Summary of HEARTLAND, INC.

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.

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.

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.

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.

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.

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.