US Highland, Inc.

Form 10-K

For the Fiscal Year Ended December 31, 2013

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

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.

PART I

ITEM 1. BUSINESS

Corporate History

US Highland, Inc. (“("US Highland”Highland" or the “Registrant” or the “Company”"Company") was originally formed as a limited liability company on February 5, 1999 under the name The"The Powerhouse, L.L.C. pursuant to" in the laws of the Statestate 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 corporationC-corporation under the name US"US Highland, Inc." On November 29, 2006, articles of amendment to the Company amended its certificate of incorporation increasedthereby increasing the authorized shares of common sharesstock to 100,000,000 with a par value of $0.01 per share.

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. 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. (the "Merger"). Pursuant to thean Asset Purchase Agreement, dated December 21, 2009, with Shane Harwell, the RegistrantCompany sold all rights, title and interest to the purchased assets to Mr. Harwell for the consideration of 950,000 common shares.shares of Common Stock.

Current Corporate Operations                      Description of New Business Strategy

US Highland is

After the Merger, the Company solely focused on the business of being a recreational powersports Original Equipment Manufacturer (“OEM”("OEM"), developing motorcycles, quads, single cylinder engines,. In September 2015, the Company redefined its business model to be one of a diversified holdings Company. The Company will seek investments in acquisitions, joint ventures and v-twin engines understrategic partnerships that will development new holdings and business lines that take advantage of management's ability to sell, market, and distribute products. The Company has realigned its own brandmission statement to include providing companies and for other OEMs.US Highland moved its manufacturing equipmentemerging brands with the knowledge and toolingexpertise needed to launch their products in the United States from Swedenmarketplace.

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As part of the Company's new strategy to diversify its operations by engaging in new business lines to assist companies and is currently preparedemerging brands launch their products in the U.S., on September 23, 2015, the Company formed two wholly-owned subsidiaries, USH Distribution Corp., a Nevada corporation ("USH"), and Powersports Brands Alliance, Inc., a Nevada corporation ("PBA") The Company formed USH to begin engine assembly operationsprovide sales, marketing and distribution services primarily to international and domestic companies seeking sales of their products in Tulsa, Oklahoma. the U.S.; and PBA to acquire brands in the powersports industry with the intended goal of being a business that sells powersports products, including, but not limited to, powersports parts and accessories, such as helmets, gloves, gear, etc.

The operations will require an estimated $2,188,000 overCompany's new business strategy consists of the course of next twelve (12) calendar months and will include the launch later in fiscal 2014 of its single cylinder engine platform and will be followed by the launch of its twin cylinder engines.following divisions:

	1.	Distribution. Through USH, the Company's strategy is to provide sales, marketing and distribution services to primarily international and domestic companies seeking sales of their products in the U.S. Specifically, USH is expected to provide its customers with third party logistics, sales/marketing, product strategy and product development.
	2.	Powersports. Through PBA, the Company intends to acquire brands in the powersports industry with the intended goal of being a business that sells powersports products, including, but not limited to, powersports parts and powersports accessories such as helmets, gloves and gear, etc.
	3.	Apparel Sourcing. Through USH, the Company has a 40% minority equity stake in a joint venture, Lahva. The joint venture was formed with a Malaysian company, M&M, to provide apparel sourcing and supply chain management services to U.S. apparel companies and retailers for international sourcing and production of apparel items. Specifically, Lahva's goal is to provide clients with end-to-end sourcing services, managing the entire apparel supply chain from design concept to consumer point of purchase.
	4.	Recreational Powersports OEM. The Company's original business is a recreational powersports Original Equipment Manufacturer ("OEM"), developing motorcycles, quads, single cylinder engines, and v-twin engines under its own brand and for other OEMs. The Company still owns and maintains its intellectual property rights to engine platforms and plans to continue its development of these platforms in the power sports industry. The Company's goal is to adopt a Powersports OEM business plan, with a focus on marketing its intellectual property.

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.

