UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] xANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:December 31, 2013 2014
OR
[ ] ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to___________
Commission file number:000-54624
US HIGHLAND, INC. (Exact name of registrant as specified in its charter)US HIGHLAND, INC.
Oklahoma | 26-4144571 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1411 N. 105th East Avenue, Tulsa, OK | 74116 | |
(Address of principal executive offices) | (Zip Code) |
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1411 N. 105th East Avenue, Tulsa, OK74116
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code:(918)-895-8300 558-1358
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] ¨No [x]x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act Yes [ ] ¨No [x]x
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 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the part 90 days. Yes [ ] ¨No [x]x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.406 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] ¨No [x]x
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. [ ]¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
[ ] Large accelerated filer [ ] Accelerated filer
[ ] Non-accelerated filer [x ]
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] ¨No [x]x
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of June 30, 20132014 was $11,308,701.$27,204,684.
As of May5, 2014July 9, 2015, there were 77,727,669 shares of the registrant’sregistrant's common stock, par value $0.01 per share outstanding.
US Highland, Inc.
Form 10-K
For the Fiscal Year Ended December 31, 20132014
Table of Contents
Part I
ITEM 1. BUSINESS 3
ITEM 1A. RISK FACTORS 6
ITEM 1B. UNRESOLVED STAFF COMMENTS 6
ITEM 2. PROPERTIES 6
ITEM 3. LEGAL PROCEEDINGS 6
ITEM 4. MINE SAFETY DISCLOSURES 7
Part II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 7
ITEM 6. SELECTED FINANCIAL DATA 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK 9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 28
ITEM 9A. CONTROLS AND PROCEDURES 28
ITEM 9B. OTHER INFORMATION 29
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, CONTROL
PERSONS AND CORPORATE GOVERANCE; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT 29
ITEM 11. EXECUTIVE COMPENSATION 30
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS 31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE 32
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 32
Part IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 33
Part I | |||||
ITEM 1. | BUSINESS | 3 | |||
ITEM 1A. | RISK FACTORS | 8 | |||
ITEM 1B. | UNRESOLVED STAFF COMMENTS | 8 | |||
ITEM 2. | PROPERTIES | 8 | |||
ITEM 3. | LEGAL PROCEEDINGS | 8 | |||
ITEM 4. | MINE SAFETY DISCLOSURES | 8 | |||
Part II | |||||
ITEM 5. | MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS | 9 | |||
ITEM 6. | SELECTED FINANCIAL DATA | 10 | |||
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 10 | |||
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 12 | |||
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 13 | |||
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 34 | |||
ITEM 9A. | CONTROLS AND PROCEDURES | 34 | |||
ITEM 9B. | OTHER INFORMATION | 35 | |||
Part III | |||||
ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT | 36 | |||
ITEM 11. | EXECUTIVE COMPENSATION | 38 | |||
ITEM 12. | SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS | 39 | |||
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 40 | |||
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES | 40 | |||
Part IV | |||||
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES | 41 |
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Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements. For this purpose, any statements contained in this Report that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking information includes statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management, and other matters. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential,”"may," "will," "should," "expects," "anticipates," "contemplates," "estimates," "believes," "plans," "projected," "predicts," "potential," or “continue”"continue" or the negative of these similar terms. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor”"safe harbor" for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as that
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information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information.
These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In evaluating these forward-looking statements, you should consider various factors, including the following: (a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitable operations, (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations, (d) whether we are able to successfully fulfill our primary requirements for cash, which are explained below under “Liquidity"Liquidity and Capital Resources”Resources". We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws.
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PART I
PART I
ITEM 1. BUSINESS
Corporate History
US Highland, Inc. (“("US Highland”Highland" or the “Registrant”"Registrant" or the “Company”"Company") was originally formed as a limited liability company on February 5, 1999 under the name The Powerhouse, L.L.C. pursuant to the laws of the State of Oklahoma. On February 26, 1999, an amendment was filed that changed the name of the entity to Powerhouse Productions, L.L.C.
On November 9, 2006, Powerhouse Productions, L.L.C. filed Articles of Conversion changing the entity from a limited liability company to a corporation under the name US Highland, Inc. On November 29, 2006, articles of amendment to the certificate of incorporation increased the authorized common shares to 100,000,000 with a par value of $0.01 per share.
On January 25, 2010, Articles of Merger were filed with the State of Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into Harcom Productions, Inc. Pursuant to the Articles of Merger, the name of the corporation was changed from Harcom Productions, Inc. to US Highland, Inc.
Prior Operations
Prior to January 25, 2010, the Registrant offered professional consulting in Music-on-Hold and messaging services as well as some equipment sales and consultation services for commercial clients.
Subsequent to the merger with US Highland, Inc., an Oklahoma corporation, the Registrant no longer pursued its prior business plan. As a result, the Registrant entered into an Asset Purchase Agreement with Shane Harwell, an officer and director of the Registrant. Pursuant to the Asset Purchase Agreement dated December 21, 2009, the Registrant sold all rights, title and interest to the purchased assets to Mr. Harwell for the consideration of 950,000 common shares.
Current Corporate Operations
US Highland is a recreational powersports Original Equipment Manufacturer (“OEM”("OEM"), developing motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs.US Highland moved its manufacturing equipment and tooling to the United States from Sweden and is currently prepared to begin engine assembly operations in Tulsa, Oklahoma. The operations will require an estimated $2,188,000 over the course of next twelve (12) calendar months and will include the launch later in fiscal 20142015 of its single cylinder engine platform and will be followed by the launch of its twin cylinder engines.
Management believes that our cash balance will not be sufficient to meet our working capital requirements for the next twelve month period. We plan to raise the capital required to satisfy our immediate short-term needs and additional capital required to meet our estimated funding requirement for the next twelve months primarily through equity and or debt financings. There is no assurance that we will be able to obtain further funds required for our continued working capital requirements.
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US Highland requires the services of many manufacturing subcontractors, as is typical for the industry. US Highland is currently operating from a single location in Tulsa, Oklahoma located at 1411 N. 105th East Avenue in the Pine Industrial complex just southeast of the Tulsa International Airport.
US Highland's business development strategy includes:
- Multinational Business Model. US Highland anticipates launching its manufacturing operations for large and small OEMs in the United States utilizing engineering and technology developed in Sweden.
- OEM Manufacturing. US Highland will develop, license and manufacture small displacement (250cc-1150cc), metric, water-cooled engines for individual customers and both large and small OEM manufacturers and will utilize co-branding and co-marketing activities to further its business development objectives.
- Internet promotions
- Trade shows and events, including the Indianapolis Dealer Expo and others
- Trade publication advertisements
- Trade publication editorials and product reviews
- Trade and Business Wire press releases
- Marketing collateral
Products
US Highland products include single and twin cylinder engines from 250cc to 1150cc displacement.
Single and Twin Cylinder Engines –- US Highland has four powerful engine platforms two of which are single cylinder engines and two different V-Twin engines. The single cylinder engines come in two varieties: a smaller displacement 250cc and 350cc engines and a larger displacement 350cc, 450cc and 507cc engines. The V-Twin platforms come in two separate types: a 60̊600 V-Twin platform including the 750cc and 950cc engines and the 90° V-Twin platform consisting of the 1050cc and 1150cc engines. These nine engines were developed in US Highland's active race program during the years 2009 and 2010. US Highland proprietary engines are lightweight, high horsepower, and fuel injected. US Highland engines also use the proprietary US Highland throttle body, which delivers smooth, linearly proportional throttle response unlike conventional systems that deliver uneven throttle response.
US Highland also has an entire line of prototype motorcycles, UTVs and ATVs that it will use to develop in the licensing process to establish joint ventures with OEMs interested in pursuing product lines based on these proprietary new technologies. These prototypes consist of the following vehicles which are based on US Highland’sHighland's entire family of engine platforms:
- 350cc Entry Level Dual Sport
- 450cc MX, Enduro, & Supermotard
- 507cc MX, Enduro, & Supermotard
- 950cc Street Tracker, Dirt Tracker, Outback, & Urban Assault
- 1050cc Viking
- Quads/ATVs/UTVs of various sizes
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Intellectual Property and Trademarks
US Highland owns the intellectual property corresponding to the 350cc, 450cc, 507cc, 750cc, 950cc engines and was granted limited intellectual property rights to an 1150cc engine by Folan AB. The 1150cc is limited to the right to modify, manufacture and sell the 1150cc engine into the flat bottom boat market exclusively in the United States. US Highland has also developed a unique throttle body which allows "linear proportional air flow" control to the engine. Conventional throttle bodies do not have linear response, requiring operators to manually adjust to uneven response from the throttle. US Highland owns US Registered Trademark “HIGHLAND"HIGHLAND”", which is the subject of U. S. Trademark Registration No. 2,362,734 which was issued on June 27, 2000. US Highland has also applied on December 20, 2011 for two additional US Registered Trademarks, “POWERED"POWERED BY US HIGHLAND”HIGHLAND" on December 19, 2011 and “AMERICAN"AMERICAN MADE PERFORMANCE”PERFORMANCE".
The Market, Sales, and Business Development
US Highland has created the following market analysis using information gathered from Dealer Net, Motorcycle Industry Council and JD Powers & Associates.
US Highland Target Markets
US Highland is in the business to manufacture and sell water-cooled, fuel injected small displacement metric engines through 3 sales channels. US Highland will target the global dual purpose, ATV, UTV, off-road and on-road motorcycle markets with its initial market entry of a 450cc single cylinder and 950cc twin cylinder fully capitalizing on its current product offering. These markets are to be reached through direct consumer selling, wholesale, custom builders and OEM sales channels. US Highland has plans to sell a total of 6 engines based off of the single cylinder and twin cylinder platforms.
Industry Analysis
Market data for the motorcycle industry shows that the industry is growing in most global market segments, with Europe showing flat sales, illustrating generally positive expected performance of the powersports industry for the
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next 5+ years. It is important to note that 45% for on-road motorcycles, 45% for ATV plus 10% for off-road motorcycles show a good balance within the powersports industry. Honda, Harley Davidson and Polaris Industries are the largest OEMs for many global markets. Estimated new unit sales for the U.S. powersport market is 1.4mm units annually.[1] US Highland management believes the metric parts and accessory sales volume to be approximately $3.6B annually. US Highland has chosen the U.S. market as its primary target and domicile market.
OEM (Original Equipment Manufacture) Cycle
The OEM motorcycle market is a cyclical business, with the largest sales occurring during late summer and fall for next yearsyear's models. Time to market for new products can be 8-14 months before final units are produced, tested and capable of delivery to the public. Finished goods can remain selling for 5+ years, before model changes are needed.
On-Road Motorcycles Market
Comparisons between the dirt bike sales forecast and the total motorcycle sales forecast illustrates that on-road or street motorcycles represent a much larger market segment, by a ratio of 4.5:1. Harley Davidson continues to have the largest market share of this market segment. >[2]
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On-Road Seasonality
On-road seasonality is even more severe than off-road seasonality. In the on-road market segment, summer month sales are the strongest, though spring sales are within 20-30% of summer sales. Winter sales are as much as 75% lower than summer sales.
Dual Sport Market
2012 data indicates this segment as the fastest growing segment, with the largest gains. US Highland engines are dual purpose ready.
Wholesale/Custom Builder Market
With the growing and positive movement in product customization, US Highland management estimates that more “NEW”"NEW" powersport manufactures will be entering the market than ever before. Currently no other US supplier offers 250cc-1150cc metric engines available for sale. US Highland management believes that by comparison the V-Twin market is offering products sold specifically for the On-Road market, the estimated market size for the V-Twin parts and accessory market is $1.6B annually. US Highland will fully capitalize on this market opportunity and offer metric engines for the use in any type of powersport product representing 4 times the available sales of the V-Twin market.
Pricing Analysis
Purchasing is very different between sales channels. Where OEM customers are high volume and low margin and consumer direct sales will be low volume with higher margin. US Highland will see the benefit of working all 3 sales channels (consumer direct, wholesale and OEM) to lower parts prices and increase margin for consumer direct sales.
Sales
US Highland targets global OEM providers, looking for high quality performance motorcycles and ATVs engines. Sales through established dealer networks and custom builders are critical to any powersports company success. US Highland has established relationships with many wholesale builders. US Highland has an aggressive digital media strategy aimed at the direct consumer. Product can be directly purchased and supported online.
Business Development
Developing strong relationships with global motorcycle manufacturers has been a major focus of the company over the past year. This effort is starting to pay off as US Highland hopes to announce a major Memorandum of Understanding in the second or third quarter of 2014 with a major powersports manufacturer that will utilize US Highland engines in their final products.
US Highland and its executives have a long history with other powersports OEMs. As a technology provider, US Highland is often perceived by other manufacturers as an engine supplier rather than a competitor.
