      Sommerville
                                  
                                  Director
                                  
                                  April
      10, 2009/s/
      Randy Frevert
                                  
                                  Randy
      Frevert
                                  
                                  Director
                                  
                                  April
      10, 2009/s/
      Dr. Kenneth B. Farris
                                  
                                  Dr.
      Kenneth B. Farris
                                  
                                  Director
                                  
                                  April
      10, 2009
    33