Joint Venture Agreement with M&M Sourcing

On September 25, 2015, USH entered into a Joint Venture Agreement, dated September 25, 2015 (the "JV Agreement"), with M&M Sourcing Sdn. Bhd., a Malaysian entity ("M&M"). Pursuant to the JV Agreement, USH and M&M jointly formed Lahva, Inc., a Nevada corporation on September 23, 2015 ("Lahva"), for the purposes of acting as the U.S. based representative of M&M to provide apparel sourcing services to U.S. based brands and retailers, develop in-house apparel brands and invest in and develop non in-house apparel brands (the "Joint Venture").

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The following is a summary of the JV Agreement:

	1.	USH's and M&M's equity stake in Lahva is 40% and 60%, respectively.
	2.	In consideration for its equity stake in Lahva, USH has agreed to provide certain services to the Joint Venture, including, but not limited to the following:

		a.	Management mentoring;
		b.	Mentoring to brand designers and entrepreneurs;
		c.	Sales consulting;
		d.	Sales support;
		e.	Business advisory services;
		f.	U.S. market advisory services;
		g.	Introductions to U.S. business contacts; and
		h.	Use of USH offices, warehouses and business mailing address.

3.

In consideration for its equity stake in Lahva, M&M has agreed to provide certain services to the Joint Venture, including but not limited to the following:

		a.	Management mentoring;
		b.	Mentoring to brand designers and entrepreneurs;
		c.	Client management;
		d.	Apparel production and supply chain development consulting; and
		e.	Business advisory services.

		4.	USH has the exclusive right of first offer to provide consignment sales to the Joint Venture's new customers.
		5.	M&M has the exclusive right to provide international sourcing services to the Joint Venture's sourcing clients and brands (both in-house and non-in-house).
		6.	Lahva's board of directors shall consist of three members, one of whom shall be appointed by USH and two by M&M (the "M&M Board Representatives"). No board resolution will be passed without at least a majority of the board voting in favor of it.

	7.	The executive officers will be responsible for the day to day management of the Joint Venture. The M&M Board Representatives shall appoint the executive officers of the Joint Venture.
	8.	The Joint Venture Agreement may be terminated at any time upon the mutual agreement of the parties.
	9.	If either party materially breaches the Joint Venture Agreement, files for bankruptcy protection (voluntary or involuntary), becomes insolvent or is subject to a change of control, the other party shall be entitled to purchase its shares in the Joint Venture at a price to be determined by an independent expert.
	10.	If Joint Venture is wound up, the parties will endeavor to ensure that assets contributed by each party will, so far as possible, be transferred back to that party.
	11.	Lahva and each shareholder have the right of first refusal in the event the other shareholder has received a bona fide offer to purchase its Lahva equity stake.
	12.	USH and M&M have a right of first refusal upon the Lahva's sale of securities.
	13.	At any time during the term of the Joint Venture Agreement, M&M has the right and option to purchase all, but not less than all, USH's equity stake in the Joint Venture. The purchase price shall be equal to the USH's pro rata portion of three times Joint Venture's EBITDA (as determined by the auditors of the Joint Venture) for the prior 12 months and shall be paid at the closing.

Consignment Agreement with Rhino Workwear USA, Ltd.

On September 28, 2015, the Company, though USH, entered into that certain Consignment Agreement, dated September 28, 2015 (the "Consignment Agreement"), between USH and Rhino Workwear USA, Ltd. ("Rhino"), a Nevada corporation engaged in the business of designing, manufacturing, marketing and distributing workwear apparel and other accessories for the workwear industry ("Products").

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The following is a summary of the Consignment Agreement:

	1.	USH has the exclusive right to sell the Products in the U.S., its possessions and territories (the "Territory") for a period of eighteen (18) months commencing from the date of the Consignment Agreement, and has agreed to devote its best commercial efforts to sell the Products in the Territory.
	2.	Rhino shall supply to USH such quantity of Products, in Rhino's reasonable discretion, necessary to adequately service the Territory. Models and versions of Products are to be defined by Rhino.
	3.	Rhino shall provide Products to USH on consignment; i.e. All Products shall remain the property of Rhino sold by USH and payment for a Product shall be made to Rhino only when USH has sold such Product.
	4.	USH agrees to sell the Products as per the Rhino approved Products price list. USH agrees to execute a marketing program throughout the Territory for the Products as per the Rhino approved marketing program and marketing budget to be agreed upon in writing as per a marketing agreement to be finalized between the Parties within 90 days of the date of the Consignment Agreement.
	5.	USH shall furnish Rhino with bi-monthly statements on the 1st and 15th of each month indicating a detailed list of all sales transactions during the preceding weeks, and the status of current inventory on the last day of the preceding month (with sufficient detail to show sales by item, including the date of sale, the sales price and customer name) along with a detailed accounting of all receivables for all sales.
	6.	With the bi-monthly statement detailed above, USH shall remit payment to Rhino for Products which have been paid for by customers during the previous weeks. The payment to Rhino shall be the amount referenced on the invoices to USH from Rhino for the particular Products sold.

	7.	Failure to pay a single installment renders all debts immediately payable, even if their due date has not yet occurred. Interest on arrears applies as of right at the highest rate permitted by law per month of delay, up until complete payment of all amounts due.
	8.	Rhino reserves the right to modify its prices at any time upon thirty (30) days written notice to USH. In turn, USH has the right to modify the sales price to the dealer.
	9.	The Consignment Agreement shall expire and terminate eighteen (18) months from the effective date of the Consignment Agreement. Ninety (90) days prior to the expiration of the term of the Consignment Agreement, USH and Rhino have agreed to make good faith efforts to discuss extension of the term of the Consignment Agreement.
	10.	Rhino may terminate the Consignment Agreement by written notice to USH if USH breaches any of the terms of the Consignment Agreement and has not remedied such breach within thirty (30) days of receiving notice of such breach by Rhino.

11.

Rhino may immediately terminate the Consignment Agreement upon the occurrence of any of the following circumstances:

		a.	Any change, transfer or attempted transfer by USH or USH affiliates, voluntarily or by operation of law, of the whole or any part of the Consignment Agreement, other than to an affiliate of USH as part of a corporate reorganization or restructuring, or any change in control outside the ordinary course of business without prior written consent of Rhino;
		b.	Knowingly submitting to Rhino any intentional fraudulent statement, application, report, request for issuance of reimbursement, compensation, refund or credit;
		c.	Knowing use by USH of any deceptive or fraudulent practice, whether willful, or intentional, in the sale of any Product;
		d.	Any indictment for any crime or violation of any law by USH which will have an adverse effect on the reputation of USH, USH's operations or Rhino; or any conviction in any court of original jurisdiction of USH for any crime or violation of any law which will adversely and materially affect the conduct of USH operations or will be materially harmful to the goodwill or reputation of Rhino, Products or the Rhino Trademarks;
		e.	USH's entering into any agreement, combination, understanding, conspiracy or contract, oral or written, with any other party with the known purpose of fixing prices of Products;
		f.	USH's abandonment of all of its business operations or failure to maintain a going business;
		g.	Insolvency by any definition of USH; or the commission of any act of bankruptcy; or the existence of facts or circumstances which would require the voluntary commencement by USH or the involuntary commencement against USH of any proceedings under any bankruptcy act or law or under any state insolvency law; or the filing of a petition by or against USH under any bankruptcy or insolvency law; or the appointment of a receiver or other officer having similar powers for USH or USH operations; or any levy under attachment, garnishment or execution or similar process which is not, within ten (10) days, vacated or removed by payment or bonding.

Market Analysis

Apparel Industry

According to the most recent data issued by the US Department of Commerce - Office of Textiles and Apparel http://otexa.trade.gov/ ("OTEXA") on December 31, 2015, US imports of apparel continued to climb in 2015, reaching almost $84.9 billion (year-end Nov. 2015) for an increase of 3.97% over the previous year. 

As the OTEXA data reflects, the growth of apparel imports into the US is being driven by the lower cost and quality improvements of offshore manufacturing, a relatively strong US dollar, and recent weakness in the Chinese yuan. According to OTEXA, shipments from China, the largest supplier of apparel to the US, were up 1.98% in the last year to $30.44 billion (35.86% of total US apparel imports). Other major manufacturers and exporters of apparel to the US are Vietnam (12.34%), Bangladesh (6.3%), Indonesia (5.78%), India (4.3%), and Mexico (4.24%).