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Strategic Location
Tulsa, Oklahoma
We have strategically located the manufacturing and distribution portions of the business to Tulsa, retaining Rollox AB to provide enhanced product development, testing and engineering activities from its facilities in Sweden. Rollox provides US Highland with engineering and product development services on a contract for services basis including
[1] Motorcycle Industry Council (www.mic.org) and ATV Safety Institute (atvsafety.org)
[2] Motorcycle Industry Council ( www.mic.org)
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the use of its engine and vehicle dyno laboratory for initial product testing and to assure product readiness for EPA certification and durability. Tulsa, Oklahoma is located relatively centrally in the United States. Tulsa is a recognized major North American shipping hub with several major interstate highways, railways, and an international airport. The following are road-based shipping distances to other major shipping hubs:
- Dallas: 257 miles
- Detroit: 947 miles
- Jacksonville: 1070 miles
- Los Angeles: 1437 miles
- Milwaukee: 771 miles
- New York City: 1348 miles
- Salt Lake City: 1206 miles
Tulsa was the original oil capital of the United States before Texas gained this status. Tulsa remains a significant producer and refiner of oil. Since the oil and gas industry requires so much equipment and equipment repair, Tulsa has a large manufacturing base, including manufacturing space, skilled labor, management and engineering talent, manufacturing equipment suppliers and service centers, and large subcontractor base for a wide variety of manufacturing services from surface coatings and heat treatments to precision machining, casting, and forging.
Subcontracting
Many subcontractors are required for the high variety of components required to produce engine products. US Highland uses subcontractors for tool and die work, casting, various complex machining operations, and various other capital intensive or low ROI operations which would therefore be unwise to perform in house. Vendors, suppliers, and subcontractors are pre-qualified by US Highland's quality and purchasing personnel. Suppliers must meet minimum capability, lead time, and quality requirements to be eligible to participate in US Highland's vendor and subcontractor pool. US Highland utilizes an internally developed Production Part Approval Process (PPAP) that ensures that suppliers are not only capable of producing high quality parts but also capable of scaling up production without a degradation of quality.
Final Assembly and Quality Assurance
Final assembly and quality assurance are overseen by US Highland's award winning engine designer and director of manufacturing, Steven “Posie”"Posie" Pfaff, whose 120 cubic inch square block engine won engine of the year in 2011. The engine technicians are selected from a pool of highly skilled work force out of the aerospace and manufacturing support industries long associated with Tulsa’sTulsa's strong growth in quality oriented manufacturing jobs.
Logistics
US Highland has in-house experts in logistics and supply chain management. These experts monitor product flow from vendors and subcontractors and to customers.
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Manufacturing Management
A significant percentage of the overall budget of US Highland each year is used to support manufacturing operations, either for new product development prototyping or volume production, competent management is essential. US Highland's manufacturing managers have extensive experience in lean manufacturing as practiced in the Toyota Production System, quality assurance, MRP/ERP, Six Sigma, costing system optimization, and the various other disciplines required to operate a lean, profitable, and responsive manufacturing operation.
ITEM 1A. RISK FACTORS
Not applicable to a smaller reporting company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTY
The registrant's principle executive and manufacturing offices are located at 1411 N. 105th East Avenue, Tulsa, OKOklahoma 74116. The registrant's primary phone number is 918-895-8300.918-558-1358. Current manufacturing operations include 6,000 square feet for general manufacturing, machining, and final assembly and 2,500 square feet for administration. US Highland management believes that this current facility is adequate for its current operations. The current monthly lease rate is $5,180 per month. US Highland is operating on a seven (7) year lease that commenced on January 23, 2012 and terminates on March 31, 2019. The base lease rate increases $0.25 per square foot per year starting at $6.50 per square foot on February 1, 2014 and ending at $7.75 per square foot in 2019. There is also a variable maintenance
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fee that is currently $861.83$862 that increases year to year based on increases/decreases in the average utility costs. US Highland has the option to extend the lease with 180 day prior notice to the landlord with terms to be negotiated at the time of the extension.
ITEM 3. LEGAL PROCEEDINGS
None.
On July 8, 2014, the Company filed civil actions against John R. Fitzpatrick, III, its former Chief Executive Officer, President, Chief Financial Officer, and a former director of the Company and against Steven ("Posie") Pfaff, the former Director of Manufacturing of the Company regarding an employment dispute. Mr. Fitzpatrick and Mr. Pfaff have answered the Petition and asserted various counterclaims against US Highland, Inc., and third party claims against directors of the Company and one of the Company's attorneys.
Mr. Fitzpatrick and Mr. Pfaff also filed complaints with the Oklahoma Department of Labor. On March 3, 2015, the Oklahoma Department of Labor entered awards of $72,000 in favor of Mr. Fitzpatrick and $54,000 in favor of Mr. Pfaff. Mr. Fitzpatrick and Mr. Pfaff are all appealing these awards in Tulsa County District Court in the State of Oklahoma.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
On March 17, 2008, our common stock was listed for the first time on the OTC Bulletin Board under the symbol "HRCM". On March 31, 2010, due to our name change, our symbol was changed to “UHLN”"UHLN".
The following table sets forth the range of high and low bid quotations for the Registrant's common stock. The quotations represent interdealer prices without retail markup, markdown or commission, and may not necessarily represent actual transactions.
Quarter Ended | High Bid
| Low Bid |
|
|
|
3/31/12 | 6.90 | 0.30 |
6/30/12 | 1.25 | 0.60 |
9/30/12 | 1.50 | 0.25 |
12/31/12 | 1.01 | 0.49 |
|
|
|
3/31/13 | 0.50 | 0.50 |
6/30/13 | 0.36 | 0.36 |
9/30/13 | 0.30 | 0.30 |
12/31/13 | 0.27 | 0.27 |
Quarter Ended 3/31/13 6/30/13 9/30/13 12/31/13 3/31/14 6/30/14 9/30/14 12/31/14 High Bid Low Bid 0.50 0.50 0.36 0.36 0.30 0.30 0.27 0.27 0.27 0.26 0.59 0.22 0.51 0.23 0.51 0.13
Registered Holders of Our Common Stock
As at April 30, 2014,July 9, 2015, there were approximately 132 shareholders of the Registrant.
Dividends
Holders of the Registrant's common stock are entitled to receive such dividends as may be declared by its board of directors. No dividends on the Registrant's common stock have ever been paid, and the Registrant does not anticipate that dividends will be paid on its common stock in the foreseeable future.
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Securities Authorized for issuance under equity compensation plans.
No securities are authorized for issuance by the Registrant under equity compensation plans.
Recent Sales of Unregistered Securities
All the issuances were previously reported.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable to a smaller reporting company.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in this Annual Report, including statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily with respect to our future operating performance and other statements contained herein regarding matters that are not historical facts, are "forward-looking" statements. Future filings with the SEC, future press releases and future oral or written statements made by us or with our approval, which are not statements of historical fact, may contain forward-looking statements, because such statements include risks and uncertainties, and actual results may differ materially from those expressed or implied by such forward-looking statements. All forward-looking statements speak only as of the date on which they are made and reflect our plans, estimates and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made. The following discussion and analysis should be read in conjunction with the audited financial statements and notes thereto included elsewhere in this Annual Report.
Overview
The Company is a recreational powersports original equipment manufacturer (“OEM”("OEM"), which develops motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs.
Results of Operations
For the years ended December 31, 20132014 and December 31, 20122013
Revenues
During the year ended December 31, 2013 and 2012,2014, the Company had no revenues of $10,930 (2013 - $nil) for sale of shop equipment to one customer.
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Operating Expenses
Operating expenses for the year ended December 31, 20132014 were $1,137,482, which was comprised primarily of $756,902 for general and administrative expenses and $371,170 for professional expenses as compared to operating expenses of $4,144,916 for the year ended December 31, 2013, which was comprised primarily of $645,186 for general and administrative expenses, $545,975 for professional expenses and $2,943,106 for consulting expenses as compared to operating expenses of $3,438,483 for the year ended December 31, 2012, which was comprised primarily of $903,278 for general and administrative expenses, $1,154,179 for professional expenses and $1,194,163 for consulting expenses. The decreaseincrease in general and administrative expenses of $258,092$111,716 resulted primarily from a reduction in travel expenses from $95,165 in fiscal 2012 to $18,904 in fiscal 2013, a reductionan increase in payroll from $409,761 in fiscal 2012 to $354,987 in fiscal 2013 to $551,744 in fiscal 2014 offset by a reduction in advertising and promotion from $28,500 in fiscal 2013 to $6 in fiscal 2014 and a general reduction of office expenses as a result of budget constraints. The decrease in professional fees of $608,204$174,805 resulted primarily from the Company reducing the number of professionals utilized during the year ended December 31, 20132014 as compared to the year ended December 31, 2012.2013. The increasedecrease in consulting fees of $1,748,943 of$2,943,106 was a result of the granting warrants to consultants with a greater fair value in fiscal 2013 compared to fiscal 2012.2013.
Net Loss
Net loss for the year ended December 31, 20132014 was $32,107,140,$17,908,057, compared to net loss of $6,809,825$32,107,140 for the year ended 2012.December 31, 2013. The loss in fiscal 2014 includes $1,666,381 in interest expense and $16,442,992 loss on change in fair value of derivatives, offset by a gain on settlement of debt of $1,451,919. The loss in fiscal 2013 includes $346,660 in interest expense and $27,685,283 loss on change in fair value of derivatives, offset by a gain on settlement of debt of $66,734. The loss in fiscal 2012 includes $3,472,010 in interest expense and $4,044,231 loss on change in fair value of derivatives, offset by a gain on settlement of debt of $4,145,969.
Liquidity and Capital Resources
As of December 31, 2013,2014, we had cash of $43,044$14,035 and a working capital deficiencydeficit of $30,348,513.$47,612,935. The future of the Company is dependent upon its ability to obtain future financing, upon cash generated from our operations and our ability to borrow cash when needed from related parties. We estimated that we will require $2,188,000 over the twelve month period ending December 31, 2014.next twelve-month period. Management believes that our cash balance will not be sufficient to meet our working capital requirements for the next twelve month period. We plan to raise the capital required to satisfy our immediate short-term needs and additional capital required to meet our estimated funding requirement for the next twelve months primarily through equity and or debt financings. There is no assurance that we will be able to obtain further funds required for our continued working capital requirements.
We cannot be certain that the required additional financing will be available or available on terms favorable to us. We currently do not have any arrangements or commitments in place for any other financings. If additional funds are raised by the issuance of our securities, existing stockholders will experience dilution of their ownership interest. If adequate funds are not available or not available on acceptable terms, we may be unable to fund our operations.
During fiscal 2014, we used $764,929 in cash in operating activities and received $5,920 from the sale of property and equipment. This compares to fiscal 2013 when we used $1,076,600 in cash in operating activities and paid $4,354 to acquire property and equipment. This compares to fiscal 2012 when we used $2,006,775 in cash in operating activities and paid $33,271 to
8
acquire property and equipment. We received proceeds of $887,000$917,300 from the issuance of notes payable and convertible debt during fiscal 2013,2014, as compared to $1,720,000$887,000 in fiscal 2012.2013. We made cash repayments of $2,000$37,300 for notes payable in fiscal 20132014 as compared to $10,000$2,000 in fiscal 2012.2013. We paid out $150,000 to Highlon, a company in the distribution management business for the deposit for a potential acquisition during fiscal 2014. We received proceeds of $228,500 from the issuance of common stock during fiscal 2013, as compared to $275,000 during fiscal 2012.2013.
As of December 31, 20132014, we did not have any established lines of credit with any banks or any other arrangements, agreements, or commitments for financing our operations.
11 |
Going Concern
The Company has no revenues and has incurred a net loss of $32,107,140$17,908,057 for the year ended December 31, 2013.2014. In addition, at December 31, 2013,2014, there iswas an accumulated deficit of $85,203,969.$103,112,026. These factors raise substantial doubt about the Company’sCompany's ability to continue as a going concern.
There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or available from external sources such as debt or equity financings, or other potential sources. The inability to generate cash flow from operations or to raise capital from external sources will force the Company to substantially curtail and cease operations, therefore, having a material adverse effect on its business. Furthermore, there can be no assurance that any funds, if available, will possess attractive terms or not have a significant dilutive effect on the Company’sCompany's existing stockholders.
There is substantial doubt about the Company’sCompany's ability to continue as a going concern. Accordingly, its independent auditors included an explanatory paragraph in their report on the consolidated financial statements regarding concerns about the Company’sCompany's ability to continue as a going concern. The Company’sCompany's consolidated financial statements contain additional note disclosures describing the circumstances that lead to the auditor’sauditor's opinion. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Management is currently pursuing a business strategy which includes raising the necessary funds to finance the Company's development, marketing and manufacturing efforts.
Off-balance sheet arrangements:
The Company has no off-balance sheet arrangements.
