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| HTLJ.OB > SEC Filings for HTLJ.OB > Form 10-Q on 14-Aug-2009 | All Recent SEC Filings |
14-Aug-2009
Quarterly Report
The following discussion should be read in conjunction with the financial statements included in this Form 10-Q. 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 quarterly period ended June 30, 2009. 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
The Company currently manages its business as three 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. The three 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.
· Heartland Steel - Wholesale Steel - This is a startup segment of the business that we are developing into a service center for the distribution of steel products. This segment of the business will not be fully operational until later in the 2009.
Results of Operations
Six months ended June 30, 2009 as compared to the six months ended June 30, 2008
The main differences between the results of operations from the first two quarters of 2008 to the first two quarters of 2009 can be attributed primarily to the Lee Oil acquisition that took place in the fourth quarter of 2008 and the startup of operations relating to Heartland Steel. A further breakdown is provided in NOTE D - BUSINESS SEGMENTS of the financial statements.
Revenues. Revenues increased for the three months ended June 30, 2009 to $22,779,586 from $6,199,788 for the three months ended June 30, 2008. Revenues increased from $10,258,584 to $42,517,265 for the six months ended June 30, 2008 and 2009 respectively.
Cost of Goods Sold. Cost of Goods Sold increased for the three and six months ended June 30, 2009 to $20,284,632 and $37,355,072 from $5,292,264 and $8,570,489 for the three and six months ended June 30, 2008.
Gross Profit. Gross Profits increased for three months ended June 30, 2009 to $2,494,954 from $907,524 for the three months ended June 30, 2008. The gross profit for the six months ended June 30, 2009 was $5,162,193 and $1,688,095 for the six months ended June 30, 2008.
Expenses. Expenses increased for three months ended June 30, 2009 to $2,541,233 from $490,946 for the three months ended June 30, 2008. Expenses rose from $871,303 to $4,964,970 for the six months ended June 30, 2008 and 2009 respectively. In addition to the expenses attributed to the Lee Oil acquisition, the current six month period ending June 30, 2009 includes expenses related to two employment contracts. The chief operating officers of both Mound and HS were issued 750,000 shares of common shares each as an inducement to enter into long-term employment contracts. These shares were valued based on the share price on the date of authorization and expensed upon issuance. The total expense recorded was $225,000.
Other (expense) income. The interest expense recorded for the six months ended June 30, 2009 was $455,756 compared to the $26,662 expense recorded for the six months ended June 30, 2008. This was primarily attributable to the interest associated with the acquisition of Lee Oil. The interest relating to the construction of the new HS building is being capitalized until the construction is completed.
Net Income Before income Taxes. Net Income before Income Taxes decreased for the six months ended June 30, 2009 to $84,180 from $831,257 for the three months ended June 30, 2008. This decrease is primarily attributable some costs associated with the startup at Heartland Steel including the expensing of the shares associated with the chief operating officers employment contract, additional interest expense associated with the Lee Oil acquisition in the fourth quarter of 2008, and a lower gross profit from the Mound operations.
Liquidity and Capital Resources
Sources of Liquidity
As of June 30, 2009, the Company had accumulated deficit of $12,515,138. As of December 31, 2008, the Company had accumulated deficit of $12,599,401. The Company has generated a profit for the six months ended June 30, 2009.
The Company has used $558,275 in operating activities for the six months ended June 30, 2009 primarily to fund additional accounts receivable and inventory. We consider this to be normal with the price of oil and steel both rising and would expect a reversal if these prices begin to fall.
The Company has used $2,059,056 in investing activities for the six months ended June 30, 2009 primarily related to the construction of a building for the HS operations.
The Company's generated cash flow from financing activities of $1,290,584 for the six months ended June 30, 2009 primarily related to a construction loan as described in NOTE E - CONSTRUCTION NOTE of the financial statements.
Our principal source of liquidity is cash on hand and the conversion of accounts receivable into cash. We also believe cash provided from operating activities will be a positive 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 June 30, 2009, 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.
Due to the current price of our common stock, we do not expect to fund future projects through the issuance of shares but rather will fund such projects through cash on hand and financing, if available.
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