US Highland requiresbelieves it is well-positioned to take advantage of this growth trend in apparel and other imports that it expects to create numerous new business opportunities for the servicesCompany and its joint venture, Lahva, Inc., as it believes in an ongoing trend of many US companies choosing to partner with sourcing specialists to cost effectively manage their production in low-cost foreign manufacturing subcontractors, as is typical for the industry.centers. Sourcing specialists breakdown cultural and geographic barriers between US apparel firms and international factories, providing a competitive advantage to U.S. apparel firms by reducing production cost and facilitating production of simple to complex designs.

Lahva, Inc., 40% owned by US Highland, is currently operating from a single location in Tulsa, Oklahoma located at 1411 N. 105^th East Avenue in the Pine Industrial complex just southeastsourcing joint-venture with M&M Sourcing Sdn Bhd, an established Malaysian apparel sourcing consortium. Lahva provides customers with end-to-end sourcing of the Tulsa International Airport.apparel supply chain. This strategy includes overseeing the entire process, including design, raw material acquisition, garment construction, packaging, shipping, distribution/warehousing, delivery to retail, and consumer purchase. Lahva also utilizes its resources to incubate and support emerging apparel brands.

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.

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- Road Shows. US Highland will utilize road shows to promote its entire line of engines and its brand.

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- Media Promotions. US Highland will fully employ both traditional and innovative marketing venues to advertise, promote, and drive US Highland brand awareness utilizing the following:

- 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 60̊ 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.Powersports Industry

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’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

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”, 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 BY US HIGHLAND” on December 19, 2011 and “AMERICAN MADE 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]

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.  Intellectual Property

US Highland will seeowns the benefit of working all 3 sales channels (consumer direct, wholesaleintellectual property corresponding to the 350cc, 450cc, 507cc, 750cc, 950cc engines and OEM)was granted limited intellectual property rights to lower parts pricesan 1150cc engine by Folan AB. The 1150cc is limited to the right to modify, manufacture 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.sell the 1150cc engine into the flat bottom boat market exclusively in the United States. US Highland has established relationships with many wholesale builders.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", which is the subject of U. S. Trademark Registration No. 2,362,734 which was issued on June 27, 2000. US Highland has an aggressive digital media strategy aimed at the direct consumer.  Product can be directly purchasedalso applied on December 20, 2011 for two additional US Registered Trademarks, "POWERED BY US HIGHLAND" on December 19, 2011 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,"AMERICAN MADE PERFORMANCE". Currently, US Highland is often perceived by other manufacturers as an engine supplier rather than a competitor.no longer seeking trademark registration for "POWERED BY US HIGHLAND" and "AMERICAN MADE PERFORMANCE".

Strategic LocationNumber Of Total Employees And Number Of Full-Time Employees.

Tulsa, Oklahoma

We have strategically locatedAt December 31, 2015, we had a total of two full-time employees. Our President, Kevin Malone works part-time on the manufacturing and distribution portionsaffairs of the Company. Our Interim Chief Financial Officer, Deborah E. Engles works on as needed basis for the Company

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Description of Properties

The Company's 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 onmailing address is 5930 Royal Lane, Suite E211, Dallas, TX 75230. The Company also maintains a contract for services basis includingcorporate website at www.ushighland.com, the contents of which are not incorporated by reference herein.

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:(www.mic.org)

- 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” 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’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.

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

As a "smaller reporting company," as defined by Item 10 of Regulation S-K, we are not required to a smaller reporting company.provide the information required by this item of Form 10-K.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

None.

ITEM 2. PROPERTY

The registrant's principle executive and manufacturing offices are located at 1411 N. 105^th East Avenue, Tulsa, OK 74116.Company currently has no ownership or leases of property. The registrant'sCompany's business mailing address is 5930 Royal Lane, Suite E211, Dallas, TX 75230. The Company's primary phone number is 918-895-8300. 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 maintenance918-558-1358.

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