Recent Pronouncements
Management does not anticipate that the new accounting pronouncements listed above will have a material impact on the financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
12 |
9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
US Highland, Inc.
Index to the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm 11
Consolidated Balance Sheets as of December 31, 2013 and 2012 12
Consolidated Statements of Operations for the Years Ended December 31, 2013 and 2012 13
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013 and 2012 14
Consolidated Statements of Stockholders' Deficiency For the Years Ended December 31, 2013 and 2012 15
Notes to the Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms | 14 | |||
Consolidated Balance Sheets as of December 31, 2014 and 2013 | 16 | |||
Consolidated Statements of Operations for the Years Ended December 31, 2014 and 2013 | 17 | |||
Consolidated Statement of Changes in Stockholders' Deficit for the Years Ended December 31, 2014 and 2013 | 18 | |||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014 and 2013 | 19 | |||
Notes to the Consolidated Financial Statements | 20 |
13 |
10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of US Highland, Inc.
Tulsa, Oklahoma
We have audited the accompanying consolidated balance sheetssheet of US Highland, Inc. as of December 31, 2013 and 2012,2014 and the related consolidated statements of operations, stockholders’ deficiency, and cash flows and changes in stockholders' deficit for each of the years in the two-year period ended December 31, 2013.year then ended. US Highland, Inc.’s's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.audit.
We conducted our auditsaudit 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 auditsaudit 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’sCompany'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 audits provideaudit 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 US Highland, Inc. as of December 31, 2014 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that US Highland, Inc. will continue as a going concern. As discussed in Note 1 to the financial statements, US Highland, Inc. has suffered recurring losses from operations and has a working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ GBH CPAs, PC
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
July 9, 2015
14 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of US Highland, Inc.
Tulsa, Oklahoma
We have audited the accompanying consolidated balance sheet of US Highland, Inc. as of December 31, 2013, and the related consolidated statements of operations, stockholders' deficiency, and cash flows for the year then ended. US Highland, 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 US Highland, Inc. as of December 31, 2013, and 2012 and the results of its operations and its cash flows for each of the years in the two-year periodyear then ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements for December 31, 2013 have been prepared assuming that the Company will continue as a going concern. As more fully noted in Note 1 to the consolidated financial statements, the Company has incurred a substantial accumulated deficit, recurring operating losses and has a working capital deficiency of $30,348,513. These conditions raise substantial doubt the Company’sCompany's ability to continue as a going concern. Management’sManagement's plans in regards to these matters are discussed in Note 1. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
/s/ Friedman LLP
New York, New York
May5,, 2014
11
15 |
US Highland, Inc.
Consolidated Balance Sheets
|
| December 31, 2013 |
| December 31, 2012 |
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
Cash | $ | 43,044 | $ | 10,498 |
Inventory |
| 99,826 |
| – |
Prepaid expenses |
| 58,520 |
| 7,119 |
|
|
|
|
|
TotalCurrent Assets |
| 201,390 |
| 17,617 |
Long-term deposits |
| 11,491 |
| 11,756 |
Property and Equipment, net |
| 24,555 |
| 30,850 |
|
|
|
|
|
Total Assets | $ | 237,436 | $ | 60,223 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY |
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable | $ | 393,617 | $ | 402,903 |
Accrued liabilities |
| 258,238 |
| 182,472 |
Convertible debentures ($144,362 and $0 related parties, respectively) |
| 351,829 |
| 58,333 |
Derivative liabilities |
| 29,430,719 |
| 941,464 |
Loans payable ($27,000 and $0 related parties, respectively) |
| 115,500 |
| 221,900 |
|
|
|
|
|
Total Liabilities |
| 30,549,903 |
| 1,807,072 |
|
|
|
|
|
|
|
|
|
|
Commitments |
|
|
|
|
|
|
|
|
|
Stockholders’ Deficiency |
|
|
|
|
|
|
|
|
|
Preferred Stock,3,550,000 shares authorized, par value $0.01; No shares issued and outstanding at December 31, 2013 and December 31, 2012 |
| – |
| – |
|
|
|
|
|
Common Stock, 500,000,000 shares authorized, $0.01 par value; 77,727,669 and67,757,669 shares issued and outstanding at December 31, 2013 and December 31, 2012, respectively |
| 777,276 |
| 672,743 |
|
|
|
|
|
Common Stock Reserved for Future Issuance |
| 129,881 |
| 114,303 |
|
|
|
|
|
Subscriptions Receivable |
| – |
| (1,000) |
|
|
|
|
|
Additional Paid-in Capital |
| 54,757,845 |
| 51,337,434 |
|
|
|
|
|
Accumulated Deficit |
| (85,203,969) |
| (53,096,829) |
|
|
|
|
|
|
| (29,538,967) |
| (973,349) |
|
|
|
|
|
Treasury Stock, at cost – 58,333 shares at December 31, 2013 and December 31, 2012 |
| (773,500) |
| (773,500) |
|
|
|
|
|
Total Stockholders’ Deficiency |
| (30,312,467) |
| (1,746,849) |
|
|
|
|
|
Total Liabilities and Stockholders’ Deficiency | $ | 237,436 | $ | 60,223 |
|
|
|
|
|
December 31, ASSETS Current Assets Cash and cash equivalents Inventory Prepaid expenses Deposit in Highlon acquisition Total Current Assets Deposits Property and equipment, net Total Assets LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Accounts payable Accrued liabilities ($255,830 and $66,184 related parties, respectively) Convertible debentures ($nil and $144,362 related parties, respectively), net of discounts of $773,700 and $684,504, respectively Derivative liabilities Loans payable ($268,000 and $27,000 related parties, respectively) Total Current Liabilities Loans payable ($607,000 and $0 related parties, respectively) Total Liabilities Commitments and contingencies Stockholders' Deficit Preferred stock, 3,550,000 shares authorized, par value $0.01; no shares issued and outstanding at December 31, 2014 and 2013 Common stock, 500,000,000 shares authorized, $0.01 par value; 77,727,669 shares issued and outstanding Common stock reserved for future issuance; 244,000 and 168,000 shares at December 31, 2014 and 2013, respectively Treasury stock, at cost -- 58,333 shares Additional paid-in capital Accumulated deficit Total Stockholders' Deficit Total Liabilities and Stockholders' Deficit
2014 December 31,
2013 $ 14,035 $ 43,044 -- 99,826 95,748 58,520 150,000 -- 259,783 201,390 11,478 11,491 10,288 24,555 $ 281,549 $ 237,436 $ 499,586 $ 393,617 656,482 258,238 259,633 351,829 46,065,517 29,430,719 391,500 115,500 47,872,718 30,549,903 607,000 -- 48,479,718 30,549,903 -- -- 777,276 777,276 152,236 129,881 (773,500 ) (773,500 ) 54,757,845 54,757,845 (103,112,026 ) (85,203,969 ) (48,198,169 ) (30,312,467 ) $ 281,549 $ 237,436
(The accompanying notes are an integral part of these consolidated financial statements)statements.)
12
16 |
US Highland, Inc.
Consolidated Statements of Operations
|
| For the Year Ended December 31, 2013 |
| For the Year Ended December 31, 2012 |
|
|
|
|
|
Revenue | $ | – | $ | – |
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
Consulting |
| 2,943,106 |
| 1,194,163 |
Depreciation |
| 10,649 |
| 8,444 |
General and administrative |
| 645,186 |
| 903,278 |
Professional fees |
| 545,975 |
| 1,154,179 |
Research and development |
| – |
| 178,419 |
|
|
|
|
|
Total Operating Expenses |
| 4,144,916 |
| 3,438,483 |
|
|
|
|
|
Operating Loss |
| (4,144,916) |
| (3,438,483) |
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
|
|
Interest expense |
| (346,660) |
| (3,472,010) |
Change in fair value of derivatives |
| (27,685,283) |
| (4,044,231) |
Other income (expense) |
| 2,985 |
| (1,070) |
Gain (loss) on settlement of debt |
| 66,734 |
| 4,145,969 |
|
|
|
|
|
Total Other Income (Expense) |
| (27,962,224) |
| (3,371,342) |
|
|
|
|
|
Net Loss | $ | (32,107,140) | $ | (6,809,825) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Common Share – Basic and Diluted | $ | (0.42) | $ | (0.22) |
|
|
|
|
|
Weighted Average Number of Common Shares Outstanding – Basic and Diluted |
| 75,729,000 |
| 31,585,700 |
|
|
|
|
|
For the Year For the Year Revenue Cost of goods sold Write-down of inventory Gross Margin Operating Expenses Consulting Depreciation General and administrative Professional fees Total Operating Expenses Operating Loss Other Income (Expense) Interest expense Change in fair value of derivatives Other income Gain on settlement of debt Total Other Income (Expense) Net Loss Net Loss Per Common Share -- Basic and Diluted Weighted Average Number of Common Shares Outstanding -- Basic and Diluted
Ended
December 31,
2014
Ended
December 31,
2013 $ 10,930 $ -- -- -- 125,616 -- (114,686 ) -- -- 2,943,106 9,410 10,649 756,902 645,186 371,170 545,975 1,137,482 4,144,916 (1,252,168 ) (4,144,916 ) (1,666,381 ) (346,660 ) (16,442,992 ) (27,685,283 ) 1,565 2,985 1,451,919 66,734 (16,655,889 ) (27,962,224 ) $ (17,908,057 ) $ (32,107,140 ) $ (0.23 ) $ (0.42 ) 77,728,000 75,729,000
(The accompanying notes are an integral part of these consolidated financial statements)statements.)
17 |
US Highland, Inc.
Consolidated Statement of Changes in Stockholders' Deficit
For the Years Ended December 31, 2014 and 2013
Common Stock Additional Common Reserved For Future Stock Subscriptions Accumulated Treasury Balance, December 31, 2012 Shares issued upon conversion of warrants Stock subscriptions received Cancellation of shares issued in error Shares issued to settle debt Shares issued for cash Shares reserved for payment of accrued interest Net loss Balance, December 31, 2013 Shares reserved for payment of accrued interest Net loss Balance, December 31, 2014
Paid-in
StockShares Amount Capital Issuance Receivable Deficit Stock Total 67,757,669 $ 672,743 $ 51,337,434 $ 114,303 $ (1,000 ) $ (53,096,829 ) $ (773,500 ) $ (1,746,849 ) 5,000,000 50,000 3,202,278 -- -- -- -- 3,252,278 -- -- -- -- 1,000 -- -- 1,000 (483,333 ) -- -- -- -- -- -- -- 953,333 9,533 38,133 -- -- -- -- 47,666 4,500,000 45,000 180,000 -- -- -- -- 225,000 -- -- -- 15,578 -- -- -- 15,578 -- -- -- -- -- (32,107,140 ) -- (32,107,140 ) 77,727,669 777,276 54,757,845 129,881 -- (85,203,969 ) (773,500 ) (30,312,467 ) -- -- -- 22,355 -- -- -- 22,355 -- -- -- -- -- (17,908,057 ) -- (17,908,057 ) 77,727,669 777,276 54,757,845 152,236 -- (103,112,026 ) (773,500 ) (48,198,169 )
13
US Highland, Inc.
Consolidated Statements of Cash Flows
|
| For the Year Ended December 31, 2013 |
| For the Year Ended December 31, 2012 |
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
Net loss | $ | (32,107,140) | $ | (6,809,825) |
|
|
|
|
|
Adjustments to reconcile net loss to cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation |
| 10,649 |
| 8,444 |
Accretion expense |
| 295,496 |
| 3,343,038 |
Change in fair value of derivative |
| 27,685,283 |
| 4,044,231 |
Gain (loss) on settlement of debt |
| (66,734) |
| (4,145,969) |
Warrants issued for consulting services |
| 2,629,456 |
| 1,179,996 |
Shares issuable for interest expense |
| 15,578 |
| 21,203 |
Stock-based compensation |
| – |
| 14,167 |
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Inventory |
| (99,826) |
| – |
Prepaid expenses and deposits |
| (51,136) |
| 33,384 |
Accounts payable and accrued liabilities |
| 611,774 |
| 304,556 |
|
|
|
|
|
Net Cash Used in Operating Activities |
| (1,076,600) |
| (2,006,775) |
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
Investment in property and equipment |
| (4,354) |
| (33,271) |
|
|
|
|
|
Net Cash Used in Investing Activities |
| (4,354) |
| (33,271) |
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
Proceeds from convertible debt |
| 860,000 |
| 1,600,000 |
Proceeds from notes payable |
| 27,000 |
| 120,000 |
Repayment of notes |
| (2,000) |
| (10,000) |
Proceeds from issuance of common stock |
| 228,500 |
| 275,000 |
|
|
|
|
|
Net Cash Provided by Financing Activities |
| 1,113,500 |
| 1,985,000 |
|
|
|
|
|
Increase (Decrease) In Cash |
| 32,546 |
| (55,046) |
|
|
|
|
|
Cash - Beginning of Year |
| 10,498 |
| 65,544 |
|
|
|
|
|
Cash - End of Year | $ | 43,044 | $ | 10,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash Investing and Financing Activities |
|
|
|
|
|
|
|
|
|
Warrants issued to settle debt | $ | 444,294 | $ | – |
Common stock issued to settle debt | $ | 47,666 | $ | 2,650,000 |
Common stock issued for services and compensation | $ | 15,578 | $ | 14,167 |
|
|
|
|
|
(The accompanying notes are an integral part of these consolidated financial statements)statements.)
18 |
US Highland, Inc.
Consolidated Statements of Cash Flows
14
US Highland, Inc.
Consolidated Statement of Stockholders’ Deficiency
For the Year Operating Activities Net loss Adjustments to reconcile net loss to cash used in operating activities: Depreciation Amortization expense Change in fair value of derivatives Gain on settlement of debt Warrants issued for consulting services Write-down of inventory Shares reserved for payment of accrued interest Gain on sale of equipment Changes in operating assets and liabilities: Inventory Prepaid expenses and deposits Accounts payable and accrued liabilities Accrued liabilities -- related parties Net Cash Used in Operating Activities Investing Activities Payment on deposit in Highlon acquisition Proceeds from sale property and equipment Investment in property and equipment Net Cash Used in Investing Activities Financing Activities Proceeds from convertible debt Proceeds from loans payable Proceeds from loans payable -- related parties Repayment of loans Repayment of loans -- related parties Proceeds from issuance of common stock Net Cash Provided by Financing Activities (Decrease) Increase In Cash Cash - Beginning of Year Cash - End of Year Supplemental cash flow information: Cash paid for income taxes Cash paid for interest Non-cash Investing and Financing Activities Warrants issued to settle debt Common stock issued to settle debt Common stock issued for services and compensation For the Years Ended December 31, 2013 and 2012
Ended
December 31,
2014For the Year
Ended
December 31,
2013$ (17,908,057 ) $ (32,107,140 ) 9,410 10,649 1,500,923 295,496 16,442,992 27,685,283 (1,451,919 ) (66,734 ) -- 2,629,456 125,616 -- 22,355 15,578 (1,063 ) -- (25,790 ) (99,826 ) (37,228 ) (51,136 ) 442,662 611,774 115,171 (764,929 ) (1,076,600 ) (150,000 ) -- 5,920 -- -- (4,354 ) (144,080 ) (4,354 ) -- 860,000 50,000 -- 867,300 27,000 (18,000 ) (2,000 ) (19,300 ) -- 228,500 880,000 1,113,500 (29,009 ) 32,546 43,044 10,498 $ 14,035 $ 43,044 $ -- $ -- $ 182 $ -- $ 53,606 $ 444,294 $ -- $ 47,666 $ -- $ 15,578
|
|
|
| Common |
|
|
|
| |
|
|
|
| Stock |
|
|
|
| |
|
|
| Additional | Reserved | Stock |
|
|
| |
| Common Stock | Paid-in | For Future | Subscriptions | Accumulated | Treasury |
| ||
| Shares | Amount | Capital | Issuance | Receivable | Deficit | Stock | Total | |
|
|
|
|
|
|
|
|
| |
Balance, December 31, 2011 | 868,778 | $ 8,687 | $ 45,845,828 | $ 93,100 | $ – | $ (46,287,004) | $ (773,500) | $ (1,112,889) | |
|
|
|
|
|
|
|
|
| |
Shares issued upon conversion of warrants | 2,000,000 | 20,000 | 1,180,995 | – | (1,000) | – | – | 1,199,995 | |
|
|
|
|
|
|
|
|
| |
Beneficial conversion features | – | – | 2,015,500 | – | – | – | – | 2,015,500 | |
|
|
|
|
|
|
|
|
| |
Shares issued for consulting services | 500,000 | 167 | 14,000 | – | – | – | – | 14,167 | |
|
|
|
|
|
|
|
|
| |
Shares issued upon conversion of debentures | 58,888,891 | 588,889 | 2,061,111 | – | – | – | – | 2,650,000 | |
|
|
|
|
|
|
|
|
| |
Shares issued for cash | 5,500,000 | 55,000 | 220,000 | – | – | – | – | 275,000 | |
|
|
|
|
|
|
|
|
| |
Shares issuable in payment of accrued interest | – | – | – | 21,203 | – | – | – | 21,203 | |
|
|
|
|
|
|
|
|
| |
Net loss for the year | – | – | – | – | – | (6,809,825) | – | (6,809,825) | |
|
|
|
|
|
|
|
|
| |
Balance, December 31, 2012 | 67,757,669 | 672,743 | 51,337,434 | 114,303 | (1,000) | (53,096,829) | (773,500) | (1,746,849) | |
|
|
|
|
|
|
|
|
| |
Shares issued upon conversion of warrants | 5,000,000 | 50,000 | 3,202,278 | – | – | – | – | 3,252,278 | |
|
|
|
|
|
|
|
|
| |
Subscriptions received | – | – | – | – | 1,000 | – | – | 1,000 | |
|
|
|
|
|
|
|
|
| |
Cancellation of shares issued in error | (483,333) | – | – | – | – | – | – | – | |
|
|
|
|
|
|
|
|
| |
Shares issued to settle debt | 953,333 | 9,533 | 38,133 | – | – | – | – | 47,666 | |
|
|
|
|
|
|
|
|
| |
Shares issued for cash | 4,500,000 | 45,000 | 180,000 | – | – | – | – | 225,000 | |
|
|
|
|
|
|
|
|
| |
Shares issuable in payment of accrued interest | – | – | – | 15,578 | – | – | – | 15,578 | |
|
|
|
|
|
|
|
|
| |
Net loss for the year | – | – | – | – | – | (32,107,140) | – | (32,107,140) | |
|
|
|
|
|
|
|
|
| |
Balance, December 31, 2013 | 77,727,669 | 777,276 | 54,757,845 | 129,881 | – | (85,203,969) | (773,500) | (30,312,467) | |
(The accompanying notes are an integral part of these consolidated financial statements)
statements.)
19 |
15
US Highland, Inc.
Notes to the Consolidated Financial Statements
For The Years Ended December 31, 20132014 and 20122013
1.Nature of Operations
1. | Nature of Operations |
US Highland, Inc. was originally formed as a Limited Liability Companylimited liability company on February 5, 1999 under the name The Powerhouse, L.L.C. pursuant to the laws of the State of Oklahoma. On November 9, 2006, Powerhouse Productions, L.L.C. filed Articles of Conversion changing the entity from a limited liability company to a corporation under the name Harcom Productions, Inc. On January 25, 2010, Articles of Merger were filed with the stateState of Oklahoma merging U.S. Highland, Inc., an Oklahoma corporation into Harcom Productions, Inc. and the name of the corporation was changed to US Highland, Inc. US Highland, Inc. (the “Company”"Company") is a recreational power sports Original Equipment Manufacturer (“OEM”("OEM"), developing motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs.
Going concern
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going-concern basis. The going concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed in the consolidated financial statements. The Company has incurred recurring losses from its operations, and as of December 31, 2013,2014, current liabilities exceed current assets by $30,348,513,$47,612,935, and the Company has an accumulated deficit of $85,203,969.$103,112,026. The Company’sCompany's ability to continue as a going concern depends upon its ability to obtain adequate funding to support its operations through continuing investments of debt and/or equity by qualified investors/creditors, internally generated working capital and monetization of intellectual property assets. These factors raise substantial doubt about the Company’sCompany's ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management is currently pursuing a business strategy which includes raising the necessary funds to finance the Company's development, marketing and manufacturing efforts.
2. | Summary of Significant Accounting Policies |
2. Summary of Significant Accounting Policies
a) | Basis of Presentation and Principles of Consolidation |
a)Basis of Presentation and Principles of Consolidation
The Company’sCompany's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, US Highlands Electric Inc. All significant intercompany transactions and balances have been eliminated.
b)Use of Estimates
b) | Use of Estimates |
The preparation of these consolidated financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to useful life and recoverability of long-lived assets, stock-based compensation, derivative liabilities, deferred income tax asset valuations, fair values of financial instruments and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’sCompany's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
c)Cash and Cash Equivalents
c) | Reclassifications |
Certain amounts in the prior period presented have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously reported net loss.
d) | Cash and Cash Equivalents |
The Company considers all highly liquid instruments with maturities of three months or less at the time of issuance to be cash equivalents.
d)Inventory
20 |
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years Ended December 31, 2014 and 2013
e) | Inventory |
Inventory is stated at the lower of cost or market, utilizing the specific lot identification method. Inventory consists of goods and parts for resale.
f) | Property and Equipment |
e)Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. The Company computes depreciation using the straight-line method over the estimated useful lives of the assets acquired as follows:
Computers and office equipment |
| 3 years | ||
|
|
| ||
|
| |||
Manufacturing equipment |
|
| 5 - 10 years |
g) | Fair Value Measurements |
16
US Highland, Inc.
Notes to the Consolidated Financial Statements
For The Years Ended December 31, 2013 and 2012
f)Fair Value Measurements
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 –-- quoted prices for identical instruments in active markets.
Level 2 –-- quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and.
Level 3 –-- fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash and cash equivalents, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3”"Level 3" inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3”"Level 3" during the years ended December 31, 20132014 or 2012.2013. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 78 for additional information.
g)Basic and Diluted Net Loss Per Share
h) | Income Taxes |
Basic earnings (loss) per share is calculated by dividing net profit attributable to common stockholders by the weighted average number of outstanding common shares during the year. The calculation of basic earnings (loss) per share excludes any dilutive effects of options, warrants and other stock-based compensation, which are included in diluted earnings per share. When a company is in a loss situation, all outstanding dilutive shares are excluded from the calculation of diluted earnings because their inclusion would be antidilutive; and the basic and fully diluted common shares outstanding are stated to be the same.At December 31, 2013 and 2012, approximately 113,500,000 and 1,130,000 shares, respectively, underlying the convertible debentures and warrants were antidilutive.
h)Research and Development
Research and development costs are expensed as incurred.
i)Income Taxes
The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely that not that all or a portion of a deferred tax asset will not be realized.Therealized. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the period presented. The Company had no accruals for interest and penalties at December 31, 20132014 or 2012.
j)Revenue Recognition
For revenue from product sales, the Company recognizes revenue in accordance with Staff Accounting Bulletin ("SAB") No. 104,Revenue Recognition, which superseded SAB No. 101,Revenue Recognition in Financial Statements. SAB No. 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.2013.
17
21 |
US Highland, Inc.
Notes to the Consolidated Financial Statements
For The Years Ended December 31, 20132014 and 2012
k)Advertising
The Company expenses advertising costs as incurred. Such costs totaled approximately $28,500 and $13,159 for 2013 and 2012, respectively.
l)Concentration of Business and Credit risk
The Company maintains cash balances in several financial institutions which currently are insured by the Federal Deposit Insurance Corporation. Balances in these accounts may, at times, exceed the federally insured limits. The Company provides credit in the normal course of business to customers and performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information. There were no sales during the years ending December 31, 2013 and 2012.
m)Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
i) | Revenue Recognition |
3. Property and Equipment
For revenue from product sales, four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. | ||
j) | Advertising | |
The Company expenses advertising costs as incurred. Such costs totaled approximately $6 and $28,500 for 2014 and 2013, respectively. | ||
k) | Research and Development | |
Research and development costs are expensed as incurred. | ||
l) | Basic and Diluted Net Loss Per Share | |
Basic earnings (loss) per share is calculated by dividing net profit attributable to common stockholders by the weighted average number of outstanding common shares during the year. The calculation of basic earnings (loss) per share excludes any dilutive effects of options, warrants and other stock-based compensation, which are included in diluted earnings per share. When a company is in a loss situation, all outstanding dilutive shares are excluded from the calculation of diluted earnings because their inclusion would be antidilutive; and the basic and fully diluted common shares outstanding are stated to be the same. At December 31, 2014 and 2013, approximately 91,852,000 and 113,500,000 shares, respectively, underlying the convertible debentures and warrants were antidilutive. | ||
m) | Concentration of Business and Credit risk |
Property and equipment is recorded at cost and is comprised of:
|
| Useful Life | December 31, 2013 | December 31, 2012 |
|
|
|
|
|
Computers and office equipment |
| 3 years | $ 15,930 | $ 14,130 |
Manufacturing equipment |
| 5 - 10 years | 28,408 | 25,853 |
|
|
|
|
|
|
|
| 44,338 | 39,983 |
Accumulated depreciation |
|
| (19,783) | (9,133) |
|
|
|
|
|
Property and equipment, net |
|
| $ 24,555 | $ 30,850 |
Depreciation expense amounted to approximately $10,649 and $8,444 for the year ended December 31, 2013 and 2012, respectively.
The Company maintains cash balances in several financial institutions which currently are insured by the Federal Deposit Insurance Corporation. Balances in these accounts may, at times, exceed the federally insured limits. The Company provides credit in the normal course of business to customers and performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information. There Company had sales of $10,930 to one customer during the year ended December 31, 2014 and no sales during the year ending December 31, 2013. | ||
n) | Subsequent Events | |
The Company's management reviewed all material events through the issuance date of this report for disclosure purpose. | ||
o) | Recently Issued Accounting Pronouncements | |
The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. |
4. Related Party Transactions
22 |
a)During the year ended December 31, 2013, the Company issued a convertible note payable to a significant shareholder for cash proceeds of $500,000. Refer to Note 6(g).
b)During the year ended December 31, 2013, the Company issued a convertible note payable to a significant shareholder for cash proceeds of $273,700. Refer to Note 6(h).
c)During the year ended December 31, 2013, the Companyentered into an unsecured, non-guaranteed loan agreement with the director for $27,000. Refer to Note 5(f).
d)On March 18, 2013, a director of the Company converted $21,000 of amounts owed to him by the Company into 420,000 shares of common stock. The amount owed had no terms of repayment and was non-interest bearing.
e)On March 13, 2013, the Company issued 4,500,000 shares of common stock in consideration for cash at $0.05 per share to a shareholder. This transaction resulted in the shareholder becoming a significant shareholder.
18
US Highland, Inc.
Notes to the Consolidated Financial Statements
For The Years Ended December 31, 20132014 and 2012
5. Loans Payable2013
Loans payable consist of the following: | December 31, 2013 $ | December 31, 2012 $ | |
|
|
|
|
a) | Loans payable that are unsecured, non-guaranteed, past due and are non-interest bearing. During the year ended December 31, 2013, the Company settled $13,400 of loans payable through the transfer of inventory previously written off. | 25,000 | 38,400 |
b) | Note payable which is unsecured, non-guaranteed, past due and bears interest at 10% per annum. | 7,500 | 7,500 |
c) | On January 15, 2011, the Company entered into 8 unsecured, non-guaranteed, loan agreements pursuant to which the Company received proceeds of $56,000. If the loans were not repaid within 90 days they then bear interest at 1% per month. In addition, if the loan was not repaid within 90 days, the Company is required to issue 167 common shares every month until the loan is repaid in full. As at December 31, 2013 and 2012, the Company recognized the fair value of 5,500 and 3,500 common shares issuable for interest expense of $120,282 and $114,303, respectively, as shares reserved for future issuance. The Company has not yet issued these common shares. As at December 31, 2013, the Company has also accrued interest expense of $19,880 (2012 - $13,160). | 56,000 | 56,000 |
d) | On August 28, 2012, the Company entered into an unsecured, non-guaranteed, demand loan agreement pursuant to which the Company received proceeds of $75,000. The loan bears interest at an annual rate of 7% payable monthly. The loan is repayable on demand. On July 25, 2013, the note was secured with a convertible note. Refer to Note 6(e). | – | 75,000 |
e) | On October 3, 2012, the Company entered into an unsecured, non-guaranteed, demand loan agreement pursuant to which the Company received proceeds of $45,000. The loan bears interest at an annual rate of 7% payable monthly. The loan is repayable on demand. On July 25, 2013, the note was secured with a convertible note. Refer to Note 6(f). | – | 45,000 |
f) | On May 30, 2013 and August 12, 2013, the Company received advances from a director for $2,000 and $25,000, respectively. On August 12, 2013, the Company entered into an unsecured, non-guaranteed, demand loan agreement with the director for $27,000. The loan bears interest at 1% per annum compounded monthly. In addition, the Company is required to issue 5,000common shares every month until the loan is repaid in full. As of December 31, 2013, the Company recognized the fair value of 20,000 common shares issuable for interest expense of $5,550, as shares reserved for future issuance. The Company has not yet issued these common shares. As at December 31, 2013, the Company has also accrued interest expense of $125. | 27,000 | – |
|
| 115,500 | 221,900 |
3. | Deposit on Highlon Distribution Inc. Acquisition |
On December 30, 2014, the Company entered into a share exchange agreement with Highlon Distribution, Inc. (Highlon). Per the agreement, the Company will exchange 100 shares of the Company's common stock for 100% of the Highlon shares. In addition, the Company will transfer $150,000 to Highlon within five days from the execution of the agreement. Highlon is in the distribution management business, focusing on marketing existing product in logistics area. | |
4. | Property and Equipment |
Property and equipment is recorded at cost and is comprised of: |
19
Useful Life Computers and office equipment 3 years Manufacturing equipment 5 - 10 years Accumulated depreciation Property and equipment, net December 31,
2014 December 31,
2013 $ 15,930 $ 15,930 19,513 28,408 35,443 44,338 (25,155 ) (19,783 ) $ 10,288 $ 24,555
Depreciation expense amounted to approximately $9,410 and $10,649 for the year ended December 31, 2014 and 2013, respectively. | |
5. | Related Party Transactions |
a) | During the year ended December 31, 2014, the Company entered into unsecured, non-guaranteed loan agreements with a significant shareholder for $842,000. Refer to Note 6 (g) and (h). | |
b) | During the year ended December 31, 2014, the Company entered into an unsecured, non-guaranteed loan agreement with a director for $25,300. During the year, repayments of $19,300 were made. Refer to Note 6 (e). | |
c) | During the year ended December 31, 2013, the Company issued a convertible note payable to a significant shareholder for cash proceeds of $500,000. Refer to Note 7 (g). | |
d) | During the year ended December 31, 2013, the Company issued a convertible note payable to a significant shareholder for cash proceeds of $273,700. Refer to Note 7 (h). | |
e) | During the year ended December 31, 2013, the Company entered into an unsecured, non-guaranteed loan agreement with the director for $27,000. Refer to Note 7 (d). | |
f) | On March 18, 2013, a director of the Company converted $21,000 of amounts owed to him by the Company into 420,000 shares of common stock. The amount owed had no terms of repayment and was non-interest bearing. | |
g) | On March 13, 2013, the Company issued 4,500,000 shares of common stock in consideration for cash at $0.05 per share to a shareholder. This transaction resulted in the shareholder becoming a significant shareholder. | |
h) | On December 30, 2014, the Company entered into a share exchange agreement with an entity owned by our President. Refer to Note 3. |
23 |
US Highland, Inc.
Notes to the Consolidated Financial Statements
For The Years Ended December 31, 20132014 and 2012
6. Convertible Debentures2013
a)Effective January 25, 2010, the Company issued a convertible note for $225,000. Pursuant to the terms of the agreement, the loan was unsecured, non-interest bearing, and was due on December 21, 2010. The note was convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 65% of the average of the closing bid prices of the common stock during the 28 trading days prior to the date of the conversion notice and was subject to adjustment upon the issuance of certain dilutive instruments. Due to these provisions, the embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15Derivatives and Hedging. The initial fair value of the derivative liability of $538,249 resulted in a full discount to the note payable of $225,000 and the recognition of a loss on derivatives of $313,249.
6. | Loans Payable |
On June 2, 2010, the Company issued 6,386 restricted shares of common stock upon the conversion of the principal amount of $166,667. The fair value of the derivative liability at June 2, 2010, was $266,425 and $197,352 was reclassified to additional paid-in capital upon conversion. During the year ended December 31, 2013, the Company repaid $2,000 of the note. At December 31, 2013, the carrying value of the note is $56,333 (2012 - $58,333). The note is in default at December 31, 2013.
Loans payable consist of the following: December 31, a) Loans payable that are unsecured, non-guaranteed, past due and are non-interest bearing. During the year ended December 31, 2013, the Company settled $13,400 of loans payable through the transfer of inventory previously written off. b) Note payable which is unsecured, non-guaranteed, past due and bears interest at 10% per annum. c) On January 15, 2011, the Company entered into 8 unsecured, non-guaranteed, loan agreements pursuant to which the Company received proceeds of $56,000. If the loans were not repaid within 90 days they then bear interest at 1% per month. In addition, if the loan was not repaid within 90 days, the Company is required to issue 167 common shares every month until the loan is repaid in full. As at December 31, 2014 and 2013, the Company recognized the fair value of 164,000 and 148,000 common shares issuable for interest expense of $125,736 and $120,281, respectively, as shares reserved for future issuance. The Company has not yet issued these common shares. As at December 31, 2014, the Company has also accrued interest expense of $26,600 (2013 - $19,880). d) On May 30, 2013 and August 12, 2013, the Company received advances from a director for $2,000 and $25,000, respectively. On August 12, 2013, the Company entered into an unsecured, non-guaranteed, demand loan agreement with the director for $27,000. The loan bears interest at 1% per annum compounded monthly. In addition, the Company is required to issue 5,000 common shares every month until the loan is repaid in full. As at December 31, 2014 and 2013, the Company recognized the fair value of 80,000 and 20,000 common shares issuable for interest expense of $20,950 and $9,600, respectively, as shares reserved for future issuance. The Company has not yet issued these common shares. As at December 31, 2014, the Company has also accrued interest expense of $385 (2013 - $125). e) On February 27, 2014, May 9, 2014, July 11, 2014, and October 7, 2014, the Company received advances from a director of $6,000, $3,300, $9,000, and $7,000, respectively. The Company repaid $3,300 on June 12, 2014, $9,000 on July 28, 2014 and $7,000 on October 8, 2014. The outstanding amount is unsecured, due on demand and bears interest at 1% per annum compounded and calculated monthly. f) On September 18, 2014, the Company entered into an unsecured, non-guaranteed, loan agreement pursuant to which the Company received proceeds of $35,000. The loan bears interest at 8% per annum compounded annually and is due 1 year after the date of issuance. g) On August 26, 2014, December 4, 2014 and December 18, 2014, the Company issued unsecured notes payable of $15,000, $20,000 and $200,000, respectively to a significant shareholder. The notes bear interest at an annual rate of 8% per annum, are uncollateralized, and due 1 year after the date of issuance. h) The Company issued the following unsecured notes payable to a significant shareholder. The notes bear interest at an annual rate of 8% per annum, are uncollateralized, and are due 2 years after the date of issuance: 1. On January 17, 2014, the Company issued a $50,000 note payable. 2. On January 29, 2014, the Company issued a $50,000 note payable. On February 19, 2014, the Company issued a $25,000 note payable. On March 3, 2014, the Company issued a $50,000 note payable. On March 19, 2014, the Company issued a $150,000 note payable. On April 25, 2014, the Company issued a $25,000 note payable. On May 19, 2014, the Company issued a $25,000 note payable. On June 2, 2014, the Company issued an $18,000 note payable. On June 12, 2014, the Company issued a $32,000 note payable. On July 1, 2014, the Company issued a $25,000 note payable. On July 16, 2014, the Company issued a $75,000 note payable to a related party. On July 23, the note holder assigned the note to a related party. On October 7, 2014, the Company issued a $30,000 note payable. On October 31, 2014, the Company issued a $20,000 note payable. On November 4, 2014, the Company issued a $32,000 note payable. Total Less Current Long Term b)Effective May 18, 2011, the Company issued a convertible note for $700,000. Pursuant to the terms of the agreement, the loan was unsecured, bore interest at 10% and was due on May 18, 2012. The note was convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 75% of the average of the closing bid prices of the common stock during the 30 trading days prior to the date of the conversion notice and is subject to adjustment upon the issuance of certain dilutive instruments. Due to these provisions, the embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging.December 31,
2014
$
2013
$25,000 25,000 7,500 7,500 56,000 56,000 27,000 27,000 6,000 -- 35,000 -- 235,000 -- 50,000 -- 50,000 -- 3. 25,000 -- 4. 50,000 -- 5. 150,000 -- 6. 25,000 -- 7. 25,000 -- 8. 18,000 -- 9. 32,000 -- 10. 25,000 -- 11. 75,000 -- 12. 30,000 -- 13. 20,000 -- 14. 32,000 -- $ 998,500 $ 115,500 (391,500 ) (115,500 ) $ 607,000 $ --
On June 1, 2012, the Company entered into an amended securities purchase agreement and received additional proceeds of $150,000. Pursuant to the amended securities purchase agreement, the Company issued a new convertible note (the “2012 Note”) for total aggregate proceeds received of $850,000. The 2012 Note bore interest at 10% per annum and all unpaid principal and accrued interest on the modified note shall be due and payable on June 1, 2013. The 2012 Note was convertible, at any time, in whole or in part into common stock of the Company at a conversion price equal to $0.045 per share. In addition, the Company issued the lender a warrant to purchase 212,500 shares of the Company’s common stock for three years at an exercise price equal to the lower of $0.20 per share or 75% of the average closing bid price for the 30 trading days preceding the exercise date.
24 |
As the present value of the future cash flows was well over 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different and the Company treated the original convertible note as extinguished and exchanged for a new convertible note. During the year ended December 31, 2012, the Company recorded accretion of the discount of the original note to the modification date of $574,064. The fair value of the modified debt was compared to the carrying value of the old debt and the Company recorded a gain on extinguishment of debt of $1,744,770.
The net proceeds of $850,000 of the 2012 Note were allocated to the convertible note and the warrants issued at time of issuance. The Company allocated $210,000 of the net proceeds to the warrants. This resulted in a warrant derivative liability of $210,000 and the convertible debt is initially recorded at $640,000 (net of the discount that arises from the allocation of proceeds to the warrants $210,000). The Company recognized the intrinsic value of the embedded beneficial conversion feature of $640,000 as additional-paid-in capital and an equivalent discount that reduced the carrying value of the convertible debt to $0.
On July 12, 2012, the Company settled the 2012 Note by issuing 18,888,889 shares of the Company’s common stock. The recorded $850,000 of accretion relating to the discount on the 2012 Note as the Company recognized the unamortized discount as interest expense upon conversion.
c)Effective December 21, 2011, the Company issued a $350,000 convertible note and a warrant to purchase 11,667 shares of the Company’s common stock. Pursuant to the terms of the agreement, the loan was unsecured, bore interest at 10% and was due on December 21, 2012. The Company received additional subscriptions of $650,000 and issued an additional $650,000 of convertible notes and a warrant to purchase 21,667 shares of the Company’s common stock in fiscal 2012
The note was convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 75% of the average of the closing bid prices of the common stock during the 30 trading days prior to the date of the conversion notice and is subject to adjustment upon the issuance of certain dilutive instruments. The warrants are exercisable into shares of the Company’s common stock at any time at a variable exercise price equal to the lower of $6.00 per post-reverse split share and 75% of the average of the closing bid prices of the common stock during the 30 trading days prior to the date of the conversion notice and is subject to adjustment upon the issuance of certain dilutive instruments. Due to these provisions, the embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $418,939 and warrants of $146,864, resulted in a discount to the note payable of $350,000 and the recognition of a loss on derivatives of $215,803.
20
US Highland, Inc.
Notes to the Consolidated Financial Statements
For The Years Ended December 31, 20132014 and 20122013
On June 1, 2012, the Company entered into an amended securities purchase agreement and received additional proceeds of $150,000. Pursuant to the amended securities purchase agreement, the Company issued a new convertible note (the “Second 2012 Note”) for total aggregate proceeds received of $1,150,000. The Second 2012 Note bore interest at 10% per annum and all unpaid principal and accrued interest on the modified note was due and payable on June 1, 2013. The 2012 Note is convertible, at any time, in whole or in part into common stock of the Company at a conversion price equal to $0.045 per share. In addition, the Company issued the lender a warrant to purchase 287,500 shares of the Company’s common stock for three years at an exercise price equal to the lower of $0.20 per share, or 75% of the average Closing Bid Price for the 30 trading days preceding the exercise date.
As the present value of the future cash flows was well over 10% different than the cash flows of the original debt, it is determined that the original and new debt instruments are substantially different and the Company treated the original convertible note as extinguished and exchanged for a new convertible note. During the year ended December 31, 2012, the Company recorded accretion of the discount of the original note to the modification date of $109,553. The fair value of the modified debt was compared to the carrying value of the old debt and the Company recorded a gain on extinguishment of debt of $1,711,361.
The net proceeds of $1,150,000 of the Second 2012 Note were allocated to the convertible note and the warrants issued at time of issuance. The Company allocated $284,100 of the net proceeds to the warrants. This resulted in a warrant derivative liability of $284,100 and the convertible debt is initially recorded at $865,900 (net of the discount that arises from the allocation of proceeds to the warrants $284,100). The Company recognized the intrinsic value of the embedded beneficial conversion feature of $865,900 as additional-paid-in capital and an equivalent discount that reduced the carrying value of the convertible debt to $0.
On July 12, 2012, the Company settled the 2012 Note by issuing 25,555,556 shares of the Company’s common stock. The Company recorded recognized the unamortized discount as interest expense upon conversion. The recorded $650,000 of accretion relating to the discount on the 2012 Note as the Company recognized the unamortized discount as interest expense upon conversion.
d)During the year ended December 31, 2012, the Company issued a convertible note for $500,000 a warrant to purchase 250,000 split shares of the Company’s common stock. Pursuant to the terms of the agreement, the loan was unsecured, bore interest at 10% and was due on April 1, 2013. The warrant is exercisable into common shares of the Company at the lower of $0.20 or 75% of the average closing bid price of the 30 trading days immediately preceding the exercise date. The note is convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 75% of the average of the closing bid prices of the common stock during the 30 trading days prior to the date of the conversion notice and is subject to adjustment upon the issuance of certain dilutive instruments.
Due to these provisions, the embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $595,788 and warrants of $252,373, resulted in a discount to the note payable of $500,000 and the recognition of a loss on derivatives of $348,161.
On June 1, 2012, the Company entered into an amended securities purchase agreement and received additional proceeds of $150,000. Pursuant to the amended securities purchase agreement, the Company issued a new convertible note (the “Third 2012 Note”) for total aggregate proceeds received of $650,000. The Third 2012 Note bore interest at 10% per annum and all unpaid principal and accrued interest on the modified note was due and payable on June 1, 2013. The Third 2012 Note was convertible, at any time, in whole or in part into common stock of the Company at a conversion price equal to $0.045 per share. In addition, the Company issued the lender a warrant to purchase 162,500 shares of the Company’s common stock for three years at an exercise price equal to the lower of $0.20 per share, or 75% of the average Closing Bid Price for the 30 trading days preceding the exercise date.
As the present value of the future cash flows was well over 10% different than the cash flows of the original debt, it is determined that the original and new debt instruments are substantially different and the Company treated the original convertible note as extinguished and exchanged for a new convertible note. During the year ended December 31, 2012, the Company recorded accretion of the discount of the original note to the modification date of $9,379. The fair value of the modified debt was compared to the carrying value of the old debt and the Company recorded a gain on extinguishment of debt of $732,909.
The net proceeds of $650,000 of the Third 2012 Note were allocated to the convertible note and the warrants issued at time of issuance. The Company allocated $140,400 of the net proceeds to the warrants. This resulted in a warrant derivative liability of $140,400 and the convertible debt is initially recorded at $509,600 (net of the discount that arises from the allocation of proceeds to the warrants $140,400). The Company recognized the intrinsic value of the embedded beneficial conversion feature of $509,600 as additional-paid-in capital and an equivalent discount that reduced the carrying value of the convertible debt to $0.
On July 12, 2012, the Company settled the 2012 Note by issuing 14,444,444 shares of the Company’s common stock. The Company recognized the unamortized discount as interest expense upon conversion. The recorded $1,150,000 of accretion relating to the discount on the 2012 Note as the Company recognized the unamortized discount as interestexpense upon conversion.
21
7. | Convertible Debentures |
a) | Effective January 25, 2010, the Company issued a convertible note for $225,000. Pursuant to the terms of the agreement, the loan was unsecured, non-interest bearing, and was due on December 21, 2010. The note was convertible into shares of the Company's common stock at any time at a variable conversion price equal to 65% of the average of the closing bid prices of the common stock during the 28 trading days prior to the date of the conversion notice and was subject to adjustment upon the issuance of certain dilutive instruments. Due to these provisions, the embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the derivative liability of $538,249 resulted in a full discount to the note payable of $225,000 and the recognition of a loss on derivatives of $313,249. | |
On June 2, 2010, the Company issued 6,386 restricted shares of common stock upon the conversion of the principal amount of $166,667. The fair value of the derivative liability at June 2, 2010, was $266,425 and $197,352 was reclassified to additional paid-in capital upon conversion. During the year ended December 31, 2013, the Company repaid $2,000 of the note and during the year ended December 31, 2014, the Company repaid an additional $3,000. At December 31, 2014, the carrying value of the note is $53,333 (2013 - $56,333). The note is in default at December 31, 2014. | ||
b) | Effective July 25, 2013, the Company issued a convertible note to secure a demand loan of $75,000. Pursuant to the terms of the agreement, the loan is unsecured and due on July 31, 2014. The note is convertible into shares of the Company's common stock at any time at a price of $0.035. The note bears interest at 8% per annum compounded monthly, and is due on demand. | |
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $577,797 resulted in a discount to the note payable of $75,000 and the recognition of a loss on derivatives of $502,797. As the note is due on demand the entire discount was recorded as interest expense on July 25, 2013. At December 31, 2014, the carrying value of the note is $75,000 (2013 - $75,000). | ||
c) | Effective July 25, 2013, the Company issued a convertible note to secure a demand loan of $45,000. Pursuant to the terms of the agreement, the loan is unsecured and due on July 31, 2014. The note is convertible into shares of the Company's common stock at any time at a price of $0.035. The note bears interest at 8% per annum compounded monthly, and is due on demand. | |
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $346,678 resulted in a discount to the note payable of $45,000 and the recognition of a loss on derivatives of $301,678. As the note is due on demand the entire discount was recorded as interest expense on July 25, 2013. At December 31, 2014, the carrying value of the note is $45,000 (2013 - $45,000). | ||
d) | On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 12,500,000 underlying shares of the Company's common stock. The warrants are exercisable into 10,000,000 common shares of the Company at $0.05 per share and 2,500,000 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $500,000 under the note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. In addition, so long as any amounts are due hereunder, the Company is obligated to remit to the lender 100% of all revenues, payments and receivables from the sale of the first 50 engines sold by the Company. The note is secured against substantially all of the assets of the Company. | |
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company's common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note. |
Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $6,714,279 and warrants of $3,169,531 resulted in a discount to the note payable of $500,000 and the recognition of a loss on derivatives of $9,383,810. | ||
On July 24, 2014, the Company and the note holder agreed to extend the maturity date to December 31, 2014 and increase the interest rate to 12% starting on August 1, 2014. The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The Company recorded a loss on extinguishment of debt of $474,668. The Company also recognized the fair value of the embedded conversion feature of $24,501,757 as a derivative liability and reduced the value of the convertible loan to $nil. |
25 |
US Highland, Inc.
Notes to the Consolidated Financial Statements
For The Years Ended December 31, 20132014 and 2012
e)Effective July 25, 2013 the Company issued a convertible note to secure the demand loan of $75,000 described in Note 5(d). Pursuant to the terms of the agreement, the loan is unsecured and due on July 31, 2014. The note is convertible into shares of the Company’s common stock at any time at a price of $0.035. The note bears interest at 8% per annum compounded monthly, and is due on demand.
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $577,797 resulted in a discount to the note payable of $75,000 and the recognition of a loss on derivatives of $502,797. As the note is due on demand the entire discount was recorded as interest expense on July 25, 2013 as the note is due on demand.
On December 31, 2014, the Company and the note holder agreed to extend the maturity date to December 31, 2015. Interest shall accrue at 12% per annum but may be reduced to 8% for any period of time in which the interest is paid in cash and not accrued. The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The Company recorded a loss on extinguishment of debt of $411,820. The Company also recognized the fair value of the embedded conversion feature of $25,088,180 as a derivative liability and reduced the value of the convertible loan to $nil. During the year ended December 31, 2014, the Company recorded total accretion of $884,065 and at December 31, 2014, the carrying value of the note was $500,000 (2013 - $500,000) with unamortized discount of $500,000 (2013 -- $407,646). | ||
e) | On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 10,197,916 underlying shares of the Company's common stock. The warrants are exercisable into 8,158,333 common shares of the Company at $0.05 per share and 2,039,583 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $273,700 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. | |
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company's common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note. | ||
Due to the potential adjustments to the conversion rate of the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $5,278,978 and warrants of $2,450,519 resulted in a discount to the note payable of $273,700 and the recognition of a loss on derivatives of $7,455,797. | ||
The note was not repaid on July 31, 2014. On August 4, 2014, the Company and the note holder agreed to extend the maturity date to December 31, 2014 and increase the interest rate to 12% starting on August 1, 2014. The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The Company recorded a loss on extinguishment of debt of $273,700. The Company also recognized the fair value of the embedded conversion feature of $13,685,849 as a derivative liability and reduced the value of the convertible loan to $nil. |
f)Effective July 25, 2013, the Company issued a convertible note to secure the demand loan of $45,000 described in Note 5(e). Pursuant to the terms of the agreement, the loan is unsecured and due on July 31, 2014. The note is convertible into shares of the Company’s common stock at any time at a price of $0.035. The note bears interest at 8% per annum compounded monthly, and is due on demand.
On December 31, 2014, the Company and the note holder agreed to extend the maturity date to December 31, 2015. Interest shall accrue at 12% per annum but may be reduced to 8% for any period of time in which the interest is paid in cash and not accrued. The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The Company recorded a loss on extinguishment of debt of $225,431. The Company also recognized the fair value of the embedded conversion feature of $13,733,269 as a derivative liability and reduced the value of the convertible loan to $nil. During the year ended December 31, 2014, the Company recorded total accretion of $495,392 and at December 31, 2014, the carrying value of the note was $273,700 (2013 - $273,700) with unamortized discount of $273,700 (2013 -- $221,692). | ||
f) | Effective November 12, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 694,445 underlying shares of the Company's common stock. The warrants are exercisable into 555,556 common shares of the Company at $0.05 per share and 138,889 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $20,000 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. | |
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company's common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note. | ||
Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $250,021 and warrants of $145,943, resulted in a discount to the note payable of $20,000 and the recognition of a loss on derivatives of $375,964. During the year ended December 31, 2014, the Company recorded accretion of $13,479 increasing the carrying value of the note to $20,000. The note is in default at December 31, 2014. |
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $346,678 resulted in a discount to the note payable of $45,000 and the recognition of a loss on derivatives of $301,678. As the note is due on demand the entire discount was recorded as interest expense on July 25, 2013 as the note is due on demand.
26 |
g)On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 12,500,000 underlying shares of the Company’s common stock. The warrants are exercisable into 10,000,000 common shares of the Company at $0.05 per share and 2,500,000 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $500,000 under the note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. In addition, so long as any amounts are due hereunder, the Company is obligated to remit to the lender 100% of all revenues, payments and receivables from the sale of the first 50 engines sold by the Company.
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note.
Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $6,714,279 and warrants of $3,169,531 resulted in a discount to the note payable of $500,000 and the recognition of a loss on derivatives of $9,383,810. During the year ended December 31, 2013, the Company recorded accretion of $92,354 increasing the carrying value of the note to $92,354.
h)On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 10,197,916 underlying shares of the Company’s common stock. The warrants are exercisable into 8,158,333 common shares of the Company at $0.05 per share and 2,039,583 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $273,700 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014.
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note.
Due to the potential adjustments to the conversion rate of the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $5,278,978 and warrants of $2,450,519 resulted in a discount to the note payable of $273,700 and the recognition of a loss on derivatives of $7,455,797. During the year ended December 31, 2013, the Company recorded accretion of $52,008 increasing the carrying value of the note to $52,008.
i)Effective November 12, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 694,445 underlying shares of the Company’s common stock. The warrants are exercisable into 555,556 common shares of the Company at $0.05 per share and 138,889 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $20,000 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014.
22
US Highland, Inc.
Notes to the Consolidated Financial Statements
For The Years Ended December 31, 20132014 and 2012
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note.
Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $250,021 and warrants of $145,943, resulted in a discount to the note payable of $20,000 and the recognition of a loss on derivatives of $375,964. During the year ended December 31, 2013 the Company recorded accretion of $6,521 increasing the carrying value of the note to $6,521.
j)Effective October 7, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 868,055 underlying shares of the Company’s common stock. The warrants are exercisable into 694,444 common shares of the Company at $0.05 per share and 173,611 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $25,000 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014.
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note.
Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $312,522 and warrants of $182,522 resulted in a discount to the note payable of $25,000 and the recognition of a loss on derivatives of $470,045. During the year ended December 31, 2013, the Company recorded accretion of $7,968 increasing the carrying value of the note to $7,968.
k)On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 739,584 underlying shares of the Company’s common stock. The warrants are exercisable into 591,667 common shares of the Company at $0.05 per share and 147,917 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $41,300 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014.
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company’s common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note.
Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $547,736 and warrants of $187,531, resulted in a discount to the note payable of $41,300 and the recognition of a loss on derivatives of $693,967. During the year ended December 31, 2013, the Company recorded accretion of $16,645 increasing the carrying value of the note to $16,645.
g) | Effective October 7, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 868,055 underlying shares of the Company's common stock. The warrants are exercisable into 694,444 common shares of the Company at $0.05 per share and 173,611 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $25,000 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. | |
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company's common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note. | ||
Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $312,522 and warrants of $182,522 resulted in a discount to the note payable of $25,000 and the recognition of a loss on derivatives of $470,045. | ||
On July 24, 2014, the Company and the note holder agreed to extend the maturity date to December 31, 2014 and increase the interest rate to 12% starting on August 1, 2014. The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The Company recorded a loss on extinguishment of debt of $25,000. The Company also recognized the fair value of the embedded conversion feature of $1,250,082 as a derivative liability and reduced the value of the convertible loan to $nil. | ||
During the year ended December 31, 2014, the Company recorded total accretion of $42,032 and at December 31, 2014 the carrying value of the note was $25,000. The note is in default at December 31, 2014. | ||
h) | On July 25, 2013, the Company issued a convertible note for up to $500,000 and warrants to purchase 739,584 underlying shares of the Company's common stock. The warrants are exercisable into 591,667 common shares of the Company at $0.05 per share and 147,917 shares at an exercise price of $0.10 per share until July 31, 2014. During the year ended December 31, 2013, the Company received proceeds of $41,300 under the note. At November 30, 2013, the Company had determined that no additional funding would be received pursuant to the convertible note. The note bears interest at 8% per annum compounded monthly, and principal and interest are due on July 31, 2014. |
The note may be prepaid by the Company without penalty with 30 days prior notice. The note is convertible into shares of the Company's common stock at any time at a conversion price equal to $0.02 per share and is subject to adjustment upon the issuance of certain dilutive instruments and other events. The conversion price was subsequently reduced to $0.01 per share upon the failure to file various reports with the SEC within 120 days of the issuance of the note. | ||
Due to the potential adjustments to the conversion feature and the inability to conclude that the Company has enough unissued-authorized common shares to settle the warrants, the embedded conversion option and the warrants qualify for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $547,736 and warrants of $187,531, resulted in a discount to the note payable of $41,300 and the recognition of a loss on derivatives of $693,967. | ||
On August 4, 2014, the Company and the note holder agreed to extend the maturity date to December 31, 2014 and increase the interest rate to 12% starting on August 1, 2014. The Company accounted for the modification in accordance with ASC 405-20 and ASC 470-50-40. As the present value of the future cash flows was more than 10% different than the cash flows of the original debt, it was determined that the original and new debt instruments are substantially different and the Company treated the original convertible note extinguished and exchanged for a new convertible note. The Company recorded a loss on extinguishment of debt of $41,300. The Company also recognized the fair value of the embedded conversion feature of $2,065,135 as a derivative liability and reduced the value of the convertible loan to $nil. | ||
During the year ended December 31, 2014, the Company recorded total accretion of $65,955 and at December 31, 2014, the carrying value of the note was $41,300. The note is in default at December 31, 2014. |
23
27 |
US Highland, Inc.
Notes to the Consolidated Financial Statements
For The Years Ended December 31, 20132014 and 2012
7. Derivative Liabilities2013
The embedded conversion options of the Company’s convertible debentures described in Note 6 contain conversion features that qualify for embedded derivative classification. The warrants described in Notes 6 and 9
8. | Derivative Liabilities |
The embedded conversion options of the Company's convertible debentures described in Note 7 contain conversion features that qualify for embedded derivative classification. The warrants described in Notes 7 and 10 also qualify for derivative classification. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments. | |
The table below sets forth a summary of changes in the fair value of the Company's Level 3 financial liabilities: |
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities:
|
| December 31, 2013 |
| December 31, 2012 |
| December 31, 2014 |
|
| December 31, 2013 |
| ||
|
|
|
|
|
|
|
|
|
| |||
Balance at the beginning of year | $ | 941,464 | $ | 646,831 |
| $ | 29,430,719 |
| $ | 941,464 |
| |
|
|
|
|
|
|
|
|
|
| |||
Addition of new derivative liabilities (embedded conversion options) |
| 14,028,014 |
| 1,010,478 |
| -- |
| 14,028,014 |
| |||
Addition of new derivative liabilities (warrants) |
| 9,209,794 |
| 2,134,182 |
| 53,606 |
| 9,209,794 |
| |||
Change in fair value of warrants |
| (627,690) |
| (364,842) |
| (5,184,569 | ) |
| (627,690 | ) | ||
Change in fair value of embedded conversion option |
| 9,128,915 |
| 4,059,964 |
| 21,627,561 |
| 9,128,915 |
| |||
Conversion of warrants |
| (3,249,778) |
| (1,199,995) |
| -- |
| (3,249,778 | ) | |||
Settlement of embedded conversion options |
| – |
| (5,345,154) | ||||||||
Modification of embedded conversion options |
|
| 138,200 |
|
|
| -- |
| ||||
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|
|
|
|
|
|
|
| |||
Balance at the end of the year | $ | 29,430,719 | $ | 941,464 |
| $ | 46,065,517 |
|
| $ | 29,430,719 |
|
The following table summarizes the change in fair value of derivatives:
|
| December 31, 2013 |
| December 31, 2012 |
|
|
|
|
|
Fair value of derivative liabilities in excess of note proceeds received | $ | (19,184,058) | $ | (349,109) |
Change in fair value of derivative liabilities during year |
| (8,501,225) |
| (3,695,122) |
|
|
|
|
|
Change in fair value of derivatives | $ | (27,685,283) | $ | (4,044,231) |
Fair value of derivative liabilities in excess of note proceeds received Change in fair value of derivative liabilities during year Change in fair value of derivatives December 31,
2014 December 31,
2013 $ -- $ (19,184,058 ) (16,442,992 ) (8,501,225 ) $ (16,442,992 ) $ (27,685,283 )
The Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities as their fair values were determined by using the Black-Scholes option pricing model based on various assumptions. The model incorporates the price of a share of the Company’sCompany's common stock (as quoted on the Over the Counter Bulletin Board), volatility, risk free rate, dividend rate and estimated life. Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
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8. Common Stock
On April 13, 2012, the Company effected a reverse split of the issue and outstanding shares of common stock on a 30 for 1 basis. All share and per share amounts have been retroactively adjusted for all periods presented.
On December 23, 2013, the Board approved an amendment to the Articles of Incorporation to increase the authorized shares of common stock to 500,000,000 shares and authorize 3,550,000 shares of “blank check” preferred stock, par value $0.01.
Share transactions for the year ended December 31, 2013:
a)On February 15, 2013, the Company issued 5,000,000 shares of common upon the exercise of a warrant at $0.0005 per share described in Note 9(f) for cash proceeds of $2,500.
b)On March 13, 2013, the Company issued 4,500,000 shares of common stock in consideration for cash at $0.05 per share.
c)On March 18, 2013, a director of the Company converted $21,000 of amounts owed to him by the Company into 420,000 shares of common stock. The amount owed had no terms of repayment and was non-interest bearing.
24
US Highland, Inc.
Notes to the Consolidated Financial Statements
For The Years Ended December 31, 20132014 and 20122013
d)On October 25, 2013, the Company issued 533,333 shares
2013 new notes - At issuance 53% - 329 % 0.10% - 1.41 % 0.69-3.00 At December 31, 2013 29% - 209 % 0.10% - 0.58 % 0.58-3.00 2014 new notes - At issuance At December 31, 2014 167% - 369 % 0.04% - 0.67 % 0.25-2.50 Expected
VolatilityRisk-free
Interest RateExpected
Dividend YieldExpected Life
(in years)0 % 0 % 209 % 0.38 % 0 % 3.00 0 %
9. | Income Taxes |
At December 31, 2014, $9,655,519 of federal and state net operating losses were available to the Company to offset future taxable income, which will expire commencing in 2030. The potential benefit of net operating losses have not been recognized in the consolidated financial statements because the Company cannot be assured that it is more likely than not that it will utilize the net operating losses carried forward in future years. The Company did not incur any income tax expense for the years ended December 31, 2014 and 2013. Given the short history of the Company and the uncertainty as to the likelihood of future taxable income, the Company has recorded a 100% valuation reserve against the anticipated recovery from the use of the net operating losses created at the inception or generated thereafter. The Company will evaluate the appropriateness of the valuation allowance on an annual basis and adjust the allowance as considered necessary. | |
The components of the net deferred tax asset at December 31, 2014 and 2013 and the amount of the valuation allowance are indicated below: |
Net loss before taxes Statutory rate Computed expected tax (recovery) Depreciation Accretion Loss on derivatives Loss on write-down of inventory Gain on settlement of debt Gain on sale of equipment Stock-based compensation Net operating loss Valuation allowance Net deferred taxes December 31,
2014December 31,
2013$ (17,908,057 ) $ (32,107,140 ) 34 % 34 % $ (6,088,739 ) $ (10,916,428 ) 3,199 3,621 510,314 100,469 5,590,617 9,412,996 42,709 (493,652 ) (22,690 ) (361 ) -- -- 899,313 435,913 522,719 (435,913 ) (522,719 ) $ -- $ --
As of December 31, 2014 and 2013, the Company did not recognize any liability for unrecognized tax benefits. |
29 |
US Highland, Inc.
Notes to a consultant as part of a settlement agreement to settle $80,000 of amounts owed to the consultant.Consolidated Financial Statements
For The fair value of the shares was $26,667 and the Company recorded a gain on the settlement of debt of $53,333.
9. Stock Purchase Warrants
a)On January 23, 2013, the Company issued a warrant to purchase 5,000,000 common shares at $0.0005 per share exercisable for three years pursuant to the management securities agreement described in Note 10(f). The Company recorded the fair value of the warrant of $2,599,801 as consulting expense. On February 15, 2013 the Company issued 5,000,000 common shares upon the exercise of the warrant. Upon the exercise of the warrants the Company reclassified the fair value of the warrant of $3,249,778 to additional paid in capital. During the year endedYears Ended December 31, 2014 and 2013 the Company recorded a loss on the change in fair value of the derivative liability of $649,977 prior to the exercise of the warrant.
b)On April 1, 2013, the Company entered into a settlement agreement with a consultant to settle $149,971 of services provided in 2012. Pursuant to the agreement, the Company will pay $10,000 and issued a warrant to purchase 300,000 shares of common stock at $0.0005 per share for three years. The warrants meet the criteria for classification as a derivative liability and
10. | Common Stock |
There were no share transactions during the year ended December 31, 2014. | |
On December 23, 2013, the Board approved an amendment to the Articles of Incorporation to increase the authorized shares of common stock to 500,000,000 shares and authorize 3,550,000 shares of "blank check" preferred stock, par value $0.01. | |
Share transactions for the year ended December 31, 2013: |
a) | On February 15, 2013, the Company issued 5,000,000 shares of common upon the exercise of a warrant at $0.0005 per share described in Note 10(c) for cash proceeds of $2,500. | |
b) | On March 13, 2013, the Company issued 4,500,000 shares of common stock in consideration for cash at $0.05 per share. | |
c) | On March 18, 2013, a director of the Company converted $21,000 of amounts owed to him by the Company into 420,000 shares of common stock. The amount owed had no terms of repayment and was non-interest bearing. | |
d) | On October 25, 2013, the Company issued 533,333 shares to a consultant as part of a settlement agreement to settle $80,000 of amounts owed to the consultant. The fair value of the shares was $26,667 and the Company recorded a gain on the settlement of debt of $53,333. |
11. | Stock Purchase Warrants |
a) | On January 2, 2014, the Company entered into a settlement agreement with a consultant to settle $11,800 of services provided in 2012. Pursuant to the agreement, the Company issued a warrant to purchase 43,750 shares of common stock at $0.0005 per share for three years. The warrants meet the criteria for classification as a derivative liability and the Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities as their fair values were determined by using the Black-Scholes option pricing model based on various assumptions described in note 8. The initial value of these warrants was $41,806. During the year ended December 31, 2014, the Company recorded a loss on the change in fair value of the derivative liability of $37,169. | |
b) | On January 3, 2014, the Company entered into a settlement agreement with a consultant to settle $41,806 of services provided in 2012. Pursuant to the agreement, the Company issued a warrant to purchase 155,000 shares of common stock at $0.0005 per share for three years. The warrants meet the criteria for classification as a derivative liability and the Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities as their fair values were determined by using the Black-Scholes option pricing model based on various assumptions described in note 8. The initial value of these warrants was $11,800. During the year ended December 31, 2014, the Company recorded a loss on the change in fair value of the derivative liability of $10,491. | |
c) | On January 23, 2013, the Company issued a warrant to purchase 5,000,000 common shares at $0.0005 per share exercisable for three years pursuant to the management securities agreement. The Company recorded the fair value of the warrant of $2,599,801 as consulting expense. On February 15, 2013 the Company issued 5,000,000 common shares upon the exercise of the warrant. Upon the exercise of the warrants the Company reclassified the fair value of the warrant of $3,249,778 to additional paid in capital. During the year ended December 31, 2013, the Company recorded a loss on the change in fair value of the derivative liability of $649,977 prior to the exercise of the warrant. |
30 |
US Highland, Inc.
Notes to Consolidated Financial Statements
For The Years Ended December 31, 2014 and 2013 the Company recorded a gain on the change in fair value of the derivative liability of $69,085.
c)On April 8, 2013, the Company entered into a settlement agreement with a consultant to settle $149,971 of services provided in 2012. Pursuant to the agreement, the Company will pay $10,000 and issued a warrant to purchase 300,000 shares of common stock at $0.0005 per share for three years. The warrants meet the criteria for classification as a derivative liability and during the year ended December 31, 2013, the Company recorded a loss on the change in fair value of the derivative liability of $69,084.
d) | On April 1, 2013, the Company entered into a settlement agreement with a consultant to settle $149,971 of services provided in 2012. Pursuant to the agreement, the Company will pay $10,000 and issued a warrant to purchase 300,000 shares of common stock at $0.0005 per share for three years. The warrants meet the criteria for classification as a derivative liability and during the year ended December 31, 2013, the Company recorded a gain on the change in fair value of the derivative liability of $69,085. | |
e) | On April 8, 2013, the Company entered into a settlement agreement with a consultant to settle $149,971 of services provided in 2012. Pursuant to the agreement, the Company will pay $10,000 and issued a warrant to purchase 300,000 shares of common stock at $0.0005 per share for three years. The warrants meet the criteria for classification as a derivative liability and during the year ended December 31, 2013, the Company recorded a loss on the change in fair value of the derivative liability of $69,084. | |
f) | On September 4, 2013, the Company issued a consultant 100,000 warrants for $29,655 of services. The warrant meets the criteria for classification as a derivative liability and during the year ended December 31, 2013, the Company recorded a gain on the change in fair value of the derivative liability of $3,138. | |
g) | On December 23, 2013, the Company entered into a settlement agreement with a consultant to settle $88,445 of services provided in 2012. Pursuant to the agreement, the Company will pay $7,500 and issued a warrant to purchase 300,000 shares of common stock at $0.0005 per share for three years. The warrant meets the criteria for classification as a derivative liability and during the year ended December 31, 2013, the Company did not recognize a gain or loss on the change in fair value of the derivative liability. | |
h) | On December 30, 2013, the Company entered into a settlement agreement with a consultant to settle $36,425 of services provided in 2012. Pursuant to the agreement, the Company issued a warrant to purchase 135,000 shares of common stock at $0.0005 per share for three years. The warrant meets the criteria for classification as a derivative liability and during the year ended December 31, 2013, the Company did not recognize a gain or loss on the change in fair value of the derivative liability. | |
i) | On December 30, 2013, the Company entered into a settlement agreement with a consultant to settle $26,982 of services provided in 2012. Pursuant to the agreement, the Company issued a warrant to purchase 100,000 shares of common stock at $0.0005 per share for three years. The warrant meets the criteria for classification as a derivative liability and during the year ended December 31, 2013, the Company did not recognize a gain or loss on the change in fair value of the derivative liability. | |
j) | During the year ended December 31, 2013, the Company issued 25,000,000 warrants to purchase 25,000,000 shares of common stock pursuant to the convertible note agreements described in Note 7(d) to (h). |
d)On September 4, 2013, the Company issued a consultant 100,000 warrants for $29,655 of services. The warrant meets the criteria for classification as a derivative liability and during the year ended December 31, 2013, the Company recorded a gain on the change in fair value of the derivative liability of $3,138.
e)On December 23, 2013, the Company entered into a settlement agreement with a consultant to settle $88,445 of services provided in 2012. Pursuant to the agreement, the Company will pay $7,500 and issued a warrant to purchase 300,000 shares of common stock at $0.0005 per share for three years. The warrant meets the criteria for classification as a derivative liability and during the year ended December 31, 2013, the Company did not recognize a gain or loss on the change in fair value of the derivative liability.
f)On December 30, 2013, the Company entered into a settlement agreement with a consultant to settle $36,425 of services provided in 2012. Pursuant to the agreement, the Company issued a warrant to purchase 135,000 shares of common stock at $0.0005 per share for three years. The warrant meets the criteria for classification as a derivative liability and during the year ended December 31, 2013, the Company did not recognize a gain or loss on the change in fair value of the derivative liability.
g)On December 30, 2013, the Company entered into a settlement agreement with a consultant to settle $26,982 of services provided in 2012. Pursuant to the agreement, the Company issued a warrant to purchase 100,000 shares of common stock at $0.0005 per share for three years. The warrant meets the criteria for classification as a derivative liability and during the year ended December 31, 2013, the Company did not recognize a gain or loss on the change in fair value of the derivative liability
h)During the year ended December 31, 2013, the Company issued 25,000,000 (2012 - 934,166) warrants to purchase 25,000,000 (2012 - 934,166) shares of common stock pursuant to the convertible note agreements described in Note 6(g) to (k). (2012 - Notes 6(b), 6(c) and 6(d)).
A summary of the changes in the Company’sCompany's common share purchase warrants is presented below:
|
Number | Weighted Average Exercise Price | Weighted Average Expected Life |
|
|
|
|
Balance December 31, 2011 | 45,000 | $ 6.00 | 2.75 years |
|
|
|
|
Issued | 2,934,166 | 0.11 |
|
Exercised | (2,000,000) | 0.0005 |
|
|
|
|
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Balance December 31, 2012 | 979,166 | $ 0.59 | 2.33 years |
|
|
|
|
Issued | 31,235,000 | 0.0481 |
|
Exercised | (5,000,000) | 0.0005 |
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Balance December 31, 2013 | 27,214,166 | $ 0.08 | 0.70 years |
Weighted Average Expected Life Balance December 31, 2012 2.33 years Issued Exercised Balance December 31, 2013 0.70 years Issued Cancelled/Expired Balance December 31, 2014 1.10 years 25Number Weighted Average Exercise Price 979,166 $ 0.59 31,235,000 0.0481 (5,000,000 ) 0.0005 27,214,166 $ 0.08 198,750 0.0005 (25,166,666 ) 0.08 2,246,250 $ 0.08
31 |
US Highland, Inc.
Notes to the Consolidated Financial Statements
For The Years Ended December 31, 2013 and 2012
10. Commitments
a)The Company entered into a consulting agreement dated September 20, 2011 with a director of the Company for services to be provided for a term of three years. The Company agreed to pay $2,250 per month, as well as issue 16,667 post-reverse split shares of common stock. On July 31, 2012, the Company issued 500,000 shares of common stock. The Company erred and should have issued the director 16,667 shares and cancelled 483,333 of the shares during the year ended December 31, 2013. During the year ended December 31, 2013, the Company recorded $10,000 (December 31, 2012 - $42,250) of professional fees. During year ended December 31, 2013, the director agreed to suspend the agreement.
b)The Company entered into an employment agreement dated October 14, 2011 with an officer of the Company for services to be provided for an initial term of three years, and on a year-to-year basis thereafter. The Company agreed to pay $8,000 per month, increasing to $10,000 per month on the seventh month, and further to $12,000 per month on the tenth month. During the year ended December 31, 2013, the Company recorded $144,000 (December 31, 2012 - $140,000) of general and administrative expenses.
c)The Company entered into a consulting agreement dated October 20, 2011 with a director of the Company for services to be provided for a term of three years. The Company agreed to pay $2,250 per month, as well as issue 6,667 post-reverse split shares of common stock. The shares were issued on October 25, 2011. The Company recorded $24,750 of general and administrative expenses during the year ended December 31, 2012. The agreement was terminated in 2013 and no fees were recorded.
d)The Company entered into an employment agreement dated November 10, 2011 with an officer of the Company for services to be provided for an initial term of three years, and on a year-to-year basis thereafter. The Company agreed to pay $6,000 per month, increasing to $8,000 per month on the seventh month, and further to $10,000 per month on the tenth month. During the year ended December 31, 2013, the Company recorded $48,445 (December 31, 2012 - $116,000) of professional fees. During the year ended December 31, 2013, the Company agreed to terminate the agreements.
e)The Company entered into two employment agreements dated November 10, 2011, effective June 15, 2011, with two employees for services to be provided for an initial term of three years, and on a year-to-year basis thereafter. The Company agreed to pay each employee $6,000 per month, increasing to $8,000 per month on the seventh month, and further to $10,000 per month on the tenth month.During the year ended December 31, 2013, the Company recorded $264,942 (December 31, 2012 - $232,000) of professional fees. During the year ended December 31, 2013, the Company agreed to terminate the agreements.
f)On October 1, 2012, the Company entered into a management securities agreement with a consultant. Pursuant to the agreement the Consultant will provide management services for a period of one year in consideration for a warrant to purchase 2,000,000 common shares of the Company at $0.0005 per share exercisable for 3 years (exercised). An amendment to the services agreement entered into on January 23, 2013. Pursuant to the amendment the consultant will provide additional services in consideration for $20,000 per month from February 1, 2013 to March 31, 2014 and a warrant to purchase 5,000,000 common shares of the Company at $0.0005 per share for 3 years (exercised subsequently). On October 28, 2013 the Company entered into a settlement agreement to terminate the contract with the consultant effective July 10, 2013. Refer to Note 9(a).
g)
12. | Commitments |